AGCO CORP /DE
10-Qs and 10-Ks
PROXIES
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
For the fiscal year ended
December 31, 2018
of
AGCO CORPORATION
A Delaware Corporation
IRS Employer Identification No. 58-1960019
SEC File Number 1-12930
4205 River Green Parkway
Duluth, GA 30096
(770) 813-9200
AGCO Corporation’s Common Stock is registered pursuant to Section 12(b) of the Act and is listed on the New York Stock Exchange.
AGCO Corporation is a well-known seasoned issuer.
AGCO Corporation is required to file reports pursuant to Section 13 or Section 15(d) of the Act. AGCO Corporation (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K will not be contained in a definitive proxy statement, portions of which are incorporated by reference into Part III of this Form 10-K.
AGCO Corporation has submitted electronically every Interactive Data File for the periods required to be submitted pursuant to Rule 405 of Regulation S-T.
The aggregate market value of AGCO Corporation’s Common Stock (based upon the closing sales price quoted on the New York Stock Exchange) held by non-affiliates as of
June 30, 2018
was approximately
$4.0 billion
. For this purpose, directors and officers and the entities that they control have been assumed to be affiliates. As of
February 22, 2019
,
76,512,465
shares of AGCO Corporation’s Common Stock were outstanding.
AGCO Corporation is a large accelerated filer and is not a shell company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of AGCO Corporation’s Proxy Statement for the
2019
Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
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PART I
Item 1.
Business
AGCO Corporation (“AGCO,” “we,” “us,” or the “Company”) was incorporated in Delaware in April 1991. Our executive offices are located at 4205 River Green Parkway, Duluth, Georgia 30096, and our telephone number is (770) 813-9200. Unless otherwise indicated, all references in this Form 10-K to the Company include our subsidiaries.
General
We are a leading manufacturer and distributor of agricultural equipment and related replacement parts throughout the world. We sell a full range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment, seeding and tillage equipment, implements, and grain storage and protein production systems. Our products are widely recognized in the agricultural equipment industry and are marketed under a number of well-known brands, including Challenger
®
, Fendt
®
, GSI
®
, Massey Ferguson
®
and Valtra
®
. We distribute most of our products through approximately
4,050
independent dealers and distributors in approximately 140 countries. In addition, we also provide retail and wholesale financing through our finance joint ventures with Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., which we refer to as “Rabobank.”
Products
The following table sets forth a description of the Company’s products and their percentage of net sales:
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Percentage of Net Sales
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Product
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Product Description
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2018
(1)
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2017
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2016
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|||||||
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Tractors
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•
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High horsepower tractors (100 to 650 horsepower); typically used on large acreage farms, primarily for row crop production, soil cultivation, planting, land leveling, seeding and commercial hay operations.
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57
|
%
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57
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%
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57
|
%
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|||
|
•
|
Utility tractors (40 to 100 horsepower); typically used on small- and medium-sized farms and in specialty agricultural industries, including dairy, livestock, orchards and vineyards
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||||||||||
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•
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Compact tractors (under 40 horsepower); typically used on small farms and specialty agricultural industries, as well as for landscaping, equestrian and residential uses
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||||||||||
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Replacement Parts
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•
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Replacement parts for all of the products we sell, including products no longer in production. Most of our products can be economically maintained with parts and service for a period of ten to 20 years. Our parts inventories are maintained and distributed through a network of master and regional warehouses throughout North America, South America, Europe, Africa, China and Australia in order to provide timely response to customer demand for replacement parts
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14
|
%
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16
|
%
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16
|
%
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|||
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Grain Storage and Protein Production Systems
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•
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Grain storage bins and related drying and handling equipment systems; seed-processing systems; swine and poultry feed storage and delivery, ventilation and watering systems; and egg production systems and broiler production equipment
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10
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%
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13
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%
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12
|
%
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|||
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Hay Tools and Forage Equipment, Implements & Other Equipment
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•
|
Round and rectangular balers, loader wagons, self-propelled windrowers, forage harvesters, disc mowers, spreaders, rakes, tedders, and mower conditioners; used for the harvesting and packaging of vegetative feeds used in the cattle, dairy, horse and renewable fuel industries
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12
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%
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7
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%
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7
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%
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|||
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•
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Implements, including disc harrows, which cut through crop residue, leveling seed beds and mixing chemicals with the soils; heavy tillage, which break up soil and mix crop residue into topsoil, with or without prior discing; field cultivators, which prepare a smooth seed bed and destroy weeds; and drills, which are primarily used for small grain seeding
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•
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Planters and other planting equipment; used to plant seeds and apply fertilizer in the field, typically used for row crops
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•
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Other equipment, including loaders; used for a variety of tasks, including lifting and transporting hay crops
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Combines
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•
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Combines, sold with a variety of threshing technologies and complemented by a variety of crop-harvesting heads; typically used in harvesting grain crops such as corn, wheat, soybeans and rice
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3
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%
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4
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%
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4
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%
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|||
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Application Equipment
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•
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Self-propelled, three- and four-wheeled vehicles and related equipment; for use in the application of liquid and dry fertilizers and crop protection chemicals both prior to planting crops (“pre-emergence”) and after crops emerge from the ground (“post-emergence”)
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3
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%
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3
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%
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4
|
%
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|||
____________________________________
(1) The summation of these individual percentages does not total due to rounding.
1
Marketing and Distribution
We distribute products primarily through a network of independent dealers and distributors. Our dealers are responsible for retail sales of equipment to end users and after-sales service and support. Our distributors may sell our products through networks of dealers supported by the distributors, and our distributors also may directly market our products and provide customer service support. Our sales are not dependent on any specific dealer, distributor or group of dealers.
In some countries, we utilize associates and licensees to provide a distribution channel for our products and a source of low-cost production for certain Massey Ferguson and Valtra products. Associates are entities in which we have an ownership interest, most notably in India. Licensees are entities in which we have no ownership interest. The associate or licensee generally has the exclusive right to produce and sell Massey Ferguson or Valtra equipment in its licensed territory under such tradenames, but may not sell these products outside the licensed territory. We generally license certain technology to these licensees and associates, and we may sell them certain components used in local manufacturing operations.
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Independent Dealers and Distributors
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Percent of Net Sales
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||||||||||
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Geographical region
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2018
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2018
(1)
|
2017
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2016
|
|||||||
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Europe
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1,500
|
57
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%
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53
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%
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53
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%
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||||
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North America
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1,875
|
23
|
%
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23
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%
|
24
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%
|
||||
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South America
|
250
|
10
|
%
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13
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%
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12
|
%
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||||
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Rest of World
(2)
|
425
|
9
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%
|
11
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%
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11
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%
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||||
____________________________________
(1) The summation of these individual percentages does not total due to rounding.
(2) Consists of approximately 57 countries in Africa, the Middle East, Australia and Asia.
Dealer Support and Supervision
We believe that one of the most important criteria affecting a farmer’s decision to purchase a particular brand of equipment is the quality of the dealer who sells and services the equipment. We support our dealers in order to improve the quality of our dealer network. We monitor each dealer’s performance and profitability and establish programs that focus on continuous dealer improvement. Our dealers generally have sales territories for which they are responsible.
We believe that our ability to offer our dealers a full product line of agricultural equipment and related replacement parts, as well as our ongoing dealer training and support programs focusing on business and inventory management, sales, marketing, warranty and servicing matters and products, help ensure the vitality and increase the competitiveness of our dealer network. We also maintain dealer advisory groups to obtain dealer feedback on our operations.
We provide our dealers with volume sales incentives, demonstration programs and other advertising support to assist sales. We design our sales programs, including retail financing incentives, and our policies for maintaining parts and service availability with extensive product warranties, to enhance our dealers’ competitive position.
Manufacturing and Suppliers
Manufacturing and Assembly
We manufacture and assemble our products in 48 locations worldwide, including six locations where we operate joint ventures. Our locations are intended to optimize capacity, technology or local costs. Furthermore, we continue to balance our manufacturing resources with externally-sourced machinery, components and/or replacement parts to enable us to better control costs, inventory levels and our supply of components. We believe that our manufacturing facilities are sufficient to meet our needs for the foreseeable future. Please refer to Item 2, “Properties,” where a listing of our principal manufacturing locations is presented.
Our AGCO Power engines division produces diesel engines, gears and generating sets. The diesel engines are manufactured for use in a portion of our tractors, combines and sprayers, and also are sold to third parties. AGCO Power specializes in the manufacturing of off-road engines in the
75 to 600
horsepower range.
2
Third-Party Suppliers
We externally source some of our machinery, components and replacement parts from third-party suppliers. Our production strategy is intended to optimize our research and development and capital investment requirements and to allow us greater flexibility to respond to changes in market conditions.
We purchase some fully-manufactured tractors from Tractors and Farm Equipment Limited (“TAFE”), Carraro S.p.A. and Iseki & Company, Limited. We also purchase other tractors, implements and hay and forage equipment from various third-party suppliers. Refer to “Related Parties” within Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for further discussion of our relationship with TAFE.
In addition to the purchase of machinery, third-party suppliers supply us with significant components used in our manufacturing operations. We select third-party suppliers that we believe are low cost, high quality and possess the most appropriate technology.
We also assist in the development of these products or component parts based upon our own design requirements. Our past experience with outside suppliers generally has been favorable.
Seasonality
Generally, retail sales by dealers to farmers are highly seasonal and are a function of the timing of the planting and harvesting seasons. To the extent practicable, we attempt to ship products to our dealers and distributors on a level basis throughout the year to reduce the effect of seasonal retail demands on our manufacturing operations and to minimize our investment in inventory. Our financing requirements are subject to variations due to seasonal changes in working capital levels, which typically increase in the first half of the year and then decrease in the second half of the year. The fourth quarter is also typically a period for higher retail sales because of our customers’ year-end tax planning considerations, the increase in the availability of funds from completed harvests and the timing of dealer incentives.
Competition
The agricultural industry is highly competitive. We compete with several large national and international full-line suppliers, as well as numerous short-line and specialty manufacturers with differing manufacturing and marketing methods. Our two principal competitors on a worldwide basis are Deere & Company and CNH Industrial N.V. We have regional competitors around the world that have significant market share in a single country or a group of countries.
We believe several key factors influence a buyer’s choice of farm equipment, including the strength and quality of a company’s dealers, the quality and pricing of products, dealer or brand loyalty, product availability, terms of financing and customer service. See “Marketing and Distribution” for additional information.
Engineering and Research
We make significant expenditures for engineering and applied research to improve the quality and performance of our products, to develop new products and to comply with government safety and engine emissions regulations.
In addition, we also offer a variety of precision farming technologies that provide farmers with the capability to enhance productivity and profitability on the farm. These technologies are installed in our products and include satellite-based steering, field data collection, yield mapping and telemetry-based fleet management systems.
Wholesale Financing
Primarily in the United States and Canada, we engage in the standard industry practice of providing dealers with floor plan payment terms for their inventories of farm equipment for extended periods, generally through our AGCO Finance joint ventures. The terms of our wholesale finance agreements with our dealers vary by region and product line, with fixed payment schedules on all sales, generally ranging from one to 12 months. In the United States and Canada, dealers typically are not required to make an initial down payment, and our terms allow for an interest-free period generally ranging from one to 12 months, depending on the product. Amounts due from sales to dealers in the United States and Canada are immediately due upon a retail sale of the underlying equipment by the dealer, with the exception of sales of grain storage and protein production systems, as discussed further below. If not previously paid by the dealer, installment payments generally are required beginning after the interest-free period with the remaining outstanding equipment balance generally due within 12 months after shipment.
3
In limited circumstances, we provide sales terms, and in some cases, interest-free periods that are longer than 12 months for certain products. These typically are specified programs, predominantly in the United States and Canada, where interest is charged after a period of up to 24 months, depending on the year of the sale and the dealer or distributor ordering or their sales volume during the preceding year. We also provide financing to dealers on used equipment accepted in trade. We generally obtain a security interest in the new and used equipment we finance.
Typically, sales terms outside the United States and Canada are of a shorter duration, generally ranging from 30 to 180 days. In many cases, we retain a security interest in the equipment sold on extended terms. In certain international markets, our sales are generally backed by letters of credit or credit insurance.
Sales of grain storage and protein production systems both in the United States and in other countries generally are payable within 30 days of shipment. In certain countries, sales of such systems for which the Company is responsible for construction or installation may be contingent upon customer acceptance. Payment terms vary by market and product, with fixed payment schedules on all sales.
We have an agreement to permit transferring, on an ongoing basis, a majority of our wholesale receivables in North America, Europe and Brazil to our AGCO Finance joint ventures in the United States, Canada, Europe and Brazil. Upon transfer, the wholesale receivables maintain standard payment terms, including required regular principal payments on amounts outstanding and interest charges at market rates. Qualified dealers may obtain additional financing through our U.S., Canadian, European and Brazilian finance joint ventures at the joint ventures’ discretion. In addition, AGCO Finance joint ventures may provide wholesale financing directly to dealers in Europe, Brazil and Australia.
Retail Financing
Our AGCO Finance joint ventures offer financing to most of the end users of our products. Besides contributing to our overall profitability, the AGCO Finance joint ventures can enhance our sales efforts by tailoring retail finance programs to prevailing market conditions. Our finance joint ventures are located in the United States, Canada, Europe, Brazil, Argentina and Australia and are owned by AGCO and by a wholly-owned subsidiary of Rabobank. Refer to “Finance Joint Ventures” within Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for further information.
In addition, Rabobank is the primary lender with respect to our credit facility and our senior term loan, as are more fully described in “Liquidity and Capital Resources” within Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical relationship with Rabobank has been strong, and we anticipate its continued long-term support of our business.
Intellectual Property
We own and have licenses to the rights under a number of domestic and foreign patents, trademarks, trade names and brand names relating to our products and businesses. We defend our patent, trademark and trade and brand name rights primarily by monitoring competitors’ machines and industry publications and conducting other investigative work. We consider our intellectual property rights, including our right to use our trade and brand names, important in the operation of our businesses. However, we do not believe we are dependent on any single patent, trademark, trade name, brand name or group of patents or trademarks, trade names or brand names. We intend to maintain the separate strengths and identities of our core brand names and product lines.
Environmental Matters and Regulation
We are subject to environmental laws and regulations concerning emissions to the air, discharges of processed or other types of wastewater, and the generation, handling, storage, transportation, treatment and disposal of waste materials. These laws and regulations are constantly changing, and the effects that they may have on us in the future are impossible to predict with accuracy. It is our policy to comply with all applicable environmental, health and safety laws and regulations, and we believe that any expense or liability we may incur in connection with any noncompliance with any law or regulation or the cleanup of any of our properties will not have a materially adverse effect on us.
The engines manufactured by our AGCO Power engine division, which specializes in the manufacturing of non-road engines in the
75 to 600
horsepower range, currently comply with emissions standards and related requirements set by European, Brazilian and U.S. regulatory authorities, including both the United States Environmental Protection Agency and various state authorities. We expect to meet future emissions requirements through the introduction of new technology to our engines and exhaust after-treatment systems, as necessary. In some markets (such as the United States), we must obtain
4
governmental environmental approvals in order to import our products, and these approvals can be difficult or time-consuming to obtain or may not be obtainable at all. For example, our AGCO Power engine division and our engine suppliers are subject to air quality standards, and production at our facilities could be impaired if AGCO Power and these suppliers are unable to timely respond to any changes in environmental laws and regulations affecting engine emissions, including the emissions of greenhouse gases ("GHG"). Compliance with environmental and safety regulations has added, and will continue to add, to the cost of our products and increase the capital-intensive nature of our business.
Climate change, as a result of emissions of GHG, is a significant topic of discussion and may generate U.S. and other regulatory responses. It is impracticable to predict with any certainty the impact on our business of climate change or the regulatory responses to it, although we recognize that they could be significant. The most direct impacts are likely to be an increase in energy costs, which would increase our operating costs (through increased utility and transportation costs) and an increase in the costs of the products we purchase from others. In addition, increased energy costs for our customers could impact demand for our equipment. It is too soon for us to predict with any certainty the ultimate impact of additional regulation, either directionally or quantitatively, on our overall business, results of operations or financial condition.
Regulation and Government Policy
Domestic and foreign political developments and government regulations and policies directly affect the agricultural industry and indirectly affect the agricultural equipment business in the United States and abroad. The application, modification or adoption of laws, regulations or policies could have an adverse effect on our business.
We have manufacturing facilities or other physical presence in approximately 32 countries and sell our products in approximately 140 countries. This subjects us to a range of trade, product, foreign exchange, employment, tax and other laws and regulations, in addition to the environmental regulations discussed previously, in a significant number of jurisdictions. Many jurisdictions and a variety of laws regulate the contractual relationships with our dealers. These laws impose substantive standards on the relationships between us and our dealers, including events of default, grounds for termination, non-renewal of dealer contracts and equipment repurchase requirements. Such laws could adversely affect our ability to terminate our dealers.
In addition, each of the jurisdictions within which we operate or sell products has an important interest in the success of its agricultural industry and the consistency of the availability of reasonably priced food sources. These interests result in active political involvement in the agricultural industry, which, in turn, can impact our business in a variety of ways.
Employees
As of
December 31, 2018
, we employed approximately 21,200 employees, including approximately 4,700 employees in the United States and Canada. A majority of our employees at our manufacturing facilities, both domestic and international, are represented by collective bargaining agreements and union contracts with terms that expire on varying dates. We currently do not expect any significant difficulties in renewing these agreements.
Available Information
Our Internet address is
www.agcocorp.com
. We make the following reports filed by us available, free of charge, on our website under the heading “SEC Filings” in our website’s “Investors” section:
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annual reports on Form 10-K;
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quarterly reports on Form 10-Q;
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current reports on Form 8-K;
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proxy statements for the annual meetings of stockholders;
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reports on Form SD; and
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Forms 3, 4 and 5
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5
These reports are made available on our website as soon as practicable after they are filed with the Securities and Exchange Commission (“SEC”). The SEC also maintains a website (www.sec.gov) that contains our reports and other information filed with the SEC.
We also provide corporate governance and other information on our website. This information includes:
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charters for the standing committees of our board of directors, which are available under the heading “Charters of the Committees of the Board” in the “Governance, Committees, & Charters” section of the “Corporate Governance” section of our website located under “Investors,” and
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our Global Code of Conduct, which is available under the heading “Global Code of Conduct” in the “Corporate Governance” section of our website located under “Investors.”
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In addition, in the event of any waivers of our Global Code of Conduct, those waivers will be available under the heading “Corporate Governance” of our website. None of these materials, including the other materials available on our website, is incorporated by reference into this Form 10-K unless expressly provided.
6
Item 1A.
Risk Factors
We make forward-looking statements in this report, in other materials we file with the SEC or otherwise release to the public and on our website. In addition, our senior management makes forward-looking statements orally to analysts, investors, the media and others. Statements, including the statements contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” concerning our future operations, prospects, strategies, products, manufacturing facilities, legal proceedings, financial condition, financial performance (including growth and earnings) and demand for our products and services, and other statements of our plans, beliefs or expectations, net sales, industry conditions, currency translation impacts, market demand, farm incomes, weather conditions, commodity prices, general economic conditions, availability of financing, working capital, capital expenditures, debt service requirements, margins, production volumes, cost reduction initiatives, investments in product development, compliance with financial covenants, support from lenders, recovery of amounts under guarantee, uncertain income tax provisions, funding of our pension and postretirement benefit plans, or realization of net deferred tax assets, are forward-looking statements. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. These factors include, among others, those set forth below and in the other documents that we file with the SEC. There also are other factors that we may not describe, generally because we currently do not perceive them to be material, or likely to become material, that could cause actual results to differ materially from our expectations.
These risks could impact our business in a number of ways, including by negatively impacting our future results of operations, cash flows and financial condition. For simplicity, below we collectively refer to these impacts as our “performance.”
We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Our financial results depend entirely upon the agricultural industry, and factors that adversely affect the agricultural industry generally, including declines in the general economy, increases in farm input costs, weather conditions, lower commodity prices and changes in the availability of financing for our dealers and their retail customers, will adversely affect us.
Our success depends entirely on the vitality of the agricultural industry. Historically, the agricultural industry has been cyclical and subject to a variety of economic and other factors. Sales of agricultural equipment, in turn, is also cyclical and generally are related to the economic health of the agricultural industry. The health of the agricultural industry is affected by numerous factors, including farm income, farm input costs, land values and debt levels, all of which are influenced by levels of commodity prices, acreage planted, crop yields, agricultural product demand (including crops used as renewable energy sources), government policies and government subsidies. Sales also are influenced by economic conditions, interest rate and exchange rate levels, and the availability of financing for retail customers, including financing subsidies to farmers. Trends in the industry, such as farm consolidations, may affect the agricultural equipment market. In addition, weather conditions, such as floods, heat waves or droughts, and pervasive livestock or crop diseases can affect farmers’ buying decisions. Downturns in the agricultural industry due to these or other factors, which could vary by market, are likely to result in decreases in demand for agricultural equipment, which would adversely affect our sales, growth, results of operations and financial condition. Moreover, the unpredictable nature of many of these factors and the resulting volatility in demand make it difficult for us to accurately predict sales and optimize production. This, in turn, can result in higher costs, including inventory carrying costs and underutilized manufacturing capacity. During previous downturns in the farm sector, we experienced significant and prolonged declines in our performance, and we expect our business to remain subject to similar market fluctuations in the future.
The agricultural equipment industry is highly seasonal, and seasonal fluctuations significantly impact our performance.
The agricultural equipment business is highly seasonal, which causes our quarterly results and our cash flow to fluctuate during the year. Farmers generally purchase agricultural equipment in the Spring and Fall in conjunction with the major planting and harvesting seasons. In addition, the fourth quarter typically is a significant period for retail sales because of year-end tax planning considerations, the increase in availability of funds from completed harvests and the timing of dealer incentives. Our net sales and income from operations historically have been the lowest in the first quarter and have increased in subsequent quarters as dealers anticipate increased retail sales in subsequent quarters.
7
Most of our sales depend on the availability of retail customers obtaining financing, and any disruption in their ability to obtain financing, whether due to economic downturns or otherwise, will result in the sale of fewer products by us. In addition, the collectability of receivables that are created from our sales, as well as from such retail financing, is critical to our business.
Most retail sales of our products are financed, either by AGCO Finance joint ventures or by a bank or other private lender. Our AGCO Finance joint ventures, which are controlled by Rabobank and are dependent upon Rabobank for financing as well, finance approximately 40% to 50% of the retail sales of our tractors and combines in the markets where the joint ventures operate. Any difficulty by Rabobank in continuing to provide that financing, or any business decision by Rabobank as the controlling member not to fund the business or particular aspects of it (for example, a particular country or region), would require the joint ventures to find other sources of financing (which may be difficult to obtain) or would require us to find other sources of retail financing for our dealers and their retail customers, or our dealers and their retail customers would be required to utilize other retail financing providers. In an economic downturn, we expect that financing for capital equipment purchases generally would become more difficult or more expensive to obtain. To the extent that financing is not available, or available only at unattractive prices, our sales would be negatively impacted.
Both AGCO and our AGCO Finance joint ventures have substantial accounts receivable from dealers and retail customers, and we both would be adversely impacted if the collectability of these receivables was not consistent with historical experience. This collectability is dependent on the financial strength of the farm industry, which in turn is dependent upon the general economy and commodity prices, as well as several of the other factors discussed in this “Risk Factors” section. In addition, the AGCO Finance joint ventures may experience credit losses that exceed expectations and adversely affect their financial condition and results of operations. The finance joint ventures may also experience residual value losses that exceed expectations caused by lower pricing for used equipment and higher than expected returns at lease maturity. To the extent that defaults and losses are higher than expected, our equity in the net earnings of the finance joint ventures would be less, or there could be losses, which could materially impact our performance.
Our success depends on the introduction of new products, which requires substantial expenditures.
Our long-term results depend upon our ability to introduce and market new products successfully. The success of our new products will depend on a number of factors, including:
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innovation;
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customer acceptance;
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the efficiency of our suppliers in providing component parts and of our manufacturing facilities in producing final products; and
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the performance and quality of our products relative to those of our competitors.
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As both we and our competitors continuously introduce new products or refine versions of existing products, we cannot predict the level of market acceptance or the amount of market share our new products will achieve. We have experienced delays in the introduction of new products in the past, and we may experience delays in the future. Any delays or other problems with our new product launches will adversely affect our performance. In addition, introducing new products can result in decreases in revenues from our existing products. Consistent with our strategy of offering new products and product refinements, we expect to make substantial investments in product development and refinement. We may need more funding for product development and refinement than is readily available, which could adversely affect our business.
Our expansion plans in emerging markets entail significant risks.
Our strategy includes establishing a greater manufacturing and/or marketing presence in emerging markets such as China, Africa and Russia. In addition, we have been expanding our use of component suppliers in these markets. As we progress with these efforts, it will involve a significant investment of capital and other resources and entail various risks. These include risks attendant to obtaining necessary governmental approvals and the construction of the facilities in a timely manner and within cost estimates, the establishment of supply channels, the commencement of efficient manufacturing operations, and, ultimately, the acceptance of the products by retail customers. While we expect the expansion to be successful, should we encounter difficulties involving these or similar factors, it may not be as successful as we anticipate.
8
We face significant competition, and, if we are unable to compete successfully against other agricultural equipment manufacturers, we will lose dealers and their retail customers and our net sales and profitability will decline.
The agricultural equipment business is highly competitive, particularly in our major markets. Our two key competitors, Deere & Company and CNH Industrial N.V., are substantially larger than we are and have greater financial and other resources. In addition, in some markets, we compete with smaller regional competitors with significant market share in a single country or group of countries. Our competitors may substantially increase the resources devoted to the development and marketing, including discounting, of products that compete with our products. In addition, competitive pressures in the agricultural equipment business may affect the market prices of new and used equipment, which, in turn, may adversely affect our performance.
We maintain an independent dealer and distribution network in the markets where we sell products. The financial and operational capabilities of our dealers and distributors are critical to our ability to compete in these markets. In addition, we compete with other manufacturers of agricultural equipment for dealers. If we are unable to compete successfully against other agricultural equipment manufacturers, we could lose dealers and their retail customers and performance may decline.
Rationalization or restructuring of manufacturing facilities, and plant expansions and system upgrades at our manufacturing facilities, may cause production capacity constraints and inventory fluctuations.
The rationalization of our manufacturing facilities has at times resulted in, and similar rationalizations or restructurings in the future may result in, temporary constraints upon our ability to produce the quantity of products necessary to fill orders and thereby complete sales in a timely manner. In addition, system upgrades at our manufacturing facilities that impact ordering, production scheduling, manufacturing and other related processes are complex, and could impact or delay production. A prolonged delay in our ability to fill orders on a timely basis could affect customer demand for our products and increase the size of our product inventories, causing future reductions in our manufacturing schedules and adversely affecting our performance. Moreover, our continuous development and production of new products often involves the retooling of existing manufacturing facilities. This retooling may limit our production capacity at certain times in the future, which could adversely affect our performance. In addition, the expansion and reconfiguration of existing manufacturing facilities, as well as the start-up of new manufacturing operations in emerging markets, such as China and Russia, could increase the risk of production delays, as well as require significant investments.
We depend on suppliers for components, parts and raw materials for our products, and any failure by our suppliers to provide products as needed, or by us to promptly address supplier issues, will adversely impact our ability to timely and efficiently manufacture and sell products. We also are subject to raw material price fluctuations, which can adversely affect our manufacturing costs.
Our products include components and parts manufactured by others. As a result, our ability to timely and efficiently manufacture existing products, to introduce new products and to shift manufacturing of products from one facility to another depends on the quality of these components and parts and the timeliness of their delivery to our facilities. At any particular time, we depend on many different suppliers, and the failure by one or more of our suppliers to perform as needed will result in fewer products being manufactured, shipped and sold. If the quality of the components or parts provided by our suppliers is less than required and we do not recognize that failure prior to the shipment of our products, we will incur higher warranty costs. The timely supply of component parts for our products also depends on our ability to manage our relationships with suppliers, to identify and replace suppliers that fail to meet our schedules or quality standards, and to monitor the flow of components and accurately project our needs. The shift from our existing suppliers to new suppliers, including suppliers in emerging markets, also may impact the quality and efficiency of our manufacturing capabilities, as well as warranty costs.
Changes in the prices of certain raw materials, components and parts could result in production disruptions or increased costs and lower profits on the sale of our products. Changes in the availability and price of these raw materials, components and parts, which have fluctuated significantly in the past and are more likely to fluctuate during times of economic volatility, as well as regulatory instability or change in tariffs, can significantly increase the costs of production. This, in turn, could have a material negative effect on performance, particularly if, due to pricing considerations or other factors, we are unable to recover the increased costs through pricing from our dealers.
9
A majority of our sales and manufacturing take place outside the United States, and, as a result, we are exposed to risks related to foreign laws, taxes, economic conditions, labor supply and relations, political conditions and governmental policies as well as U.S. laws governing who we sell to and how we conduct business. These risks may delay or reduce our realization of value from our international operations.
A majority of our sales are derived from sales outside the United States. The foreign countries in which our sales are the greatest are Germany, France, Brazil, the United Kingdom, Finland and Canada. In addition, we have significant manufacturing operations in France, Germany, Brazil, Italy and Finland and have established manufacturing operations in emerging markets, such as China. Many of our sales involve products that are manufactured in one country and sold in a different country and therefore, our results of operations and financial condition will be adversely affected by adverse changes in laws, taxes and tariffs, trade restrictions, economic conditions, labor supply and relations, political conditions and governmental policies of the countries in which we conduct business. Our business practices in these foreign countries generally must comply with U.S. law, including limitations on where and to whom we may sell products and the Foreign Corrupt Practices Act (“FCPA”). We have a compliance program in place designed to reduce the likelihood of potential violations of these laws, but it is difficult to identify and prevent violations. Significant violations could subject us to fines and other penalties as well as increased compliance costs. Some of our international operations also are, or might become, subject to various risks that are not present in domestic operations, including restrictions on dividends and the repatriation of funds. Foreign developing markets may present special risks, such as unavailability of financing, inflation, slow economic growth, price controls and difficulties in complying with U.S. regulations.
Domestic and foreign political developments and government regulations and policies directly affect the international agricultural industry, which affects the demand for agricultural equipment. If demand for agricultural equipment declines, our performance will be adversely affected. The application, modification or adoption of laws, regulations, trade agreements or policies adversely affecting the agricultural industry, including the imposition of import and export duties and quotas, expropriation and potentially burdensome taxation, could have an adverse effect on our business. Trade restrictions, including potential withdrawal from or modification of existing trade agreements, negotiation of new trade agreements, and imposition of new (and retaliatory) tariffs against certain countries or covering certain products, could limit our ability to capitalize on current and future growth opportunities in the international markets in which we operate and impair our ability to expand our business by offering new technologies, products and services. These changes also can impact the cost of the products we manufacture, including the cost of steel. These trade restrictions and changes in, or uncertainty surrounding, global trade policy may affect our competitive position.
The health of the agricultural industry and the ability of our international dealers and retail customers to operate their businesses, in general, are affected by domestic and foreign government programs that provide economic support to farmers. As a result, farm income levels and the ability of farmers to obtain advantageous financing and other protections would be reduced to the extent that any such programs are curtailed or eliminated. Any such reductions likely would result in a decrease in demand for agricultural equipment. For example, a decrease or elimination of current price protections for commodities or of subsidy payments for farmers in the European Union, the United States, Brazil or elsewhere in South America could negatively impact the operations of farmers in those regions, and, as a result, our sales may decline if these farmers delay, reduce or cancel purchases of our products. In emerging markets, some of these (and other) risks can be greater than they might be elsewhere. In addition, in some cases, the financing provided by our joint ventures with Rabobank or by others is supported by a government subsidy or guarantee. The programs under which those subsidies and guarantees are provided generally are of limited duration and subject to renewal and contain various caps and other limitations. In some markets, for example Brazil, this support is quite significant. In the event the governments that provide this support elect not to renew these programs, and were financing not available on reasonable terms, whether through our joint ventures or otherwise, our performance would be negatively impacted.
As a result of the multinational nature of our business and the acquisitions that we have made over time, our corporate and tax structures are complex, with a significant portion of our operations being held through foreign holding companies. As a result, it can be inefficient, from a tax perspective, for us to repatriate or otherwise transfer funds, and we may be subject to a greater level of tax-related regulation and reviews by multiple governmental units than would companies with a more simplified structure. In addition, our foreign and U.S. operations routinely sell products to, and license technology to other operations of ours. The pricing of these intra-company transactions is subject to regulation and review as well. While we make every effort to comply with all applicable tax laws, audits and other reviews by governmental units could result in our being required to pay additional taxes, interest and penalties.
10
Brexit and political uncertainty in the United Kingdom and the European Union could disrupt our operations and adversely affect our performance.
We have significant operations in the United Kingdom. The United Kingdom’s intention to exit from the European Union, or Brexit, has caused significant political uncertainty in both the United Kingdom and the European Union. The impact of Brexit and the resulting turmoil on the political and economic future of the United Kingdom and the European Union is uncertain, and we may be adversely affected in ways we cannot currently anticipate. The ultimate effects of Brexit will depend on any agreements the United Kingdom makes to retain access to the European Union markets, and vice versa, either during a transitional period or more permanently. Brexit also may result in significant changes in the British regulatory environment, which would likely increase our compliance costs. We may find it more difficult to conduct business in the United Kingdom and the European Union, as Brexit may result in increased regulatory complexity, increased restrictions on the movement of capital, goods and personnel. Depending on the outcome of negotiations between the United Kingdom and the European Union regarding the terms of Brexit, we may decide to relocate or otherwise alter certain of our European or United Kingdom operations to respond to the new business, legal, regulatory, tax and trade environments. Brexit may adversely affect our relationships with our dealers and their retail customers, suppliers and employees and our performance could be adversely affected.
We can experience substantial and sustained volatility with respect to currency exchange rates and interest rates, which can adversely affect our reported results of operations and the competitiveness of our products.
