AGCO Reports Third Quarter Results; Adjusted Earnings Per Share Increases 67% Over 2003 Net Sales Increases 52%.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 designer, manufacturer and distributor of agricultural equipment, reported earnings per share of $0.38 per share for the third quarter ended September September: see month. 30, 2004. Adjusted earnings per share, 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 restricted stock compensation, was $0.40 per share for the third quarter of 2004. These results compare to reported earnings per share of $0.22 per share and adjusted earnings per share of $0.24 per share for the third quarter of 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 third quarter of 2004 increased approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 52% over the third quarter of 2003. For the first nine months of 2004, AGCO reported earnings per share of $1.27 per share and adjusted earnings per share of $1.32 per share. These results compare to earnings per share of $0.59 per share and adjusted earnings per share of $0.85 per share for the first nine months of 2003. Net sales for the first nine months of 2004 increased approximately 52% over the same period in 2003. "AGCO continues to demonstrate improved results in 2004," stated Martin Richenhagen, AGCO's President and Chief Executive Officer. "Stronger markets in North and 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. and productivity improvements in our factories contributed to our strong results. We expect these trends to continue; however, softer than expected market conditions in key European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. markets and rising steel costs will be challenges for the balance of the year. We are pleased to have exceeded all of last year's annual earnings in just the first nine months of 2004." Third Quarter and First Nine Months Results For the third quarter of 2004, AGCO reported net sales of $1,216.5 million and net income of $34.8 million, or $0.38 per share. Adjusted net income, excluding restructuring and other infrequent expenses and restricted stock compensation, was $36.6 million, or $0.40 per share. For the third quarter of 2003, AGCO reported net sales of $800.3 million and net income of $16.5 million, or $0.22 per share. Adjusted net income, excluding restructuring and other infrequent expenses and restricted stock compensation, in the third quarter of 2003 was $18.0 million, or $0.24 per share. The improvement in earnings per share was achieved with a 20% increase in weighted average shares outstanding. 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 September 30, 2004 and 2003:
2004 2003
------------------------- ----------------------------
(in millions, except per share data)
Earnings Earnings
Operating Net Per Operating Net Per
Income Income(1) Share(1) Income Income(1) Share(1)
-------- --------- ------- -------- --------- --------
As adjusted $73.7 $36.6 $0.40 $41.4 $18.0 $0.24
Restructuring
and other
infrequent
expenses (2) 1.7 1.7 0.02 1.6 1.2 0.02
Restricted stock
compensation 0.1 0.1 -- 0.3 0.3 --
-------- --------- ------- -------- --------- --------
As reported $71.9 $34.8 $0.38 $39.5 $16.5 $0.22
======== ========= ======= ======== ========= ========
(1) Net income and earnings per share amounts are after tax.
(2) The restructuring and other infrequent expenses recorded in the
third quarter of 2004 relate primarily to a $1.7 million charge
($1.7 million after-tax) associated with the rationalization of
the Company's Randers, Denmark combine manufacturing operations
announced in July 2004. The Company did not record a tax benefit
associated with the charges relating to the Randers
rationalization. The restructuring and other infrequent expenses
in the third quarter of 2003 relate primarily to the closure of
the Coventry, England and DeKalb, Illinois facilities as well as
other European rationalization initiatives. See footnote 3 to the
condensed consolidated financial statements for further
explanation.
