AGCO Corporation — FY2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also reports fourth-quarter results. AGCO manufactures and distributes agricultural equipment and replacement parts globally; tractors represented about 68% of 2010 sales. Approximately 83% of net sales came from outside the United States.
Financial results
| Metric | FY2010 | FY2009 |
|---|---|---|
| Net sales | $6,896.6 million | $6,516.4 million |
| Gross profit / gross margin | $1,258.7 million / 18.2% | $1,071.9 million / 16.4% |
| Operating income / margin | $324.2 million / 4.7% | $218.7 million / 3.3% |
| Net income attributable to AGCO | $220.5 million | $135.7 million |
| Diluted EPS | $2.29 | $1.44 |
| Cash from operating activities | $438.7 million | $347.9 million |
Sales rose 5.8%; operating income increased by $105.5 million. Management attributed improved margins to higher volumes, cost controls, factory productivity and product mix, partly offset by increased engineering spending. Q4 sales were $2,168.0 million versus $1,827.2 million; operating income was $142.4 million versus $47.8 million; AGCO-attributable net income was $85.2 million versus $33.5 million; diluted EPS was $0.87 versus $0.35.
Liquidity, debt and capital
- Cash and cash equivalents were $719.9 million; working capital was $1,208.1 million. Current assets were $3,121.0 million and current liabilities $1,912.9 million.
- Operating cash flow was $438.7 million; capital expenditures were $167.1 million. The difference, $271.6 million, is a simple cash-flow-minus-capex measure, not a company-reported free-cash-flow figure.
- At year-end, the company reported total indebtedness of approximately $744.0 million under its stated measure; balance-sheet carrying amounts for current and long-term debt plus securitization facilities totaled $718.0 million. Stockholders’ equity was $2,659.2 million. The debt-to-capitalization ratio was 21.3%.
- The $300 million revolving credit facility had no borrowings and approximately $290.2 million available. European receivables securitization funding was $113.9 million and the facility was due for renewal in October 2011. The company stated that available facilities, cash and internally generated funds should cover foreseeable needs.
- AGCO paid no dividends. It repurchased $37.5 million principal amount of its 1¾% convertible notes for $58.1 million during 2010.
Changes, outlook and risks
- South America was the principal growth driver: sales increased 50.2% to $1,753.3 million, while North American sales rose 3.2%. Europe/Africa/Middle East sales declined 6.6%; Rest of World sales declined 4.7%. Currency translation reduced consolidated sales by approximately $18.8 million.
- Management expected 2011 worldwide industry demand to be flat or modestly higher. AGCO projected higher 2011 sales, targeting gross-margin improvement partly offset by higher product- and market-development costs, and expected net income to be modestly above 2010. Brazil demand could soften from 2010’s record level as government financing programs became less attractive.
- In December 2010 AGCO acquired Sparex, an aftermarket parts distributor, for approximately $81.5 million net of cash acquired. In January 2011 it formed a 50%-owned air-seeding and tillage joint venture with Amity for approximately $30 million. It also agreed to acquire the remaining 50% of Laverda, subject to regulatory approval, with closing expected in Q1 2011.
- Restructuring costs were $4.4 million in 2010. Headcount reductions and facility rationalization were expected to be substantially completed in early 2011; the Randers, Denmark assembly operation had closed, with estimated annual savings of approximately $3 million beginning in 2011.
- Key risks include agricultural cyclicality and seasonality; farm economics, commodity prices and weather; customer/dealer access to credit and receivables collectability; dependence on Rabobank-backed finance joint ventures and government-supported financing programs; foreign exchange exposure; competition; supplier and raw-material cost risks; emissions regulation; unionized labor; and pension funding.
- Unresolved matters include the Brazilian tax dispute over goodwill amortization deductions, approximately $54.6 million before interest and penalties, which AGCO is contesting and believes is unlikely to require payment, and the Iraq Oil-for-Food civil action and related French investigation, whose outcomes and potential impact were not estimable. AGCO also reserved $22.3 million against Brazilian VAT receivables because of collection uncertainty.
- Accounting changes in 2010 led to GIMA’s deconsolidation and recognition of approximately $113.9 million of European securitized receivables with a corresponding liability. Prior periods were restated for GIMA, so reported comparisons and segment presentations should be read with these changes in mind.
Important facts for investors to verify
- Whether 2011 sales, earnings and margin targets were achieved, particularly given weaker European conditions and expected Brazilian demand moderation.
- Renewal and availability terms for the European securitization facility, and continuing access to dealer and retail financing.
- Conversion, repayment and dilution implications of the convertible notes; $60.6 million principal of the 1¾% notes was converted in January and February 2011.
- Developments in the Brazilian tax and VAT matters, the Iraq-related proceedings, and unrecognized tax benefits, which rose to $48.2 million at year-end.
- Cash requirements and funded status of employee benefit plans: pension obligations were underfunded by $184.3 million and postretirement benefits by $28.8 million at year-end.
- Integration and returns from Sparex and the Amity and Laverda transactions, including final purchase accounting and any required regulatory approvals.