We conduct operations in a variety of currencies. Our production costs, profit margins and competitive position are affected by the strength of the currencies in countries where we manufacture or purchase goods relative to the strength of the currencies in countries where our products are sold. In addition, we are subject to currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we denominate sales and to risks associated with translating the financial statements of our foreign subsidiaries from local currencies into United States dollars. Similarly, changes in interest rates affect us by increasing or decreasing borrowing costs and finance income. Our most significant transactional foreign currency exposures are the Euro, the Brazilian real and the Canadian dollar in relation to the United States dollar, and the Euro in relation to the British pound. Where naturally offsetting currency positions do not occur, we attempt to manage these risks by economically hedging some, but not necessarily all, of our exposures through the use of foreign currency forward exchange or option contracts. As with all hedging instruments, there are risks associated with the use of foreign currency forward exchange or option contracts, interest rate swap agreements and other risk management contracts. While the use of such hedging instruments provides us with protection for a finite period of time from certain fluctuations in currency exchange and interest rates, when we hedge we forego part or all the benefits that might result from favorable fluctuations in currency exchange and interest rates. In addition, any default by the counterparties to these transactions could adversely affect us. Despite our use of economic hedging transactions, currency exchange rate or interest rate fluctuations may adversely affect our performance.
In July 2017, the Financial Conduct Authority in the UK, the governing body responsible for regulating the London Interbank Offered Rate (“LIBOR”), announced that it no longer will compel or persuade financial institutions and panel banks to make LIBOR submissions after 2021. This decision is expected to result in the end of the use of LIBOR as a reference rate for commercial loans and other indebtedness. We have both LIBOR-denominated and EURIBOR-denominated indebtedness or derivative instruments. The transition to alternatives to LIBOR could be modestly disruptive to the credit markets, and while we do not believe that the impact would be material to us, we do not have insight into what the impacts might be.
We are subject to extensive environmental laws and regulations, including increasingly stringent engine emissions standards, and our compliance with, or our failure to comply with, existing or future laws and regulations could delay production of our products or otherwise adversely affect our business.
We are subject to increasingly stringent environmental laws and regulations in the countries in which we operate. These regulations govern, among other things, emissions into the air, discharges into water, the use, handling and disposal of hazardous substances, waste disposal and the remediation of soil and groundwater contamination. Our costs of complying with these or any other current or future environmental regulations may be significant. For example, several countries have adopted more stringent environmental regulations regarding emissions into the air, and it is possible that new emissions-related legislation or regulations will be adopted in connection with concerns regarding GHG. The regulation of GHG emissions from certain stationary or mobile sources could result in additional costs to us in the form of taxes or emission allowances, facilities improvements and energy costs, which would increase our operating costs through higher utility, transportation and materials costs. Increased input costs, such as fuel and fertilizer, and compliance-related costs also could impact retail customer operations and demand for our equipment. Because the impact of any future GHG legislative, regulatory or product standard
11
requirements on our global businesses and products is dependent on the timing and design of mandates or standards, we are unable to predict its potential impact at this time.
In addition, we may be subject to liability in connection with properties and businesses that we no longer own or operate. We may be adversely impacted by costs, liabilities or claims with respect to our operations under existing laws or those that may be adopted in the future that could apply to both future and prior conduct. If we fail to comply with existing or future laws and regulations, we may be subject to governmental or judicial fines or sanctions, or we may not be able to sell our products and, therefore, our performance could be adversely affected.
In addition, the products that we manufacture or sell, particularly engines, are subject to increasingly stringent environmental regulations, including those that limit GHG emissions. As a result, on an ongoing basis we incur significant engineering expenses and capital expenditures to modify our products to comply with these regulations. Further, we may experience production delays if we or our suppliers are unable to design and manufacture components for our products that comply with environmental standards. For instance, as we are required to meet more stringent engine emission reduction standards that are applicable to engines we manufacture or incorporate into our products, we expect to meet these requirements through the introduction of new technology to our products, engines and exhaust after-treatment systems, as necessary. Failure to meet such requirements could materially affect our business and results of operations.
We are subject to SEC disclosure obligations relating to “conflict minerals” (columbite-tantalite, cassiterite (tin), wolframite (tungsten) and gold) that are sourced from the Democratic Republic of Congo or adjacent countries. Complying with these requirements has and will require us to incur additional costs, including the costs to determine the sources of any conflict minerals used in our products and to modify our processes or products, if required. As a result, we may choose to modify the sourcing, supply and pricing of materials in our products. In addition, we may face reputational and regulatory risks if the information that we receive from our suppliers is inaccurate or inadequate, or our process in obtaining that information does not fulfill the SEC’s requirements. We have a formal policy with respect to the use of conflict minerals in our products that is intended to minimize, if not eliminate, conflict minerals sourced from the covered countries to the extent that we are unable to document that they have been obtained from conflict-free sources.
Our labor force is heavily unionized, and our contractual and legal obligations under collective bargaining agreements and labor laws subject us to the risks of work interruption or stoppage and could cause our costs to be higher.
Most of our employees, most notably at our manufacturing facilities, are subject to collective bargaining agreements and union contracts with terms that expire on varying dates. Several of our collective bargaining agreements and union contracts are of limited duration and, therefore, must be re-negotiated frequently. As a result, we incur various administrative expenses associated with union representation of our employees. Furthermore, we are at greater risk of work interruptions or stoppages than non-unionized companies, and any work interruption or stoppage could significantly impact the volume of products we have available for sale. In addition, collective bargaining agreements, union contracts and labor laws may impair our ability to reduce our labor costs by streamlining existing manufacturing facilities or restructuring our business because of limitations on personnel and salary changes and similar restrictions.
We have significant pension obligations with respect to our employees, and our cash flow available for other purposes may be adversely affected in the event that payments became due under any pension plans that are unfunded or underfunded. Declines in the market value of the securities used to fund these obligations will result in increased pension expense in future periods.
A portion of our active and retired employees participate in defined benefit pension plans under which we are obligated to provide prescribed levels of benefits regardless of the value of the underlying assets, if any, of the applicable pension plans. To the extent that our obligations under a plan are unfunded or underfunded, we will have to use cash flow from operations and other sources to pay our obligations either as they become due or over some shorter funding period. In addition, since the assets that we already have provided to fund these obligations are invested in debt instruments and other securities, the value of these assets varies due to market factors. Historically, these fluctuations have been significant and sometimes adverse, and there can be no assurances that they will not be significant or adverse in the future. We are also subject to laws and regulations governing the administration of our pension plans in certain countries, and the specific provisions, benefit formulas and related interpretations of such laws, regulations and provisions can be complex. Failure to properly administer the provisions of our pension plans and comply with applicable laws and regulations could have an adverse impact to our results of operations. As of
December 31, 2018
, we had substantial unfunded or underfunded obligations related to our pension and other postretirement health care benefits. See the notes to our Consolidated Financial Statements contained in Item 8 for more information regarding our unfunded or underfunded obligations.
12
Our business routinely is subject to claims and legal actions, some of which could be material.
We routinely are a party to claims and legal actions incidental to our business. These include claims for personal injuries by users of farm equipment, disputes with distributors, vendors and others with respect to commercial matters, and disputes with taxing and other governmental authorities regarding the conduct of our business. While these matters generally are not material, it is entirely possible that a matter will arise that is material to our business.
In addition, we use a broad range of technology in our products. We developed some of this technology, we license some of this technology from others, and some of the technology is embedded in the components and parts that we purchase from suppliers. From time-to-time, third parties make claims that the technology that we use violates their patent rights. While to date none of these claims have been significant, we cannot provide any assurances that there will not be significant claims in the future or that currently existing claims will not prove to be more significant than anticipated.
We have a substantial amount of indebtedness, and, as a result, we are subject to certain restrictive covenants and payment obligations that may adversely affect our ability to operate and expand our business.
Our credit facility and certain other debt agreements have various financial and other covenants that require us to maintain certain total debt to EBITDA and interest coverage ratios. In addition, the credit facility and certain other debt agreements contain other restrictive covenants, such as ones that limit the incurrence of indebtedness and the making of certain payments, including dividends, and are subject to acceleration in the event of default. If we fail to comply with these covenants and are unable to obtain a waiver or amendment, an event of default would result.
If any event of default were to occur, our lenders could, among other things, declare outstanding amounts due and payable, and our cash may become restricted. In addition, an event of default or declaration of acceleration under our credit facility or certain other debt agreements could also result in an event of default under our other financing agreements.
Our substantial indebtedness could have other important adverse consequences such as:
|
•
|
requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which would reduce the availability of our cash flow to fund future working capital, capital expenditures, acquisitions and other general corporate purposes;
|
|
•
|
increasing our vulnerability to general adverse economic and industry conditions;
|
|
•
|
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
|
|
•
|
restricting us from being able to introduce new products or pursuing business opportunities;
|
|
•
|
placing us at a competitive disadvantage compared to our competitors that may have less indebtedness; and
|
|
•
|
limiting, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds, pay cash dividends or engage in or enter into certain transactions.
|
Our business increasingly is subject to regulations relating to privacy and data protection, and if we violate any of those regulations we could be subject to significant claims, penalties and damages.
Increasingly, the United States, the European Union and other governmental entities are imposing regulations designed to protect the collection, maintenance and transfer of personal information. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”) that imposes stringent data protection requirements and greater penalties for non-compliance beginning in May 2018. The GDPR also protects a broader set of personal information than traditionally has been protected in the United States and provides for a right of “erasure.” Other regulations govern the collection and transfer of financial data and data security generally. These regulations generally impose penalties in the event of violations. While we attempt to comply with all applicable cybersecurity regulations, their implementation is complex, and, if we are not successful, we may be subject to penalties and claims for damages from regulators and the impacted individuals.
Cybersecurity breaches and other disruptions to our information technology infrastructure could interfere with our operations and could compromise confidential information, exposing us to liability that could cause our business and reputation to suffer.
We rely upon information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including supply chain, manufacturing, distribution, invoicing and collection of payments from dealers or other purchasers of our
13
equipment. We also use information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, we collect and store sensitive data, including intellectual property and proprietary business information, in data centers and on information technology networks. The secure operation of these information technology networks and the processing and maintenance of this information is critical to our business operations and strategy. Despite security measures and business continuity plans, our information technology networks and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by cyber criminals or breaches due to employee error or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures, terrorist acts or, natural disasters or other catastrophic events. The occurrence of any of these events could compromise our networks, and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, and could disrupt our operations and damage our reputation, which could adversely affect our performance. In addition, as security threats continue to evolve and increase in frequency and sophistication, we may need to invest additional resources to protect the security of our systems.
We may encounter difficulties in integrating businesses we acquire and may not fully achieve, or achieve within a reasonable time frame, expected strategic objectives and other expected benefits of the acquisitions.
From time-to-time we seek to expand through acquisitions of other businesses. We expect to realize strategic and other benefits as a result of our acquisitions, including, among other things, the opportunity to extend our reach in the agricultural industry and provide our dealers and their retail customers with an even wider range of products and services. However, it is impossible to predict with certainty whether, or to what extent, these benefits will be realized or whether we will be able to integrate acquired businesses in a timely and effective manner. For example:
|
•
|
the costs of integrating acquired businesses and their operations may be higher than we expect and may require significant attention from our management;
|
|
•
|
the businesses we acquire may have undisclosed liabilities, such as environmental liabilities or liabilities for violations of laws, such as the FCPA, that we did not expect; and
|
|
•
|
our ability to successfully carry out our growth strategies for acquired businesses will be affected by, among other things, our ability to maintain and enhance our relationships with their existing customers, our ability to provide additional product distribution opportunities to them through our existing distribution channels, changes in the spending patterns and preferences of customers and potential customers, fluctuating economic and competitive conditions and our ability to retain their key personnel.
|
Our ability to address these issues will determine the extent to which we are able to successfully integrate, develop and grow acquired businesses and to realize the expected benefits of these transactions. Our failure to do so could have a material adverse effect on our performance following the transactions.
Changes to United States tax, tariff, trade and import/export regulations may have a negative effect on global economic conditions, financial markets and our business.
T
here have been ongoing discussions and significant changes to United States trade policies, treaties, tariffs and taxes. Although the level changes from period to period, we generally have substantial imports into the United States of products and components that are either produced in our foreign locations or are purchased from foreign suppliers, and also have substantial exports of products and components that we manufacture in the United States. The impact of any changes to current trade, tariff or tax policies relating to imports and exports of goods is dependent on factors such as the treatment of exports as a credit to imports, and the introduction of any tariffs or taxes relating to imports from specific countries. The most significant changes recently have been the imposition of tariffs by the United States on imports from China and the imposition by China of tariffs on imports from the United States. In the past, we have had moderate amounts of imports into the U.S. from China. To date, the impact of announced China tariffs has not been material to us because we have been able to redirect and employ sourcing alternatives for products coming into the United States. In addition, we do not export significant amounts from the United States into China. It is unclear what other changes might be considered or implemented and what response to any such changes may be by the governments of other countries. Any changes that increase the cost of international trade or otherwise impact the global economy, including through the increase in domestic prices for raw materials, could have a material adverse effect on our business, financial condition and results of operations. For example, the United States, Canada and Mexico have renegotiated the North America Free Trade Agreement, and the impacts of the changes brought about by the new agreement, named the United States, Mexico, Canada Agreement (the “USMCA”), for which the language has not yet been ratified, are not currently known. We continue to monitor closely the status and implementation of the USMCA.
14
We have joint ventures in the Netherlands and Russia with an entity that currently is operating under a time-limited general license from the U.S. Department of Treasury authorizing the maintenance or wind-down of operations and existing contracts. In the event that the license expires without further relief being granted or without other authorization from the U.S. Department of the Treasury, we may no longer be able to continue the joint ventures' commercial operations, and we would be required to assess the fair value of certain assets related to the joint ventures for potential impairment. Our most recent preliminary assessment indicated that impairment, if any, would not be material.
Item 1B.
Unresolved Staff Comments
Not applicable.
15
Item 2.
Properties
Our principal manufacturing locations and/or properties as of January 31, 2019, were as follows:
|
Location
|
Description of Property
|
Leased
(Sq. Ft.)
|
Owned
(Sq. Ft.)
|
|||||
|
United States:
|
|
|
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|||||
|
Assumption, Illinois
|
Manufacturing/Sales and Administrative Office
|
933,900
|
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|||||
|
Batavia, Illinois
|
Parts Distribution
|
310,200
|
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|||||
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Duluth, Georgia
|
Corporate Headquarters
|
159,000
|
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|||||
|
Hesston, Kansas
|
Manufacturing
|
6,300
|
|
1,461,800
|
|
|||
|
Jackson, Minnesota
|
Manufacturing
|
51,400
|
|
986,400
|
|
|||
|
International:
|
|
|
|
|
|
|||
|
Beauvais, France
(1)
|
Manufacturing
|
14,300
|
|
1,596,200
|
|
|||
|
Breganze, Italy
|
Manufacturing
|
11,800
|
|
1,562,000
|
|
|||
|
Ennery, France
|
Parts Distribution
|
839,600
|
|
360,300
|
|
|||
|
Linnavuori, Finland
|
Manufacturing
|
211,700
|
|
396,300
|
|
|||
|
Hohenmölsen, Germany
|
Manufacturing
|
437,000
|
|
|||||
|
Marktoberdorf, Germany
|
Manufacturing
|
219,800
|
|
1,472,200
|
|
|||
|
Wolfenbüttel, Germany
|
Manufacturing
|
546,700
|
|
|||||
|
Stockerau, Austria
|
Manufacturing
|
160,700
|
|
|||||
|
Biatorbagy, Hungary
|
Manufacturing
|
287,300
|
|
|||||
|
Thisted, Denmark
|
Manufacturing
|
147,500
|
|
295,300
|
|
|||
|
Suolahti, Finland
|
Manufacturing/Parts Distribution
|
97,500
|
|
561,400
|
|
|||
|
Canoas, Brazil
|
Regional Headquarters/Manufacturing
|
12,900
|
|
1,120,000
|
|
|||
|
Mogi das Cruzes, Brazil
|
Manufacturing
|
|
|
727,200
|
|
|||
|
Santa Rosa, Brazil
|
Manufacturing
|
|
|
508,900
|
|
|||
|
Changzhou, China
|
Manufacturing
|
241,100
|
|
767,000
|
|
|||
_______________________________________
|
(1)
|
Includes our joint venture, GIMA, in which we own a 50% interest.
|
We consider each of our facilities to be in good condition and adequate for its present use. We believe that we have sufficient capacity to meet our current and anticipated manufacturing requirements.
16
Item 3.
Legal Proceedings
In August 2008, as part of a routine audit, the Brazilian taxing authorities disallowed deductions relating to the amortization of certain goodwill recognized in connection with a reorganization of our Brazilian operations and the related transfer of certain assets to our Brazilian subsidiaries. The amount of the tax disallowance through
December 31, 2018
, not including interest and penalties, was approximately
131.5 million
Brazilian reais (or approximately
$33.9 million
). The amount ultimately in dispute will be significantly greater because of interest and penalties. We have been advised by our legal and tax advisors that our position with respect to the deductions is allowable under the tax laws of Brazil. We are contesting the disallowance and believe that it is not likely that the assessment, interest or penalties will be required to be paid. However, the ultimate outcome will not be determined until the Brazilian tax appeal process is complete, which could take several years.
We are a party to various other legal claims and actions incidental to our business. We believe that none of these claims or actions, either individually or in the aggregate, is material to our business or financial statements as a whole, including our results of operations and financial condition.
Item 4.
Mine Safety Disclosures
Not Applicable.
17
PART II
|
Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
Our common stock is listed on the New York Stock Exchange (“NYSE”) and trades under the symbol AGCO. As of the close of business on
February 22, 2019
, the closing stock price was $66.95, and there were 324 stockholders of record (this number does not include stockholders who hold their stock through brokers, banks and other nominees).
Performance Graph
The following presentation is a line graph of our cumulative total shareholder return on our common stock on an indexed basis as compared to the cumulative total return of the S&P Mid-Cap 400 Index and a self-constructed peer group (“Peer Group”) for the five years ended December 31, 2018. Our total returns in the graph are not necessarily indicative of future performance.
|
|
Cumulative Total Return for the Years Ended December 31
|
|||||||||||||||||||||||
|
|
2013
|
2014
|
2015
|
2016
|
2017
|
2018
|
||||||||||||||||||
|
AGCO Corporation
|
$
|
100.00
|
|
$
|
77.04
|
|
$
|
78.11
|
|
$
|
100.63
|
|
$
|
125.28
|
|
$
|
98.60
|
|
||||||
|
S&P Midcap 400 Index
|
100.00
|
|
109.77
|
|
107.38
|
|
129.65
|
|
150.71
|
|
134.01
|
|
||||||||||||
|
Peer Group Index
|
100.00
|
|
99.50
|
|
77.12
|
|
109.87
|
|
158.99
|
|
135.19
|
|
||||||||||||
The total return assumes that dividends were reinvested and is based on a $100 investment on December 31, 2013.
The Peer Group Index is a self-constructed peer group of companies that includes: Caterpillar Inc., CNH Industrial NV, Cummins Inc., Deere & Company, Eaton Corporation Plc., Ingersoll-Rand Plc., Navistar International Corporation, PACCAR Inc., Parker-Hannifin Corporation and Terex Corporation.
18
Issuer Purchases of Equity Securities
The table below sets forth information with respect to purchases of our common stock made by or on behalf of us during the three months ended December 31, 2018:
|
Period
|
Total Number of Shares Purchased
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(1)
|
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
(1)(3)
|
||||||||||
|
October 1, 2018 through
October 31, 2018
(2)
|
197,848
|
|
$
|
59.75
|
|
197,848
|
|
$
|
247.1
|
|
||||
|
November 1, 2018 through
November 30, 2018
(3)
|
1,422,222
|
|
$
|
57.18
|
|
1,422,222
|
|
$
|
147.1
|
|
||||
|
December 1, 2018 through
December 31, 2018
(3)
|
326,733
|
|
$
|
57.18
|
|
326,733
|
|
$
|
147.1
|
|
||||
|
Total
|
1,946,803
|
|
$
|
58.01
|
|
1,946,803
|
|
$
|
147.1
|
|
||||
____________________________________
|
(1)
|
The remaining authorized amount to be repurchased is $147.1 million, of which $115.7 million expires in December 2019 and $31.4 million has no expiration date.
|
|
(2)
|
In August 2018, we entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase $50.0 million of our common stock. The ASR agreement resulted in the initial delivery of 638,978 shares of our common stock, representing approximately 80% of the shares expected to repurchased in connection with the transaction. In October 2018, the remaining 197,848 shares under the ASR agreement were delivered. As reflected in the table above, the average price paid per share for the ASR agreement was the volume-weighted average stock price of our common stock over the term of the ASR agreement. Refer to Note 9 of our Consolidated Financial Statements contained in Item 8, “Financial Statements and Supplementary Data,” for a further discussion of this matter.
|
|
(3)
|
In November 2018, we entered into an ASR agreement with a third-party financial institution to repurchase $100.0 million of shares of our common stock. The ASR agreement resulted in the initial delivery of 1,422,222 shares of our common stock, representing 80% of the shares expected to be repurchased in connection with the transaction. In December 2018, the remaining 326,733 shares under the ASR agreement were delivered. As reflected in the table above, the average price paid per share for the ASR agreement was the volume-weighted average stock price of our common stock over the term of the ASR agreement. Refer to Note 9 of our Consolidated Financial Statements contained in Item 8, “Financial Statements and Supplementary Data,” for a further discussion of this matter.
|
19
Item 6.
Selected Financial Data
The following tables present our selected consolidated financial data. The data set forth below should be read together with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our historical Consolidated Financial Statements and the related notes. The Consolidated Financial Statements as of
December 31, 2018
and
2017
and for the years ended
December 31, 2018
,
2017
and
2016
and the reports thereon are included in Item 8, “Financial Statements and Supplementary Data.” The historical financial data may not be indicative of our future performance.
|
|
Years Ended December 31,
|
|||||||||||||||||||
|
|
2018
|
2017
|
2016
|
2015
|
2014
|
|||||||||||||||
|
|
(In millions, except per share data)
|
|||||||||||||||||||
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net sales
|
$
|
9,352.0
|
|
$
|
8,306.5
|
|
$
|
7,410.5
|
|
$
|
7,467.3
|
|
$
|
9,723.7
|
|
|||||
|
Gross profit
|
1,996.7
|
|
1,765.3
|
|
1,515.5
|
|
1,560.6
|
|
2,066.3
|
|
||||||||||
|
Income from operations
|
489.0
|
|
404.4
|
|
287.0
|
|
358.6
|
|
651.0
|
|
||||||||||
|
Net income
|
283.7
|
|
189.3
|
|
160.2
|
|
264.0
|
|
404.2
|
|
||||||||||
|
Net loss (income) attributable to noncontrolling interests
|
1.8
|
|
(2.9
|
)
|
(0.1
|
)
|
2.4
|
|
6.2
|
|
||||||||||
|
Net income attributable to AGCO Corporation and subsidiaries
|
$
|
285.5
|
|
$
|
186.4
|
|
$
|
160.1
|
|
$
|
266.4
|
|
$
|
410.4
|
|
|||||
|
Net income per common share — diluted
|
$
|
3.58
|
|
$
|
2.32
|
|
$
|
1.96
|
|
$
|
3.06
|
|
$
|
4.36
|
|
|||||
|
Cash dividends declared and paid per common share
|
$
|
0.60
|
|
$
|
0.56
|
|
$
|
0.52
|
|
$
|
0.48
|
|
$
|
0.44
|
|
|||||
|
Weighted average shares outstanding — diluted
|
79.7
|
|
80.2
|
|
81.7
|
|
87.1
|
|
94.2
|
|
||||||||||
|
|
As of December 31,
|
|||||||||||||||||||
|
|
2018
|
2017
|
2016
|
2015
|
2014
|
|||||||||||||||
|
|
(In millions, except number of employees)
|
|||||||||||||||||||
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Cash and cash equivalents
|
$
|
326.1
|
|
$
|
367.7
|
|
$
|
429.7
|
|
$
|
426.7
|
|
$
|
363.7
|
|
|||||
|
Total assets
|
7,626.4
|
|
7,971.7
|
|
7,168.4
|
|
6,497.7
|
|
7,364.5
|
|
||||||||||
|
Total long-term debt, excluding current portion and debt issuance costs
|
1,275.3
|
|
1,618.1
|
|
1,610.0
|
|
925.2
|
|
993.3
|
|
||||||||||
|
Stockholders’ equity
|
2,993.5
|
|
3,095.3
|
|
2,837.2
|
|
2,883.3
|
|
3,496.9
|
|
||||||||||
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Number of employees
|
21,232
|
|
20,462
|
|
19,795
|
|
19,588
|
|
20,828
|
|
||||||||||
20
Item 7.
Management
’
s Discussion and Analysis of Financial Condition and Results of Operations
We are a leading manufacturer and distributor of agricultural equipment and related replacement parts throughout the world. We sell a full range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment, seeding and tillage equipment, implements, and grain storage and protein production systems. Our products are widely recognized in the agricultural equipment industry and are marketed under a number of well-known brand names, including: Challenger
®
, Fendt
®
, GSI
®
, Massey Ferguson
®
and Valtra
®
. We distribute most of our products through a combination of approximately 4,050 dealers and distributors as well as associates and licensees. In addition, we provide retail financing through our finance joint ventures with Rabobank.
Financial Highlights
We sell our equipment and replacement parts to our independent dealers, distributors and other customers. A large majority of our sales are to independent dealers and distributors that sell our products to end users. To the extent practicable, we attempt to sell products to our dealers and distributors on a level basis throughout the year to reduce the effect of seasonal demands on our manufacturing operations and to minimize our investment in inventories. However, retail sales by dealers to farmers are highly seasonal and are linked to the planting and harvesting seasons. In certain markets, particularly in North America, there is often a time lag, which varies based on the timing and level of retail demand, between our sale of the equipment to the dealer and the dealer’s sale to a retail customer.
The following table sets forth, for the periods indicated, the percentage relationship to net sales of certain items included in our Consolidated Statements of Operations:
|
|
Years Ended December 31,
|
|||||||
|
|
2018
(1)
|
2017
(1)
|
2016
(1)
|
|||||
|
Net sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||
|
Cost of goods sold
|
78.6
|
|
78.7
|
|
79.5
|
|
||
|
Gross profit
|
21.4
|
|
21.3
|
|
20.5
|
|
||
|
Selling, general and administrative expenses
|
11.4
|
|
11.6
|
|
11.7
|
|
||
|
Engineering expenses
|
3.8
|
|
3.9
|
|
4.0
|
|
||
|
Restructuring expenses
|
0.1
|
|
0.1
|
|
0.2
|
|
||
|
Amortization of intangibles
|
0.7
|
|
0.7
|
|
0.7
|
|
||
|
Bad debt expense
|
0.1
|
|
0.1
|
|
—
|
|
||
|
Income from operations
|
5.3
|
|
4.9
|
|
3.9
|
|
||
|
Interest expense, net
|
0.6
|
|
0.5
|
|
0.7
|
|
||
|
Other expense, net
|
0.8
|
|
0.9
|
|
0.4
|
|
||
|
Income before income taxes and equity in net earnings of affiliates
|
3.9
|
|
3.4
|
|
2.8
|
|
||
|
Income tax provision
|
1.2
|
|
1.6
|
|
1.2
|
|
||
|
Income before equity in net earnings of affiliates
|
2.7
|
|
1.8
|
|
1.5
|
|
||
|
Equity in net earnings of affiliates
|
0.4
|
|
0.5
|
|
0.6
|
|
||
|
Net income
|
3.0
|
|
2.3
|
|
2.2
|
|
||
|
Net loss (income) attributable to noncontrolling interests
|
—
|
|
—
|
|
—
|
|
||
|
Net income attributable to AGCO Corporation and subsidiaries
|
3.1
|
%
|
2.2
|
%
|
2.2
|
%
|
||
____________________________________
|
(1)
|
Rounding may impact summation of amounts.
|
2018
Compared to
2017
Net income attributable to AGCO Corporation and subsidiaries for
2018
was
$285.5 million
, or
$3.58
per diluted share, compared to
$186.4 million
, or
$2.32
per diluted share for
2017
.
Net sales for
2018
were approximately
$9,352.0 million
, or
12.6%
higher than
2017
, primarily due to sales growth in all regions and the positive impact of acquisitions. Income from operations was
$489.0 million
in
2018
compared to
$404.4
21
million
in
2017
. The increase in income from operations during
2018
was primarily a result of higher net sales and improved operating margins.
Regionally, income from operations in the Europe/Middle East (“EME”) region increased by approximately
$107.8 million
in
2018
compared to
2017
, driven primarily by higher net sales and improved margins. In our North American region, income from operations improved by approximately
$36.2 million
. Higher net sales levels as well as the benefit from our Precision Planting acquisition completed in September 2017 contributed to the improvement in the region. In South America, income from operations decreased approximately
$25.5 million
in
2018
compared to
2017
. The decline was due to lower margins resulting from material cost inflation and higher costs associated with localizing newer product technology into our Brazilian factories. Income from operations in our Asia/Pacific/Africa (“APA”) region increased approximately
$0.8 million
in
2018
compared to
2017
, primarily due to the growth in net sales.
Industry Market Conditions
Robust global crop production has kept commodity prices at relatively low levels and pressured farm income during 2018. Global industry demand for farm equipment was mixed across key markets during 2018, with future demand dependent on factors such as commodity price development, as well as government trade and farm support policies. In North America, retail sales increased in 2018 in the row crop segment as farmers replaced their equipment after years of weaker demand. In addition, industry unit retail sales of lower-horsepower tractors remained strong in 2018. Industry unit retail sales of tractors increased by approximately 2%, while industry unit retail sales of combines increased approximately 10% in 2018 compared to 2017. Industry retail sales of tractors in Western Europe decreased slightly during 2018 where demand was lower across most European markets, offset by growth in the United Kingdom. Farm income was impacted by a weak wheat harvest due to a dry, hot summer, pressuring the arable farming segment demand. Industry unit retail sales of combines in Western Europe increased approximately 13% during 2018 over prior year. Industry retail sales in South America were mixed during the full year of 2018. Equipment demand in Brazil improved in the second half of 2018 after more positive terms for the government’s financing programs were announced. Market growth in Brazil was offset by weak demand in Argentina due to a poor first harvest and weak general economic conditions. Industry unit retail sales of tractors in South America were flat and industry unit retail sales of combines increased by approximately 9% in 2018 compared to 2017.
Results of Operations
Net sales for
2018
were
$9,352.0 million
compared to
$8,306.5 million
for
2017
, with growth achieved in all regions, on a constant currency basis. Net sales growth was also the result of the positive impacts of acquisitions and foreign currency translation. The following table sets forth, for the year ended
December 31, 2018
, the impact to net sales of currency translation and acquisitions by geographical segment (in millions, except percentages):
|
|
|
|
Change
|
Change due to Currency Translation
|
Change due to Acquisitions
|
|||||||||||||||||||||||
|
|
2018
|
2017
|
$
|
%
|
$
|
%
|
$
|
%
|
||||||||||||||||||||
|
North America
|
$
|
2,180.1
|
|
$
|
1,876.7
|
|
$
|
303.4
|
|
16.2
|
%
|
$
|
0.9
|
|
—
|
%
|
$
|
107.7
|
|
5.7
|
%
|
|||||||
|
South America
|
959.0
|
|
1,063.5
|
|
(104.5
|
)
|
(9.8
|
)%
|
(152.4
|
)
|
(14.3
|
)%
|
12.6
|
|
1.2
|
%
|
||||||||||||
|
EME
|
5,385.1
|
|
4,614.3
|
|
770.8
|
|
16.7
|
%
|
158.5
|
|
3.4
|
%
|
104.1
|
|
2.3
|
%
|
||||||||||||
|
APA
|
827.8
|
|
752.0
|
|
75.8
|
|
10.1
|
%
|
(0.6
|
)
|
(0.1
|
)%
|
12.6
|
|
1.7
|
%
|
||||||||||||
|
|
$
|
9,352.0
|
|
$
|
8,306.5
|
|
$
|
1,045.5
|
|
12.6
|
%
|
$
|
6.4
|
|
0.1
|
%
|
$
|
237.0
|
|
2.9
|
%
|
|||||||
Regionally, net sales in North America increased during
2018
compared to
2017
, with sales growth driven by the positive impacts of our Precision Planting acquisition as well as increased sales of tractors, sprayers, hay tools and grain storage equipment. Net sales grew in South America in
2018
compared to
2017
, excluding the negative impact of currency translation. Sales growth in Brazil, primarily in the second half of 2018, was partially offset by sales declines in Argentina. In the EME region, net sales increased during
2018
compared to
2017
, with growth strongest in the key markets of the United Kingdom, Germany and France. In the APA region, net sales increased in
2018
compared to
2017
, primarily due to a growth in sales in China and Australia. We estimate that worldwide average price increases were approximately 1.4% and 1.1% in
2018
and
2017
, respectively. Consolidated net sales of tractors and combines, which comprised approximately 61% of our net sales in
2018
, increased approximately 11% in
2018
compared to
2017
. Unit sales of tractors and combines increased approximately 7.6% during
2018
compared to
2017
. The unit sales increase and the increase in net sales can differ due to foreign currency translation, pricing and sales mix changes.
22
The following table sets forth, for the years ended
December 31, 2018
and
2017
, the percentage relationship to net sales of certain items included in our Consolidated Statements of Operations (in millions, except percentages):
|
|
2018
|
2017
|
|||||||||||
|
$
|
% of
Net Sales
(1)
|
$
|
% of
Net Sales
|
||||||||||
|
Gross profit
|
$
|
1,996.7
|
|
21.4
|
%
|
$
|
1,765.3
|
|
21.3
|
%
|
|||
|
Selling, general and administrative expenses
|
1,069.4
|
|
11.4
|
%
|
964.7
|
|
11.6
|
%
|
|||||
|
Engineering expenses
|
355.2
|
|
3.8
|
%
|
323.4
|
|
3.9
|
%
|
|||||
|
Restructuring expenses
|
12.0
|
|
0.1
|
%
|
11.2
|
|
0.1
|
%
|
|||||
|
Amortization of intangibles
|
64.7
|
|
0.7
|
%
|
57.0
|
|
0.7
|
%
|
|||||
|
Bad debt expense
|
6.4
|
|
0.1
|
%
|
4.6
|
|
0.1
|
%
|
|||||
|
Income from operations
|
$
|
489.0
|
|
5.3
|
%
|
$
|
404.4
|
|
4.9
|
%
|
|||
____________________________________
|
(1)
|
Rounding may impact summation of amounts.
|
Gross profit as a percentage of net sales increased during
2018
compared to
2017
, primarily due to higher sales and production volumes as well as pricing and cost containment initiatives, partially offset by increased material costs (including steel) and negative currency impacts. Production hours increased approximately 7% during
2018
compared to
2017
. We recorded stock compensation expense of approximately
$2.3 million
and
$2.8 million
during
2018
and
2017
, respectively, within cost of goods sold, as is more fully explained in Note 10 of our Consolidated Financial Statements.