For the first nine months of 2004, AGCO reported net sales of $3,739.2 million and net income of $108.1 million, or $1.27 per share. Adjusted net income, excluding restructuring and other infrequent expenses and restricted stock compensation, was $112.2 million, or $1.32 per share. For the first nine months of 2003, AGCO reported net sales of $2,460.2 million and net income of $44.6 million, or $0.59 per share. Adjusted net income, excluding restructuring expenses and other infrequent expenses and restricted stock compensation, for the first nine months of 2003 was $64.2 million, or $0.85 per share. The increase in earnings per share was achieved with a 13% increase in weighted average shares outstanding. 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 nine months ended September 30, 2004 and 2003:
2004 2003
-------------------------- ---------------------------
(in millions, except per share data)
Earnings Earnings
Operating Net Per Operating Net Per
Income Income(1) Share(1) Income Income(1) Share(1)
-------- --------- ------- -------- --------- --------
As adjusted $235.7 $112.2 $1.32 $148.3 $64.2 $0.85
Restructuring
and other
infrequent
expenses(2) 1.1 3.7 0.04 27.8 19.1 0.25
Restricted stock
compensation 0.4 0.4 0.01 0.5 0.5 0.01
-------- --------- ------- -------- --------- --------
As reported $234.2 $108.1 $1.27 $120.0 $44.6 $0.59
======== ========= ======= ======== ========= ========
(1) Net income and earnings per share amounts are after tax.
(2) The restructuring and other infrequent expenses recorded in the
first nine months of 2004 relate primarily to the first quarter
gain on the sale of the Company's Coventry, England facility of
$6.9 million on a pre-tax basis ($4.8 million after-tax) and a
second quarter $2.0 million gain on a pre-tax basis ($1.4 million
after-tax) on the sale of machinery and equipment and reserve
reversals related to the Coventry closure in 2003 offset by the
second quarter $8.0 million pre-tax write-down ($8.0 million
after-tax) of property, plant and equipment associated with the
rationalization of the Randers, Denmark combine manufacturing
operations announced in July 2004. The Company also recorded a
$1.7 million severance cost charge ($1.7 million after-tax) in the
third quarter of 2004 associated with the Randers rationalization.
The Company did not record a tax benefit associated with the
charges relating to the Randers rationalization. The restructuring
and other infrequent expenses in the first nine months of 2003
relate primarily to the closure of the Coventry, England and
DeKalb, Illinois facilities as well as other European
rationalization initiatives. See footnote 3 to the condensed
consolidated financial statements for further explanation.
AGCO's net sales increased 52% in both the third quarter and the first nine months of 2004 primarily due to the acquisition of 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. in January January: see month. 2004, sales growth in key geographical segments and positive currency translation impacts. Excluding Valtra, which generated net sales of approximately $219.4 million in the third quarter, and the impact of currency translation, net sales increased approximately 19% for the third quarter of 2004. Excluding Valtra, which generated net sales of approximately $725.4 million in the first nine months of 2004, the consolidation of the GIMA transmission joint venture and the impact of currency translation, net sales increased approximately 14% for the first nine months compared to 2003. In North and South America, stronger end markets resulted in significant sales increases while new products and improved product availability 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). fueled sales growth. Adjusted operating income in 2004 increased $32.3 million in the third quarter and $87.4 million for the first nine months compared to 2003, with the increases primarily relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the contribution of Valtra, higher sales volumes and improved margins. AGCO's adjusted operating income was also negatively impacted by additional non-cash amortization of purchased intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. resulting from the Valtra acquisition of $3.4 million for the third quarter and $10.4 million for the first nine months. Reported operating income in 2004 also increased compared to 2003 due to lower restructuring and other infrequent expenses in 2004. Operating income in AGCO's South America operations increased $16.6 million in the third quarter and $64.2 million in the first nine months. Favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. market conditions and production efficiencies continue to support sales and margin improvements in the region. In addition, the increase in operating income reflects strong contributions from Valtra's South America operations. In the Europe/Africa/Middle East region, operating income in 2004 increased $20.0 million in the third quarter and $35.8 million for first nine months. The results in 2004 reflect the contribution of Valtra as well as the impact of higher sales volume, productivity improvements achieved in AGCO's European manufacturing facilities and currency translation benefits. Operating income 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. was $1.8 million higher for the third