Selling, general and administrative expenses (“SG&A expenses”) and engineering expenses increased in dollars but were lower as a percentage of net sales during
2018
compared to
2017
. The increases in SG&A and engineering expenses were primarily the result of labor cost increases, the impact of acquisitions and negative foreign currency translation impacts during
2018
. Engineering expenses also increased during
2018
to support investments in future new product introductions. We recorded stock compensation expense of approximately
$44.3 million
and
$35.6 million
during
2018
and
2017
, respectively, within SG&A expenses, as is more fully explained in Note 10 of our Consolidated Financial Statements.
We recorded restructuring expenses of approximately
$12.0 million
and
$11.2 million
during
2018
and
2017
, respectively. The restructuring expenses primarily related to severance and related costs associated with the rationalization of employee headcount at various manufacturing facilities and administrative offices located in Europe, China, South America and the United States.
Interest expense, net was
$53.8 million
for
2018
compared to
$45.1 million
for
2017
. During 2018, we repurchased approximately $300.0 million of our outstanding 5⅞% senior notes. The repurchase resulted in a loss on extinguishment of debt of approximately $24.5 million, including associated fees, offset by approximately $4.7 million of accelerated amortization of a deferred gain related to a terminated interest rate swap instrument associated with the senior notes. In addition, we repaid our outstanding term loan under our former revolving credit and term loan facility. We recorded approximately $0.7 million associated with the write-off of deferred debt issuance costs and a loss of approximately $3.9 million from a terminated interest rate swap instrument related to the term loan. See “Liquidity and Capital Resources” for further information.
Other expense, net was
$74.9 million
in
2018
compared to
$75.5 million
in
2017
. Losses on sales of receivables, primarily related to our accounts receivable sales agreements with our finance joint ventures in North America, Europe and Brazil, were approximately
$36.0 million
and
$39.2 million
in
2018
and
2017
, respectively. “Other expense, net” also includes hedging costs and foreign exchange losses which included losses associated with the devaluation of the Argentine peso incurred during 2018.
We have a wholly-owned subsidiary in Argentina that manufactures and distributes agricultural equipment and replacement parts within Argentina. As of June 30, 2018, on the basis of currently available data related to inflation indices and as a result of the devaluation of the Argentine peso relative to the United States dollar, the Argentinian economy was determined to be highly inflationary. A highly inflationary economy is one where the cumulative inflation rate for the three years preceding the beginning of the reporting period, including interim reporting periods, is in excess of 100 percent. As a result of this designation and based on the guidance in ASC 830, “Foreign Currency Matters,” we changed the functional
23
currency of our wholly-owned subsidiary from the Argentinian peso to the U.S. dollar effective July 1, 2018. For the six months ended December 31, 2018, our wholly-owned subsidiary in Argentina had net sales of approximately $92.2 million, and it had total assets of approximately $104.5 million as of December 31, 2018. The monetary assets and liabilities were remeasured based on current published exchange rates.
We recorded an income tax provision of
$110.9 million
in
2018
compared to
$133.6 million
in
2017
. Our tax provision and effective tax rate are impacted by the differing tax rates of the various tax jurisdictions in which we operate, permanent differences for items treated differently for financial accounting and income tax purposes and for losses in jurisdictions where no income tax benefit is recorded. During
2017
, we recorded a tax provision of approximately
$42.0 million
resulting from an estimate of the impact of the U.S. tax reform legislation enacted on
December 22, 2017
. During 2018, we finalized our calculations related to the U.S. tax reform legislation and recorded a tax benefit of approximately $8.5 million. At
December 31, 2018
and
2017
, we had gross deferred tax assets of
$350.2 million
and
$354.9 million
, respectively, including
$74.5 million
and
$83.4 million
, respectively, related to net operating loss carryforwards. At
December 31, 2018
, we had total valuation allowances as an offset to our gross deferred tax assets of approximately
$83.9 million
, which included allowances against net operating loss carryforwards in Brazil, China, the United Kingdom and the Netherlands, as well as allowances against our net deferred taxes in the U.S. At
December 31, 2017
, we had total valuation allowances as an offset to the gross deferred tax assets of approximately
$81.9 million
, primarily related to net operating loss carryforwards in Brazil, China, the United Kingdom and the Netherlands, as well as allowances against our net deferred taxes in the U.S. Realization of the remaining deferred tax assets as of
December 31, 2018
will depend on generating sufficient taxable income in future periods, net of reversing deferred tax liabilities. We believe it is more likely than not that the remaining net deferred tax assets will be realized. Refer to Note 6 of our Consolidated Financial Statements for further information.
Equity in net earnings of affiliates, which is primarily comprised of income from our finance joint ventures, was
$34.3 million
in
2018
compared to
$39.1 million
in
2017
, primarily due to lower net earnings from certain finance joint ventures and other affiliates. Refer to “Finance Joint Ventures” for further information regarding our finance joint ventures and their results of operations and to Note 5 of our Consolidated Financial Statements.
2017
Compared to
2016
Net income attributable to AGCO Corporation and subsidiaries for
2017
was
$186.4 million
, or
$2.32
per diluted share, compared to net income for
2016
of
$160.1 million
, or
$1.96
per diluted share for 2016.
Net sales for
2017
were approximately
$8,306.5 million
, or
12.1%
higher than
2016
, primarily due to sales growth in all regions, the positive impact of acquisitions and the benefit of currency translations impacts. Income from operations was
$404.4 million
in
2017
compared to
$287.0 million
in
2016
. The increase in income from operations in
2017
was primarily a result of higher net sales and improved margins resulting from higher production levels and other cost reduction initiatives.
Regionally, income from operations in the EME region increased by approximately
$93.1 million
in 2017 compared to 2016, driven primarily by higher net sales and improved margins resulting from increased production levels. In our North American region, income from operations improved by approximately
$25.3 million
. Higher net sales, improved factory productivity and expense reduction efforts resulted in the improvement in operating margins. In South America, income from operations decreased approximately
$5.0 million
in 2017 compared to 2016. The decline was due to lower margins resulting from decreased production levels, material cost inflation and costs associated with transitioning our higher horsepower products to new tier 3 emission technology. Income from operations in our APA region increased approximately
$29.1 million
in 2017 compared to 2016 primarily due to the growth in net sales and improved margins.
Industry Market Conditions
In North America, tractor and combine demand improved over 2016 levels, but demand in the other row crop segments remains weak. Specifically, industry unit retail sales of higher horsepower tractors were relatively flat, while industry unit retail sales of combines increased approximately 10% in 2017 compared to 2016. In addition, industry unit retail sales of lower-horsepower tractors grew modestly, while unit retail sales of hay and forage equipment deteriorated. Industry retail sales in Western Europe improved during 2017 with the strongest growth in Germany, Italy and the United Kingdom. Recovery in the dairy sector helped to support retail sales and improve overall confidence in the region. Lower commodity prices however pressured market demand in the arable farming segment. Industry unit retail sales of tractors increased approximately 4% in 2017 compared to 2016 in the region, while combine industry unit retail sales decreased approximately 6% over the same period. Industry retail sales in South America rose during the full year of 2017 as demand in Brazil grew strongly from depressed first half levels experienced in 2016. Brazilian sales slowed in the second half of 2017 as ongoing political and economic uncertainty dampened farmer confidence. The Argentine market was robust in 2017 as supportive government
24
policies stimulated growth. Industry unit retail sales of tractors and combines both increased in the region by approximately 13% in 2017 compared to 2016.
Results of Operations
Net sales for
2017
were
$8,306.5 million
compared to
$7,410.5 million
for
2016
, primarily due to stable growth in all regions, acquisitions and the favorable impact of foreign currency translation. The following table sets forth, for the year ended
December 31, 2017
, the impact to net sales of currency translation by geographical segment (in millions, except percentages):
|
|
|
|
Change
|
Change due to Currency Translation
|
Change due to Acquisitions
|
|||||||||||||||||||||||
|
|
2017
|
2016
|
$
|
%
|
$
|
%
|
$
|
%
|
||||||||||||||||||||
|
North America
|
$
|
1,876.7
|
|
$
|
1,807.7
|
|
$
|
69.0
|
|
3.8
|
%
|
$
|
4.7
|
|
0.3
|
%
|
$
|
38.8
|
|
2.1
|
%
|
|||||||
|
South America
|
1,063.5
|
|
917.5
|
|
146.0
|
|
15.9
|
%
|
41.3
|
|
4.5
|
%
|
4.1
|
|
0.4
|
%
|
||||||||||||
|
EME
|
4,614.3
|
|
4,089.7
|
|
524.6
|
|
12.8
|
%
|
57.6
|
|
1.4
|
%
|
110.6
|
|
2.7
|
%
|
||||||||||||
|
APA
|
752.0
|
|
595.6
|
|
156.4
|
|
26.3
|
%
|
13.9
|
|
2.3
|
%
|
24.1
|
|
4.0
|
%
|
||||||||||||
|
|
$
|
8,306.5
|
|
$
|
7,410.5
|
|
$
|
896.0
|
|
12.1
|
%
|
$
|
117.5
|
|
1.6
|
%
|
$
|
177.6
|
|
2.4
|
%
|
|||||||
Regionally, net sales in North America increased during 2017 compared to 2016, driven by positive acquisition impacts. Mixed industry demand and dealer inventory reduction efforts pressured sales volumes in the region. Tractor sales growth due to new product introductions was mostly offset by sales declines in hay tools, sprayers and grain storage equipment. Net sales grew in South America in 2017 compared to 2016. The increase was driven by robust demand in Argentina as well as modest growth in Brazil. In the EME region, net sales increased during 2017 compared to 2016, with growth strongest in the key markets of the United Kingdom, Germany and Italy. In the APA region, net sales increased in 2017 compared to 2016, primarily due to a growth in sales in China and Australia. We estimate that worldwide average price increases were approximately 1.1% and 1.5% in 2017 and 2016, respectively. Consolidated net sales of tractors and combines, which comprised approximately 62% of our net sales in 2017, increased approximately 13% in 2017 compared to 2016. Unit sales of tractors and combines increased approximately 3.6% during 2017 compared to 2016. The unit sales increase and the increase in net sales can differ due to foreign currency translation, pricing and sales mix changes.
The following table sets forth, for the years ended December 31, 2017 and 2016, the percentage relationship to net sales of certain items included in our Consolidated Statements of Operations (in millions, except percentages):
|
|
2017
|
2016
|
|||||||||||
|
$
|
% of
Net Sales
|
$
|
% of
Net Sales
|
||||||||||
|
Gross profit
|
$
|
1,765.3
|
|
21.3
|
%
|
$
|
1,515.5
|
|
20.5
|
%
|
|||
|
Selling, general and administrative expenses
|
964.7
|
|
11.6
|
%
|
864.6
|
|
11.7
|
%
|
|||||
|
Engineering expenses
|
323.4
|
|
3.9
|
%
|
297.6
|
|
4.0
|
%
|
|||||
|
Restructuring expenses
|
11.2
|
|
0.1
|
%
|
11.9
|
|
0.2
|
%
|
|||||
|
Amortization of intangibles
|
57.0
|
|
0.7
|
%
|
51.2
|
|
0.7
|
%
|
|||||
|
Bad debt expense
|
4.6
|
|
0.1
|
%
|
3.2
|
|
—
|
%
|
|||||
|
Income from operations
|
$
|
404.4
|
|
4.9
|
%
|
$
|
287.0
|
|
3.9
|
%
|
|||
Gross profit as a percentage of net sales increased during 2017 compared to 2016, primarily due to higher sales and production volumes, reduced warranty costs and the benefits from material cost containment and productivity initiatives. Production hours increased approximately 3% during 2017 compared to 2016. We recorded stock compensation expense of approximately
$2.8 million
and
$1.5 million
during 2017 and 2016, respectively, within cost of goods sold, as is more fully explained in Note 10 of our Consolidated Financial Statements.
SG&A expenses and engineering expenses increased in dollars but were relatively flat as a percentage of net sales during 2017 compared to 2016. The increases in SG&A and engineering expenses were primarily the result of labor cost increases and the impact of acquisitions as well as negative foreign currency translation impacts during 2017. Engineering expenses also increased during 2016 to support investments in future new product introductions. We recorded stock
25
compensation expense of approximately
$35.6 million
and
$16.9 million
during 2017 and 2016, respectively, within SG&A expenses, as is more fully explained in Note 10 of our Consolidated Financial Statements.
We recorded restructuring expenses of approximately
$11.2 million
and
$11.9 million
during 2017 and 2016, respectively. The restructuring expenses recorded in 2017 and 2016 primarily related to severance and related costs associated with the rationalization of employee headcount at various manufacturing facilities and administrative offices located in Europe, China, South America and the United States.
Interest expense, net was
$45.1 million
for 2017 compared to
$52.1 million
for 2016. See “Liquidity and Capital Resources” for further information.
Other expense, net was
$75.5 million
in 2017 compared to
$30.0 million
in 2016. Losses on sales of receivables, primarily related to our accounts receivable sales agreements with our finance joint ventures in North America, Europe and Brazil, were approximately
$39.2 million
and
$19.5 million
in 2017 and 2016, respectively, due to an increase in the volume of receivables sold during 2017 as compared to 2016. In addition, higher hedging costs and foreign exchange losses in 2017 as compared to 2016 contributed to the increase in other expense, net.
We recorded an income tax provision of
$133.6 million
in 2017 compared to
$92.2 million
in 2016. Our tax provision and effective tax rate are impacted by the differing tax rates of the various tax jurisdictions in which we operate, permanent differences for items treated differently for financial accounting and income tax purposes and for losses in jurisdictions where no income tax benefit is recorded. During 2017, we recorded a tax provision of approximately $42.0 million resulting from an estimate of the impact of the U.S. tax reform legislation enacted on December 22, 2017. During 2016, we recorded a non-cash deferred tax adjustment to establish a valuation allowance against our U.S. net deferred income tax assets. A valuation allowance is established when it is more likely than not that some portion or all of a company’s deferred tax assets will not be realized. We assessed the likelihood that our deferred tax assets would be recovered from estimated future taxable income and available income tax planning strategies at that time and concluded a valuation allowance should be established. At December 31, 2017 and 2016, we had gross deferred tax assets of $354.9 million and $447.4 million, respectively, including $83.4 million and $85.5 million, respectively, related to net operating loss carryforwards. At December 31, 2017, we had total valuation allowances as an offset to our gross deferred tax assets of approximately $81.9 million, which included allowances against net operating loss carryforwards in Brazil, China, Russia and the Netherlands, as well as allowances against our net deferred taxes in the U.S., as previously discussed. At December 31, 2016, we had total valuation allowances as an offset to the gross deferred tax assets of approximately $116.0 million, primarily related to net operating loss carryforwards in Brazil, China, Russia and the Netherlands, as well as allowances against our net deferred taxes in the U.S.
Equity in net earnings of affiliates, which is primarily comprised of income from our finance joint ventures, was
$39.1 million
in 2017 compared to
$47.5 million
in 2016 primarily due to lower net earnings from certain finance joint ventures and other affiliates. Refer to “Finance Joint Ventures” for further information regarding our finance joint ventures and their results of operations and to Note 5 of our Consolidated Financial Statements.
26
Quarterly Results
The following table presents unaudited interim operating results. We believe that the following information includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our results of operations for the periods presented.
|
|
Three Months Ended
|
||||||||||||||
|
|
March 31
|
June 30
|
September 30
|
December 31
|
|||||||||||
|
|
(In millions, except per share data)
|
||||||||||||||
|
2018:
|
|
|
|
|
|
|
|
|
|||||||
|
Net sales
|
$
|
2,007.5
|
|
$
|
2,537.6
|
|
$
|
2,214.7
|
|
$
|
2,592.2
|
|
|||
|
Gross profit
|
428.0
|
|
556.3
|
|
473.7
|
|
538.7
|
|
|||||||
|
Income from operations
|
50.5
|
|
168.1
|
|
111.3
|
|
159.1
|
|
|||||||
|
Net income
|
25.0
|
|
90.4
|
|
70.7
|
|
97.6
|
|
|||||||
|
Net (income) loss attributable to noncontrolling interests
|
(0.7
|
)
|
1.0
|
|
0.4
|
|
1.1
|
|
|||||||
|
Net income attributable to AGCO Corporation and subsidiaries
|
24.3
|
|
91.4
|
|
71.1
|
|
98.7
|
|
|||||||
|
Net income per common share attributable to AGCO Corporation and subsidiaries — diluted
|
0.30
|
|
1.14
|
|
0.89
|
|
1.26
|
|
|||||||
|
2017:
|
|
|
|
|
|
|
|
|
|||||||
|
Net sales
|
$
|
1,627.6
|
|
$
|
2,165.2
|
|
$
|
1,986.3
|
|
$
|
2,527.4
|
|
|||
|
Gross profit
|
330.3
|
|
475.4
|
|
428.6
|
|
531.0
|
|
|||||||
|
Income from operations
|
15.7
|
|
148.3
|
|
97.1
|
|
143.3
|
|
|||||||
|
Net (loss) income
|
(8.2
|
)
|
91.6
|
|
60.8
|
|
45.1
|
|
|||||||
|
Net income attributable to noncontrolling interests
|
(1.9
|
)
|
(0.1
|
)
|
(0.1
|
)
|
(0.8
|
)
|
|||||||
|
Net (loss) income attributable to AGCO Corporation and subsidiaries
|
(10.1
|
)
|
91.5
|
|
60.7
|
|
44.3
|
|
|||||||
|
Net (loss) income per common share attributable to AGCO Corporation and subsidiaries — diluted
|
(0.13
|
)
|
1.14
|
|
0.76
|
|
0.55
|
|
|||||||
Finance Joint Ventures
Our AGCO Finance joint ventures provide both retail financing and wholesale financing to our dealers in the United States, Canada, Europe, Brazil, Argentina and Australia. The joint ventures are owned by AGCO and by a wholly-owned subsidiary of Rabobank, a financial institution based in the Netherlands. The majority of the assets of the finance joint ventures consist of finance receivables. The majority of the liabilities consist of notes payable and accrued interest. Under the various joint venture agreements, Rabobank or its affiliates provide financing to the finance joint ventures, primarily through lines of credit. We do not guarantee the debt obligations of the joint ventures. As of
December 31, 2018
, our capital investment in the finance joint ventures, which is included in “Investment in affiliates” on our Consolidated Balance Sheets, was approximately
$358.7 million
compared to
$373.7 million
as of
December 31, 2017
. The total finance portfolio in our finance joint ventures was approximately
$8.8 billion
as of
December 31, 2018
and
2017
, respectively. The total finance portfolio as of
December 31, 2018
and 2017 included approximately
$7.2 billion
and
$7.3 billion
, respectively, of retail receivables and
$1.6 billion
and
$1.5 billion
, respectively, of wholesale receivables from AGCO dealers. The wholesale receivables either were sold directly to AGCO Finance without recourse from our operating companies or AGCO Finance provided the financing directly to the dealers. During
2018
and
2017
, we did not make additional investments in our finance joint ventures. During
2018
and
2017
, we received dividends of approximately
$29.4 million
and
$78.5 million
, respectively, from certain of our finance joint ventures. Our share in the earnings of the finance joint ventures, included in “Equity in net earnings of affiliates” within our Consolidated Statements of Operations, was
$34.7 million
and
$39.1 million
for the years ended
December 31, 2018
and
2017
, respectively, with the decrease in earnings primarily due to lower income in the U.S. and Brazilian finance joint ventures during
2018
as compared to
2017
.
27
Outlook
Our operations are subject to the cyclical nature of the agricultural industry. Sales of our equipment have been and are expected to continue to be affected by changes in net cash farm income, farm land values, weather conditions, the demand for agricultural commodities, farm industry related legislation and policies, availability of financing and general economic conditions.
Global industry demand is projected to improve modestly during 2019. Our net sales are expected to increase in 2019 compared to 2018, primarily due to improved sales volumes and positive pricing impacts, offset by unfavorable foreign currency translation. Gross and operating margins are expected to improve from 2018 levels, reflecting the positive impact of pricing and cost reduction efforts.
Recent Acquisitions
On October 2, 2017, we acquired the forage division of the Lely Group (“Lely”) for approximately
€80.2 million
(or approximately
$94.6 million
), net of cash acquired of approximately
€10.1 million
(or approximately
$11.9 million
). The Lely acquisition, with manufacturing locations in northern Germany, allowed the Company to expand its product offering of hay and forage equipment, including balers, loader wagons and other harvesting tools. The acquisition was financed through our credit facility (see Note 7 of our Consolidated Financial Statements for further information). We allocated the purchase price to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. The acquired net assets primarily consisted of accounts receivable, inventories, accounts payable and accrued expenses, property, plant and equipment, and customer relationship, technology and trademark indentifiable intangible assets. We recorded approximately
$7.6 million
of customer relationship, technology and trademark identifiable intangible assets and approximately
$25.8 million
of goodwill associated with the acquisition.
On September 1, 2017, we acquired Precision Planting LLC (“Precision Planting”) for approximately
$198.1 million
, net of cash acquired of approximately
$1.6 million
. Precision Planting, headquartered in Tremont, Illinois, is a leading manufacturer of high-tech planting equipment. The acquisition of Precision Planting provided us an opportunity to expand our precision farming technology offerings on a global basis. The acquisition was financed through our credit facility (see Note 7 of our Consolidated Financial Statements for further information). We allocated the purchase price to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. The acquired assets primarily consisted of accounts receivable, inventories, accounts payable and accrued expenses, property, plant and equipment, and customer relationship, technology and trademark identifiable intangible assets. We recorded approximately
$64.4 million
of customer relationship, technology and trademark identifiable intangible assets and approximately
$67.2 million
of goodwill associated with the acquisition.
On September 12, 2016, we acquired Cimbria Holdings Limited (“Cimbria”) for
DKK 2,234.9 million
(or approximately
$337.5 million
), net of cash acquired of approximately
DKK 83.4 million
(or approximately
$12.6 million
). Cimbria, headquartered in Thisted, Denmark, is a leading manufacturer of products and solutions for the processing, handling and storage of seed and grain. The acquisition was financed through our credit facility (see Note 7 of our Consolidated Financial Statements for further information). We allocated the purchase price to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. The acquired assets primarily consisted of accounts receivable, inventories, accounts payable and accrued expenses, customer advances, property, plant and equipment, and customer relationship, technology and trademark identifiable intangible assets. We recorded approximately
$128.9 million
of customer relationship, technology and trademark identifiable intangible assets and approximately
$237.9 million
of goodwill associated with the acquisition.
On February 2, 2016, we acquired Tecno Poultry Equipment S.p.A (“Tecno”) for approximately
€58.7 million
(or approximately
$63.8 million
). We acquired cash of approximately
€17.6 million
(or approximately
$19.1 million
) associated with the acquisition. Tecno, headquartered in Ronchi Di Villafranca, Italy, manufactures and supplies poultry housing and related products, including egg collection equipment and trolley feeding systems. The acquisition was financed through our credit facility (refer to Note 7 of our Consolidated Financial Statements for further information). We allocated the purchase price to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. The acquired net assets primarily consisted of accounts receivable, inventories, accounts payable and accrued expenses, deferred revenue, property, plant and equipment and customer relationship, technology and trademark identifiable intangible assets. We recorded approximately
$27.5 million
of customer relationship, technology and trademark identifiable intangible assets and approximately
$20.4 million
of goodwill associated with the acquisition.
28
Liquidity and Capital Resources
Our financing requirements are subject to variations due to seasonal changes in inventory and receivable levels. Internally generated funds are supplemented when necessary from external sources, primarily our credit facility and accounts receivable sales agreement facilities. We believe that the following facilities, together with available cash and internally generated funds, will be sufficient to support our working capital, capital expenditures and debt service requirements for the foreseeable future (in millions):
|
December 31, 2018
|
|||
|
Senior term loan due 2022
|
$
|
171.5
|
|
|
Credit facility, expires 2023
|
114.4
|
|
|
|
Senior term loans due between 2019 and 2028
|
815.3
|
|
|
|
1.056% Senior term loan due 2020
|
228.7
|
|
|
|
Other long-term debt
|
132.2
|
|
|
|
Debt issuance costs
|
(2.6
|
)
|
|
|
|
$
|
1,459.5
|
|
In October 2018, we entered into a term loan agreement with Rabobank in the amount of €150.0 million (or approximately
$171.5 million
as of
December 31, 2018
). We have the ability to prepay the term loan before its maturity date on October 28, 2022. Interest is payable on the term loan quarterly in arrears at an annual rate equal to the EURIBOR plus a margin ranging from 0.875% to 1.875% based on our credit rating. We also have to fulfill financial covenants with respect to a total debt to EBITDA ratio and an interest coverage ratio. In connection with this new term loan agreement, in October 2018, we repaid our €100.0 million (or approximately $113.2 million) term loan outstanding under a former term loan agreement with Rabobank that was entered into in April 2016.
In October 2018, we entered into a multi-currency revolving credit facility of
$800.0 million
. The maturity date of the credit facility is October 17, 2023. Interest accrues on amounts outstanding under the credit facility, at our option, at either (1) LIBOR plus a margin ranging from
0.875%
to
1.875%
based on our credit rating, or (2) the base rate, which is equal to the higher of (i) the administrative agent’s base lending rate for the applicable currency, (ii) the federal funds rate plus
0.5%
, and (iii) one-month LIBOR for loans denominated in U.S. dollars plus
1.0%
, plus a margin ranging from
0.0%
to
0.875%
based on our credit rating. The credit facility contains covenants restricting, among other things, the incurrence of indebtedness and the making of certain payments, including dividends. We also have to fulfill financial covenants with respect to a total debt to EBITDA ratio and an interest coverage ratio. In connection with the closing of this new credit facility in October 2018, we repaid our outstanding
€312.0 million
(or approximately
$360.8 million
) term loan under our former revolving credit and term loan facility. We recorded approximately
$0.9 million
associated with the write-off of deferred debt issuance costs associated with the repayment. In addition, we recorded a loss of approximately
$3.9 million
related to the termination of our interest rate swap instrument associated with the former facility’s term loan.
In August 2018, we borrowed an additional aggregate amount of indebtedness of
€338.0 million
(or approximately $394.7 million) through a group of seven related term loan agreements. Proceeds from the borrowings were used to repay borrowings under our former revolving credit facility. The provisions of the term loan agreements are identical in nature with the exception of interest rate terms and maturities. The maturities of the term loan agreements range from August 1, 2021 to August 1, 2028.
In October 2016, we borrowed an aggregate amount of €375.0 million through a group of seven related term loan agreements. These agreements have maturities ranging from October 2019 to October 2026. Of those term loans, an aggregate amount of €55.8 million (or $63.8 million) as of December 31, 2018 have maturity dates of October 2019.
In May 2018, we completed a cash tender offer to purchase any and all of our outstanding 5
7
/
8
% senior notes at a cash purchase price of
$1,077.50
per $1,000.00 of senior notes. As a result of the tender offer, we repurchased approximately
$185.9 million
of principal amount of the senior notes for approximately
$200.3 million
, plus accrued interest. The repurchase resulted in a loss on extinguishment of debt of approximately
$15.7 million
, including associated fees. In October 2018, we repurchased the remaining principal amount of the senior notes of approximately
$114.1 million
for approximately
$122.5 million
, plus accrued interest. The repurchase resulted in a loss on extinguishment of debt of approximately
$8.8 million
, including associated fees. As a result of the repurchase of the 5
7
/
8
% senior notes, we recorded a cumulative amount of approximately $4.7 million of accelerated amortization of a deferred gain related to a terminated interest rate swap instrument associated with the
29
senior notes. The losses on extinguishment as well as the accelerated amortization were reflected in “Interest expense, net,” for the year ended
December 31, 2018
.
In December 2018, we entered into a term loan agreement with the European Investment Bank (“EIB”), which provided us with the ability to borrow up to €250.0 million. The €250.0 million (or approximately $284.6 million) of funding was received on January 25, 2019 with a maturity date of January 24, 2025. We have the ability to prepay the term loan before its maturity date. Interest is payable on the term loan at 1.002% per annum, payable semi-annually in arrears. We have another term loan with the EIB in the amount of
€200.0 million
(or approximately
$228.7 million
as of
December 31, 2018
) that was entered into in December 2014. It has a maturity date of January 15, 2020.
While we are in compliance with the financial covenants contained in these facilities and currently expect to continue to maintain such compliance, should we ever encounter difficulties, our historical relationship with our lenders has been strong and we anticipate their continued long-term support of our business. Refer to Note 7 to the Consolidated Financial Statements for further information regarding our current facilities.
Our accounts receivable sales agreements in North America, Europe and Brazil permit the sale, on an ongoing basis, of a majority of our receivables in North America, Europe and Brazil to our U.S., Canadian, European and Brazilian finance joint ventures. The sale of all receivables are without recourse to us. We do not service the receivables after the sale occurs, and we do not maintain any direct retained interest in the receivables. These agreements are accounted for as off-balance sheet transactions and have the effect of reducing accounts receivable and short-term liabilities by the same amount. As of
December 31, 2018
and
2017
, the cash received from receivables sold under the U.S., Canadian, European and Brazilian accounts receivable sales agreements was approximately
$1.4 billion
and
$1.3 billion
, respectively.
Our finance joint ventures in Europe, Brazil and Australia also provide wholesale financing directly to our dealers. The receivables associated with these arrangements also are without recourse to us. As of
December 31, 2018
and
2017
, these finance joint ventures had approximately
$82.5 million
and
$41.6 million
, respectively, of outstanding accounts receivable associated with these arrangements. These arrangements are accounted for as off-balance sheet transactions. In addition, we sell certain trade receivables under factoring arrangements to other financial institutions around the world. These arrangements also are accounted for as off-balance sheet transactions.
Our debt to capitalization ratio, which is total indebtedness divided by the sum of total indebtedness and stockholders’ equity, was
32.8%
at
December 31, 2018
compared to
35.7%
at
December 31, 2017
.
Cash Flows
Cash flows provided by operating activities were
$595.9 million
during
2018
compared to
$577.6 million
during
2017
and
$369.5 million
during
2016
. The increase during
2018
was primarily due to an increase in net income as well as an increase in accrued expenses, offset by an increase in inventories. In addition, we received a decreased amount of dividends from our finance joint ventures in 2018 as compared to 2017. The increase in cash flows provided by operating activities during
2017
as compared to 2016 was primarily due to an increase in net income as well as an increase in accounts payable and accrued expenses, offset by an increase in inventories.
Our working capital requirements are seasonal, with investments in working capital typically building in the first half of the year and then reducing in the second half of the year. We had
$770.7 million
in working capital at
December 31, 2018
, as compared with
$977.1 million
at
December 31, 2017
. Accounts receivable and inventories, combined, at
December 31, 2018
were
$103.3 million
lower
than at
December 31, 2017
. Excluding the negative impact of currency translation, inventories increased as of December 31, 2018 as compared to December 31, 2017 as a result of acquisition impacts, higher production and increased inventory required to transition production to products meeting new emissions standards in Europe and Brazil.
Share Repurchase Program
During
2018
and
2016
, we repurchased
3,120,184
and
4,413,250
shares of our common stock, respectively, for approximately
$184.3 million
and
$212.5 million
, respectively, either through Accelerated Share Repurchase (“ASR”) agreements with financial institutions or through open market transactions. During
2017
, we received approximately
70,464
shares associated with the remaining balance of shares to be delivered under an ASR agreement that was completed in November 2016. All shares received under the ASR agreements were retired upon receipt, and the excess of the purchase price over par value per share was recorded to “Additional paid-in capital” within the our Consolidated Balance Sheets.
30
During 2019, we entered into an ASR agreement with a financial institution to repurchase an aggregate of
$30.0 million
shares of our common stock. We received approximately
379,927
shares to date in this transaction. The specific number of shares we will ultimately repurchase will be determined at the completion of the term of the ASR based on the daily volume-weighted average share price of our common stock less an agreed-upon discount. Upon settlement of the ASR, we may be entitled to receive additional shares of common stock or, under certain circumstances, be required to remit a settlement amount. We expect that additional shares will be received by us upon final settlement of our current ASR agreement, which expires during the second quarter of 2019. All shares received under the ASR agreement discussed above were retired upon receipt and the excess of the purchase price over par value per share was recorded to “Additional paid-in capital” within our Consolidated Balance Sheets.