quarter and $2.4 million lower for the first nine months of 2004. The impact of higher sales volume achieved in North America continues to be offset by reduced margins due to the impact of the strong Euro on products sourced from European production facilities and higher steel costs. In the Asia/Pacific region, AGCO's operating income in 2004 increased $0.7 million for the third quarter and $9.6 million for the first nine months primarily resulting from improved product availability and favorable conditions in key markets. Regional Market Results North America - Industry unit retail sales of tractors for the first nine months of 2004 increased approximately 11% over the comparable prior year period resulting from increases in all 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. segments, with the largest growth in high-horsepower equipment. Industry unit retail sales of combines were approximately 39% higher than the prior year. AGCO's unit retail sales of tractors and combines were also higher in the first nine months of 2004 over 2003. Western Europe - Industry unit retail sales of tractors for the first nine months of 2004 increased approximately 3% over the comparable prior year period. Retail demand improved in France, 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. but has remained relatively flat or down 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). , 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. 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. . Including the impact of Valtra sales in both periods, AGCO's unit retail sales for the first nine months of 2004 also increased when compared to the prior year period. South America - Industry unit retail sales of tractors for the first nine months of 2004 increased approximately 13% over the prior year period. Tractor demand remained strong in 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 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 unit sales unit sales Sales measured in terms of physical units rather than dollars. Unit sales data are often used by financial analysts when evaluating the health of a company. of combines for the nine months of 2004 were approximately 23% 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 nine months 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 nine months of 2004, excluding Valtra, were approximately 2% below 2003 due to lower sales in the Middle East. "We expect market conditions to remain strong in North and South America for the balance of the year," stated Mr. Richenhagen. "Record harvests and strong yields should result in a strong upturn in North America equipment demand. In South America, demand remains strong in Brazil and has recovered in Argentina, and we continue to benefit from our leading market position in this increasingly important agricultural region. In Western Europe, market conditions remain mixed. While the harvest results were generally improved in 2004, demand in some of our key markets, including Germany, is expected to remain flat to slightly down. In addition, we continue to be pleased with the response to our new products introduced during the year and believe that our product and common platform development will create significant opportunities in the future." Outlook Fourth quarter results for 2004 are expected to improve over 2003 due to benefits from continued sales and productivity improvements, partially offset by the impact of higher steel costs. For the fourth quarter of 2004, AGCO expects to improve adjusted earnings per share by approximately 10% to 20% over 2003. Adjusted earnings per share for the fourth quarter of 2003 was $0.40 per share. Reported earnings per share for the fourth quarter of 2004 is expected to be approximately 5% to 15% higher than the $0.39 per share reported in 2003. For the full year of 2004, AGCO expects adjusted earnings per share to increase by approximately 40% to 45% over 2003 from the achievement of sales growth and margin improvement. Adjusted earnings per share in 2003 was $1.25 per share. Reported earnings per share is expected to increase by approximately 65% to 75% above the $0.98 per share reported in 2003 due to the reduction of restructuring and other infrequent expenses incurred in 2003 related to plant closures. AGCO expects net sales for the full year 2004 to be approximately 45% above 2003 primarily due to the addition of Valtra, improved market conditions and the impact of currency translation. The earnings per share outlook for the fourth quarter and for the full year of 2004 excludes the impact of the expected adoption of a new accounting rule related to the treatment of contingently convertible debt in the calculation of 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 . (See footnote Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." 9 to the 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 for more information.) This rule change will have no impact on AGCO's 2004 operating results or net income, but requires a revised method of calculating diluted earnings per share. Upon the anticipated adoption in the fourth quarter of 2004, the expected impact of this rule change will result in a reduction to diluted earnings per share for the full year and fourth quarter of 2004 of approximately 8%. 