Contractual Obligations
The future payments required under our significant contractual obligations, excluding foreign currency option and forward contracts, as of
December 31, 2018
are as follows (in millions):
|
|
Payments Due By Period
|
||||||||||||||||||
|
Total
|
2019
|
2020 to 2021
|
2022 to 2023
|
2024 and Beyond
|
|||||||||||||||
|
Indebtedness
(1)
|
$
|
1,459.5
|
|
$
|
184.2
|
|
$
|
534.1
|
|
$
|
571.1
|
|
$
|
170.1
|
|
||||
|
Interest payments related to indebtedness
(2)
|
59.0
|
|
15.0
|
|
22.0
|
|
13.4
|
|
8.6
|
|
|||||||||
|
Capital lease obligations
|
15.5
|
|
4.6
|
|
5.9
|
|
1.5
|
|
3.5
|
|
|||||||||
|
Operating lease obligations
|
252.0
|
|
46.7
|
|
72.1
|
|
47.7
|
|
85.5
|
|
|||||||||
|
Unconditional purchase obligations
|
97.8
|
|
79.1
|
|
17.7
|
|
1.0
|
|
—
|
|
|||||||||
|
Other short-term and long-term obligations
(3)
|
322.4
|
|
98.9
|
|
137.2
|
|
48.9
|
|
37.4
|
|
|||||||||
|
Total contractual cash obligations
|
$
|
2,206.2
|
|
$
|
428.5
|
|
$
|
789.0
|
|
$
|
683.6
|
|
$
|
305.1
|
|
||||
|
|
Amount of Commitment Expiration Per Period
|
||||||||||||||||||
|
|
Total
|
2019
|
2020 to 2021
|
2022 to 2023
|
2024 and Beyond
|
||||||||||||||
|
Standby letters of credit and similar instruments
|
$
|
14.1
|
|
$
|
14.1
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Guarantees
|
54.2
|
|
36.9
|
|
9.9
|
|
6.7
|
|
0.7
|
|
|||||||||
|
Total commercial commitments and letters of credit
|
$
|
68.3
|
|
$
|
51.0
|
|
$
|
9.9
|
|
$
|
6.7
|
|
$
|
0.7
|
|
||||
|
(1)
|
Indebtedness amounts reflect the principal amount of our senior term loan, senior notes and credit facility.
|
|
(2)
|
Estimated interest payments are calculated assuming current interest rates over minimum maturity periods specified in debt agreements. Debt may be repaid sooner or later than such minimum maturity periods.
|
|
(3)
|
Other short-term and long-term obligations include estimates of future minimum contribution requirements under our U.S. and non-U.S. defined benefit pension and postretirement plans. These estimates are based on current legislation in the countries we operate within and are subject to change. Other short-term and long-term obligations also include income tax liabilities related to uncertain income tax positions connected with ongoing income tax audits in various jurisdictions.
|
31
Commitments and Off-Balance Sheet Arrangements
Guarantees
We maintain a remarketing agreement with our finance joint venture in the United States, whereby we are obligated to repurchase up to $6.0 million of repossessed equipment each calendar year. We believe that any losses that might be incurred on the resale of this equipment will not materially impact our financial position or results of operations, due to the fact that the repurchase obligation would be equivalent to the fair value of the underlying equipment.
At
December 31, 2018
, we guaranteed indebtedness owed to third parties of approximately
$40.6 million
, primarily related to dealer and end-user financing of equipment. Such guarantees generally obligate us to repay outstanding finance obligations owed to financial institutions if dealers or end users default on such loans through
2023
. Losses under such guarantees historically have been insignificant. In addition, we generally would expect to be able to recover a significant portion of the amounts paid under such guarantees from the sale of the underlying financed farm equipment, as the fair value of such equipment is expected to offset a substantial portion of the amounts paid. We believe the credit risk associated with these guarantees is not material to our financial position or results of operations.
In addition, at
December 31, 2018
, we had accrued approximately $13.6 million of outstanding guarantees of minimum residual values that may be owed to our finance joint ventures in the United States and Canada due upon expiration of certain eligible operating leases between the finance joint ventures and end users.
Other
At
December 31, 2018
, we had outstanding designated and non-designated foreign exchange contracts with a gross notional amount of approximately
$1,462.8 million
. The outstanding contracts as of
December 31, 2018
range in maturity through December 2018.
As discussed in “Liquidity and Capital Resources,” we sell a majority of our wholesale accounts receivable in North America, Europe and Brazil to our U.S., Canadian, European and Brazilian finance joint ventures. We also sell certain accounts receivable under factoring arrangements to financial institutions around the world. We have determined that these facilities should be accounted for as off-balance sheet transactions.
Contingencies
We are party to various claims and lawsuits arising in the normal course of business. We closely monitor these claims and lawsuits and frequently consult with our legal counsel to determine whether they may, when resolved, have a material adverse effect on our financial position or results of operations and accrue and/or disclose loss contingencies as appropriate (see Note 12 of our Consolidated Financial Statements and Item 3, “Legal Proceedings”).
Related Parties
Rabobank is a
51%
owner in our finance joint ventures. See “Finance Joint Ventures.” Rabobank is also the principal agent and participant in our credit facility.
Our finance joint ventures provide retail and wholesale financing to our dealers. In addition, we transfer, on an ongoing basis, a majority of our wholesale receivables in North America, Europe and Brazil to our U.S., Canadian, European and Brazilian finance joint ventures. See Note 4 of our Consolidated Financial Statements for further discussion of these agreements. We maintain a remarketing agreement with our U.S. finance joint venture, AGCO Finance LLC, as discussed above under “Commitments and Off-Balance Sheet Arrangements.” In addition, as part of sales incentives provided to end users, we may from time to time subsidize interest rates of retail financing provided by our finance joint ventures. The cost of those programs is recognized at the time of sale to our dealers.
TAFE, in which we hold a
23.75%
interest, manufactures and sells Massey Ferguson-branded equipment primarily in India, and also supplies tractors and components to us for sale in other markets. Mallika Srinivasan, who is the Chairman and Chief Executive Officer of TAFE, is currently a member of our Board of Directors. As of
December 31, 2018
, TAFE owned
12,150,152
shares of our common stock. We and TAFE are parties to an agreement pursuant to which, among other things, TAFE has agreed not to purchase in excess of
12,170,290
shares of our common stock, subject to certain adjustments, and we have agreed to annually nominate a TAFE representative to our Board of Directors. During
2018
,
2017
and
2016
, we purchased approximately
$109.6 million
,
$102.0 million
and
$128.5 million
, respectively, of tractors and components from TAFE. During
32
2018
,
2017
and
2016
, we sold approximately
$1.8 million
,
$1.2 million
and
$1.1 million
, respectively, of parts to TAFE. We received dividends from TAFE of approximately
$1.8 million
, during both
2018
and
2017
, and
$1.6 million
during
2016
.
During
2018
,
2017
and
2016
, we paid approximately
$3.5 million
,
$7.2 million
and
$3.1 million
, respectively, to PPG Industries, Inc. for painting materials used in our manufacturing processes. Our Chairman, President and Chief Executive Officer is currently a member of the board of directors of PPG Industries, Inc.
During
2018
,
2017
and
2016
, we paid approximately
$1.6 million
,
$1.5 million
and
$2.0 million
, respectively, to Praxair, Inc. for propane, gas and welding, and laser consumables used in our manufacturing processes. Our Chairman, President and Chief Executive Officer is currently a member of the board of directors of Praxair, Inc.
Foreign Currency Risk Management
We have significant manufacturing operations in the United States, France, Germany, Finland and Brazil, and we purchase a portion of our tractors, combines and components from third-party foreign suppliers, primarily in various European countries and in Japan. We also sell products in approximately
140
countries throughout the world. The majority of our net sales outside the United States are denominated in the currency of the customer location, with the exception of sales in the Middle East, Africa, Asia and parts of South America, where net sales are primarily denominated in British pounds, Euros or United States dollars. See Note 16 of our Consolidated Financial Statements for net sales by customer location. Our most significant transactional foreign currency exposures are the Euro, the Brazilian real and the Canadian dollar in relation to the United States dollar, and the Euro in relation to the British pound. Fluctuations in the value of foreign currencies create exposures, which can adversely affect our results of operations.
We attempt to manage our transactional foreign currency exposure by hedging foreign currency cash flow forecasts and commitments arising from the anticipated settlement of receivables and payables and from future purchases and sales. Where naturally offsetting currency positions do not occur, we hedge certain, but not all, of our exposures through the use of foreign currency contracts. Our translation exposure resulting from translating the financial statements of foreign subsidiaries into United States dollars is not hedged. Our most significant translation exposures are the Euro, the British pound and the Brazilian real in relation to the United States dollar. When practical, this translation impact is reduced by financing local operations with local borrowings. Our hedging policy prohibits use of foreign currency contracts for speculative trading purposes.
All derivatives are recognized on our Consolidated Balance Sheets at fair value. On the date a derivative contract is entered into, we designate the derivative as either (1) a cash flow hedge of a forecasted transaction, (2) a fair value hedge of a recognized liability, (3) a hedge of a net investment in a foreign operation, or (4) a non-designated derivative instrument. We currently engage in derivatives that are cash flow hedges of forecasted transactions as well as non-designated derivative instruments. The total notional value of our foreign currency instruments was
$1,462.8 million
and
$1,798.2 million
as of
December 31, 2018
and
2017
, inclusive of both those instruments that are designated and qualified for hedge accounting and non-designated derivative instruments. We also enter into derivative and non-derivative instruments to hedge a portion of our net investment in foreign operations against adverse movements in exchange rates. Refer to Note 11 of our Consolidated Financial Statements for additional information about our hedging transactions and derivative financial instruments.
Assuming a 10% change relative to the currency of the hedge contracts, the fair value of the foreign currency instruments could be negatively impacted by approximately
$27.1 million
as of
December 31, 2018
. Due to the fact that these instruments are primarily entered into for hedging purposes, the gains or losses on the contracts would largely be offset by losses and gains on the underlying firm commitment or forecasted transaction.
Interest Rate Risk
Our interest expense is, in part, sensitive to the general level of interest rates. We manage our exposure to interest rate risk through our mix of floating rate and fixed rate debt. From time to time, we enter into interest rate swap agreements to manage our exposure to interest rate fluctuations. Refer to Notes 7 and 11 of our Consolidated Financial Statements for additional information about our interest rate swap agreements.
Based on our floating rate debt and our accounts receivable sales facilities outstanding at
December 31, 2018
, a 10% increase in interest rates, would have increased, collectively, “Interest expense, net” and “Other expense, net” for the year ended
December 31, 2018
by approximately $5.1 million.
33
Recent Accounting Pronouncements
See Note 1 of our Consolidated Financial Statements for more information regarding recent accounting pronouncements and their impact to our consolidated results of operations and financial position.
Critical Accounting Estimates
We prepare our Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles. In the preparation of these financial statements, we make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The significant accounting policies followed in the preparation of the financial statements are detailed in Note 1 of our Consolidated Financial Statements. We believe that our application of the policies discussed below involves significant levels of judgment, estimates and complexity.
Due to the levels of judgment, complexity and period of time over which many of these items are resolved, actual results could differ from those estimated at the time of preparation of the financial statements. Adjustments to these estimates would impact our financial position and future results of operations.
Discount and Sales Incentive Allowances
We provide various volume bonus and sales incentive programs with respect to our products. These sales incentive programs include reductions in invoice prices, reductions in retail financing rates, dealer commissions and dealer incentive allowances. In most cases, incentive programs are established and communicated to our dealers on a quarterly basis. The incentives are paid either at the time of the cash settlement of the receivable (which is generally at the time of retail sale), at the time of retail financing, at the time of warranty registration, or at a subsequent time based on dealer purchase volumes. The incentive programs are product line specific and generally do not vary by dealer. The cost of sales incentives associated with dealer commissions and dealer incentive allowances is estimated based upon the terms of the programs and historical experience, is based on a percentage of the sales price, and estimates for sales incentives are made and recorded at the time of sale for existing incentive programs using the expected value method. These estimates are reassessed each reporting period and are revised in the event of subsequent modifications to incentive programs, as they are communicated to dealers. The related provisions and accruals are made on a product or product-line basis and are monitored for adequacy and revised at least quarterly in the event of subsequent modifications to the programs. Interest rate subsidy payments, which are a reduction in retail financing rates, are recorded in the same manner as dealer commissions and dealer incentive allowances. Volume discounts are estimated and recognized based on historical experience, and related reserves are monitored and adjusted based on actual dealer purchase volumes and the dealers’ progress towards achieving specified cumulative target levels. Estimates of these incentives are based on the terms of the programs and historical experience. All incentive programs are recorded and presented as a reduction of revenue, due to the fact that we do not receive a distinct good or service in exchange for the consideration provided. In the United States and Canada, reserves for incentive programs related to accounts receivable not sold to our U.S. and Canadian finance joint ventures are recorded as “accounts receivable allowances” within our Consolidated Balance Sheets due to the fact that the incentives are paid through a reduction of future cash settlement of the receivable. Globally, reserves for incentive programs that will be paid in cash or credit memos, as is the case with most of our volume discount programs, as well as sales incentives associated with accounts receivable sold to our finance joint ventures, are recorded within “Accrued expenses” within our Consolidated Balance Sheets.
At
December 31, 2018
, we had recorded an allowance for discounts and sales incentives of approximately $561.9 million that will be paid either through a reduction of future cash settlements of receivables and through credit memos to our dealers or through reductions in retail financing rates paid to our finance joint ventures. If we were to allow an additional 1% of sales incentives and discounts at the time of retail sale for those sales subject to such discount programs, our reserve would increase by approximately $19.7 million as of
December 31, 2018
. Conversely, if we were to decrease our sales incentives and discounts by 1% at the time of retail sale, our reserve would decrease by approximately $19.7 million as of
December 31, 2018
.
Deferred Income Taxes and Uncertain Income Tax Positions
We recorded an income tax provision of
$110.9 million
in
2018
compared to
$133.6 million
in
2017
and
$92.2 million
in
2016
. Our tax provision and effective tax rate is impacted by the differing tax rates of the various tax jurisdictions in which we operate, permanent differences for items treated differently for financial accounting and income tax purposes, and for losses in jurisdictions where no income tax benefit is recorded.
34
On December 22, 2017, the Tax Cuts and Jobs Act (“the 2017 Tax Act”) was enacted in the United States. During the three months ended December 31, 2017, we recorded a tax provision of approximately $42.0 million in accordance with Staff Accounting Bulletin No. 118, which provided SEC Staff guidance for the application of Accounting Standards Codification (“ASC”) 740 “Income Taxes,” in the reporting period in which the 2017 Tax Act was enacted. The $42.0 million tax provision included a provisional income tax charge related to a one-time transition tax associated with the mandatory deemed repatriation of unremitted foreign earnings. The tax provision also included a provisional income tax charge associated with the income tax consequences related to the expected future repatriation of certain underlying foreign earnings, as historically, we have considered them to be permanently reinvested. The remaining balance of the tax provision primarily related to the remeasurement of certain net deferred tax assets using the lower enacted U.S. Corporate tax rate (from 35 percent to 21 percent), as well as other miscellaneous related impacts. During the three months ended December 31, 2018, we finalized our calculations related to the 2017 Tax Act and recorded an income tax benefit of approximately $8.5 million.
During the second quarter of 2016, we established a valuation allowance to fully reserve our net deferred tax assets in the United States. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. We assessed the likelihood that our deferred tax assets would be recovered from estimated future taxable income and available tax planning strategies and determined that the adjustment to the valuation allowance was appropriate. In making this assessment, all available evidence was considered including the current economic climate, as well as reasonable tax planning strategies. We believe it is more likely than not that we will realize our remaining net deferred tax assets, net of the valuation allowance, in future years.
At
December 31, 2018
and
2017
, we had gross deferred tax assets of
$350.2 million
and
$354.9 million
, respectively, including
$74.5 million
and
$83.4 million
, respectively, related to net operating loss carryforwards. At
December 31, 2018
and
2017
, we had total valuation allowances as an offset to our gross deferred tax assets of
$83.9 million
and
$81.9 million
, respectively, which included allowances against net operating loss carryforwards in China, Brazil, the United Kingdom and the Netherlands, as well as allowances against our net deferred taxes in the U.S., as previously discussed. Realization of the remaining deferred tax assets as of
December 31, 2018
will depend on generating sufficient taxable income in future periods, net of reversing deferred tax liabilities. We believe it is more likely than not that the remaining net deferred tax assets will be realized.
As of
December 31, 2018
and
2017
, we had approximately
$166.1 million
and
$163.4 million
, respectively, of unrecognized tax benefits, all of which would impact our effective tax rate if recognized. As of
December 31, 2018
and
2017
, we had approximately
$58.5 million
and
$61.8 million
, respectively, of current accrued taxes related to uncertain income tax positions connected with ongoing tax audits in various jurisdictions that we expect to settle or pay in the next 12 months. We recognize interest and penalties related to uncertain income tax positions in income tax expense. As of
December 31, 2018
and
2017
, we had accrued interest and penalties related to unrecognized tax benefits of approximately
$27.2 million
and
$23.0 million
, respectively. See Note 6 of our Consolidated Financial Statements for further discussion of our uncertain income tax positions.
Pensions
We sponsor defined benefit pension plans covering certain employees, principally in the United Kingdom, the United States, Germany, Switzerland, Finland, France, Norway and Argentina. Our primary plans cover certain employees in the United States and the United Kingdom.
In the United States, we sponsor a funded, qualified defined benefit pension plan for our salaried employees, as well as a separate funded qualified defined benefit pension plan for our hourly employees. Both plans are closed to new entrants and frozen, and we fund at least the minimum contributions required under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code to both plans. In addition, we maintain an unfunded, nonqualified defined benefit pension plan for certain U.S.-based senior executives, which is our Executive Nonqualified Pension Plan (“ENPP”). The ENPP is also closed to new entrants.
In the United Kingdom, we sponsor a funded defined benefit pension plan that provides an annuity benefit based on participants’ final average earnings and service. Participation in this plan is limited to certain older, longer service employees and existing retirees. This plan is closed to new participants.
See Note 8 of our Consolidated Financial Statements for more information regarding costs and assumptions for employee retirement benefits.
35
Nature of Estimates Required.
The measurement date for all of our benefit plans is December 31. The measurement of our pension obligations, costs and liabilities is dependent on a variety of assumptions provided by management and used by our actuaries. These assumptions include estimates of the present value of projected future pension payments to all plan participants, taking into consideration the likelihood of potential future events such as salary increases and demographic experience. These assumptions may have an effect on the amount and timing of future contributions.
Assumptions and Approach Used.
The assumptions used in developing the required estimates include, but are not limited to, the following key factors:
|
• Discount rates
|
• Inflation
|
|
• Salary growth
|
• Expected return on plan assets
|
|
• Retirement rates and ages
|
• Mortality rates
|
For the years ended December 31,
2018
,
2017
and
2016
, we used a globally consistent methodology to set the discount rate in the countries where our largest benefit obligations exist. In the United States, the United Kingdom and the Euro Zone, we constructed a hypothetical bond portfolio of high-quality corporate bonds and then applied the cash flows of our benefit plans to those bond yields to derive a discount rate. The bond portfolio and plan-specific cash flows vary by country, but the methodology in which the portfolio is constructed is consistent. In the United States, the bond portfolio is large enough to result in taking a “settlement approach” to derive the discount rate, in which high-quality corporate bonds are assumed to be purchased and the resulting coupon payments and maturities are used to satisfy our U.S. pension plans’ projected benefit payments. In the United Kingdom and the Euro Zone, the discount rate is derived using a “yield curve approach,” in which an individual spot rate, or zero coupon bond yield, for each future annual period is developed to discount each future benefit payment and, thereby, determine the present value of all future payments. The Company uses a spot yield curve to determine the discount rate applicable in the United Kingdom to measure the U.K. pension plan’s service cost and interest cost. Under the settlement and yield curve approaches, the discount rate is set to equal the single discount rate that produces the same present value of all future payments.
The other key assumptions and methods were set as follows:
|
•
|
Our inflation assumption is based on an evaluation of external market indicators.
|
|
•
|
The salary growth assumptions reflect our long-term actual experience, the near-term outlook and assumed inflation.
|
|
•
|
The expected return on plan asset assumptions reflects asset allocations, investment strategy, historical experience and the views of investment managers, and reflects a projection of the expected arithmetic returns over ten years.
|
|
•
|
Determination of retirement rates and ages as well as termination rates, based on actual plan experience, actuarial standards of practice and the manner in which our defined benefit plans are being administered.
|
|
•
|
The mortality rates for the U.K. defined benefit pension plan was updated in 2018 to reflect expected improvements in the life expectancy of the plan participants. The mortality rates for the U.S. defined benefit pension plans were updated in 2018 to reflect the Society of Actuaries’ most recent findings on the topic of mortality.
|
|
•
|
The fair value of assets used to determine the expected return on assets does not reflect any delayed recognition of asset gains and losses.
|
The effects of actual results differing from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense in such periods.
Our U.S. and U.K. defined benefit pension plans, including our ENPP, comprised approximately 85% of our consolidated projected benefit obligation as of
December 31, 2018
. If the discount rate used to determine the
2018
projected benefit obligation for our U.S. qualified defined benefit pension plans and our ENPP was decreased by 25 basis points, our projected benefit obligation would have increased by approximately $3.7 million at
December 31, 2018
, and our
2019
pension expense would increase by approximately $0.4 million. If the discount rate used to determine the
2018
projected benefit obligation for our U.S. qualified defined benefit pension plans and our ENPP was increased by 25 basis points, our projected benefit obligation would have decreased by approximately $3.5 million at
December 31, 2018
, and our
2019
pension expense would decrease by approximately $0.3 million. If the discount rate used to determine the projected benefit obligation for our U.K. defined benefit pension plan was decreased by 25 basis points, our projected benefit obligation would have increased by approximately $21.2 million at
December 31, 2018
, and our
2019
pension expense would increase by approximately $0.2 million. If the discount rate used to determine the projected benefit obligation for our U.K. defined benefit pension plan was increased by 25 basis points, our projected benefit obligation would have decreased by approximately $20.5 million at
December 31, 2018
, and our
2019
pension expense would decrease by approximately $0.2 million. In addition, if the expected long-term rate of return on plan assets related to our U.K. defined benefit pension plan was increased or decreased by 25 basis
36
points, our
2019
pension expense would decrease or increase by approximately $1.4 million each, respectively. The impact to our U.S. defined benefit pension plans for a 25-basis-point change in our expected long-term rate of return would decrease or increase our
2019
pension expense by approximately $0.1 million, respectively.
Unrecognized actuarial net losses related to our defined benefit pension plans and ENPP were
$356.7 million
as of
December 31, 2018
compared to
$360.1 million
as of
December 31, 2017
. The decrease in unrecognized net actuarial losses between years primarily resulted from higher discount rates at December 31, 2018 compared to December 31, 2017. The unrecognized net actuarial losses will be impacted in future periods by actual asset returns, discount rate changes, currency exchange rate fluctuations, actual demographic experience and certain other factors. For some of our defined benefit pension plans, these losses, to the extent they exceed 10% of the greater of the plan’s liabilities or the fair value of assets (“the gain/loss corridor”), will be amortized on a straight-line basis over the periods discussed as follows. For our U.S. salaried, U.S. hourly and U.K. defined benefit pension plans, the population covered is predominantly inactive participants, and losses related to those plans, to the extent they exceed the gain/loss corridor, will be amortized over the average remaining lives of those participants while covered by the respective plan. As of
December 31, 2018
, the average amortization period was 16 years for our U.S. defined benefit pension plans and 19 years for our U.K. defined benefit pension plan. For our ENPP, the population is predominantly active participants, and losses related to the plan will be amortized over the average future working lifetime of the active participants expected to receive benefits. As of
December 31, 2018
, the average amortization period was eight years for our ENPP. Unrecognized prior service cost related to our defined benefit pension plans was $19.5 million as of December 31, 2018 compared to $12.2 million as of December 31, 2017. The increase in the unrecognized prior service cost between years is primarily due to the newly required uniformity of guaranteed minimum pension benefits for men and women related to our U.K. defined benefit plan, which resulted in an estimation of increased benefits for prior participant service. The requirement was as a result of a judgment by the U.K. High Court in October 2018 which provided clarity on the need to provide uniformity of benefits. The cost of this estimated impact will be amortized over a straight-line basis over the average remaining service period of active employees expected to receive benefits, or the average remaining lives of inactive participants, covered by the U.K. defined benefit plan.
As of
December 31, 2018
, our unfunded or underfunded obligations related to our defined benefit pension plans and ENPP were approximately
$206.0 million
, primarily related to our defined benefit pension plans in the United Kingdom and the United States. In
2018
, we contributed approximately
$36.8 million
towards those obligations, and we expect to fund approximately
$30.5 million
in
2019
. Future funding is dependent upon compliance with local laws and regulations and changes to those laws and regulations in the future, as well as the generation of operating cash flows in the future. We currently have an agreement in place with the trustees of the U.K. defined benefit plan that obligates us to fund approximately £15.6 million per year (or approximately $19.9 million) towards that obligation through December 2021. The funding arrangement is based upon the current underfunded status and could change in the future as discount rates, local laws and regulations, and other factors change.
See Note 8 of our Consolidated Financial Statements for more information regarding the investment strategy and concentration of risk.
Goodwill, Other Intangible Assets and Long-Lived Assets
We test goodwill for impairment, at the reporting unit level, annually and when events or circumstances indicate that fair value of a reporting unit may be below its carrying value. A reporting unit is an operating segment or one level below an operating segment, for example, a component. We combine and aggregate two or more components of an operating segment as a single reporting unit if the components have similar economic characteristics. Our reportable segments are not our reporting units.
Goodwill is evaluated annually as of October 1 for impairment using a qualitative assessment or a quantitative two-step assessment. If we elect to perform a qualitative assessment and determine the fair value of our reporting units more likely than not exceeds their carrying value, no further evaluation is necessary. For reporting units where we perform a two-step quantitative assessment, the first step requires us to compare the fair value of each reporting unit to its respective carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value of the reporting unit, the second step of the quantitative assessment is required to measure the amount of impairment, if any. The second step of the quantitative assessment results in a calculation of the implied fair value of the reporting unit’s goodwill, which is determined as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss.
37
We utilize a combination of valuation techniques, including a discounted cash flow approach and a market multiple approach, when making quantitative goodwill assessments.
We review our long-lived assets, which include intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The evaluation for recoverability is performed at a level where independent cash flows may be attributed to either an asset or asset group. If we determine that the carrying amount of an asset or asset group is not recoverable based on the expected undiscounted future cash flows of the asset or asset group, an impairment loss is recorded equal to the excess of the carrying amounts over the estimated fair value of the long-lived assets. Estimates of future cash flows are based on many factors, including current operating results, expected market trends and competitive influences. We also evaluate the amortization periods assigned to our intangible assets to determine whether events or changes in circumstances warrant revised estimates of useful lives. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less estimated costs to sell.
We make various assumptions, including assumptions regarding future cash flows, market multiples, growth rates and discount rates, in our assessments of the impairment of goodwill, other indefinite-lived intangible assets and long-lived assets. The assumptions about future cash flows and growth rates are based on the current and long-term business plans of the reporting unit or related to the long-lived assets. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the reporting unit or long-lived assets. These assumptions require significant judgments on our part, and the conclusions that we reach could vary significantly based upon these judgments.
The results of our goodwill and long-lived assets impairment analyses conducted as of October 1,
2018
,
2017
and
2016
indicated that no reduction in the carrying amount of goodwill and long-lived assets was required.
Our goodwill impairment analysis conducted as of October 1, 2018 indicated that the fair value in excess of the carrying value related to our GSI EME reporting unit was less than 10%. The percentage of the fair value in excess of the carrying value decreased slightly compared to our 2017 annual analysis, and more recent analyses during 2018. The operations of the GSI reporting unit include the manufacturing and distribution of grain storage and protein production equipment. During 2018, we experienced weak industry conditions as well as operational inefficiencies related to our new manufacturing operations in Europe, which impacted the operating margins of the GSI EME operations. Manufacturing and system initiatives are in process to address such inefficiencies in order to reduce costs and improve the output of the manufacturing operations. If market conditions and our overall results do not improve, we may incur an impairment charge related to our GSI EME reporting unit in the future, to be determined under a two-step quantitative assessment as described above. The amount of goodwill allocated to GSI EME reporting unit as of October 1, 2018 was approximately $243.9 million.
Numerous facts and circumstances are considered when evaluating the carrying amount of our goodwill. The fair value of a reporting unit is impacted by the reporting unit’s expected financial performance, which is dependent upon the agricultural industry and other factors that could adversely affect the agricultural industry, including but not limited to, declines in the general economy, increases in farm input costs, weather conditions, lower commodity prices and changes in the availability of credit. The estimated fair value of the individual reporting units is assessed for reasonableness by reviewing a variety of indicators evaluated over a reasonable period of time.
As of
December 31, 2018
, we had approximately
$1,495.5 million
of goodwill. While our annual impairment testing in
2018
supported the carrying amount of this goodwill, we may be required to re-evaluate the carrying amount in future periods, thus utilizing different assumptions that reflect the then current market conditions and expectations, and, therefore, we could conclude that an impairment has occurred.
Recoverable Indirect Taxes
Our Brazilian operations incur value added taxes (“VAT”) on certain purchases of raw materials, components and services. These taxes are accumulated as tax credits and create assets that are reduced by the VAT collected from our sales in the Brazilian market. We regularly assesses the recoverability of these tax credits, and establishes reserves when necessary against them, through analyses that include, amongst others, the history of realization, the transfer of tax credits to third parties as authorized by the government, anticipated changes in the supply chain and the future expectation of tax debits from our ongoing operations. We believe that these tax credits, net of established reserves are realizable. Our assessment of realization of these tax assets involves significant judgments on our part, and the conclusions that we reach could vary significantly based upon these judgments. We recorded approximately
$156.0 million
and
$152.3 million
, respectively, of VAT tax credits, net of reserves, as of
December 31, 2018
and
2017
.
38
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
The Quantitative and Qualitative Disclosures about Market Risk information required by this Item set forth under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Foreign Currency Risk Management” and “Interest Rate Risk” under Item 7 of this Form 10-K are incorporated herein by reference.
39
Item 8.
Financial Statements and Supplementary Data
The following Consolidated Financial Statements of AGCO and its subsidiaries for each of the years in the three-year period ended
December 31, 2018
are included in this Item:
|
|
Page
|
The information under the heading “Quarterly Results” of Item 7 of this Form 10-K is incorporated herein by reference.
40
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
AGCO Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of AGCO Corporation and subsidiaries (the Company) as of
December 31, 2018
and
2017
, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2018
, and the related notes and financial statement schedule (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2018
and
2017
, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2018
, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of
December 31, 2018
, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated
March 1, 2019
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for revenue recognition in 2018 due to the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Atlanta, Georgia
March 1, 2019
41
AGCO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
|
|
Years Ended December 31,
|
||||||||||
|
|
2018
|
2017
|
2016
|
||||||||
|
Net sales
|
$
|
9,352.0
|
|
$
|
8,306.5
|
|
$
|
7,410.5
|
|
||
|
Cost of goods sold
|
7,355.3
|
|
6,541.2
|
|
5,895.0
|
|
|||||
|
Gross profit
|
1,996.7
|
|
1,765.3
|
|
1,515.5
|
|
|||||
|
Operating expenses:
|
|||||||||||
|
Selling, general and administrative expenses
|
1,069.4
|
|
964.7
|
|
864.6
|
|
|||||
|
Engineering expenses
|
355.2
|
|
323.4
|
|
297.6
|
|
|||||
|
Restructuring expenses
|
12.0
|
|
11.2
|
|
11.9
|
|
|||||
|
Amortization of intangibles
|
64.7
|
|
57.0
|
|
51.2
|
|
|||||
|
Bad debt expense
|
6.4
|
|
4.6
|
|
3.2
|
|
|||||
|
Income from operations
|
489.0
|
|
404.4
|
|
287.0
|
|
|||||
|
Interest expense, net
|
53.8
|
|
45.1
|
|
52.1
|
|
|||||
|
Other expense, net
|
74.9
|
|
75.5
|
|
30.0
|
|
|||||
|
Income before income taxes and equity in net earnings of affiliates
|
360.3
|
|
283.8
|
|
204.9
|
|
|||||
|
Income tax provision
|
110.9
|
|
133.6
|
|
92.2
|
|
|||||
|
Income before equity in net earnings of affiliates
|
249.4
|
|
150.2
|
|
112.7
|
|
|||||
|
Equity in net earnings of affiliates
|
34.3
|
|
39.1
|
|
47.5
|
|
|||||
|
Net income
|
283.7
|
|
189.3
|
|
160.2
|
|
|||||
|
Net loss (income) attributable to noncontrolling interests
|
1.8
|
|
(2.9
|
)
|
(0.1
|
)
|
|||||
|
Net income attributable to AGCO Corporation and subsidiaries
|
$
|
285.5
|
|
$
|
186.4
|
|
$
|
160.1
|
|
||
|
Net income per common share attributable to AGCO Corporation and subsidiaries:
|
|
|
|
|
|
|
|||||
|
Basic
|
$
|
3.62
|
|
$
|
2.34
|
|
$
|
1.97
|
|
||
|
Diluted
|
$
|
3.58
|
|
$
|
2.32
|
|
$
|
1.96
|
|
||
|
Cash dividends declared and paid per common share
|
$
|
0.60
|
|
$
|
0.56
|
|
$
|
0.52
|
|
||
|
Weighted average number of common and common equivalent shares outstanding:
|
|
|
|
|
|
|
|||||
|
Basic
|
78.8
|
|
79.5
|
|
81.4
|
|
|||||
|
Diluted
|
79.7
|
|
80.2
|
|
81.7
|
|
|||||
See accompanying notes to Consolidated Financial Statements.
42
AGCO CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
|
|
Years Ended December 31,
|
||||||||||
|
|
2018
|
2017
|
2016
|
||||||||
|
Net income
|
$
|
283.7
|
|
$
|
189.3
|
|
$
|
160.2
|
|
||
|
Other comprehensive (loss) income, net of reclassification adjustments:
|
|||||||||||
|
Defined benefit pension plans, net of taxes:
|
|||||||||||
|
Prior service cost arising during the year
|
(7.0
|
)
|
—
|
|
(2.6
|
)
|
|||||
|
Net loss recognized due to settlement
|
0.9
|
|
0.2
|
|
0.4
|
|
|||||
|
Net gain recognized due to curtailment
|
—
|
|
—
|
|
(0.1
|
)
|
|||||
|
Net actuarial (loss) gain arising during the year
|
(4.2
|
)
|
6.6
|
|
(62.9
|
)
|
|||||
|
Amortization of prior service cost included in net periodic pension cost
|
1.3
|
|
1.3
|
|
1.1
|
|
|||||
|
Amortization of net actuarial losses included in net periodic pension cost
|
11.7
|
|
11.3
|
|
8.6
|
|
|||||
|
Derivative adjustments:
|
|||||||||||
|
Net changes in fair value of derivatives
|
(1.1
|
)
|
2.0
|
|
(7.7
|
)
|
|||||
|
Net losses reclassified from accumulated other comprehensive loss into income
|
7.2
|
|
2.0
|
|
1.0
|
|
|||||
|
Foreign currency translation adjustments
|
(206.8
|
)
|
57.8
|
|
82.4
|
|
|||||
|
Other comprehensive (loss) income, net of reclassification adjustments
|
(198.0
|
)
|
81.2
|
|
20.2
|
|
|||||
|
Comprehensive income
|
85.7
|
|
270.5
|
|
180.4
|
|
|||||
|
Comprehensive loss (income) attributable to noncontrolling interests
|
6.0
|
|
(4.1
|
)
|
(1.7
|
)
|
|||||
|
Comprehensive income attributable to AGCO Corporation and subsidiaries
|
$
|
91.7
|
|
$
|
266.4
|
|
$
|
178.7
|
|
||
See accompanying notes to Consolidated Financial Statements.
43
AGCO CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
|
December 31,
2018 |
December 31,
2017 |
||||||
|
ASSETS
|
|||||||
|
Current Assets:
|
|
|
|
|
|||
|
Cash and cash equivalents
|
$
|
326.1
|
|
$
|
367.7
|
|
|
|
Accounts and notes receivable, net
|
880.3
|
|
1,019.4
|
|
|||
|
Inventories, net
|
1,908.7
|
|
1,872.9
|
|
|||
|
Other current assets
|
422.3
|
|
367.7
|
|
|||
|
Total current assets
|
3,537.4
|
|
3,627.7
|
|
|||
|
Property, plant and equipment, net
|
1,373.1
|
|
1,485.3
|
|
|||
|
Investment in affiliates
|
400.0
|
|
409.0
|
|
|||
|
Deferred tax assets
|
104.9
|
|
112.2
|
|
|||
|
Other assets
|
142.4
|
|
147.1
|
|
|||
|
Intangible assets, net
|
573.1
|
|
649.0
|
|
|||
|
Goodwill
|
1,495.5
|
|
1,541.4
|
|
|||
|
Total assets
|
$
|
7,626.4
|
|
$
|
7,971.7
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|||||||
|
Current Liabilities:
|
|
|
|
|
|||
|
Current portion of long-term debt
|
$
|
184.2
|
|
$
|
95.4
|
|
|
|
Accounts payable
|
865.9
|
|
917.5
|
|
|||
|
Accrued expenses
|
1,522.4
|
|
1,407.9
|
|
|||
|
Other current liabilities
|
194.2
|
|
229.8
|
|
|||
|
Total current liabilities
|
2,766.7
|
|
2,650.6
|
|
|||
|
Long-term debt, less current portion and debt issuance costs
|
1,275.3
|
|
1,618.1
|
|
|||
|
Pensions and postretirement health care benefits
|
223.2
|
|
247.3
|
|
|||
|
Deferred tax liabilities
|
116.3
|
|
130.5
|
|
|||
|
Other noncurrent liabilities
|
251.4
|
|
229.9
|
|
|||
|
Total liabilities
|
4,632.9
|
|
4,876.4
|
|
|||
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|||
|
Stockholders’ Equity:
|
|
|
|
|
|||
|
AGCO Corporation stockholders’ equity:
|
|
|
|
|
|||
|
Preferred stock; $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding in 2018 and 2017
|
—
|
|
—
|
|
|||
|
Common stock; $0.01 par value, 150,000,000 shares authorized, 76,536,755 and 79,553,825 shares issued and outstanding at December 31, 2018 and 2017, respectively
|
0.8
|
|
0.8
|
|
|||
|
Additional paid-in capital
|
10.2
|
|
136.6
|
|
|||
|
Retained earnings
|
4,477.3
|
|
4,253.8
|
|
|||
|
Accumulated other comprehensive loss
|
(1,555.4
|
)
|
(1,361.6
|
)
|
|||
|
Total AGCO Corporation stockholders’ equity
|
2,932.9
|
|
3,029.6
|
|
|||
|
Noncontrolling interests
|
60.6
|
|
65.7
|
|
|||
|
Total stockholders’ equity
|
2,993.5
|
|
3,095.3
|
|
|||
|
Total liabilities and stockholders’ equity
|
$
|
7,626.4
|
|
$
|
7,971.7
|
|
|
See accompanying notes to Consolidated Financial Statements.
44
AGCO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except share amounts)
|
|
|
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated Other Comprehensive Loss
|
Noncontrolling
Interests
|
Total
Stockholders’
Equity
|
|||||||||||||||||||||||||||||||
|
|
Common Stock
|
Defined
Benefit
Pension
Plans
|
Cumulative
Translation
Adjustment
|
Deferred
(Losses) Gains on
Derivatives
|
Accumulated
Other
Comprehensive Loss
|
|||||||||||||||||||||||||||||||||
|
|
Shares
|
Amount
|
||||||||||||||||||||||||||||||||||||
|
Balance, December 31, 2015
|
83,814,809
|
|
$
|
0.8
|
|
$
|
301.7
|
|
$
|
3,996.0
|
|
$
|
(249.0
|
)
|
$
|
(1,209.2
|
)
|
$
|
(2.0
|
)
|
$
|
(1,460.2
|
)
|
$
|
45.0
|
|
$
|
2,883.3
|
|
|||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
160.1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
0.1
|
|
160.2
|
|
||||||||||||||||||
|
Payment of dividends to shareholders
|
—
|
|
—
|
|
—
|
|
(42.5
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(42.5
|
)
|
||||||||||||||||||
|
Issuance of restricted stock
|
15,395
|
|
—
|
|
0.8
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
0.8
|
|
||||||||||||||||||
|
Issuance of stock awards
|
27,333
|
|
—
|
|
(0.9
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.9
|
)
|
||||||||||||||||||
|
SSARs exercised
|
21,106
|
|
—
|
|
(0.9
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.9
|
)
|
||||||||||||||||||
|
Stock compensation
|
—
|
|
—
|
|
17.3
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
17.3
|
|
||||||||||||||||||
|
Investment by noncontrolling interests
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
12.2
|
|
12.2
|
|
||||||||||||||||||
|
Changes in noncontrolling interest
|
—
|
|
—
|
|
(2.2
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2.2
|
|
—
|
|
||||||||||||||||||
|
Purchases and retirement of common stock
|
(4,413,250
|
)
|
—
|
|
(212.5
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(212.5
|
)
|
||||||||||||||||||
|
Defined benefit pension plans, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Prior service cost arising during year
|
—
|
|
—
|
|
—
|
|
—
|
|
(2.6
|
)
|
—
|
|
—
|
|
(2.6
|
)
|
—
|
|
(2.6
|
)
|
||||||||||||||||||
|
Net loss recognized due to settlement
|
—
|
|
—
|
|
—
|
|
—
|
|
0.4
|
|
—
|
|
—
|
|
0.4
|
|
—
|
|
0.4
|
|
||||||||||||||||||
|
Net gain recognized due to curtailment
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.1
|
)
|
—
|
|
—
|
|
(0.1
|
)
|
—
|
|
(0.1
|
)
|
||||||||||||||||||
|
Net actuarial loss arising during year
|
—
|
|
—
|
|
—
|
|
—
|
|
(62.9
|
)
|
—
|
|
—
|
|
(62.9
|
)
|
—
|
|
(62.9
|
)
|
||||||||||||||||||
|
Amortization of prior service cost included in net periodic pension cost
|
—
|
|
—
|
|
—
|
|
—
|
|
1.1
|
|
—
|
|
—
|
|
1.1
|
|
—
|
|
1.1
|
|
||||||||||||||||||
|
Amortization of net actuarial losses included in net periodic pension cost
|
—
|
|
—
|
|
—
|
|
—
|
|
8.6
|
|
—
|
|
—
|
|
8.6
|
|
—
|
|
8.6
|
|
||||||||||||||||||
|
Deferred gains and losses on derivatives, net
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(6.7
|
)
|
(6.7
|
)
|
—
|
|
(6.7
|
)
|
||||||||||||||||||
|
Change in cumulative translation adjustment
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
80.8
|
|
—
|
|
80.8
|
|
1.6
|
|
82.4
|
|
||||||||||||||||||
|
Balance, December 31, 2016
|
79,465,393
|
|
0.8
|
|
103.3
|
|
4,113.6
|
|
(304.5
|
)
|
(1,128.4
|
)
|
(8.7
|
)
|
(1,441.6
|
)
|
61.1
|
|
2,837.2
|
|
||||||||||||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
186.4
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2.9
|
|
189.3
|
|
||||||||||||||||||
|
Payment of dividends to shareholders
|
—
|
|
—
|
|
—
|
|
(44.5
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(44.5
|
)
|
||||||||||||||||||
|
Issuance of restricted stock
|
12,066
|
|
—
|
|
0.8
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
0.8
|
|
||||||||||||||||||
|
Issuance of stock awards
|
54,309
|
|
—
|
|
(2.2
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(2.2
|
)
|
||||||||||||||||||
|
SSARs exercised
|
92,521
|
|
—
|
|
(4.4
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(4.4
|
)
|
||||||||||||||||||
|
Stock compensation
|
—
|
|
—
|
|
39.1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
39.1
|
|
||||||||||||||||||
|
Investment by noncontrolling interests
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
0.5
|
|
0.5
|
|
||||||||||||||||||
|
Purchases and retirement of common stock
|
(70,464
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||||||||
|
Adjustment related to the adoption of ASU 2016-09
|
—
|
|
—
|
|
—
|
|
(1.7
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1.7
|
)
|
||||||||||||||||||
|
Defined benefit pension plans, net of taxes:
|
||||||||||||||||||||||||||||||||||||||
|
Net loss recognized due to settlement
|
—
|
|
—
|
|
—
|
|
—
|
|
0.2
|
|
—
|
|
—
|
|
0.2
|
|
—
|
|
0.2
|
|
||||||||||||||||||
|
Net actuarial gain arising during year
|
—
|
|
—
|
|
—
|
|
—
|
|
6.6
|
|
—
|
|
—
|
|
6.6
|
|
—
|
|
6.6
|
|
||||||||||||||||||
|
Amortization of prior service cost included in net periodic pension cost
|
—
|
|
—
|
|
—
|
|
—
|
|
1.3
|
|
—
|
|
—
|
|
1.3
|
|
—
|
|
1.3
|
|
||||||||||||||||||
|
Amortization of net actuarial losses included in net periodic pension cost
|
—
|
|
—
|
|
—
|
|
—
|
|
11.3
|
|
—
|
|
—
|
|
11.3
|
|
—
|
|
11.3
|
|
||||||||||||||||||
|
Deferred gains and losses on derivatives, net
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4.0
|
|
4.0
|
|
—
|
|
4.0
|
|
||||||||||||||||||
|
Change in cumulative translation adjustment
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
56.6
|
|
—
|
|
56.6
|
|
1.2
|
|
57.8
|
|
||||||||||||||||||
|
Balance, December 31, 2017
|
79,553,825
|
|
0.8
|
|
136.6
|
|
4,253.8
|
|
(285.1
|
)
|
(1,071.8
|
)
|
(4.7
|
)
|
(1,361.6
|
)
|
65.7
|
|
3,095.3
|
|
||||||||||||||||||
|
Net income (loss)
|
—
|
|
—
|
|
—
|
|
285.5
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1.8
|
)
|
283.7
|
|
||||||||||||||||||
|
Payment of dividends to shareholders
|
—
|
|
—
|
|
—
|
|
(47.1
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(47.1
|
)
|
||||||||||||||||||
|
Issuance of restricted stock
|
12,629
|
|
—
|
|
0.8
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
0.8
|
|
||||||||||||||||||
|
Issuance of stock awards
|
75,604
|
|
—
|
|
(3.1
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(3.1
|
)
|
||||||||||||||||||
|
SSARs exercised
|
14,881
|
|
—
|
|
(0.6
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.6
|
)
|
||||||||||||||||||
|
Stock compensation
|
—
|
|
—
|
|
45.5
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
45.5
|
|
||||||||||||||||||
|
Investment by noncontrolling interests
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1.0
|
|
1.0
|
|
||||||||||||||||||
|
Distribution to noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.1
|
)
|
(0.1
|
)
|
||||||||||||||||||
|
Purchases and retirement of common stock
|
(3,120,184
|
)
|
—
|
|
(169.0
|
)
|
(15.3
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(184.3
|
)
|
||||||||||||||||||
|
Adjustment related to the adoption of ASU 2014-09
|
—
|
|
—
|
|
—
|
|
0.4
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
0.4
|
|
||||||||||||||||||
|
Defined benefit pension plans, net of taxes:
|
||||||||||||||||||||||||||||||||||||||
|
Prior service cost arising during year
|
—
|
|
—
|
|
—
|
|
—
|
|
(7.0
|
)
|
—
|
|
—
|
|
(7.0
|
)
|
—
|
|
(7.0
|
)
|
||||||||||||||||||
|
Net loss recognized due to settlement
|
—
|
|
—
|
|
—
|
|
—
|
|
0.9
|
|
—
|
|
—
|
|
0.9
|
|
—
|
|
0.9
|
|
||||||||||||||||||
|
Net actuarial loss arising during year
|
—
|
|
—
|
|
—
|
|
—
|
|
(4.2
|
)
|
—
|
|
—
|
|
(4.2
|
)
|
—
|
|
(4.2
|
)
|
||||||||||||||||||
|
Amortization of prior service cost included in net periodic pension cost
|
—
|
|
—
|
|
—
|
|
—
|
|
1.3
|
|
—
|
|
—
|
|
1.3
|
|
—
|
|
1.3
|
|
||||||||||||||||||
|
Amortization of net actuarial losses included in net periodic pension cost
|
—
|
|
—
|
|
—
|
|
—
|
|
11.7
|
|
—
|
|
—
|
|
11.7
|
|
—
|
|
11.7
|
|
||||||||||||||||||
|
Deferred gains and losses on derivatives, net
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6.1
|
|
6.1
|
|
—
|
|
6.1
|
|
||||||||||||||||||
|
Change in cumulative translation adjustment
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(202.6
|
)
|
—
|
|
(202.6
|
)
|
(4.2
|
)
|
(206.8
|
)
|
||||||||||||||||||
|
Balance, December 31, 2018
|
76,536,755
|
|
$
|
0.8
|
|
$
|
10.2
|
|
$
|
4,477.3
|
|
$
|
(282.4
|
)
|
$
|
(1,274.4
|
)
|
$
|
1.4
|
|
$
|
(1,555.4
|
)
|
$
|
60.6
|
|
$
|
2,993.5
|
|
|||||||||
See accompanying notes to Consolidated Financial Statements.
45
AGCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
Years Ended December 31,
|
||||||||||
|
|
2018
|
2017
|
2016
|
||||||||
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|||||
|
Net income
|
$
|
283.7
|
|
$
|
189.3
|
|
$
|
160.2
|
|
||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|||||
|
Depreciation
|
225.2
|
|
222.8
|
|
223.4
|
|
|||||
|
Amortization of intangibles
|
64.7
|
|
57.0
|
|
51.2
|
|
|||||
|
Stock compensation expense
|
46.3
|
|
38.2
|
|
18.1
|
|
|||||
|
Proceeds from termination of hedging instrument
|
—
|
|
—
|
|
7.3
|
|
|||||
|
Equity in net earnings of affiliates, net of cash received
|
(3.2
|
)
|
41.2
|
|
(1.4
|
)
|
|||||
|
Deferred income tax (benefit) provision
|
(14.7
|
)
|
(14.1
|
)
|
2.1
|
|
|||||
|
Loss on extinguishment of debt
|
24.5
|
|
—
|
|
—
|
|
|||||
|
Other
|
2.6
|
|
3.0
|
|
2.3
|
|
|||||
|
Changes in operating assets and liabilities, net of effects from purchase of businesses:
|
|
|
|
|
|
|
|||||
|
Accounts and notes receivable, net
|
63.3
|
|
(34.7
|
)
|
(4.5
|
)
|
|||||
|
Inventories, net
|
(214.3
|
)
|
(196.0
|
)
|
(33.1
|
)
|
|||||
|
Other current and noncurrent assets
|
(85.6
|
)
|
(36.6
|
)
|
(98.7
|
)
|
|||||
|
Accounts payable
|
(24.3
|
)
|
123.5
|
|
62.8
|
|
|||||
|
Accrued expenses
|
161.3
|
|
149.0
|
|
47.0
|
|
|||||
|
Other current and noncurrent liabilities
|
66.4
|
|
35.0
|
|
(67.2
|
)
|
|||||
|
Total adjustments
|
312.2
|
|
388.3
|
|
209.3
|
|
|||||
|
Net cash provided by operating activities
|
595.9
|
|
577.6
|
|
369.5
|
|
|||||
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|||||
|
Purchases of property, plant and equipment
|
(203.3
|
)
|
(203.9
|
)
|
(201.0
|
)
|
|||||
|
Proceeds from sale of property, plant and equipment
|
3.2
|
|
4.1
|
|
2.4
|
|
|||||
|
Purchase of businesses, net of cash acquired
|
—
|
|
(293.1
|
)
|
(383.8
|
)
|
|||||
|
Investment in consolidated affiliates, net of cash acquired
|
—
|
|
—
|
|
(11.8
|
)
|
|||||
|
Investments in unconsolidated affiliates
|
(5.8
|
)
|
(0.8
|
)
|
(4.5
|
)
|
|||||
|
Other
|
0.4
|
|
—
|
|
0.4
|
|
|||||
|
Net cash used in investing activities
|
(205.5
|
)
|
(493.7
|
)
|
(598.3
|
)
|
|||||
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|||||
|
Proceeds from debt obligations
|
5,257.5
|
|
3,513.9
|
|
3,117.9
|
|
|||||
|
Repayments of debt obligations
|
(5,433.6
|
)
|
(3,639.7
|
)
|
(2,622.4
|
)
|
|||||
|
Purchases and retirement of common stock
|
(184.3
|
)
|
—
|
|
(212.5
|
)
|
|||||
|
Payment of dividends to stockholders
|
(47.1
|
)
|
(44.5
|
)
|
(42.5
|
)
|
|||||
|
Payment of minimum tax withholdings on stock compensation
|
(4.0
|
)
|
(6.9
|
)
|
(2.0
|
)
|
|||||
|
Payment of debt issuance costs
|
(2.7
|
)
|
—
|
|
(2.5
|
)
|
|||||
|
Investments by noncontrolling interests, net
|
0.9
|
|
0.5
|
|
0.4
|
|
|||||
|
Net cash (used in) provided by financing activities
|
(413.3
|
)
|
(176.7
|
)
|
236.4
|
|
|||||
|
Effects of exchange rate changes on cash and cash equivalents
|
(18.7
|
)
|
30.8
|
|
(4.6
|
)
|
|||||
|
(Decrease) increase in cash and cash equivalents
|
(41.6
|
)
|
(62.0
|
)
|
3.0
|
|
|||||
|
Cash and cash equivalents, beginning of year
|
367.7
|
|
429.7
|
|
426.7
|
|
|||||
|
Cash and cash equivalents, end of year
|
$
|
326.1
|
|
$
|
367.7
|
|
$
|
429.7
|
|
||
See accompanying notes to Consolidated Financial Statements.
46
1. Operations and Summary of Significant Accounting Policies
Business
AGCO Corporation and subsidiaries (“AGCO” or the “Company”) is a leading manufacturer and distributor of agricultural equipment and related replacement parts throughout the world. The Company sells a full range of agricultural equipment, including tractors, combines, hay tools, sprayers, forage equipment, seeding and tillage equipment, implements, and grain storage and protein production systems. The Company’s products are widely recognized in the agricultural equipment industry and are marketed under a number of well-known brand names including: Challenger
®
, Fendt
®
, GSI
®
,
Massey Ferguson
®
and Valtra
®
. The Company distributes most of its products through a combination of approximately
4,050
independent dealers and distributors as well as the Company utilizes associates and licensees to provide a distribution channel for its products. In addition, the Company provides retail financing through its finance joint ventures with Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., or “Rabobank.”
Basis of Presentation and Consolidation
The Company’s Consolidated Financial Statements represent the consolidation of all wholly-owned companies, majority-owned companies and joint ventures in which the Company has been determined to be the primary beneficiary. The Company consolidates a variable interest entity (“VIE”) if the Company determines it is the primary beneficiary. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits that potentially could be significant to the VIE. The Company also consolidates all entities that are not considered VIEs if it is determined that the Company has a controlling voting interest to direct the activities that most significantly impact the joint venture or entity. The Company records investments in all other affiliate companies using the equity method of accounting when it has significant influence. Other investments, including those representing an ownership interest of less than
20%
, are recorded at cost. All significant intercompany balances and transactions have been eliminated in the Consolidated Financial Statements. Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The estimates made by management primarily relate to accounts and notes receivable, inventories, deferred income tax valuation allowances, uncertain tax positions, goodwill and other identifiable intangible assets, and certain accrued liabilities, principally relating to reserves for volume discounts and sales incentives, warranty obligations, product liability and workers’ compensation obligations, and pensions and postretirement benefits.
Foreign Currency Translation
The financial statements of the Company’s foreign subsidiaries are translated into United States currency in accordance with Accounting Standards Codification (“ASC”) 830, “Foreign Currency Matters.” Assets and liabilities are translated to United States dollars at period-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the period. Translation adjustments are included in “Accumulated other comprehensive loss” in stockholders’ equity within the Company’s Consolidated Balance Sheets. Gains and losses, which result from foreign currency transactions, are included in the accompanying Consolidated Statements of Operations.
The Company has a wholly-owned subsidiary in Argentina that manufactures and distributes agricultural equipment and replacement parts within Argentina. As of June 30, 2018, on the basis of currently available data related to inflation indices and as a result of the devaluation of the Argentine peso relative to the United States dollar, the Argentinian economy was determined to be highly inflationary. A highly inflationary economy is one where the cumulative inflation rate for the three years preceding the beginning of the reporting period, including interim reporting periods, is in excess of 100 percent. As a result of this designation and based on the guidance in ASC 830, the Company changed the functional currency of its wholly-owned subsidiary from the Argentinian peso to the U.S. dollar effective July 1, 2018. For the year-ended ended December 31, 2018, the Company’s wholly-owned subsidiary in Argentina had net sales of approximately
$92.6 million
and total assets of
47
approximately
$104.5 million
as of December 31, 2018. The monetary assets and liabilities denominated in the Argentine peso were approximately
$28.0 million
and approximately
$13.6 million
, respectively, as of December 31, 2018. The monetary assets and liabilities were remeasured based on current published exchange rates.
Cash and Cash Equivalents
Cash at
December 31, 2018
and
2017
of
$290.5 million
and
$317.0 million
, respectively, consisted primarily of cash on hand and bank deposits. The Company considers all investments with an original maturity of three months or less to be cash equivalents. Cash equivalents at
December 31, 2018
and
2017
of
$35.6 million
and
$50.7 million
, respectively, consisted primarily of money market deposits, certificates of deposits and overnight investments.
Accounts and Notes Receivable
Accounts and notes receivable arise from the sale of equipment and replacement parts to independent dealers, distributors or other customers. In the United States and Canada, amounts due from sales to dealers are immediately due upon a retail sale of the underlying equipment by the dealer with the exception of sales of grain storage and protein production systems as discussed further below. If not previously paid by the dealer in the United States and Canada, installment payments are required generally beginning after the interest-free period with the remaining outstanding equipment balance generally due within
12
months after shipment or delivery. These interest-free periods vary by product and generally range from one to 12 months. In limited circumstances, the Company provides sales terms, and in some cases, interest-free periods that are longer than 12 months for certain products. These are typically specified programs predominately in the United States and Canada, that allow for interest-free periods and due dates of up to 24 months for certain products depending on the year of the sale and the dealer or distributor’s ordering or sales volume during the preceding year. Interest generally is charged at or above prime lending rates on the outstanding receivable balances after shipment or delivery and after interest-free periods. Sales terms of some highly seasonal products provide for payment and due dates based on a specified date during the year regardless of the shipment date. Equipment sold to dealers in the United States and Canada is paid in full on average within
12
months of shipment. Sales of replacement parts generally are payable within
30
days of shipment, with terms for some larger, seasonal stock orders generally requiring payment within
six
months of shipment. Under normal circumstances, equipment may not be returned. In certain regions, with respect to most equipment sales, including the United States and Canada, the Company is obligated to repurchase equipment and replacement parts upon cancellation of a dealer or distributor contract. These obligations are required by national, state or provincial laws and require the Company to repurchase a dealer or distributor’s unsold inventory, including inventories for which the receivable already has been paid. Actual interest-free periods are shorter than described above because the equipment receivable from dealers or distributors in some countries, such as in the United States and Canada, is generally due immediately upon sale of the equipment to a retail customer as discussed above. Receivables can also be paid prior to terms specified in sales agreements. Under normal circumstances, interest is not forgiven and interest-free periods are not extended.
In other international markets, equipment sales generally are payable in full within
30
to
180
days of shipment or delivery. Payment terms for some highly seasonal products have a specified due date during the year regardless of the shipment or delivery date. For sales in most markets outside of the United States and Canada, the Company generally does not charge interest on outstanding receivables with its dealers and distributors. Sales of replacement parts generally are payable within
30
to
90
days of shipment, with terms for some larger, seasonal stock orders generally payable within six months of shipment.
In certain markets, there is a time lag, which varies based on the timing and level of retail demand, between the date the Company records a sale and when the dealer sells the equipment to a retail customer.
Sales of grain storage and protein production systems generally are payable within 30 days of shipment. In certain countries, sales of such systems in which the Company is responsible for construction or installation may be contingent upon customer acceptance, payment terms vary by market and product, with fixed payment schedules on all sales.
48
The following summarizes by geographic region, as a percentage of our consolidated net sales, amounts with maximum interest-free periods as presented below (in millions):
|
Year Ended December 31, 2018
|
North America
|
South America
|
Europe/Middle East
|
Asia/Pacific/Africa
|
Consolidated
|
|||||||||||||||||
|
0 to 6 months
|
$
|
1,639.6
|
|
$
|
959.0
|
|
$
|
5,368.0
|
|
$
|
827.8
|
|
$
|
8,794.4
|
|
94.0
|
%
|
|||||
|
7 to 12 months
|
523.1
|
|
—
|
|
17.1
|
|
—
|
|
540.2
|
|
5.8
|
%
|
||||||||||
|
13 to 24 months
|
17.4
|
|
—
|
|
—
|
|
—
|
|
17.4
|
|
0.2
|
%
|
||||||||||
|
$
|
2,180.1
|
|
$
|
959.0
|
|
$
|
5,385.1
|
|
$
|
827.8
|
|
$
|
9,352.0
|
|
100.0
|
%
|
||||||
The Company has an agreement to permit transferring, on an ongoing basis, a majority of its wholesale interest-bearing and non-interest bearing accounts receivable in North America, Europe and Brazil to its U.S., Canadian, European and Brazilian finance joint ventures. Qualified dealers may obtain additional financing through the Company’s U.S., Canadian, European and Brazilian finance joint ventures at the joint ventures’ discretion.
The Company provides various volume bonus and sales incentive programs with respect to its products. These sales incentive programs include reductions in invoice prices, reductions in retail financing rates, dealer commissions and dealer incentive allowances. In most cases, incentive programs are established and communicated to the Company’s dealers on a quarterly basis. The incentives are paid either at the time of the cash settlement of the receivable (which is generally at the time of retail sale), at the time of retail financing, at the time of warranty registration, or at a subsequent time based on dealer purchase volumes. The incentive programs are product-line specific and generally do not vary by dealer. The cost of sales incentives associated with dealer commissions and dealer incentive allowances is estimated based upon the terms of the programs and historical experience, is based on a percentage of the sales price, and estimates for sales incentives are made and recorded at the time of sale for existing incentive programs using the expected value method. These estimates are reassessed each reporting period and are revised in the event of subsequent modifications to incentive programs, as they are communicated to dealers. The related provisions and accruals are made on a product or product-line basis and are monitored for adequacy and revised at least quarterly in the event of subsequent modifications to the programs. Interest rate subsidy payments, which are a reduction in retail finance rates, are recorded in the same manner as dealer commissions and dealer incentive allowances. Volume discounts are estimated and recognized based on historical experience, and related reserves are monitored and adjusted based on actual dealer purchase volumes and the dealer’s progress towards achieving specified cumulative target levels. All incentive programs are recorded and presented as a reduction of revenue, due to the fact that the Company does not receive a distinct good or service in exchange for the consideration provided. In the United States and Canada, reserves for incentive programs related to accounts receivable not sold to Company’s U.S. and Canadian finance joint ventures are recorded as “accounts receivable allowances” within the Company’s Consolidated Balance Sheets due to the fact that the incentives are paid through a reduction of future cash settlement of the receivable. Globally, reserves for incentive programs that will be paid in cash or credit memos, as is the case with most of the Company’s volume discount programs, as well as sales with incentives associated with accounts receivable sold to its finance joint ventures, are recorded within “Accrued expenses” within the Company’s Consolidated Balance Sheets.
Accounts and notes receivable are shown net of allowances for sales incentive discounts available to dealers and for doubtful accounts. Cash flows related to the collection of receivables are reported within “Cash flows from operating activities” within the Company’s Consolidated Statements of Cash Flows. Accounts and notes receivable allowances at
December 31, 2018
and
2017
were as follows (in millions):
|
2018
|
2017
|
||||||
|
Sales incentive discounts
|
$
|
24.2
|
|
$
|
33.1
|
|
|
|
Doubtful accounts
|
31.7
|
|
38.7
|
|
|||
|
|
$
|
55.9
|
|
$
|
71.8
|
|
|
In the United States and Canada, sales incentives can be paid through future cash settlements of receivables and through credit memos to Company’s dealers or through reductions in retail financing rates paid to the Company’s finance joint ventures. Outside of the United States and Canada, sales incentives can be paid through cash or credit memos to the Company’s dealers or through reductions in retail financing rates paid to the Company’s finance joint ventures. The Company transfers certain accounts receivable under its accounts receivable sales agreements with its finance joint ventures (Note 4). The Company records such transfers as sales of accounts receivable when it is considered to have surrendered control of such
49
receivables under the provisions of Accounting Standards Update (“ASU”) 2009-16, “Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets.” Cash payments made to the Company’s finance joint ventures for sales incentive discounts provided to dealers related to outstanding accounts receivables sold are recorded within “Accrued expenses”.
Inventories
Inventories are valued at the lower of cost or market using the first-in, first-out method. Market is current replacement cost (by purchase or by reproduction, dependent on the type of inventory). In cases where market exceeds net realizable value (i.e., estimated selling price less reasonably predictable costs of completion and disposal), inventories are stated at net realizable value. Market is not considered to be less than net realizable value reduced by an allowance for an approximately normal profit margin. At
December 31, 2018
and
2017
, the Company had recorded
$156.6 million
and
$165.7 million
, respectively, as an adjustment for surplus and obsolete inventories. These adjustments are reflected within “Inventories, net” within the Company’s Consolidated Balance Sheets.
Inventories, net at
December 31, 2018
and
2017
were as follows (in millions):
|
2018
|
2017
|
||||||
|
Finished goods
|
$
|
660.4
|
|
$
|
684.1
|
|
|
|
Repair and replacement parts
|
587.3
|
|
605.9
|
|
|||
|
Work in process
|
217.5
|
|
178.7
|
|
|||
|
Raw materials
|
443.5
|
|
404.2
|
|
|||
|
Inventories, net
|
$
|
1,908.7
|
|
$
|
1,872.9
|
|
|
Cash flows related to the sale of inventories are reported within “Cash flows from operating activities” within the Company’s Consolidated Statements of Cash Flows.
Recoverable Indirect Taxes
The Company’s Brazilian operations incur value added taxes (“VAT”) on certain purchases of raw materials, components and services. These taxes are accumulated as tax credits and create assets that are reduced by the VAT collected from the Company’s sales in the Brazilian market. The Company regularly assesses the recoverability of these tax credits, and establishes reserves when necessary against them, through analyses that include, amongst others, the history of realization, the transfer of tax credits to third parties as authorized by the government, anticipated changes in the supply chain and the future expectation of tax debits from the Company’s ongoing operations. The Company believes that these tax credits, net of established reserves, are realizable. The Company had recorded approximately
$156.0 million
and
$152.3 million
, respectively, of VAT tax credits, net of reserves, as of
December 31, 2018
and
2017
.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation is provided on a straight-line basis over the estimated useful lives of
ten
to
40
years for buildings and improvements,
three
to
15
years for machinery and equipment and
three
to
ten
years for furniture and fixtures. Expenditures for maintenance and repairs are charged to expense as incurred.
50
Property, plant and equipment, net at
December 31, 2018
and
2017
consisted of the following (in millions):
|
2018
|
2017
|
||||||
|
Land
|
$
|
125.3
|
|
$
|
130.6
|
|
|
|
Buildings and improvements
|
769.0
|
|
792.0
|
|
|||
|
Machinery and equipment
|
2,374.7
|
|
2,391.6
|
|
|||
|
Furniture and fixtures
|
148.6
|
|
147.6
|
|
|||
|
Gross property, plant and equipment
|
3,417.6
|
|
3,461.8
|
|
|||
|
Accumulated depreciation and amortization
|
(2,044.5
|
)
|
(1,976.5
|
)
|
|||
|
Property, plant and equipment, net
|
$
|
1,373.1
|
|
$
|
1,485.3
|
|
|
Goodwill, Other Intangible Assets and Long-Lived Assets
The Company tests goodwill for impairment, at the reporting unit level, annually and when events or circumstances indicate that fair value of a reporting unit may be below its carrying value. A reporting unit is an operating segment or one level below an operating segment, for example, a component. The Company combines and aggregates two or more components of an operating segment as a single reporting unit if the components have similar economic characteristics. The Company’s reportable segments are not its reporting units.
Goodwill is evaluated annually as of October 1 for impairment using a qualitative assessment or a quantitative two-step assessment. If the Company elects to perform a qualitative assessment and determines the fair value of its reporting units more likely than not exceed their carrying value, no further evaluation is necessary. For reporting units where the Company performs a two-step quantitative assessment, the first step requires the Company to compare the fair value of each reporting unit, which is determined based on a combination of a discounted cash flow valuation approach and a market multiple valuation approach, to its respective carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value of the reporting unit, the second step of the quantitative process is required to measure the amount of impairment, if any. The second step of the quantitative assessment results in a calculation of the implied fair value of the reporting unit’s goodwill, which is determined as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss.