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 sales, earnings, market conditions and our business plans 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 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, 2003 and its Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. dated June June: see month. 2, 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 Wednesday Wednesday: see week. , October October: see month. 27, 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, 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 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), Fieldstar(R), Gleaner(R), Glencoe Glencoe, valley, Scotland Glencoe (glĕnkō`), valley of the Coe River, Highland, W Scotland. It was the scene of the massacre of the Macdonald clan (Feb. (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 n. 1. A knot; a tie. 2. (Naut.) A chain or rope, one end of which passes through the mast, and is made fast to the center of a yard; the other end is attached to a tackle, by means of which the yard is hoisted or lowered. 3. (R), Valtra(R), White(TM), and Willmar Willmar (wĭl`mär), city (1990 pop. 17,531), seat of Kandiyohi co., central Minn.; settled 1856, inc. as a city 1901. It is a railroad division point and a shipping center for grain and livestock. (R). AGCO provides retail financing through AGCO Finance in North America and through Agricredit in 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. , the United Kingdom, France, Germany, 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 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)
September 30, December 31,
2004 2003
-------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 68.2 $ 147.0
Accounts and notes receivable, net 803.4 553.6
Inventories, net 1,110.9 803.6
Other current assets 227.5 180.3
----------- -----------
Total current assets 2,210.0 1,684.5
Property, plant and equipment, net 545.4 434.2
Investment in affiliates 108.9 91.6
Deferred tax assets 141.9 147.5
Other assets 69.5 63.8
Intangible assets, net 229.9 86.1
Goodwill 685.7 331.7
----------- -----------
Total assets $ 3,991.3 $ 2,839.4
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 6.6 $ 2.2
Accounts payable 543.4 393.2
Accrued expenses 611.0 490.2
Other current liabilities 51.0 43.5
----------- -----------
Total current liabilities 1,212.0 929.1
Long-term debt, less current portion 1,120.9 711.1
Pensions and postretirement health care
benefits 215.6 197.5
Other noncurrent liabilities 127.5 95.6
----------- -----------
Total liabilities 2,676.0 1,933.3
----------- -----------
Stockholders' Equity:
Common stock 0.9 0.8
Additional paid-in capital 891.9 590.3
Retained earnings 743.1 635.0
Unearned compensation (0.3) (0.5)
Accumulated other comprehensive loss (320.3) (319.5)
----------- -----------
Total stockholders' equity 1,315.3 906.1
----------- -----------
Total liabilities and stockholders'
equity $ 3,991.3 $ 2,839.4
=========== ===========
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 consolidated financial statements.
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in millions, except per share data)
Three Months Ended
September 30,
--------------------
2004 2003
-------- --------
Net sales $1,216.5 $ 800.3
Cost of goods sold 989.9 657.8
-------- --------
Gross profit 226.6 142.5
Selling, general and administrative expenses 122.7 82.6
Engineering expenses 26.3 18.0
Restricted stock compensation expense 0.1 0.3
Restructuring and other infrequent expenses 1.7 1.6
Amortization of intangibles 3.9 0.5
-------- --------
Income from operations 71.9 39.5
Interest expense, net 16.4 15.6
Other expense, net 7.0 4.6
-------- --------
Income before income taxes and equity in net
earnings of affiliates 48.5 19.3
Income tax provision 18.6 8.1
-------- --------
Income before equity in net earnings of affiliates 29.9 11.2
Equity in net earnings of affiliates 4.9 5.3
-------- --------
Net income $ 34.8 $ 16.5
======== ========
Net income per common share:
Basic $ 0.39 $ 0.22
======== ========
Diluted $ 0.38 $ 0.22
======== ========
Weighted average number of common and common
equivalent shares outstanding:
Basic 90.2 75.2
======== ========
Diluted 90.6 75.7
======== ========
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)
Nine Months Ended
September 30,
------------------
2004 2003
-------- --------
Net sales $3,739.2 $2,460.2
Cost of goods sold 3,051.1 2,019.7
-------- --------
Gross profit 688.1 440.5
Selling, general and administrative expenses 363.3 239.6
Engineering expenses 77.4 51.3
Restricted stock compensation expense 0.4 0.5
Restructuring and other infrequent expenses 1.1 27.8
Amortization of intangibles 11.7 1.3
-------- --------
Income from operations 234.2 120.0
Interest expense, net 61.8 45.7
Other expense, net 15.5 19.2
-------- --------
Income before income taxes and equity in net
earnings of affiliates 156.9 55.1
Income tax provision 63.6 24.9
-------- --------
Income before equity in net earnings of affiliates 93.3 30.2
Equity in net earnings of affiliates 14.8 14.4
-------- --------
Net income $ 108.1 $ 44.6
======== ========
Net income per common share:
Basic $ 1.27 $ 0.59
======== ========
Diluted $ 1.27 $ 0.59
======== ========
Weighted average number of common and common
equivalent shares outstanding:
Basic 84.9 75.1
======== ========
Diluted 85.3 75.6
======== ========
See accompanying notes to condensed consolidated financial statements.
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in millions)
Nine Months Ended
September 30,
---------------
2004 2003
------- -------
Cash flows from operating activities:
Net income $ 108.1 $ 44.6
------- -------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 62.2 43.4
Deferred debt issuance cost amortization 11.7 2.9
Amortization of intangibles 11.7 1.3
Restricted stock compensation 0.3 0.3
Equity in net earnings of affiliates, net of
cash received (7.2) (6.8)
Deferred income tax expense/(benefit) 5.3 (3.5)
Gain on sale of property, plant and equipment (7.9) --
Write-down/(recoveries) of property, plant and
equipment 8.0 (0.3)
Changes in operating assets and liabilities, net
of effects
from purchase of businesses:
Accounts and notes receivable, net (100.4) 13.2
Inventories, net (157.5) (118.6)
Other current and noncurrent assets (27.5) (33.1)
Accounts payable 73.7 (49.3)
Accrued expenses 44.7 (39.6)
Other current and noncurrent liabilities (5.0) 12.9
------- -------
Total adjustments (87.9) (177.2)
------- -------
Net cash provided by (used in) operating
activities 20.2 (132.6)
------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (46.8) (48.0)
Proceeds from sales of property, plant and
equipment 39.8 9.4
(Purchase)/sale of businesses, net of cash
acquired (766.3) 1.0
Proceeds from sale of unconsolidated affiliate 0.2 --
------- -------
Net cash used in investing activities (773.1) (37.6)
------- -------
Cash flows from financing activities:
Proceeds from debt obligations, net 393.0 161.4
Payment of debt issuance costs (20.9) (2.9)
Proceeds from issuance of common stock 301.7 2.4
------- -------
Net cash provided by financing activities 673.8 160.9
------- -------
Effect of exchange rate changes on cash and cash
equivalents 0.3 2.2
------- -------
Decrease in cash and cash equivalents (78.8) (7.1)
Cash and cash equivalents, beginning of period 147.0 34.3
------- -------
Cash and cash equivalents, end of period $ 68.2 $ 27.2
======= =======
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 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. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting 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 and our Form 8-K dated June 2, 2004. 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 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. 606.1 million, net of approximately EUR 19.8 million cash acquired (approximately $760 million, net). Valtra is a global tractor and 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. engine manufacturer in the Nordic region of 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 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. . 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 StandardsSFAS 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 $357.7 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 cash purchase price of Valtra through the issuance of $201.3 million principal amount of convertible senior subordinated Subordinated A claim ranked lower in priority than other claims. Common stock claims are always subordinated to debt. 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 On July July: see month. 2, 2004, the Company announced and initiated a plan related to the restructuring of its European combine manufacturing operations Manufacturing operations concern the operation of a facility, as opposed to maintenance, supply and distribution, health, and safety, emergency response, human resources, security, information technology and other infrastructural support organizations. located in Randers Randers (rä`nərs), city (1992 pop. 55,358), Århus co., N central Denmark, a seaport at the mouth of the Gudenå River in the Randers Fjord (an arm of the Kattegat). It is a commercial and industrial center and a rail junction. , Denmark Denmark (dĕn`märk), Dan. Danmark, officially Kingdom of Denmark, kingdom (2005 est. pop. 5,432,000), 16,629 sq mi (43,069 sq km), N Europe. , to include the elimination of the facility's component manufacturing operations, as well as the rationalization of the combine model range to be assembled as·sem·ble v. as·sem·bled, as·sem·bling, as·sem·bles v.tr. 1. To bring or call together into a group or whole: assembled the jury. 2. in Randers. The components of the restructuring expenses are summarized in the following table:
Write-down
of
Property, Employee
Plant and Employee Retention
Equipment Severance Payments Total
---------- --------- ---------- -------
Second quarter 2004 provision $8.0 $-- $-- $8.0
Less: Non-cash expense 8.0 -- -- 8.0
---------- --------- ---------- -------
Cash expense -- -- -- --
Second quarter 2004 cash
activity -- -- -- --
---------- --------- ---------- -------
Balances as of
June 30, 2004 -- -- -- --
---------- --------- ---------- -------
Third quarter 2004 provision -- 0.7 1.0 1.7