The Company reviews its long-lived assets, which include intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The evaluation for recoverability is performed at a level where independent cash flows may be attributed to either an asset or asset group. If the Company determines that the carrying amount of an asset or asset group is not recoverable based on the expected undiscounted future cash flows of the asset or asset group, an impairment loss is recorded equal to the excess of the carrying amounts over the estimated fair value of the long-lived assets. Estimates of future cash flows are based on many factors, including current operating results, expected market trends and competitive influences. The Company also evaluates the amortization periods assigned to its intangible assets to determine whether events or changes in circumstances warrant revised estimates of useful lives. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less estimated costs to sell.
The results of the Company’s goodwill and long-lived assets impairment analyses conducted as of October 1,
2018
,
2017
and
2016
indicated that no reduction in the carrying amount of the Company’s goodwill and long-lived assets was required.
The Company’s accumulated goodwill impairment is approximately
$180.5 million
related to impairment charges the Company recorded during 2012 and 2006 pertaining to its Chinese harvesting reporting unit and former sprayer reporting unit, respectively. The Chinese harvesting business operates within the Asia/Pacific/Africa geographical reportable segment and the former sprayer reporting unit operates within the North American geographical reportable segment.
51
Changes in the carrying amount of goodwill during the years ended
December 31, 2018
,
2017
and
2016
are summarized as follows (in millions):
|
North America
|
South America
|
Europe/Middle East
|
Asia/Pacific/Africa
|
Consolidated
|
|||||||||||||||
|
Balance as of December 31, 2015
|
$
|
518.7
|
|
$
|
114.4
|
|
$
|
411.2
|
|
$
|
70.2
|
|
$
|
1,114.5
|
|
||||
|
Acquisitions
|
25.2
|
|
—
|
|
196.4
|
|
47.6
|
|
269.2
|
|
|||||||||
|
Foreign currency translation
|
—
|
|
24.4
|
|
(25.7
|
)
|
(6.0
|
)
|
(7.3
|
)
|
|||||||||
|
Balance as of December 31, 2016
|
543.9
|
|
138.8
|
|
581.9
|
|
111.8
|
|
1,376.4
|
|
|||||||||
|
Acquisitions
|
67.2
|
|
—
|
|
17.4
|
|
—
|
|
84.6
|
|
|||||||||
|
Foreign currency translation
|
—
|
|
(2.4
|
)
|
71.7
|
|
11.1
|
|
80.4
|
|
|||||||||
|
Balance as of December 31, 2017
|
611.1
|
|
136.4
|
|
671.0
|
|
122.9
|
|
1,541.4
|
|
|||||||||
|
Adjustments
|
—
|
|
—
|
|
8.4
|
|
—
|
|
8.4
|
|
|||||||||
|
Foreign currency translation
|
—
|
|
(19.7
|
)
|
(29.8
|
)
|
(4.8
|
)
|
(54.3
|
)
|
|||||||||
|
Balance as of December 31, 2018
|
$
|
611.1
|
|
$
|
116.7
|
|
$
|
649.6
|
|
$
|
118.1
|
|
$
|
1,495.5
|
|
||||
The Company amortizes certain acquired identifiable intangible assets primarily on a straight-line basis over their estimated useful lives, which range from
three
to
50
years. The acquired intangible assets have a weighted average useful life as follows:
|
Intangible Asset
|
|
Weighted-Average
Useful Life
|
|
|
Patents and technology
|
|
12
|
years
|
|
Customer relationships
|
|
13
|
years
|
|
Trademarks and trade names
|
|
19
|
years
|
|
Land use rights
|
45
|
years
|
|
For the years ended
December 31, 2018
,
2017
and
2016
, acquired intangible asset amortization was
$64.7 million
,
$57.0 million
and
$51.2 million
, respectively. The Company estimates amortization of existing intangible assets will be
$61.2 million
in
2019
,
$60.3 million
in
2020
,
$58.3 million
in
2021
,
$57.8 million
in
2022
, and
$55.6 million
in
2023
.
The Company has previously determined that two of its trademarks have an indefinite useful life. The Massey Ferguson trademark has been in existence since 1952 and was formed from the merger of Massey-Harris (established in the 1890’s) and Ferguson (established in the 1930’s). The Massey Ferguson brand is currently sold in approximately
110
countries worldwide, making it one of the most widely sold tractor brands in the world. The Company also has identified the Valtra trademark as an indefinite-lived asset. The Valtra trademark has been in existence since the late 1990’s, but is a derivative of the Valmet trademark which has been in existence since 1951. The Valmet name transitioned to the Valtra name over a period of time in the marketplace. The Valtra brand is currently sold in over
75
countries around the world. Both the Massey Ferguson brand and the Valtra brand are primary product lines of the Company’s business, and the Company plans to use these trademarks for an indefinite period of time. The Company plans to continue to make investments in product development to enhance the value of these brands into the future. There are no legal, regulatory, contractual, competitive, economic or other factors that the Company is aware of or that the Company believes would limit the useful lives of the trademarks. The Massey Ferguson and Valtra trademark registrations can be renewed at a nominal cost in the countries in which the Company operates.
52
Changes in the carrying amount of acquired intangible assets during
2018
and
2017
are summarized as follows (in millions):
|
Trademarks and
Trade Names |
Customer
Relationships
|
Patents and
Technology
|
Land Use Rights
|
Total
|
|||||||||||||||
|
Gross carrying amounts:
|
|
|
|
|
|
|
|
|
|||||||||||
|
Balance as of December 31, 2016
|
$
|
179.2
|
|
$
|
558.0
|
|
$
|
122.1
|
|
$
|
8.5
|
|
$
|
867.8
|
|
||||
|
Acquisitions
|
19.5
|
|
24.4
|
|
28.1
|
|
—
|
|
72.0
|
|
|||||||||
|
Foreign currency translation
|
9.7
|
|
18.0
|
|
9.8
|
|
0.6
|
|
38.1
|
|
|||||||||
|
Balance as of December 31, 2017
|
208.4
|
|
600.4
|
|
160.0
|
|
9.1
|
|
977.9
|
|
|||||||||
|
Foreign currency translation
|
(5.0
|
)
|
(14.1
|
)
|
(4.2
|
)
|
(0.5
|
)
|
(23.8
|
)
|
|||||||||
|
Balance as of December 31, 2018
|
$
|
203.4
|
|
$
|
586.3
|
|
$
|
155.8
|
|
$
|
8.6
|
|
$
|
954.1
|
|
||||
|
Trademarks and
Trade Names |
Customer
Relationships
|
Patents and
Technology
|
Land Use Rights
|
Total
|
|||||||||||||||
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|||||||||||
|
Balance as of December 31, 2016
|
$
|
49.7
|
|
$
|
233.0
|
|
$
|
59.5
|
|
$
|
2.7
|
|
$
|
344.9
|
|
||||
|
Amortization expense
|
10.3
|
|
38.5
|
|
8.0
|
|
0.2
|
|
57.0
|
|
|||||||||
|
Foreign currency translation
|
1.4
|
|
8.2
|
|
5.9
|
|
0.1
|
|
15.6
|
|
|||||||||
|
Balance as of December 31, 2017
|
61.4
|
|
279.7
|
|
73.4
|
|
3.0
|
|
417.5
|
|
|||||||||
|
Amortization expense
|
13.7
|
|
40.7
|
|
10.1
|
|
0.2
|
|
64.7
|
|
|||||||||
|
Foreign currency translation
|
(1.7
|
)
|
(9.6
|
)
|
(2.8
|
)
|
(0.2
|
)
|
(14.3
|
)
|
|||||||||
|
Balance as of December 31, 2018
|
$
|
73.4
|
|
$
|
310.8
|
|
$
|
80.7
|
|
$
|
3.0
|
|
$
|
467.9
|
|
||||
|
|
Trademarks and
Trade Names |
||
|
Indefinite-lived intangible assets:
|
|
|
|
|
Balance as of December 31, 2016
|
$
|
84.4
|
|
|
Foreign currency translation
|
4.2
|
|
|
|
Balance as of December 31, 2017
|
88.6
|
|
|
|
Foreign currency translation
|
(1.7
|
)
|
|
|
Balance as of December 31, 2018
|
$
|
86.9
|
|
Accrued Expenses
Accrued expenses at
December 31, 2018
and
2017
consisted of the following (in millions):
|
2018
|
2017
|
||||||
|
Reserve for volume discounts and sales incentives
|
$
|
537.7
|
|
$
|
489.1
|
|
|
|
Warranty reserves
|
308.6
|
|
273.6
|
|
|||
|
Accrued employee compensation and benefits
|
286.2
|
|
283.3
|
|
|||
|
Accrued taxes
|
137.8
|
|
135.4
|
|
|||
|
Other
|
252.1
|
|
226.5
|
|
|||
|
|
$
|
1,522.4
|
|
$
|
1,407.9
|
|
|
53
Warranty Reserves
The warranty reserve activity for the years ended
December 31, 2018
,
2017
and
2016
consisted of the following (in millions):
|
2018
|
2017
|
2016
|
|||||||||
|
Balance at beginning of the year
|
$
|
316.0
|
|
$
|
255.6
|
|
$
|
230.3
|
|
||
|
Acquisitions
|
—
|
|
5.1
|
|
3.7
|
|
|||||
|
Accruals for warranties issued during the year
|
230.5
|
|
215.9
|
|
214.6
|
|
|||||
|
Settlements made (in cash or in kind) during the year
|
(174.7
|
)
|
(183.1
|
)
|
(188.7
|
)
|
|||||
|
Foreign currency translation
|
(10.9
|
)
|
22.5
|
|
(4.3
|
)
|
|||||
|
Balance at the end of the year
|
$
|
360.9
|
|
$
|
316.0
|
|
$
|
255.6
|
|
||
The Company’s agricultural equipment products generally are under warranty against defects in materials and workmanship for a period of
one
to
four
years. The Company accrues for future warranty costs at the time of sale based on historical warranty experience. Approximately
$52.3 million
and
$42.4 million
of warranty reserves are included in “Other noncurrent liabilities” in the Company’s Consolidated Balance Sheets as of
December 31, 2018
and
2017
, respectively.
The Company recognizes recoveries of the costs associated with warranties it provides when the collection is probable. When specifics of the recovery have been agreed upon with the Company’s suppliers through confirmation of liability for the recovery, the Company records the recovery within “Accounts and notes receivable, net.” Estimates of the amount of warranty claim recoveries to be received from the Company’s suppliers based upon contractual supplier arrangements are recorded within “Other current assets.”
Insurance Reserves
Under the Company’s insurance programs, coverage is obtained for significant liability limits as well as those risks required to be insured by law or contract. It is the policy of the Company to self-insure a portion of certain expected losses primarily related to workers’ compensation and comprehensive general liability, product and vehicle liability. Provisions for losses expected under these programs are recorded based on the Company’s estimates of the aggregate liabilities for the claims incurred.
Stock Incentive Plans
Stock compensation expense was recorded as follows (in millions). Refer to Note 10 for additional information regarding the Company’s stock incentive plans during
2018
,
2017
and
2016
:
|
Years Ended December 31,
|
|||||||||||
|
|
2018
|
2017
|
2016
|
||||||||
|
Cost of goods sold
|
$
|
2.3
|
|
$
|
2.8
|
|
$
|
1.5
|
|
||
|
Selling, general and administrative expenses
|
44.3
|
|
35.6
|
|
16.9
|
|
|||||
|
Total stock compensation expense
|
$
|
46.6
|
|
$
|
38.4
|
|
$
|
18.4
|
|
||
Research and Development Expenses
Research and development expenses are expensed as incurred and are included in engineering expenses in the Company’s Consolidated Statements of Operations.
Advertising Costs
The Company expenses all advertising costs as incurred. Cooperative advertising costs normally are expensed at the time the revenue is earned. Advertising expenses for the years ended
December 31, 2018
,
2017
and
2016
totaled approximately
$42.3 million
,
$40.0 million
and
$44.9 million
, respectively.
54
Shipping and Handling Expenses
All shipping and handling fees charged to customers are included as a component of net sales. Shipping and handling costs are included as a part of cost of goods sold, with the exception of certain handling costs included in selling, general and administrative expenses in the amount of
$37.9 million
,
$35.4 million
and
$30.5 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Interest Expense, Net
Interest expense, net for the years ended
December 31, 2018
,
2017
and
2016
consisted of the following (in millions):
|
2018
|
2017
|
2016
|
|||||||||
|
Interest expense
|
$
|
61.9
|
|
$
|
54.5
|
|
$
|
65.4
|
|
||
|
Interest income
|
(8.1
|
)
|
(9.4
|
)
|
(13.3
|
)
|
|||||
|
|
$
|
53.8
|
|
$
|
45.1
|
|
$
|
52.1
|
|
||
The Company repurchased its 5
7
/
8
% senior notes due December 1, 2021 during 2018, and as a result, recorded approximately
$24.5 million
in a loss on extinguishment of debt reflected in “Interest expense, net”. This was offset by approximately
$4.7 million
of accelerated amortization of a deferred gain related to a terminated interest rate swap agreement associated with the senior notes. Refer to Note 7 for further information.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Refer to Note 6 for additional information regarding the Company’s income taxes.
Net Income Per Common Share
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted net income per common share assumes the exercise of outstanding stock-settled stock appreciation rights (“SSARs”) and the vesting of performance share awards and restricted stock units using the treasury stock method when the effects of such assumptions are dilutive.
A reconciliation of net income attributable to AGCO Corporation and its subsidiaries and weighted average common shares outstanding for purposes of calculating basic and diluted net income per share during the years ended
December 31, 2018
,
2017
and
2016
is as follows (in millions, except per share data):
|
2018
|
2017
|
2016
|
|||||||||
|
Basic net income per share:
|
|
|
|
|
|
|
|||||
|
Net income attributable to AGCO Corporation and subsidiaries
|
$
|
285.5
|
|
$
|
186.4
|
|
$
|
160.1
|
|
||
|
Weighted average number of common shares outstanding
|
78.8
|
|
79.5
|
|
81.4
|
|
|||||
|
Basic net income per share attributable to AGCO Corporation and subsidiaries
|
$
|
3.62
|
|
$
|
2.34
|
|
$
|
1.97
|
|
||
|
Diluted net income per share:
|
|
|
|
|
|
|
|||||
|
Net income attributable to AGCO Corporation and subsidiaries
|
$
|
285.5
|
|
$
|
186.4
|
|
$
|
160.1
|
|
||
|
Weighted average number of common shares outstanding
|
78.8
|
|
79.5
|
|
81.4
|
|
|||||
|
Dilutive SSARs, performance share awards and restricted stock units
|
0.9
|
|
0.7
|
|
0.3
|
|
|||||
|
Weighted average number of common shares and common share equivalents outstanding for purposes of computing diluted net income per share
|
79.7
|
|
80.2
|
|
81.7
|
|
|||||
|
Diluted net income per share attributable to AGCO Corporation and subsidiaries
|
$
|
3.58
|
|
$
|
2.32
|
|
$
|
1.96
|
|
||
55
SSARs to purchase
0.5 million
shares,
0.3 million
shares and
1.1 million
shares of the Company’s common stock were outstanding for the years ended
December 31, 2018
,
2017
and
2016
, respectively, but were not included in the calculation of weighted average common and common equivalent shares outstanding because they had an antidilutive impact.
Comprehensive Income (Loss)
The Company reports comprehensive income (loss), defined as the total of net income (loss) and all other non-owner changes in equity, and the components thereof in its Consolidated Statements of Stockholders’ Equity and Consolidated Statements of Comprehensive Income. The components of other comprehensive (loss) income and the related tax effects for the years ended
December 31, 2018
,
2017
and
2016
are as follows (in millions):
|
|
AGCO Corporation and Subsidiaries
|
Noncontrolling Interests
|
|||||||||||||
|
|
2018
|
2018
|
|||||||||||||
|
Before-tax
Amount
|
Income
Taxes
|
After-tax
Amount
|
After-tax
Amount
|
||||||||||||
|
Defined benefit pension plans
|
$
|
0.8
|
|
$
|
1.9
|
|
$
|
2.7
|
|
$
|
—
|
|
|||
|
Net gain on derivatives
|
7.6
|
|
(1.5
|
)
|
6.1
|
|
—
|
|
|||||||
|
Foreign currency translation adjustments
|
(202.6
|
)
|
—
|
|
(202.6
|
)
|
(4.2
|
)
|
|||||||
|
Total components of other comprehensive loss
|
$
|
(194.2
|
)
|
$
|
0.4
|
|
$
|
(193.8
|
)
|
$
|
(4.2
|
)
|
|||
|
AGCO Corporation and Subsidiaries
|
Noncontrolling Interests
|
||||||||||||||
|
|
2017
|
2017
|
|||||||||||||
|
Before-tax
Amount
|
Income
Taxes
|
After-tax
Amount
|
After-tax
Amount
|
||||||||||||
|
Defined benefit pension plans
|
$
|
24.2
|
|
$
|
(4.8
|
)
|
$
|
19.4
|
|
$
|
—
|
|
|||
|
Net gain on derivatives
|
4.1
|
|
(0.1
|
)
|
4.0
|
|
—
|
|
|||||||
|
Foreign currency translation adjustments
|
56.6
|
|
—
|
|
56.6
|
|
1.2
|
|
|||||||
|
Total components of other comprehensive income
|
$
|
84.9
|
|
$
|
(4.9
|
)
|
$
|
80.0
|
|
$
|
1.2
|
|
|||
|
AGCO Corporation and Subsidiaries
|
Noncontrolling Interests
|
||||||||||||||
|
|
2016
|
2016
|
|||||||||||||
|
Before-tax
Amount
|
Income
Taxes
|
After-tax
Amount
|
After-tax
Amount
|
||||||||||||
|
Defined benefit pension plans
|
$
|
(68.2
|
)
|
$
|
12.7
|
|
$
|
(55.5
|
)
|
$
|
—
|
|
|||
|
Net loss on derivatives
|
(6.8
|
)
|
0.1
|
|
(6.7
|
)
|
—
|
|
|||||||
|
Foreign currency translation adjustments
|
80.8
|
|
—
|
|
80.8
|
|
1.6
|
|
|||||||
|
Total components of other comprehensive income
|
$
|
5.8
|
|
$
|
12.8
|
|
$
|
18.6
|
|
$
|
1.6
|
|
|||
Derivatives
The Company uses foreign currency contracts to hedge the foreign currency exposure of certain receivables and payables. The contracts are for periods consistent with the exposure being hedged and generally have maturities of one year or less. These contracts are classified as non-designated derivative instruments. The Company also enters into foreign currency contracts designated as cash flow hedges of expected sales. The Company’s foreign currency contracts mitigate risk due to exchange rate fluctuations because gains and losses on these contracts generally offset losses and gains on the exposure being hedged. The notional amounts of the foreign currency contracts do not represent amounts exchanged by the parties and, therefore, are not a measure of the Company’s risk. The amounts exchanged are calculated on the basis of the notional amounts and other terms of the contracts. The credit and market risks under these contracts are not considered to be significant.
56
The Company’s interest expense is, in part, sensitive to the general level of interest rates, and the Company manages its exposure to interest rate risk through the mix of floating rate and fixed rate debt. From time to time, the Company enters into interest rate swap agreements in order to manage the Company’s exposure to interest rate fluctuations.
The Company uses non-derivative and, periodically, derivative instruments to hedge a portion of the Company’s net investment in foreign operations against adverse movements in exchange rates.
The Company’s hedging policy prohibits it from entering into any foreign currency contracts for speculative trading purposes. Refer to Note 11 for additional information regarding the Company’s derivative instruments and hedging activities.
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-14, “Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”). The standard revises the annual disclosure requirements by removing disclosures no longer considered cost beneficial, clarifying specific requirements of disclosures and adding certain disclosures identified as relevant. ASU 2018-14 is effective for annual periods beginning after December 15, 2020. The standard should be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company early adopted the standard for the year ended December 31, 2018. The standard did not have an impact on the Company’s results of operations, financial condition and cash flows.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). The standard revises the disclosure requirements by removing disclosures no longer considered cost beneficial, modifying specific requirements of disclosures and adding certain disclosures identified as relevant. ASU 2018-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. Certain amendments of the standard should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments of the standard should be applied retrospectively to all periods presented. The standard will not have an impact on the Company’s results of operations, financial condition and cash flows.
In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”), which allows for the election to reclassify the disproportionate income tax effects of the Tax Cuts and Jobs Act (the “2017 Tax Act”) on items within accumulated other comprehensive income (loss) to retained earnings. These disproportionate income tax effect items are referred to as “stranded tax effects.” The amendments within ASU 2018-02 only relate to the reclassification of the income tax effects of the 2017 Tax Act. Certain disclosures are required in the period of adoption as to whether an entity has elected to reclassify the stranded tax effects. ASU 2018-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The standard should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. corporate income tax rate in the 2017 Tax Act is recognized. Early adoption is permitted for any interim or annual period. The Company is currently evaluating the impact of adopting this standard on the Company’s results of operations, financial condition and cash flows, but does not expect the impact to be material.
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”), which aligns an entity’s risk management activities and financial reporting for hedge relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments include 1) the ability to apply hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk, 2) new alternatives for measuring the hedged item for fair value hedges of interest rate risk, 3) elimination of the requirement to separately measure and report hedge ineffectiveness, 4) requirement to present the earnings effect of the hedging instrument in the same income statement line in which the earnings effect of the hedged item is reported and 5) less stringent requirements for effectiveness testing, hedge documentation and applying the critical terms match method. ASU 2017-12 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods using a prospective approach. Early adoption is permitted for any interim or annual period. The amendments should be applied to existing hedging relationships on the date of adoption. The Company adopted the standard on January 1, 2018. The standard did not have a material impact on the Company’s results of operations, financial condition and cash flows.
57
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”), which requires the service cost component of net periodic pension and postretirement benefit cost be included in the same line item as other compensation costs arising from services rendered by employees. The other components of net periodic pension and postretirement benefit cost are required to be classified outside the subtotal of income from operations. Of the components of net periodic pension and postretirement benefit cost, only the service cost component will be eligible for asset capitalization. ASU 2017-07 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, using a retrospective approach for the presentation of the service cost component and other components of net periodic pension and postretirement benefit cost in the statement of operations; and a prospective approach for the capitalization of the service cost component of net periodic pension and postretirement benefit cost in assets. Early adoption is permitted for any interim or annual period. ASU 2017-07 allows a practical expedient for applying the retrospective presentation requirements.The Company adopted ASU 2017-07 on January 1, 2018 and restrospectively applied the standard to the presentation of the other components of net periodic pension and postretirement benefit costs in the Company’s Consolidated Statements of Operations. As part of the adoption, the Company elected to use the practical expedient, which allowed the Company to use the information previously disclosed as the basis for applying the retrospective presentation requirements of the standard. For the year ended December 31, 2017 and 2016, the Company reclassified approximately
$1.1 million
of expense and
$1.4 million
of income related to the other components of net periodic pension and postretirement costs from “Selling, general and administrative expenses” and “Engineering expenses” to “Other expenses, net” as a result of the retrospective application of ASU 2017-07.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which eliminates Step 2 from the goodwill impairment test. Under the standard, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, resulting in an impairment charge that is the amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge, however, should not exceed the total amount of goodwill allocated to a reporting unit. The impairment assessment under ASU 2017-04 applies to all reporting units, including those with a zero or negative carrying amount. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods using a prospective approach. Early adoption is permitted for any interim or annual goodwill impairment test performed on testing dates after January 1, 2017. The Company expects to adopt ASU 2017-04 effective January 1, 2020 and will apply the standard to all impairment tests performed thereafter.
In November 2016, the FASB issued ASU 2016-18, “Restricted Cash” (“ASU 2016-18”). which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, and interim period within those annual periods using a retrospective approach. Early adoption is permitted in any interim or annual period. The Company adopted ASU 2016-18 on January 1, 2018. The adoption did not have a material impact on its cash flows.
In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”), which requires recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the standard eliminates the exception to the recognition of current and deferred income taxes for an intra-entity asset transfer other than for inventory until the asset has been sold to an outside party. ASU 2016-16 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods using a modified retrospective approach. Early adoption is permitted in any interim or annual period. The Company adopted ASU 2016-16 on January 1, 2018. The adoption did not have a material impact on its results of operations, financial condition and cash flows.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires measurement and recognition of expected versus incurred credit losses for financial assets held. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods as the adoption of the standard relates to the Company. However, the standard does not have to be adopted by the Company’s finance joint ventures until annual periods beginning after December 15, 2020, and interim periods within those annual periods. This standard will likely impact the results of operations and financial condition of the Company’s finance joint ventures and as a result, will likely impact the Company’s “Investment in affiliates” and “Equity in net earnings of affiliates”
58
upon adoption.
The Company’s finance joint ventures are currently evaluating the standard’s impact to their results of operations and financial condition.
In February 2016, the
FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”), which superseded the existing lease guidance under current U.S. GAAP. ASU 2016-02 is based on the principle that entities should recognize assets and liabilities arising from leases. The new standard does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard and leases continue to be classified as finance or operating. ASU 2016-02’s primary change is the requirement for entities to recognize a lease liability for payments and a right-of-use (“ROU”) asset representing the right to use the leased asset during the term of an operating lease arrangement. Lessees were permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of 12 months or less. Lessors’ accounting under the new standard was largely unchanged from the previous accounting standard. In addition, ASU 2016-02 expanded the disclosure requirements of lease arrangements. The new standard was effective for reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Upon adoption, lessees and lessors were required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU 2018-11, “Targeted Improvements”, which allowed for a new, optional transition method that provided the option to use the effective date as the date of initial application on transition. Under this option, the comparative periods would continue to apply the legacy guidance in ASC 840, including the disclosure requirements, and a cumulative effect adjustment would be recognized in the period of adoption rather than the earliest period presented. Under this transition option, comparative reporting would not be required and the provisions of the standard would be applied prospectively to leases in effect at the date of adoption. The Company has completed the design of new processes and internal controls, which included the implementation of a software solution and the evaluation of the Company’s population of leased assets to assess the effect of the new guidance on the Company’s financial statements. The Company adopted the new guidance effective January 1, 2019 using a modified retrospective approach through a cumulative effect adjustment to “Retained earnings” as of the beginning of the period of adoption. The new standard provided a number of optional practical expedients in transition. The Company elected the “package of practical expedients” which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The new standard has a material impact on the Company’s Consolidated Balance Sheets related to the recognition of new ROU assets and lease liabilities for operating leases, as well as providing new disclosures about the Company’s leasing activities. The Company does not expect material changes in its leasing activities subsequent to adoption. Based on the Company’s current lease portfolio, the adoption of the standard as of January 1, 2019 is expected to result in ROU assets and liabilities ranging from
$195.0 million
to
$215.0 million
. The Company has elected the short-term lease exemption for all leases with a term of 12 months or less for both existing and ongoing leases. The Company elected the practical expedient to separate lease and non-lease components for a majority of its leases, other than real estate and office equipment leases.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which provides a single, comprehensive revenue recognition model for all contracts with customers with a five-step analysis in determining when and how revenue is recognized. The new model requires revenue recognition to depict the transfer of promised goods or services to customers at an amount that reflects the consideration expected to be received in exchange for those goods or services. Additional disclosures also are required to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and changes in those judgments. Entities have the option to apply the new standard under a full retrospective approach to each prior reporting period presented, or a modified retrospective approach with the cumulative effect of initial adoption and application within the Consolidated Statement of Stockholders’ Equity. The Company adopted ASU 2014-09 with an application date of January 1, 2018 using the modified retrospective approach. Under this method, the Company recognized the cumulative effect of initially applying ASU 2014-09 as an adjustment to the opening balance of stockholders’ equity as of January 1, 2018 within “Retained earnings.” The cumulative effect was approximately
$0.4 million
, which was related to the recognition of contract assets and contract liabilities for the value of the expected replacement parts returns. The comparative information has not been adjusted and continues to be reported under ASU 2009-13, “Revenue Recognition.” The details of the significant changes and quantitative impact of the changes are discussed below. The Company has enhanced its accounting policies and practices, business processes, systems and controls, as well as designed and implemented specific internal controls over the implementation and adherence to the standard, including new disclosure requirements.
The Company has various promotional and annual return programs with respect to the sale of replacement parts whereby the Company’s dealers, distributors and other customers can return specified replacement parts pursuant to such programs. The Company previously recognized revenue for the sale of replacement parts and recorded a corresponding provision for the amount of expected returns at the time of sale. Pursuant to the adoption of ASU 2014-09, the Company recognized a contract asset for the right to recover returned replacement parts at cost, reflected within “Other current assets” in
59
the Company’s Consolidated Balance Sheets. Conversely, the provision for expected returns is recorded at the sales value of expected returns, reflected as a contract liability within “Accrued expenses.” The Company’s estimates of returns are based on the terms of the promotional and annual return programs and anticipated returns in the future.
The following table summarizes the impact of adopting ASU 2014-09 on the Company’ s Consolidated Balance Sheet as of
December 31, 2018
(in millions):
|
As Reported
|
Balances Without Adoption of ASU 2014-09
|
Increase (Decrease) Due to Adoption
|
||||||||||
|
Assets
|
||||||||||||
|
Accounts and notes receivable, net
|
$
|
880.3
|
|
$
|
880.1
|
|
$
|
0.2
|
|
|||
|
Other current assets
|
422.3
|
|
410.9
|
|
11.4
|
|
||||||
|
Total current assets
|
3,537.4
|
|
3,525.8
|
|
11.6
|
|
||||||
|
Other assets
|
142.4
|
|
141.6
|
|
0.8
|
|
||||||
|
Total assets
|
7,626.4
|
|
7,614.0
|
|
12.4
|
|
||||||
|
Liabilities and Stockholders’ Equity
|
||||||||||||
|
Accrued expenses
|
$
|
1,522.4
|
|
$
|
1,508.3
|
|
$
|
14.1
|
|
|||
|
Total current liabilities
|
2,766.7
|
|
2,752.6
|
|
14.1
|
|
||||||
|
Other noncurrent liabilities
|
251.4
|
|
249.1
|
|
2.3
|
|
||||||
|
Total liabilities
|
4,632.9
|
|
4,616.5
|
|
16.4
|
|
||||||
|
Retained earnings
|
4,477.3
|
|
4,481.3
|
|
(4.0
|
)
|
||||||
|
Total stockholder’s equity
|
2,993.5
|
|
2,997.5
|
|
(4.0
|
)
|
||||||
|
Total liabilities and stockholder’s equity
|
7,626.4
|
|
7,614.0
|
|
12.4
|
|
||||||
The impact of adopting ASU 2014-09 on the Consolidated Statement of Operations and Consolidated Statement of Cash Flows for the year ended
December 31, 2018
was not material.
60
2. Acquisitions
On October 2, 2017, the Company acquired the hay and forage division of the Lely Group (“Lely”) for approximately
€80.2 million
(or approximately
$94.6 million
), net of cash acquired of approximately
€10.1 million
(or approximately
$11.9 million
). The Lely acquisition, with manufacturing locations in northern Germany, will allow the Company to expand its product offering of hay and forage equipment, including balers and loader wagons. The acquisition was financed by the Company’s credit facility (Note 7).
The fair values of the assets acquired and liabilities assumed as of the acquisition date are presented in the following table (in millions):
|
Current assets
|
$
|
87.0
|
|
|
Property, plant and equipment
|
17.8
|
|
|
|
Intangible assets
|
7.6
|
|
|
|
Goodwill
|
25.8
|
|
|
|
Total assets acquired
|
138.2
|
|
|
|
Current liabilities
|
23.5
|
|
|
|
Long-term liabilities
|
8.2
|
|
|
|
Total liabilities assumed
|
31.7
|
|
|
|
Net assets acquired
|
$
|
106.5
|
|
The acquired identifiable intangible assets of Lely as of the date of the acquisition are summarized in the following table (in millions):
|
Intangible Asset
|
Amount
|
Weighted-Average Useful Life
|
|||||
|
Customer relationships
|
$
|
3.0
|
|
5
|
years
|
||
|
Technology
|
3.0
|
|
12
|
years
|
|||
|
Trademarks
|
1.6
|
|
10
|
years
|
|||
|
$
|
7.6
|
|
|||||
The results of operations of Lely have been included in the Company’s Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company’s Europe/Middle East geographical reportable segment. Proforma results related to the acquisition were not material.
On September 1, 2017, the Company acquired Precision Planting LLC (“Precision Planting”) for approximately
$198.1 million
, net of cash acquired of approximately
$1.6 million
. Precision Planting, headquartered in Tremont, Illinois, is a leading manufacturer of high-tech planting equipment. The acquisition of Precision Planting provided the Company an opportunity to expand its precision farming technology offerings on a global basis. The acquisition was financed by the Company’s credit facility (Note 7).
61
The fair values of the assets acquired and liabilities assumed as of the acquisition date are presented in the following table (in millions):
|
Current assets
|
$
|
59.5
|
|
|
Property, plant and equipment
|
20.8
|
|
|
|
Intangible assets
|
64.4
|
|
|
|
Goodwill
|
67.2
|
|
|
|
Total assets acquired
|
211.9
|
|
|
|
Current liabilities
|
12.2
|
|
|
|
Total liabilities assumed
|
12.2
|
|
|
|
Net assets acquired
|
$
|
199.7
|
|
The acquired identifiable intangible assets of Precision Planting as of the date of the acquisition are summarized in the following table (in millions):
|
Intangible Asset
|
Amount
|
Weighted-Average Useful Life
|
|||||
|
Customer relationships
|
$
|
21.4
|
|
14
|
years
|
||
|
Technology
|
25.1
|
|
10
|
years
|
|||
|
Trademarks
|
17.9
|
|
20
|
years
|
|||
|
$
|
64.4
|
|
|||||
The results of operations of Precision Planting have been included in the Company’s Consolidated Financial Statements as of and from the date of acquisition. The associated tax deductible goodwill has been included in the Company’s North America geographical reportable segment. Proforma results related to the acquisition were not material.