Third quarter 2004 cash
activity -- -- (0.2) (0.2)
---------- --------- ---------- -------
Balances as of
September 30, 2004 $-- $0.7 $0.8 $1.5
========== ========= ========== =======
In connection with the restructuring plan, the Company recorded approximately $8.0 million of restructuring and other infrequent expenses in the second quarter of 2004. The amount recorded represented 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. and 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 certain property, plant and equipment within the component manufacturing operation, which was based upon 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 machinery, equipment and tooling will be disposed dis·pose v. dis·posed, dis·pos·ing, dis·pos·es v.tr. 1. To place or set in a particular order; arrange. 2. of or marketed for sale after the facility's component manufacturing production ceases. The land and buildings will be marketed for sale. The restructuring plan resulted in the termination of 298 employees, as well as the elimination of a majority of square footage utilized in the facility. The Company completed negotiating the terms of such terminations with local authorities and employee representatives during the third quarter of 2004 and recorded approximately $1.7 million of 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 and employee retention payments. As of September 30, 2004, 20 of the 298 employees had been terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: . The employee retention payments relate to incentives paid to Randers employees who will 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 Company has also recorded approximately $5.8 million of inventory reserves, reflected in costs of goods sold, during the nine months ended September 30, 2004, related to inventory that was identified as obsolete OBSOLETE. This term is applied to those laws which have lost their efficacy, without being repealed, 2. A positive statute, unrepealed, can never be repealed by non-user alone. 4 Yeates, Rep. 181; Id. 215; 1 Browne's Rep. Appx. 28; 13 Serg. & Rawle, 447. as a result of the rationalization. The $1.5 million of restructuring costs accrued at September 30, 2004 are expected to be incurred during 2004 and 2005. During 2002, the Company announced and initiated a restructuring plan related to the closure of its tractor manufacturing facility in 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. 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 Beauvais (bōvā`), town (1990 pop. 56,278), capital of Oise dept., N France. Tractors, ceramic tiles, textiles, and musical instruments are among its many manufactures. , France and Canoas Ca·no·as A city of southern Brazil, a suburb of Pôrto Alegre. Population: 326,000. , 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
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
---------- --------- ---------- -------- -------
Second quarter 2004
provision reversal -- -- (0.2) (0.4) (0.6)
Second quarter 2004
cash activity -- (0.2) (0.5) (0.3) (1.0)
Foreign currency
translation -- -- -- 0.1 0.1
---------- --------- ---------- -------- -------
Balances as of
June 30, 2004 -- -- 0.5 0.6 1.1
---------- --------- ---------- -------- -------
Third quarter 2004
provision reversal -- -- (0.1) -- (0.1)
Third quarter 2004
cash activity -- -- -- (0.1) (0.1)
---------- --------- ---------- -------- -------
Balances as of
September 30, 2004 $-- $-- $0.4 $0.5 $0.9
========== ========= ========== ======== =======
The write-down of property, plant and equipment represents the impairment of machinery and equipment resulting from the facility closure and was based on the estimated fair value of the assets compared to their carrying value. The estimated fair value of the equipment was determined based on current conditions in the market. The severance costs relate to the termination of 1,049 employees. As of September 30, 2004, 1,042 employees have been terminated. The employee retention payments relate to incentives paid to Coventry employees who remain employed until certain future termination dates and are accrued over the term of the retention period. The facility closure costs include certain noncancelable operating lease 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 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: 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 $41.0 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 received on January 30, 2005. In the second and third quarters of 2004, the Company reversed approximately $0.6 million and $0.1 million of provisions, respectively, related to the restructuring that had been previously established. The reversals were necessary to adequately reflect more accurate estimates of remaining obligations related to retention payments, lease termination payouts and other exit costs, as some employees have been redeployed or have been terminated earlier than estimated, and as some supplier and rental contracts have been finalized See finalization. and terminated earlier than anticipated. In addition, the Company completed the auctions of remaining machinery and equipment, as well as finalized the sale of the facility (and associated selling costs) during the second quarter of 2004, and recorded an additional $1.4 million in net gains related to such actions. The net gains were reflected in "Restructuring and other infrequent expenses" in the Company's Consolidated Statements of Operations. The $0.9 million of restructuring costs accrued at September 30, 2004 are expected to be incurred during 2004. In October 2002, the Company applied to the High Court in London London, city, Canada London, city (1991 pop. 303,165), SE Ont., Canada, on the Thames River. The site was chosen in 1792 by Governor Simcoe to be the capital of Upper Canada, but York was made capital instead. London was settled in 1826. , 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 Pound7.5 million ($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 Kempten (kĕmp`tən), city (1994 pop. 61,700), Bavaria, S central Germany, on the Iller River, in the Allgäu. It is the center of a dairying region and is widely known for its cheeses. and Marktoberdorf Marktoberdorf is the capital of the Bavarian district of Ostallgäu in the Regierungsbezirk of Swabia. Marktoberdorf is near Kempten, Füssen, known for the castle Neuschwanstein, Bad Wörishofen, and Schongau. , Germany, as well as a European combine engineering rationalization that was initiated during 2003. During the nine months ended September 30, 2004, the Company recorded $0.2 million of restructuring and other infrequent expenses associated with these European rationalization initiatives, as well as $0.2 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. Of the $5.0 million of total costs, approximately $4.0 million relate to severance costs associated with the termination of approximately 215 employees in total. At September 30, 2004, a total of approximately $4.3 million of expenses had been incurred and paid. The remaining accrued balance of $0.7 million as of September 30, 2004 is expected to be incurred during 2004. 4. GOODWILL AND OTHER INTANGIBLE ASSETS The Company's acquired intangible assets are as follows:
September 30, 2004 December 31, 2003
---------------------- -----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amounts Amortization Amounts Amortization
-------- ------------- --------- -------------
Amortized intangible
assets:
Trademarks and
tradenames $32.8 $(3.4) $31.8 $(2.5)
Customer relationships 75.7 (6.9) 3.5 (1.0)
Patents and technology 47.3 (5.5) 1.1 (0.2)
-------- ------------- --------- -------------
Total $155.8 $(15.8) $36.4 $(3.7)
======== ============= ========= =============
Unamortized intangible
assets:
Trademarks $89.9 $53.4
======== =========
Changes in the carrying amount of goodwill during the nine months ended September 30, 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 -- 70.3 287.4 357.7
Foreign currency
translation -- 1.2 (4.9) (3.7)
------- ------- -------------- ------------
Balance as of September
30, 2004 $165.5 $113.8 $406.4 $685.7
======= ======= ============== ============
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 September 30, 2004 and December 31, 2003:
September 30,December 31,
2004 2003
-------------------------
Credit facility $ 415.6 $ --
1 3/4% Convertible senior subordinated notes
due 2033 201.3 201.3
9 1/2% Senior notes due 2008 250.0 250.0
6 7/8% Senior subordinated notes due 2014 248.7 --
8 1/2% Senior subordinated notes due 2006 -- 249.3
Other long-term debt 11.9 12.7
---------- ----------
1,127.5 713.3
Less: current portion of long-term debt (6.6) (2.2)
---------- ----------
Total long-term debt, less current portion $ 1,120.9 $ 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 March 2008. The maturity date of the revolving credit facility may be 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 is March 2008. The maturity date of the term loans may be extended to June 2009 if the aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. 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 A Bailment or delivery of Personal Property to a creditor as security for a debt or for the performance of an act. Sometimes called bailment, pledges are a form of security to assure that a person will repay a debt or perform an act under contract. 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 re·strict tr.v. re·strict·ed, re·strict·ing, re·stricts To keep or confine within limits. See Synonyms at limit. [Latin restringere, restrict- : re-, , 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 an interim bridge loan facility on January 5, 2004. On April 7, 2004, the bridge loan facility was repaid with proceeds from a common stock offering as described below. 