On September 12, 2016, the Company acquired Cimbria Holdings Limited (“Cimbria”) for
DKK 2,234.9 million
(or approximately
$337.5 million
), net of cash acquired of approximately
DKK 83.4 million
(or approximately
$12.6 million
). Cimbria, headquartered in Thisted, Denmark, is a leading manufacturer of products and solutions for the processing, handling and storage of seed and grain. The acquisition was financed by the Company’s credit facility (Note 7).
The fair values of the assets acquired and liabilities assumed as of the acquisition date are presented in the following table (in millions):
|
Current assets
|
$
|
74.2
|
|
|
Property, plant and equipment
|
21.9
|
|
|
|
Intangible assets
|
128.9
|
|
|
|
Goodwill
|
237.9
|
|
|
|
Total assets acquired
|
462.9
|
|
|
|
Current liabilities
|
63.8
|
|
|
|
Deferred tax liabilities
|
38.5
|
|
|
|
Long-term debt and other noncurrent liabilities
|
10.5
|
|
|
|
Total liabilities assumed
|
112.8
|
|
|
|
Net assets acquired
|
$
|
350.1
|
|
62
The acquired identifiable intangible assets of Cimbria as of the date of the acquisition are summarized in the following table (in millions)
:
|
Intangible Asset
|
Amount
|
Weighted-Average Useful Life
|
|||||
|
Customer relationships
|
$
|
50.4
|
|
9
|
years
|
||
|
Technology
|
22.5
|
|
10
|
years
|
|||
|
Trademarks
|
56.0
|
|
20
|
years
|
|||
|
$
|
128.9
|
|
|||||
The results of operations of Cimbria have been included in the Company’s Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company’s Europe/Middle East and Asia/Pacific/Africa geographical reportable segments.
On February 2, 2016, the Company acquired Tecno Poultry Equipment S.p.A (“Tecno”) for approximately
€58.7 million
(or approximately
$63.8 million
). The Company acquired cash of approximately
€17.6 million
(or approximately
$19.1 million
) associated with the acquisition. Tecno, headquartered in Ronchi Di Villafranca, Italy, manufactures and supplies poultry housing and related products, including egg collection equipment and trolley feeding systems. The acquisition was financed through the Company’s credit facility (Note 7). The Company allocated the purchase price to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. The acquired net assets primarily consisted of accounts receivable, inventories, accounts payable and accrued expenses, deferred revenue, property, plant and equipment, and customer relationship, technology and trademark identifiable intangible assets. The Company recorded approximately
$27.5 million
of customer relationship, technology and trademark identifiable intangible assets and approximately
$20.4 million
of goodwill associated with the acquisition. The results of operations of Tecno have been included in the Company’s Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company’s Europe/Middle East and North America geographical reportable segments.
The acquired identifiable intangible assets of Tecno as of the date of the acquisition are summarized in the following table (in millions):
|
Intangible Asset
|
Amount
|
Weighted-Average Useful Life
|
|||||
|
Customer relationships
|
$
|
15.7
|
|
10
|
years
|
||
|
Technology
|
7.9
|
|
10
|
years
|
|||
|
Trademarks
|
3.9
|
|
10
|
years
|
|||
|
$
|
27.5
|
|
|||||
63
3. Restructuring Expenses
Beginning in 2014 through 2018, the Company announced and initiated several actions to rationalize employee headcount at various manufacturing facilities and various administrative offices located in Europe, South America, China and the United States in order to reduce costs in response to softening global market demand and lower production volumes. The aggregate headcount reduction was approximately
3,370
employees between 2014 and 2017. During
2018
, the Company recorded severance and related costs associated with further rationalizations in connection with the termination of approximately
520
employees. The components of the restructuring expenses are summarized as follows (in millions):
|
Write-down of Property, Plant
and Equipment
|
Employee Severance
|
Facility Closure Costs
|
Total
|
||||||||||||
|
Balance as of December 31, 2015
|
$
|
—
|
|
$
|
16.9
|
|
$
|
—
|
|
$
|
16.9
|
|
|||
|
2016 provision
|
—
|
|
11.0
|
|
1.0
|
|
12.0
|
|
|||||||
|
2016 provision reversal
|
—
|
|
(0.1
|
)
|
—
|
|
(0.1
|
)
|
|||||||
|
2016 cash activity
|
—
|
|
(13.1
|
)
|
(0.2
|
)
|
(13.3
|
)
|
|||||||
|
Foreign currency translation
|
—
|
|
(0.2
|
)
|
—
|
|
(0.2
|
)
|
|||||||
|
Balance as of December 31, 2016
|
—
|
|
14.5
|
|
0.8
|
|
15.3
|
|
|||||||
|
2017 provision
|
0.2
|
|
12.4
|
|
—
|
|
12.6
|
|
|||||||
|
Less: Non-cash expense
|
(0.2
|
)
|
—
|
|
—
|
|
(0.2
|
)
|
|||||||
|
Cash expense
|
—
|
|
12.4
|
|
—
|
|
12.4
|
|
|||||||
|
2017 provision reversal
|
—
|
|
(1.4
|
)
|
—
|
|
(1.4
|
)
|
|||||||
|
2017 cash activity
|
—
|
|
(16.0
|
)
|
(0.8
|
)
|
(16.8
|
)
|
|||||||
|
Foreign currency translation
|
—
|
|
1.4
|
|
—
|
|
1.4
|
|
|||||||
|
Balance as of December 31, 2017
|
—
|
|
10.9
|
|
—
|
|
10.9
|
|
|||||||
|
2018 provision
|
0.3
|
|
13.8
|
|
—
|
|
14.1
|
|
|||||||
|
Less: Non-cash expense
|
(0.3
|
)
|
—
|
|
—
|
|
(0.3
|
)
|
|||||||
|
Cash expense
|
—
|
|
13.8
|
|
—
|
|
13.8
|
|
|||||||
|
2018 provision reversal
|
—
|
|
(2.1
|
)
|
—
|
|
(2.1
|
)
|
|||||||
|
2018 cash activity
|
—
|
|
(14.4
|
)
|
—
|
|
(14.4
|
)
|
|||||||
|
Foreign currency translation
|
—
|
|
(1.1
|
)
|
—
|
|
(1.1
|
)
|
|||||||
|
Balance as of December 31, 2018
|
$
|
—
|
|
$
|
7.1
|
|
$
|
—
|
|
$
|
7.1
|
|
|||
64
4. Accounts Receivable Sales Agreements
At
December 31, 2018
and
2017
, the Company had accounts receivable sales agreements that permit the sale, on an ongoing basis, of a majority of its wholesale receivables in North America, Europe and Brazil to its U.S., Canadian, European and Brazilian finance joint ventures. As of
December 31, 2018
and
2017
, the cash received from receivables sold under the U.S., Canadian, European and Brazilian accounts receivable sales agreements was approximately
$1.4 billion
and
$1.3 billion
, respectively.
Under the terms of the accounts receivable sales agreements in North America, Europe and Brazil, the Company pays an annual servicing fee related to the servicing of the receivables sold. The Company also pays the respective AGCO Finance entities an interest payment calculated based upon LIBOR plus a margin on any non-interest bearing accounts receivable outstanding and sold under the sales agreements. These fees are reflected within losses on the sales of receivables included within “Other expense, net” in the Company’s Consolidated Statements of Operations. The Company does not service the receivables after the sale occurs and does not maintain any direct retained interest in the receivables. The Company reviewed its accounting for the accounts receivable sales agreements and determined that these facilities should be accounted for as off-balance sheet transactions.
Losses on sales of receivables associated with the accounts receivable financing facilities discussed above, reflected within “Other expense, net” in the Company’s Consolidated Statements of Operations, were approximately
$36.0 million
,
$39.2 million
and
$19.5 million
during
2018
,
2017
and
2016
, respectively.
The Company’s finance joint ventures in Europe, Brazil and Australia also provide wholesale financing directly to the Company’s dealers. The receivables associated with these arrangements are without recourse to the Company. The Company does not service the receivables after the sale occurs and does not maintain any direct retained interest in the receivables. As of
December 31, 2018
and
2017
, these finance joint ventures had approximately
$82.5 million
and
$41.6 million
, respectively, of outstanding accounts receivable associated with these arrangements. The Company reviewed its accounting for these arrangements and determined that these arrangements should be accounted for as off-balance sheet transactions.
In addition, the Company sells certain trade receivables under factoring arrangements to other financial institutions around the world. The Company reviewed the sale of such receivables and determined that these arrangements should be accounted for as off-balance sheet transactions.
5. Investments in Affiliates
Investments in affiliates as of
December 31, 2018
and
2017
were as follows (in millions):
|
2018
|
2017
|
||||||
|
Finance joint ventures
|
$
|
358.7
|
|
$
|
373.7
|
|
|
|
Manufacturing joint ventures
|
26.3
|
|
20.1
|
|
|||
|
Other affiliates
|
15.0
|
|
15.2
|
|
|||
|
|
$
|
400.0
|
|
$
|
409.0
|
|
|
The Company’s finance joint ventures are located in the United States, Canada, Europe, Brazil, Argentina and Australia, and provide retail financing and wholesale financing to the Company’s retail customers and dealers, respectively. Refer to Note 14 for further information. The Company’s manufacturing joint ventures consist of Groupement International De Mecanique Agricole SA (“GIMA”) (a joint venture with a third-party manufacturer to purchase, design and manufacture components for agricultural equipment in France), a joint venture with third-party manufacturer to assemble tractors in Algeria and a joint venture with a third-party manufacturer to manufacture protein production equipment in China. The other joint ventures represent investments in farm equipment manufacturers, an electronic and software system manufacturer, distributors and licensees.
65
The Company’s equity in net earnings of affiliates for the years ended
December 31, 2018
,
2017
and
2016
were as follows (in millions):
|
2018
|
2017
|
2016
|
|||||||||
|
Finance joint ventures
|
$
|
34.7
|
|
$
|
39.9
|
|
$
|
45.5
|
|
||
|
Manufacturing and other joint ventures
|
(0.4
|
)
|
(0.8
|
)
|
2.0
|
|
|||||
|
|
$
|
34.3
|
|
$
|
39.1
|
|
$
|
47.5
|
|
||
Summarized combined financial information of the Company’s finance joint ventures as of
December 31, 2018
and
2017
and for the years ended
December 31, 2018
,
2017
and
2016
were as follows (in millions):
|
|
As of December 31,
|
||||||
|
|
2018
|
2017
|
|||||
|
Total assets
|
$
|
7,643.5
|
|
$
|
8,440.0
|
|
|
|
Total liabilities
|
6,911.5
|
|
7,677.3
|
|
|||
|
Partners’ equity
|
732.0
|
|
762.7
|
|
|||
|
|
For the Years Ended December 31,
|
||||||||||
|
|
2018
|
2017
|
2016
|
||||||||
|
Revenues
|
$
|
305.2
|
|
$
|
305.7
|
|
$
|
297.4
|
|
||
|
Costs
|
201.1
|
|
183.0
|
|
159.0
|
|
|||||
|
Income before income taxes
|
$
|
104.1
|
|
$
|
122.7
|
|
$
|
138.4
|
|
||
The majority of the assets of the Company’s finance joint ventures represent finance receivables. The majority of the liabilities represent notes payable and accrued interest. Under the various joint venture agreements, Rabobank or its affiliates provide financing to the joint venture companies. AGCO has a
49%
interest in the Company’s finance joint ventures (Note 14).
At
December 31, 2018
and
2017
, the Company’s receivables from affiliates were approximately
$12.9 million
and
$23.4 million
, respectively. The receivables from affiliates are reflected within “Accounts and notes receivable, net” within the Company’s Consolidated Balance Sheets.
The portion of the Company’s retained earnings balance that represents undistributed retained earnings of equity method investees was approximately
$326.9 million
and
$321.9 million
as of
December 31, 2018
and
2017
, respectively.
6. Income Taxes
The sources of income before income taxes and equity in net earnings of affiliates were as follows for the years ended
December 31, 2018
,
2017
and
2016
(in millions):
|
2018
|
2017
|
2016
|
|||||||||
|
United States
|
$
|
(126.0
|
)
|
$
|
(141.6
|
)
|
$
|
(150.0
|
)
|
||
|
Foreign
|
486.3
|
|
425.4
|
|
354.9
|
|
|||||
|
Income before income taxes and equity in net earnings of affiliates
|
$
|
360.3
|
|
$
|
283.8
|
|
$
|
204.9
|
|
||
66
The provision (benefit) for income taxes by location of the taxing jurisdiction for the years ended
December 31, 2018
,
2017
and
2016
consisted of the following (in millions):
|
2018
|
2017
|
2016
|
|||||||||
|
Current:
|
|
|
|
|
|
|
|||||
|
United States:
|
|
|
|
|
|
|
|||||
|
Federal
|
$
|
(9.1
|
)
|
$
|
20.3
|
|
$
|
(24.3
|
)
|
||
|
State
|
1.2
|
|
0.6
|
|
0.2
|
|
|||||
|
Foreign
|
133.5
|
|
126.8
|
|
114.2
|
|
|||||
|
|
125.6
|
|
147.7
|
|
90.1
|
|
|||||
|
Deferred:
|
|
|
|
|
|
|
|||||
|
United States:
|
|
|
|
|
|
|
|||||
|
Federal
|
—
|
|
0.9
|
|
21.9
|
|
|||||
|
State
|
—
|
|
—
|
|
—
|
|
|||||
|
Foreign
|
(14.7
|
)
|
(15.0
|
)
|
(19.8
|
)
|
|||||
|
|
(14.7
|
)
|
(14.1
|
)
|
2.1
|
|
|||||
|
|
$
|
110.9
|
|
$
|
133.6
|
|
$
|
92.2
|
|
||
On December 22, 2017, The Tax Cuts and Jobs Act (“the 2017 Tax Act”) was enacted in the United States. During the three months ended December 31, 2017, the Company recorded a tax provision of approximately
$42.0 million
in accordance with Staff Accounting Bulletin No. 118, which provided SEC Staff guidance for the application of ASC 740 “Income Taxes,” in the reporting period in which the 2017 Tax Act was enacted. The
$42.0 million
tax provision recorded included a provisional income tax charge related to a one-time transition tax associated with the mandatory deemed repatriation of unremitted foreign earnings. The tax provision also included a provisional income tax charge associated with the income tax consequences related to the expected future repatriation of certain underlying foreign earnings, as historically, the Company had considered them to be permanently reinvested. The remaining balance of the tax provision primarily related to the remeasurement of certain net deferred tax assets using the lower enacted U.S. Corporate tax rate, as well as other miscellaneous related impacts. During the three months ended December 31, 2018, the Company finalized its calculations related to the 2017 Tax Act and recorded an income tax benefit of approximately
$8.5 million
.
A reconciliation of income taxes computed at the United States federal statutory income tax rate (21% for 2018 (from 35 percent to 21 percent), and
35%
for 2017 and 2016) to the provision for income taxes reflected in the Company’s Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016 is as follows (in millions):
|
2018
|
2017
|
2016
|
|||||||||
|
Provision for income taxes at United States federal statutory rate
|
$
|
75.7
|
|
$
|
99.3
|
|
$
|
71.7
|
|
||
|
State and local income taxes, net of federal income tax effects
|
(6.0
|
)
|
(5.7
|
)
|
(6.0
|
)
|
|||||
|
Taxes on foreign income which differ from the United States statutory rate
|
(0.3
|
)
|
(57.7
|
)
|
(44.5
|
)
|
|||||
|
Tax effect of permanent differences
|
26.7
|
|
60.6
|
|
14.4
|
|
|||||
|
Change in valuation allowance
|
24.6
|
|
(1.4
|
)
|
37.9
|
|
|||||
|
Change in tax contingency reserves
|
8.5
|
|
3.8
|
|
23.4
|
|
|||||
|
Research and development tax credits
|
(8.5
|
)
|
(5.0
|
)
|
(3.8
|
)
|
|||||
|
Impacts related to the 2017 Tax Act
|
(8.4
|
)
|
42.0
|
|
—
|
|
|||||
|
Other
|
(1.4
|
)
|
(2.3
|
)
|
(0.9
|
)
|
|||||
|
|
$
|
110.9
|
|
$
|
133.6
|
|
$
|
92.2
|
|
||
67
The significant components of the deferred tax assets and liabilities at
December 31, 2018
and
2017
were as follows (in millions):
|
2018
|
2017
|
||||||
|
Deferred Tax Assets:
|
|
|
|
|
|||
|
Net operating loss carryforwards
|
$
|
74.5
|
|
$
|
83.4
|
|
|
|
Sales incentive discounts
|
58.8
|
|
60.2
|
|
|||
|
Inventory valuation reserves
|
36.3
|
|
34.4
|
|
|||
|
Pensions and postretirement health care benefits
|
47.6
|
|
52.2
|
|
|||
|
Warranty and other reserves
|
98.6
|
|
92.2
|
|
|||
|
Research and development tax credits
|
3.1
|
|
2.9
|
|
|||
|
Foreign tax credits
|
9.7
|
|
10.4
|
|
|||
|
Other
|
21.6
|
|
19.2
|
|
|||
|
Total gross deferred tax assets
|
350.2
|
|
354.9
|
|
|||
|
Valuation allowance
|
(83.9
|
)
|
(81.9
|
)
|
|||
|
Total net deferred tax assets
|
266.3
|
|
273.0
|
|
|||
|
Deferred Tax Liabilities:
|
|
|
|
|
|||
|
Tax over book depreciation and amortization
|
214.3
|
|
229.1
|
|
|||
|
Investment in affiliates
|
42.8
|
|
53.9
|
|
|||
|
Other
|
20.6
|
|
8.3
|
|
|||
|
Total deferred tax liabilities
|
277.7
|
|
291.3
|
|
|||
|
Net deferred tax liabilities
|
$
|
(11.4
|
)
|
$
|
(18.3
|
)
|
|
|
Amounts recognized in Consolidated Balance Sheets:
|
|
|
|
|
|||
|
Deferred tax assets - noncurrent
|
$
|
104.9
|
|
$
|
112.2
|
|
|
|
Deferred tax liabilities - noncurrent
|
(116.3
|
)
|
(130.5
|
)
|
|||
|
|
$
|
(11.4
|
)
|
$
|
(18.3
|
)
|
|
The Company recorded a net deferred tax liability of
$11.4 million
and
$18.3 million
as of
December 31, 2018
and
December 31, 2017
, respectively. As reflected in the preceding table, the Company had a valuation allowance against its gross deferred tax assets of approximately
$83.9 million
and
$81.9 million
as of
December 31, 2018
and
2017
, respectively.
The Company maintains a valuation allowance to fully reserve its net deferred tax assets in the United States and certain foreign jurisdictions. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assessed the likelihood that its deferred tax assets would be recovered from estimated future taxable income and available tax planning strategies and determined that all adjustments to the valuation allowance were appropriate. In making this assessment, all available evidence was considered including the current economic climate, as well as reasonable tax planning strategies. The Company believes it is more likely than not that the Company will realize its remaining net deferred tax assets, net of the valuation allowance, in future years.
The Company had net operating loss carryforwards of
$249.6 million
as of
December 31, 2018
, with expiration dates as follows:
2019
-
$19.5 million
;
2020
-
$18.8 million
;
2021
-
$22.9 million
and thereafter or unlimited -
$188.4 million
. The net operating loss carryforwards of
$249.6 million
were entirely in tax jurisdictions outside of the United States.
The Company paid income taxes of
$101.6 million
,
$111.2 million
and
$106.2 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
At
December 31, 2018
and
2017
, the Company had
$166.1 million
and
$163.4 million
, respectively, of unrecognized income tax benefits, all of which would affect the Company’s effective tax rate if recognized. At
December 31, 2018
and
2017
, the Company had approximately
$58.5 million
and
$61.8 million
, respectively, of accrued or deferred taxes related to uncertain income tax positions connected with ongoing income tax audits in various jurisdictions that it expects to settle or pay in the next 12 months. The Company accrued approximately
$5.6 million
and
$4.6 million
of interest and penalties related to unrecognized
68
tax benefits in its provision for income taxes during
2018
and
2017
, respectively. At
December 31, 2018
and
2017
, the Company had accrued interest and penalties related to unrecognized tax benefits of
$27.2 million
and
$23.0 million
, respectively.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits as of and during the years ended
December 31, 2018
and
2017
is as follows (in millions):
|
2018
|
2017
|
||||||
|
Gross unrecognized income tax benefits
|
$
|
163.4
|
|
$
|
139.9
|
|
|
|
Additions for tax positions of the current year
|
3.8
|
|
16.4
|
|
|||
|
Additions for tax positions of prior years
|
13.1
|
|
4.8
|
|
|||
|
Reductions for tax positions of prior years for:
|
|
|
|
|
|||
|
Changes in judgments
|
(1.6
|
)
|
1.4
|
|
|||
|
Settlements during the year
|
(0.7
|
)
|
(0.4
|
)
|
|||
|
Lapses of applicable statute of limitations
|
(4.4
|
)
|
(14.4
|
)
|
|||
|
Foreign currency translation
|
(7.5
|
)
|
15.7
|
|
|||
|
Gross unrecognized income tax benefits
|
$
|
166.1
|
|
$
|
163.4
|
|
|
The Company and its subsidiaries file income tax returns in the United States and in various state, local and foreign jurisdictions. The Company and its subsidiaries are routinely examined by tax authorities in these jurisdictions. As of
December 31, 2018
, a number of income tax examinations in foreign jurisdictions were ongoing. It is possible that certain of these ongoing examinations may be resolved within 12 months. Due to the potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized income tax benefits balance may materially change within the next 12 months. Due to the number of jurisdictions and issues involved and the uncertainty regarding the timing of any settlements, the Company is unable at this time to provide a reasonable estimate of such change that may occur within the next 12 months. Although there are ongoing examinations in various federal and state jurisdictions, the
2015
through
2018
tax years generally remain subject to examination in the United States by applicable authorities. In the Company’s significant foreign jurisdictions, primarily the United Kingdom, France, Germany, Switzerland, Finland and Brazil, the
2013
through
2018
tax years generally remain subject to examination by their respective tax authorities. In Brazil, the Company is contesting disallowed deductions related to the amortization of certain goodwill amounts (Note 12).
69
7. Indebtedness
Long-term debt consisted of the following at
December 31, 2018
and
2017
(in millions):
|
December 31, 2018
|
December 31, 2017
|
||||||
|
1.056% Senior term loan due 2020
(1)
|
$
|
228.7
|
|
$
|
239.8
|
|
|
|
Senior term loan due 2022
(1)
|
171.5
|
|
119.9
|
|
|||
|
Credit facility, expires 2023
(1)
|
114.4
|
|
471.2
|
|
|||
|
Senior term loans due between 2019 and 2028
(1)
|
815.3
|
|
449.7
|
|
|||
|
5
7
/8
% Senior notes due 2021
|
—
|
|
305.3
|
|
|||
|
Other long-term debt
|
132.2
|
|
131.6
|
|
|||
|
Debt issuance costs
|
(2.6
|
)
|
(4.0
|
)
|
|||
|
|
1,459.5
|
|
1,713.5
|
|
|||
|
Less: Current portion of other long-term debt
|
(120.4
|
)
|
(95.4
|
)
|
|||
|
Senior term loans due 2019
|
(63.8
|
)
|
—
|
|
|||
|
Total indebtedness, less current portion
|
$
|
1,275.3
|
|
$
|
1,618.1
|
|
|
____________________________________
(1) Maturity dates are reflected as of December 31, 2018.
At
December 31, 2018
, the aggregate scheduled maturities of long-term debt, excluding the current portion of long-term debt, are as follows (in millions):
|
2020
|
$
|
230.9
|
|
|
2021
|
303.2
|
|
|
|
2022
|
173.6
|
|
|
|
2023
|
397.5
|
|
|
|
Thereafter
|
170.1
|
|
|
|
|
$
|
1,275.3
|
|
Cash payments for interest were approximately
$35.2 million
,
$55.2 million
and
$58.8 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Current Indebtedness
1.056% Senior Term Loan
In December 2014, the Company entered into a term loan with the European Investment Bank (“EIB”), which provided the Company with the ability to borrow up to
€200.0 million
. The
€200.0 million
(or approximately
$228.7 million
as of
December 31, 2018
) of funding was received on January 15, 2015 with a maturity date of January 15, 2020. The Company has the ability to prepay the term loan before its maturity date. Interest is payable on the term loan at
1.056%
per annum, payable quarterly in arrears. The term loan contain covenants regarding, among other things, the incurrence of indebtedness and the making of certain payments, as well as commitments regarding amounts of future research and development expenses in Europe, and is subject to acceleration in the events of default. The Company also has to fulfill financial covenants with respect to a net leverage ratio and interest coverage ratio.
Senior Term Loan Due 2022
In October 2018, the Company entered in a term loan agreement with Rabobank in the amount of
€150.0 million
(or approximately
$171.5 million
as of
December 31, 2018
). The Company has the ability to prepay the term loan before its maturity date on October 28, 2022. Interest is payable on the term loan quarterly in arrears at an annual rate, equal to the EURIBOR plus a margin ranging from
0.875%
to
1.875%
based on the Company’s credit rating. The Company also has to fulfill financial covenants with respect to a total debt to EBITDA ratio and an interest coverage ratio.
70
Credit Facility
In October 2018, the Company entered into a multi-currency revolving credit facility of
$800.0 million
. The maturity date of the credit facility is October 17, 2023. Interest accrues on amounts outstanding under the credit facility, at the Company’s option, at either (1) LIBOR plus a margin ranging from
0.875%
to
1.875%
based on the Company’s credit rating, or (2) the base rate, which is equal to the higher of (i) the administrative agent’s base lending rate for the applicable currency, (ii) the federal funds rate plus
0.5%
, and (iii) one-month LIBOR for loans denominated in U.S. dollars plus
1.0%
, plus a margin ranging from
0.0%
to
0.875%
based on the Company’s credit rating. The credit facility contains covenants restricting, among other things, the incurrence of indebtedness and the making of certain payments, including dividends. The Company also has to fulfill financial covenants with respect to a total debt to EBITDA ratio and an interest coverage ratio. As of
December 31, 2018
, the Company had approximately $
114.4 million
of outstanding borrowings under the credit facility and the ability to borrow approximately
$685.6 million
under the facility.
The Company’s former revolving credit and term loan facility consisted of an
$800.0 million
multi-currency revolving credit facility and a
€312.0 million
term loan facility. The maturity date of the former credit facility was June 26, 2020. Under the former credit facility agreement, interest accrued on amounts outstanding, at the Company’s option, depending on the currency borrowed, at either (1) LIBOR or EURIBOR plus a margin ranging from
1.0%
to
1.75%
based on the Company’s leverage ratio, or (2) the base rate, which is equal to the higher of (i) the administrative agent’s base lending rate for the applicable currency, (ii) the federal funds rate plus
0.5%
, and (iii) one-month LIBOR for loans denominated in U.S. dollars plus
1.0%
plus a margin ranging from
0.0%
to
0.25%
based on the Company’s leverage ratio. The credit facility contained covenants restricting, among other things, the incurrence of indebtedness and the making of certain payments, including dividends, and was subject to acceleration in the event of a default. The Company also had to fulfill financial covenants with respect to a total debt to EBITDA ratio and an interest coverage ratio. As is more fully described in Note 11, the Company entered into an interest rate swap in 2015 to convert the term loan facility’s floating interest rate to a fixed interest rate of
0.33%
plus the applicable margin over the remaining life of the term loan facility. In connection with the closing of new credit facility in October 2018, the Company repaid its outstanding
€312.0 million
(or approximately
$360.8 million
) term loan under the former revolving credit and term loan facility. The Company recorded approximately
$0.9 million
in “Interest expense, net,”associated with the write-off of deferred debt issuance costs associated with the repayment. As of
December 31, 2017
,
$471.2 million
was outstanding under the Company’s former multi-currency revolving credit facility with approximately
$97.0 million
outstanding under the multi-currency revolving credit facility and
€312.0 million
(or approximately
$374.2 million
) outstanding under the term loan facility.
During 2015, the Company designated its
€312.0 million
term loan facility as a hedge of its net investment in foreign operations to offset foreign currency translation gains or losses on the net investment. See Note 11 for additional information about the net investment hedge.
Senior Term Loans Due Between 2019 and 2028
In October 2016, the Company borrowed an aggregate amount of
€375.0 million
through a group of
seven
related term loan agreements, and in August 2018, the Company borrowed an additional aggregate amount of indebtedness of
€338.0 million
through a group of another
seven
related term loan agreements. Proceeds from the borrowings were used to repay borrowings under the Company’s former revolving credit facility.
In aggregate, the Company has indebtedness of
€713.0 million
(or approximately
$815.3 million
as of
December 31, 2018
) through a group of
fourteen
related term loan agreements as discussed above. The provisions of the term loan agreements are identical in nature, with the exception of interest rate terms and maturities. The Company has the ability to prepay the term loans before their maturity dates. For the term loans with a fixed interest rate, interest is payable in arrears on an annual basis, with interest rates ranging from
0.70%
to
2.26%
and a maturity date between October 2019 and August 2028. For the term loans with a floating interest rate, interest is payable in arrears on a semi-annual basis, with interest rates based on the EURIBOR plus a margin ranging from
0.70%
to
1.25%
and a maturity date between October 2019 and August 2025. The term loans contain covenants restricting, among other things, the incurrence of indebtedness and the making of certain payments, including dividends, and is subject to acceleration in the event of default.
71
Former Indebtedness
In April 2016, the Company entered into
two
term loan agreements with Rabobank, in the amount of
€100.0 million
and
€200.0 million
, respectively. The provisions of the two term loans were identical in nature. In December 2017, the Company repaid its
€200.0 million
(or approximately
$239.8 million
) term loan and in October 2018, in connection with the new term loan agreement with Rabobank discussed above, the Company repaid its
€100.0 million
(or approximately
$113.2 million
) term loan. The Company had the ability to prepay the term loans before their maturity date on April 26, 2021. Interest was payable on the term loans per annum, paid quarterly in arrears, equal to the EURIBOR plus a margin ranging from
1.0%
to
1.75%
based on the Company’s net leverage ratio. The Company also had to fulfill financial covenants with respect to a total debt to EBITDA ratio and an interest coverage ratio.
5
7
/
8
%
Senior Notes
The Company’s 5
7
/
8
% senior notes due December 1, 2021 constituted senior unsecured indebtedness. Interest was payable on the notes semi-annually in arrears. At any time prior to September 1, 2021, the Company could redeem the notes, in whole or in part from time to time, at its option, at a redemption price equal to the greater of (i)
100%
of the principal amount plus accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of interest accrued to the date of redemption) discounted to the redemption date at the treasury rate plus
0.5%
, plus accrued and unpaid interest, including additional interest, if any. Beginning September 1, 2021, the Company could redeem the notes, in whole or in part from time to time, at its option, at a redemption price equal to
100%
of the principal amount plus accrued and unpaid interest, including additional interest, if any. As is more fully described in Note 11, the Company entered into an interest rate swap in 2015 to convert the senior notes’ fixed interest rate to a floating interest rate over the remaining life of the senior notes. During the second quarter of 2016, the Company terminated the interest rate swap. As a result, the Company recorded a deferred gain of approximately
$7.3 million
associated with the termination, which was being amortized as a reduction to “Interest expense, net” over the remaining term of the 5
7
/
8
% senior notes through December 1, 2021.
In May 2018, the Company completed a cash tender offer to purchase any and all of its outstanding 5
7
/
8
% senior notes at a cash purchase price of
$1,077.50
per $1,000.00 of senior notes. As a result of the tender offer, the Company repurchased approximately
$185.9 million
of principal amount of the senior notes for approximately
$200.3 million
, plus accrued interest. The repurchase resulted in a loss on extinguishment of debt of approximately
$15.7 million
, including associated fees. In October 2018, the Company repurchased the remaining principal amount of the senior notes of approximately
$114.1 million
for approximately
$122.5 million
, plus accrued interest. The repurchase resulted in a loss on extinguishment of debt of approximately
$8.8 million
, including associated fees. As a result of the repurchase of the 5
7
/
8
% senior notes, the Company recorded a cumulative amount of approximately
$4.7 million
of accelerated amortization of the deferred gain related to the terminated interest rate swap instrument associated with the senior notes. The losses on extinguishment as well as the accelerated amortization were reflected in “Interest expense, net,” for the year ended
December 31, 2018
.
As of
December 31, 2017
, the unamortized portion of the deferred gain was approximately
$5.3 million
. The amortization for 2018 and 2017 was approximately
$5.3 million
and
$1.3 million
, respectively.
Subsequent Indebtedness
In December 2018, the Company entered into a term loan with the EIB, which provided the Company with the ability to borrow up to
€250.0 million
. The
€250.0 million
(or approximately
$284.6 million
) of funding was received on January 25, 2019 with a maturity date of January 24, 2025. The Company has the ability to prepay the term loan before its maturity date. Interest is payable on the term loan at
1.002%
per annum, payable semi-annually in arrears. The term loan contain covenants regarding, among other things, the incurrence of indebtedness and the making of certain payments, as well as commitments regarding amounts of future research and development expenses in Europe, and is subject to acceleration in the events of default. The Company also has to fulfill financial covenants with respect to a net leverage ratio and interest coverage ratio.
72
Standby Letters of Credit and Similar Instruments
The Company has arrangements with various banks to issue standby letters of credit or similar instruments, which guarantee the Company’s obligations for the purchase or sale of certain inventories and for potential claims exposure for insurance coverage. At
December 31, 2018
and
2017
, outstanding letters of credit totaled
$14.1 million
and
$15.2 million
, respectively.
8. Employee Benefit Plans
The Company sponsors defined benefit pension plans covering certain employees, principally in the United Kingdom, the United States, Germany, Switzerland, Finland, France, Norway and Argentina. The Company also provides certain postretirement health care and life insurance benefits for certain employees, principally in the United States and Brazil.
The Company also maintains an Executive Nonqualified Pension Plan (“ENPP”), which provides certain U.S.-based senior executives with retirement income for a period of
15
years or up to a lifetime annuity, if certain requirements are met. Benefits under the ENPP vest if the participant has attained age
50
with at least
ten
years of service (
five
years of which include years of participation in the ENPP), but are not payable until the participant reaches age
65
. The lifetime annuity benefit generally will be available only to participants who retire on or after reaching normal retirement age and otherwise have a vested benefit under the ENPP. The ENPP is an unfunded, nonqualified defined benefit pension plan.