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. On May 24, 2004, the Company used the 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 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 principal amount of 8 1/2% senior subordinated notes. The 6 7/8% senior subordinated notes are 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. 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. COMMON STOCK OFFERING 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. 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. 7. 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 September 30, 2004 and December 31, 2003 were as follows:
September 30, December 31,
2004 2003
------------- ------------
Finished goods $ 502.0 $ 285.3
Repair and replacement parts 295.3 270.2
Work in process, production parts and raw
materials 313.6 248.1
----------- ----------
Inventories, net $ 1,110.9 $ 803.6
=========== ==========
8. 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 September 30, 2004, the Company had accounts receivable securitization facilities in the United States, 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 and Europe totaling approximately $486.8 million. During the second quarter 2004, the Company amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. certain provisions of its United States and Canada receivable securitization facilities including the expansion of the facilities by an additional $30.0 million and $10.0 million, respectively, and to eliminate the ratings triggers in the facilities. At September 30, 2004, these additional amounts had not been utilized. Under the securitization 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 $416.8 million at September 30, 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 were $3.7 million for both the three months ended September 30, 2004 and 2003, and were $11.3 million and $10.8 million for the nine months ended September 30, 2004 and 2003, respectively. 9. RECENT ACCOUNTING PRONOUNCEMENTS The Emerging Issues Task Force ("EITF EITF Emerging Issues Task Force EITF Edinburgh International Television Festival EITF Europe International Taekwon-Do Federation ") recently reached a consensus on EITF Issue No. 04-08 "Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share." 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 has been met. Upon adoption of this rule, approximately 9.0 million additional shares of common stock that may be issued upon conversion of the Company's outstanding 1.75% convertible notes will be included in the diluted earnings per share calculation. In addition, diluted earnings per share is required to be restated for each period that the convertible debt was outstanding. AGCO's convertible notes were issued on December 23, 2003. While the effective date of this rule has not been finalized, the Company currently expects to adopt this rule in the fourth quarter of 2004. Upon the adoption of this rule, the expected impact of this rule change will result in a reduction to diluted earnings per share for the full year and fourth quarter of 2004 of approximately 8%. 10. 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 and nine months ended September 30, 2004 and 2003 are as follows: Three Months Ended North South Europe/Africa Asia/ September 30, America America /Middle East Pacific Consolidated ------------------- ------- ------- ------------- ------- ------------ 2004 Net sales $329.2 $214.2 $622.6 $50.5 $1,216.5 Income from operations 9.0 35.4 33.3 9.3 87.0 2003 Net sales $264.3 $121.7 $368.0 $46.3 $800.3 Income from operations 7.2 18.8 13.3 8.6 47.9 Nine Months Ended North South Europe/Africa Asia/ September 30, America America /Middle East Pacific Consolidated ----------------- --------- ------- ------------- ------- ------------ 2004 Net sales $1,014.0 $602.3 $1,983.6 $139.3 $3,739.2 Income from operations 29.7 103.6 116.1 24.4 273.8 2003 Net sales $838.4 $290.6 $1,238.0 $93.2 $2,460.2 Income from operations 32.1 39.4 80.3 14.8 166.6 A reconciliation from the segment information to the consolidated balances for income from operations is set forth below:
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
2004 2003 2004 2003
----- ----- ------ ------
Segment income from operations $87.0 $47.9 $273.8 $166.6
Corporate expenses (9.4) (6.0) (26.4) (17.0)
Restricted stock compensation expense (0.1) (0.3) (0.4) (0.5)
Restructuring and other infrequent expense (1.7) (1.6) (1.1) (27.8)
Amortization of intangibles (3.9) (0.5) (11.7) (1.3)
----- ----- ------ ------
Consolidated income from operations $71.9 $39.5 $234.2 $120.0
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