Net annual pension costs for the years ended
December 31, 2018
,
2017
and
2016
for the Company’s defined benefit pension plans and ENPP are set forth below (in millions):
|
Pension benefits
|
2018
|
2017
|
2016
|
|||||||||
|
Service cost
|
$
|
16.6
|
|
$
|
17.1
|
|
$
|
16.2
|
|
|||
|
Interest cost
|
19.9
|
|
20.6
|
|
24.6
|
|
||||||
|
Expected return on plan assets
|
(34.0
|
)
|
(35.9
|
)
|
(38.8
|
)
|
||||||
|
Amortization of net actuarial losses
|
13.8
|
|
13.4
|
|
10.0
|
|
||||||
|
Amortization of prior service cost
|
1.2
|
|
1.2
|
|
1.0
|
|
||||||
|
Net loss recognized due to settlement
|
0.9
|
|
0.2
|
|
0.4
|
|
||||||
|
Net gain recognized due to curtailment
|
—
|
|
—
|
|
(0.1
|
)
|
||||||
|
Net annual pension cost
|
$
|
18.4
|
|
$
|
16.6
|
|
$
|
13.3
|
|
|||
The components of net periodic pension and postretirement benefits cost, other than the service cost component, are included in “Other expense, net” in the Company’s Consolidated Statements of Operations. Refer to Note 1 for further information.
73
The weighted average assumptions used to determine the net annual pension costs for the Company’s defined benefit pension plans and ENPP for the years ended
December 31, 2018
,
2017
and
2016
are as follows:
|
2018
|
2017
|
2016
|
||||||
|
All plans:
|
|
|
|
|
|
|
||
|
Weighted average discount rate
|
2.5
|
%
|
2.7
|
%
|
3.6
|
%
|
||
|
Weighted average expected long-term rate of return on plan assets
|
5.4
|
%
|
5.8
|
%
|
6.8
|
%
|
||
|
Rate of increase in future compensation
|
1.8%-5.0%
|
|
1.5%-5.0%
|
|
2.0%-5.0%
|
|
||
|
U.S.-based plans:
|
|
|
|
|
|
|
||
|
Weighted average discount rate
|
3.70
|
%
|
4.25
|
%
|
4.60
|
%
|
||
|
Weighted average expected long-term rate of return on plan assets
(1)
|
6.0
|
%
|
6.0
|
%
|
6.0
|
%
|
||
|
Rate of increase in future compensation
(2)
|
5.0
|
%
|
5.0
|
%
|
5.0
|
%
|
||
___________________________________
|
(1)
|
Applicable for U.S. funded, qualified plans.
|
|
(2)
|
Applicable for U.S. unfunded, nonqualified plan.
|
For the Company’s cash balance plans with promised interest crediting rates, the weighted-average interest crediting rate was
1.0%
and
0.75%
for
2018
and
2017
, respectively.
Net annual postretirement benefit costs, and the weighted average discount rate used to determine them, for the years ended
December 31, 2018
,
2017
and
2016
are set forth below (in millions, except percentages):
|
Postretirement benefits
|
2018
|
2017
|
2016
|
|||||||||
|
Service cost
|
$
|
0.1
|
|
$
|
0.1
|
|
$
|
—
|
|
|||
|
Interest cost
|
1.4
|
|
1.4
|
|
1.4
|
|
||||||
|
Amortization of net actuarial losses
|
0.1
|
|
0.1
|
|
—
|
|
||||||
|
Amortization of prior service cost
|
0.2
|
|
0.2
|
|
0.2
|
|
||||||
|
Net annual postretirement benefit cost
|
$
|
1.8
|
|
$
|
1.8
|
|
$
|
1.6
|
|
|||
|
Weighted average discount rate
|
4.9
|
%
|
5.3
|
%
|
5.1
|
%
|
||||||
74
The following tables set forth reconciliations of the changes in benefit obligation, plan assets and funded status as of
December 31, 2018
and
2017
(in millions):
|
Pension and ENPP
Benefits
|
Postretirement
Benefits
|
|||||||||||||||
|
Change in benefit obligation
|
2018
|
2017
|
2018
|
2017
|
||||||||||||
|
Benefit obligation at beginning of year
|
$
|
916.7
|
|
$
|
849.8
|
|
$
|
30.2
|
|
$
|
28.6
|
|
||||
|
Service cost
|
16.6
|
|
17.1
|
|
0.1
|
|
0.1
|
|
||||||||
|
Interest cost
|
19.9
|
|
20.6
|
|
1.4
|
|
1.4
|
|
||||||||
|
Plan participants’ contributions
|
1.2
|
|
1.1
|
|
—
|
|
—
|
|
||||||||
|
Actuarial (gains) losses
|
(55.2
|
)
|
0.5
|
|
(4.2
|
)
|
1.8
|
|
||||||||
|
Amendments
|
8.5
|
|
—
|
|
—
|
|
—
|
|
||||||||
|
Settlements
|
(1.5
|
)
|
(0.7
|
)
|
—
|
|
—
|
|
||||||||
|
Benefits paid
|
(45.9
|
)
|
(42.6
|
)
|
(1.4
|
)
|
(1.6
|
)
|
||||||||
|
Other
|
1.9
|
|
—
|
|
—
|
|
—
|
|
||||||||
|
Foreign currency exchange rate changes
|
(39.1
|
)
|
70.9
|
|
(0.8
|
)
|
(0.1
|
)
|
||||||||
|
Benefit obligation at end of year
|
$
|
823.1
|
|
$
|
916.7
|
|
$
|
25.3
|
|
$
|
30.2
|
|
||||
|
|
Pension and ENPP
Benefits
|
Postretirement
Benefits
|
||||||||||||||
|
|
||||||||||||||||
|
Change in plan assets
|
2018
|
2017
|
2018
|
2017
|
||||||||||||
|
Fair value of plan assets at beginning of year
|
$
|
691.8
|
|
$
|
601.7
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Actual return on plan assets
|
(32.4
|
)
|
47.3
|
|
—
|
|
—
|
|
||||||||
|
Employer contributions
|
36.8
|
|
30.3
|
|
1.4
|
|
1.6
|
|
||||||||
|
Plan participants’ contributions
|
1.2
|
|
1.1
|
|
—
|
|
—
|
|
||||||||
|
Benefits paid
|
(45.9
|
)
|
(42.6
|
)
|
(1.4
|
)
|
(1.6
|
)
|
||||||||
|
Settlements
|
(1.5
|
)
|
(0.7
|
)
|
—
|
|
—
|
|
||||||||
|
Foreign currency exchange rate changes
|
(32.9
|
)
|
54.7
|
|
—
|
|
—
|
|
||||||||
|
Fair value of plan assets at end of year
|
$
|
617.1
|
|
$
|
691.8
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Funded status
|
$
|
(206.0
|
)
|
$
|
(224.9
|
)
|
$
|
(25.3
|
)
|
$
|
(30.2
|
)
|
||||
|
Unrecognized net actuarial losses (gains)
|
356.7
|
|
360.1
|
|
(0.6
|
)
|
3.8
|
|
||||||||
|
Unrecognized prior service cost
|
19.5
|
|
12.2
|
|
3.1
|
|
3.2
|
|
||||||||
|
Accumulated other comprehensive loss
|
(376.2
|
)
|
(372.3
|
)
|
(2.5
|
)
|
(7.0
|
)
|
||||||||
|
Net amount recognized
|
$
|
(206.0
|
)
|
$
|
(224.9
|
)
|
$
|
(25.3
|
)
|
$
|
(30.2
|
)
|
||||
|
Amounts recognized in Consolidated
Balance Sheets:
|
|
|
|
|
|
|
|
|
||||||||
|
Other long-term asset
|
$
|
0.1
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Other current liabilities
|
(3.8
|
)
|
(3.9
|
)
|
(1.5
|
)
|
(1.6
|
)
|
||||||||
|
Accrued expenses
|
(2.9
|
)
|
(2.3
|
)
|
$
|
—
|
|
$
|
—
|
|
||||||
|
Pensions and postretirement health care benefits (noncurrent)
|
(199.4
|
)
|
(218.7
|
)
|
(23.8
|
)
|
(28.6
|
)
|
||||||||
|
Net amount recognized
|
$
|
(206.0
|
)
|
$
|
(224.9
|
)
|
$
|
(25.3
|
)
|
$
|
(30.2
|
)
|
||||
75
The following table summarizes the activity in accumulated other comprehensive loss related to the Company’s ENPP and defined pension and postretirement benefit plans during the years ended
December 31, 2018
and
2017
(in millions):
|
Before-Tax
Amount
|
Income
Tax
|
After-Tax
Amount
|
||||||||||
|
Accumulated other comprehensive loss as of December 31, 2016
|
$
|
(404.8
|
)
|
$
|
(100.3
|
)
|
$
|
(304.5
|
)
|
|||
|
Net loss recognized due to settlement
|
0.3
|
|
0.1
|
|
0.2
|
|
||||||
|
Net actuarial gain arising during the year
|
9.0
|
|
2.4
|
|
6.6
|
|
||||||
|
Amortization of prior service cost
|
1.4
|
|
0.1
|
|
1.3
|
|
||||||
|
Amortization of net actuarial losses
|
13.5
|
|
2.2
|
|
11.3
|
|
||||||
|
Accumulated other comprehensive loss as of December 31, 2017
|
$
|
(380.6
|
)
|
$
|
(95.5
|
)
|
$
|
(285.1
|
)
|
|||
|
Prior service cost arising during the year
|
(8.5
|
)
|
(1.5
|
)
|
(7.0
|
)
|
||||||
|
Net loss recognized due to settlement
|
1.0
|
|
0.1
|
|
0.9
|
|
||||||
|
Net actuarial loss arising during the year
|
(7.0
|
)
|
(2.8
|
)
|
(4.2
|
)
|
||||||
|
Amortization of prior service cost
|
1.4
|
|
0.1
|
|
1.3
|
|
||||||
|
Amortization of net actuarial losses
|
13.9
|
|
2.2
|
|
11.7
|
|
||||||
|
Accumulated other comprehensive loss as of December 31, 2018
|
$
|
(379.8
|
)
|
$
|
(97.4
|
)
|
$
|
(282.4
|
)
|
|||
As of
December 31, 2018
, the Company’s accumulated other comprehensive loss included unrecognized net actuarial losses of approximately
$356.7 million
compared to
$360.1 million
as of
December 31, 2017
related to the Company’s defined benefit pension plans and ENPP. The decrease in unrecognized net actuarial losses between years primarily resulted from higher discount rates at
December 31, 2018
compared to
December 31, 2017
. The unrecognized net actuarial losses will be impacted in future periods by actual asset returns, discount rate changes, currency exchange rate fluctuations, actual demographic experience and certain other factors. For some of the Company’s defined benefit pension plans, these losses, to the extent they exceed 10% of the greater of the plan’s liabilities or the fair value of assets (“the gain/loss corridor”), will be amortized on a straight-line basis over the periods discussed as follows. For the Company’s U.S. salaried, U.S. hourly and U.K. defined benefit pension plans, the population covered is predominantly inactive participants, and losses related to those plans, to the extent they exceed the gain/loss corridor, will be amortized over the average remaining lives of those participants while covered by the respective plan. As of
December 31, 2018
, the average amortization period was
16
years for the Company’s U.S. defined benefit pension plans and
19
years for the Company’s U.K. defined benefit pension plan. For the Company’s ENPP, the population is predominantly active participants, and losses related to the plan will be amortized over the average future working lifetime of the active participants expected to receive benefits. As of
December 31, 2018
, the average amortization period was
eight
for the Company’s ENPP. Unrecognized prior service cost related to the Company’s defined benefit pension plans was approximately
$19.5 million
as of
December 31, 2018
compared to approximately
$12.2 million
as of
December 31, 2017
. The increase in the unrecognized prior service cost between years is due primarily to the newly required uniformity of guaranteed minimum pension benefits for men and women related to the Company’s U.K. defined benefit plan, which resulted in an estimation of increased benefits for prior participant service. This requirement was as a result of a judgment by the U.K. High Court in October 2018 which provided clarity on the need to provide uniformity of benefits. The cost of this estimated impact will be amortized over a straight-line basis over the average remaining service period of active employees expected to receive benefits, or the average remaining lives of inactive participants, covered by the U.K. defined benefit plan.
As of
December 31, 2018
, the Company’s accumulated other comprehensive loss related to the Company’s U.S. and Brazilian postretirement health care benefit plans included unrecognized net actuarial gains of approximately
$0.6 million
as of
December 31, 2018
compared to unrecognized net actuarial losses of approximately
$3.8 million
as of
December 31, 2017
, of which a loss of approximately
$0.3 million
and approximately
$3.4 million
, respectively, related to the Company’s U.S. postretirement benefit plans. The change from unrecognized net actuarial gains as of December 31, 2018 from unrecognized net actuarial losses in the prior year related to the Company’s Brazilian postretirement health care benefit plans primarily was due to lower discount rates as well as plan experience. The decrease in unrecognized net actuarial losses related to the Company’s U.S. postretirement benefit plans was primarily due to higher discount rates as of
December 31, 2018
as compared to the previous year. The unrecognized net actuarial gains or losses will be impacted in future periods by discount rate changes, actual demographic experience, actual health care inflation and certain other factors. These gains or losses, to the extent they exceed the gain/loss corridor, will be amortized on a straight-line basis over the average remaining service period of active employees expected to receive benefits, or the average remaining lives of inactive participants, covered under the
76
postretirement benefit plans. As of
December 31, 2018
, the average amortization period was
12 years
for the Company’s U.S. postretirement benefit plans. As of
December 31, 2018
, the net prior service cost related to the Company’s U.S. and Brazilian postretirement health care benefit plans was approximately
$3.1 million
compared to approximately
$3.2 million
as of
December 31, 2017
.
The aggregate projected benefit obligation, accumulated benefit obligation and fair value of plan assets for defined benefit pension plans, ENPP and other postretirement plans with accumulated benefit obligations in excess of plan assets were
$847.3 million
,
$798.5 million
and
$616.0 million
, respectively, as of
December 31, 2018
, and
$946.0 million
,
$891.2 million
and
$690.8 million
, respectively, as of
December 31, 2017
. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Company’s U.S.-based defined benefit pension plans and ENPP with accumulated benefit obligations in excess of plan assets were
$124.7 million
,
$107.8 million
and
$36.8 million
, respectively, as of
December 31, 2018
, and
$129.6 million
,
$111.5 million
and
$36.6 million
, respectively, as of
December 31, 2017
. The Company’s accumulated comprehensive loss as of
December 31, 2018
reflects a reduction in equity of
$378.7 million
, net of taxes of
$97.0 million
, primarily related to the Company’s U.K. pension plan, in which the projected benefit obligation exceeded the plan assets. In addition, the Company’s accumulated comprehensive loss as of
December 31, 2018
reflects a reduction in equity of approximately
$1.1 million
, net of taxes of
$0.4 million
, related to the Company’s GIMA joint venture. The amount represents
50%
of GIMA’s unrecognized net actuarial losses and unrecognized prior service cost associated with its pension plan. In addition, GIMA recognized a net actuarial loss due to settlements during
2018
of approximately
$0.1 million
. The Company’s accumulated comprehensive loss as of
December 31, 2017
reflected a reduction in equity of
$379.3 million
, net of taxes of
$95.0 million
, primarily related to the Company’s U.K. pension plan, in which the projected benefit obligation exceeded the plan assets. In addition, the Company’s accumulated comprehensive loss as of
December 31, 2017
reflected a reduction in equity of approximately
$1.3 million
, net of taxes of
$0.5 million
, related to the Company’s GIMA joint venture. This amount represented
50%
of GIMA’s unrecognized net actuarial losses and unrecognized prior service cost associated with its pension plan. In addition, GIMA recognized a net actuarial loss due to settlements during
2017
of approximately
$0.1 million
.
The Company’s defined benefit pension obligation has been reflected based on the manner in which its defined benefit plans are being administered. The obligation and resulting liability is calculated employing both actuarial and legal assumptions. These assumptions include, but are not limited to, future inflation, the return on pension assets, discount rates, life expectancy and potential salary increases. There are also assumptions related to the manner in which individual benefit plan benefits are calculated, which are legal in nature and include, but are not limited to, member eligibility, years of service and the uniformity of both guaranteed minimum pension benefits and member normal retirement ages for men and women. In the event that any of these assumptions or the administration approach are proven to be different from the Company’s current interpretations and approach, there could be material increases in the Company’s defined benefit pension obligation and the related amounts and timing of future contributions to be paid by the Company.
The weighted average assumptions used to determine the benefit obligation for the Company’s defined benefit pension plans and ENPP as of
December 31, 2018
and
2017
are as follows:
|
2018
|
2017
|
||||
|
All plans:
|
|
|
|
|
|
|
Weighted average discount rate
|
2.8
|
%
|
2.5
|
%
|
|
|
Rate of increase in future compensation
|
1.75%-5.0%
|
|
1.75%-5.0%
|
|
|
|
U.S.-based plans:
|
|
|
|
|
|
|
Weighted average discount rate
|
4.35
|
%
|
3.7
|
%
|
|
|
Rate of increase in future compensation
(1)
|
5.0
|
%
|
5.0
|
%
|
|
____________________________________
|
(1)
|
Applicable for U.S. unfunded, nonqualified plan.
|
The weighted average discount rate used to determine the benefit obligation for the Company’s postretirement benefit plans for the years ended
December 31, 2018
and
2017
was
5.2%
and
4.9%
, respectively.
For the years ended December 31,
2018
,
2017
and
2016
, the Company used a globally consistent methodology to set the discount rate in the countries where its largest benefit obligations exist. In the United States, the United Kingdom and the Euro Zone, the Company constructed a hypothetical bond portfolio of high-quality corporate bonds and then applied the cash flows of the Company’s benefit plans to those bond yields to derive a discount rate. The bond portfolio and plan-specific cash flows vary by country, but the methodology in which the portfolio is constructed is consistent. In the United States, the bond
77
portfolio is large enough to result in taking a “settlement approach” to derive the discount rate, in which high-quality corporate bonds are assumed to be purchased and the resulting coupon payments and maturities are used to satisfy the Company’s U.S. pension plans’ projected benefit payments. In the United Kingdom and the Euro Zone, the discount rate is derived using a “yield curve approach,” in which an individual spot rate, or zero coupon bond yield, for each future annual period is developed to discount each future benefit payment and, thereby, determine the present value of all future payments. The Company uses a spot yield curve to determine the discount rate applicable in the United Kingdom to measure the U.K. pension plan’s service cost and interest cost. Under the settlement and yield curve approaches, the discount rate is set to equal the single discount rate that produces the same present value of all future payments.
For measuring the expected U.S. postretirement benefit obligation at
December 31, 2018
, the Company assumed a
6.5%
health care cost trend rate for
2019
decreasing to
5.0%
by
2025
. For measuring the expected U.S. postretirement benefit obligation at
December 31, 2017
, the Company assumed a
6.75%
health care cost trend rate for
2018
decreasing to
5.0%
by 2025. For measuring the Brazilian postretirement benefit plan obligation at
December 31, 2018
, the Company assumed an
10.8%
health care cost trend rate for
2019
, decreasing to
5.0%
by
2030
. For measuring the Brazilian postretirement benefit plan obligation at
December 31, 2017
, the Company assumed an
11.0%
health care cost trend rate for
2018
, decreasing to
5.3%
by
2029
.
The Company currently estimates its minimum contributions and benefit payments to its U.S.-based underfunded defined benefit pension plans and unfunded ENPP for
2019
will aggregate approximately
$1.6 million
. The Company currently estimates its minimum contributions for underfunded plans and benefit payments for unfunded plans for
2019
to its non-U.S.-based defined benefit pension plans will aggregate approximately
$28.9 million
, of which approximately
$19.9 million
relates to its U.K. pension plan. The Company currently estimates its benefit payments for
2019
to its U.S.-based postretirement health care and life insurance benefit plans will aggregate approximately
$1.5 million
and its benefit payments for
2019
to its Brazilian postretirement health care benefit plans will aggregate less than
$0.1 million
.
During
2018
, approximately
$47.4 million
of benefit payments were made related to the Company’s defined benefit pension plans and ENPP. At
December 31, 2018
, the aggregate expected benefit payments for the Company’s defined benefit pension plans and ENPP are as follows (in millions):
|
2019
|
$
|
46.4
|
|
|
2020
|
47.9
|
|
|
|
2021
|
51.2
|
|
|
|
2022
|
50.7
|
|
|
|
2023
|
51.6
|
|
|
|
2024 through 2028
|
280.6
|
|
|
|
|
$
|
528.4
|
|
During
2018
, approximately
$1.4 million
of benefit payments were made related to the Company’s U.S. and Brazilian postretirement benefit plans. At
December 31, 2018
, the aggregate expected benefit payments for the Company’s U.S. and Brazilian postretirement benefit plans are as follows (in millions):
|
2019
|
$
|
1.5
|
|
|
2020
|
1.6
|
|
|
|
2021
|
1.6
|
|
|
|
2022
|
1.6
|
|
|
|
2023
|
1.7
|
|
|
|
2024 through 2028
|
8.5
|
|
|
|
|
$
|
16.5
|
|
78
Investment Strategy and Concentration of Risk
The weighted average asset allocation of the Company’s U.S. pension benefit plans as of
December 31, 2018
and
2017
are as follows:
|
Asset Category
|
2018
|
2017
|
||||
|
Large and small cap domestic equity securities
|
19
|
%
|
31
|
%
|
||
|
International equity securities
|
8
|
%
|
12
|
%
|
||
|
Domestic fixed income securities
|
57
|
%
|
43
|
%
|
||
|
Other investments
|
16
|
%
|
14
|
%
|
||
|
Total
|
100
|
%
|
100
|
%
|
||
The weighted average asset allocation of the Company’s non-U.S. pension benefit plans as of
December 31, 2018
and
2017
are as follows:
|
Asset Category
|
2018
|
2017
|
||||
|
Equity securities
|
39
|
%
|
40
|
%
|
||
|
Fixed income securities
|
54
|
%
|
53
|
%
|
||
|
Other investments
|
7
|
%
|
7
|
%
|
||
|
Total
|
100
|
%
|
100
|
%
|
||
The Company categorizes its pension plan assets into one of three levels based on the assumptions used in valuing the asset. See Note 13 for a discussion of the fair value hierarchy as per the guidance in ASC 820, “Fair Value Measurements” (“ASC 820”). The Company’s valuation techniques are designed to maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses the following valuation methodologies to measure the fair value of its pension plan assets:
Equity Securities
: Equity securities are valued on the basis of the closing price per unit on each business day as reported on the applicable exchange.
Fixed Income
: Fixed income securities are valued using the closing prices in the active market in which the fixed income investment trades. Fixed income funds are valued using the net asset value of the fund, which is based on the fair value of the underlying securities.
Cash
: These investments primarily consist of short-term investment funds which are valued using the net asset value.
Alternative Investments
: These investments are reported at fair value as determined by the general partner of the alternative investment. The “market approach” valuation technique is used to value investments in these funds. The funds typically are open-end funds as they generally offer subscription and redemption options to investors. The frequency of such subscriptions or redemptions is dictated by each fund’s governing documents. The amount of liquidity provided to investors in a particular fund generally is consistent with the liquidity and risk associated with the underlying portfolio (i.e., the more liquid the investments in the portfolio, the greater the liquidity provided to investors). Liquidity of individual funds varies based on various factors and may include “gates,” “holdbacks” and “side pockets” imposed by the manager of the fund, as well as redemption fees that may also apply. Investments in these funds typically are valued utilizing the net asset valuations provided by their underlying investment managers, general partners or administrators. The funds consider subscription and redemption rights, including any restrictions on the disposition of the interest, in its determination of the fair value.
Insurance Contracts
: Insurance contracts are valued using current prevailing interest rates.
79
The fair value of the Company’s pension assets as of
December 31, 2018
is as follows (in millions):
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Equity securities:
|
|
|
|
|
|
|
|
|
|||||||
|
Global equities
|
$
|
104.4
|
|
$
|
104.4
|
|
$
|
—
|
|
$
|
—
|
|
|||
|
Non-U.S. equities
|
3.0
|
|
3.0
|
|
—
|
|
—
|
|
|||||||
|
U.K. equities
|
112.4
|
|
112.4
|
|
—
|
|
—
|
|
|||||||
|
U.S. large cap equities
|
4.5
|
|
4.5
|
|
—
|
|
—
|
|
|||||||
|
U.S. small cap equities
|
2.4
|
|
2.4
|
|
—
|
|
—
|
|
|||||||
|
Preferred securities
|
0.2
|
|
0.2
|
|
|||||||||||
|
Total equity securities
|
226.9
|
|
226.9
|
|
—
|
|
—
|
|
|||||||
|
Fixed income:
|
|
|
|
|
|
|
|
|
|||||||
|
Aggregate fixed income
|
131.5
|
|
131.5
|
|
—
|
|
—
|
|
|||||||
|
International fixed income
|
189.3
|
|
189.3
|
|
—
|
|
—
|
|
|||||||
|
Total fixed income share
(1)
|
320.8
|
|
320.8
|
|
—
|
|
—
|
|
|||||||
|
Alternative investments:
|
|||||||||||||||
|
Private equity fund
|
2.3
|
|
—
|
|
—
|
|
2.3
|
|
|||||||
|
Hedge funds measured at net asset value
(4)
|
31.8
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Total alternative investments
(2)
|
34.1
|
|
—
|
|
—
|
|
2.3
|
|
|||||||
|
Miscellaneous funds
(3)
|
28.2
|
|
—
|
|
—
|
|
28.2
|
|
|||||||
|
Cash and equivalents measured at net asset value
(4)
|
7.1
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Total assets
|
$
|
617.1
|
|
$
|
547.7
|
|
$
|
—
|
|
$
|
30.5
|
|
|||
______________________________________
|
(1)
|
36%
of “fixed income” securities are in investment-grade corporate bonds;
27%
are in government treasuries;
17%
are in foreign securities;
13%
are in high-yield securities; and
7%
are in other various fixed income securities.
|
|
(2)
|
44%
of “alternative investments” are in relative value funds;
22%
are in long-short equity funds;
22%
are in event-driven funds;
7%
are distributed in hedged and non-hedged funds; and
5%
are in credit funds.
|
|
(3)
|
“Miscellaneous funds” is comprised of insurance contracts in Finland, Norway and Switzerland.
|
|
(4)
|
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.
|
The following is a reconciliation of Level 3 assets as of
December 31, 2018
(in millions):
|
Total
|
Alternative
Investments
|
Miscellaneous
Funds
|
|||||||||
|
Beginning balance as of December 31, 2017
|
$
|
27.8
|
|
$
|
2.4
|
|
$
|
25.4
|
|
||
|
Actual return on plan assets:
|
|
|
|
|
|
|
|||||
|
(a) Relating to assets still held at reporting date
|
0.8
|
|
(0.2
|
)
|
1.0
|
|
|||||
|
(b) Relating to assets sold during period
|
—
|
|
—
|
|
—
|
|
|||||
|
Purchases, sales and /or settlements
|
3.2
|
|
0.1
|
|
3.1
|
|
|||||
|
Foreign currency exchange rate changes
|
(1.3
|
)
|
—
|
|
(1.3
|
)
|
|||||
|
Ending balance as of December 31, 2018
|
$
|
30.5
|
|
$
|
2.3
|
|
$
|
28.2
|
|
||
80
The fair value of the Company’s pension assets as of
December 31, 2017
is as follows (in millions):
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Equity securities:
|
|
|
|
|
|
|
|
|
|||||||
|
Global equities
|
$
|
121.7
|
|
$
|
121.7
|
|
$
|
—
|
|
$
|
—
|
|
|||
|
Non-U.S. equities
|
4.3
|
|
4.3
|
|
—
|
|
—
|
|
|||||||
|
U.K. equities
|
129.9
|
|
129.9
|
|
—
|
|
—
|
|
|||||||
|
U.S. large cap equities
|
6.9
|
|
6.9
|
|
—
|
|
—
|
|
|||||||
|
U.S. small cap equities
|
4.4
|
|
4.4
|
|
—
|
|
—
|
|
|||||||
|
Total equity securities
|
267.2
|
|
267.2
|
|
—
|
|
—
|
|
|||||||
|
Fixed income:
|
|
|
|
|
|
|
|
|
|||||||
|
Aggregate fixed income
|
136.0
|
|
136.0
|
|
—
|
|
—
|
|
|||||||
|
International fixed income
|
214.4
|
|
214.4
|
|
—
|
|
—
|
|
|||||||
|
Total fixed income share
(1)
|
350.4
|
|
350.4
|
|
—
|
|
—
|
|
|||||||
|
Alternative investments:
|
|||||||||||||||
|
Private equity fund
|
2.4
|
|
—
|
|
—
|
|
2.4
|
|
|||||||
|
Hedge funds measured at net asset value
(4)
|
34.8
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Total alternative investments
(2)
|
37.2
|
|
—
|
|
—
|
|
2.4
|
|
|||||||
|
Miscellaneous funds
(3)
|
25.4
|
|
—
|
|
—
|
|
25.4
|
|
|||||||
|
Cash and equivalents measured at net asset value
(4)
|
11.6
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Total assets
|
$
|
691.8
|
|
$
|
617.6
|
|
$
|
—
|
|
$
|
27.8
|
|
|||
_______________________________________
|
(1)
|
30%
of “fixed income” securities are in investment-grade corporate bonds;
29%
are in government treasuries;
15%
are in foreign securities;
13%
are in high-yield securities; and
13%
are in other various fixed income securities.
|
|
(2)
|
39%
of “alternative investments” are in relative value funds;
26%
are in long-short equity funds;
21%
are in event-driven funds;
8%
are distributed in hedged and non-hedged funds; and
6%
are in credit funds.
|
|
(3)
|
“Miscellaneous funds” is comprised of insurance contracts in Finland, Norway and Switzerland.
|
|
(4)
|
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.
|
The following is a reconciliation of Level 3 assets as of
December 31, 2017
(in millions):
|
Total
|
Alternative
Investments
|
Miscellaneous
Funds
|
|||||||||
|
Beginning balance as of December 31, 2016
|
$
|
23.8
|
|
$
|
2.4
|
|
$
|
21.4
|
|
||
|
Actual return on plan assets:
|
|
|
|
|
|
|
|||||
|
(a) Relating to assets still held at reporting date
|
(2.3
|
)
|
(0.1
|
)
|
(2.2
|
)
|
|||||
|
(b) Relating to assets sold during period
|
—
|
|
—
|
|
—
|
|
|||||
|
Purchases, sales and /or settlements
|
3.4
|
|
0.1
|
|
3.3
|
|
|||||
|
Foreign currency exchange rate changes
|
2.9
|
|
—
|
|
2.9
|
|
|||||
|
Ending balance as of December 31, 2017
|
$
|
27.8
|
|
$
|
2.4
|
|
$
|
25.4
|
|
||
All tax-qualified pension fund investments in the United States are held in the AGCO Corporation Master Pension Trust. The Company’s global pension fund strategy is to diversify investments across broad categories of equity and fixed income securities with appropriate use of alternative investment categories to minimize risk and volatility. The primary investment objective of the Company’s pension plans is to secure participant retirement benefits. As such, the key objective in the pension plans’ financial management is to promote stability and, to the extent appropriate, growth in funded status.
The investment strategy for the plans’ portfolio of assets balances the requirement to generate returns with the need to control risk. The asset mix is recognized as the primary mechanism to influence the reward and risk structure of the pension fund investments in an effort to accomplish the plans’ funding objectives. The overall investment strategy for the U.S.-based pension plans is to achieve a mix of approximately
15%
of assets for the near-term benefit payments and
85%
for longer-term
81
growth. The overall U.S. pension funds invest in a broad diversification of asset types. The Company’s U.S. target allocation of retirement fund investments is
21.5%
large- and small-cap domestic equity securities,
8.5%
international equity securities,
55%
broad fixed income securities,
10%
in alternative investments and
5%
in cash and cash equivalents. The Company has noted that over very long periods, this mix of investments would achieve an average return of approximately
5.75%
. In arriving at the choice of an expected return assumption of
5.5%
for its U.S. plans for the year ended
December 31, 2019
, the Company has tempered this historical indicator with lower expectations for returns and changes to investments in the future as well as the administrative costs of the plans. The overall investment strategy for the non-U.S. based pension plans is to achieve a mix of approximately
30%
of assets for the near-term benefit payments and
70%
for longer-term growth. The overall non-U.S. pension funds invest in a broad diversification of asset types. The Company’s non-U.S. target allocation of retirement fund investments is
40%
equity securities,
55%
broad fixed income investments and
5%
in alternative investments. The majority of the Company’s non-U.S. pension fund investments are related to the Company’s pension plan in the United Kingdom. The Company has noted that over very long periods, this mix of investments would achieve an average return of approximately
5.2%
. In arriving at the choice of an expected return assumption of
4.75%
for its U.K.-based plans for the year ended
December 31, 2019
, the Company has tempered this historical indicator with lower expectations for returns and changes to investments in the future as well as the administrative costs of the plans.
Equity securities primarily include investments in large-cap and small-cap companies located across the globe. Fixed income securities include corporate bonds of companies from diversified industries, mortgage-backed securities, agency mortgages, asset-backed securities and government securities. Alternative and other assets include investments in hedge fund of funds that follow diversified investment strategies. To date, the Company has not invested pension funds in its own stock and has no intention of doing so in the future.
Within each asset class, careful consideration is given to balancing the portfolio among industry sectors, geographies, interest rate sensitivity, dependence on economic growth, currency and other factors affecting investment returns. The assets are managed by professional investment firms, who are bound by precise mandates and are measured against specific benchmarks. Among asset managers, consideration is given, among others, to balancing security concentration, issuer concentration, investment style and reliance on particular active investment strategies.
The Company participates in a small number of multiemployer plans in the Netherlands and Sweden. The Company has assessed and determined that none of the multiemployer plans which it participates in are individually, or in the aggregate, significant to the Company’s Consolidated Financial Statements. The Company does not expect to incur a withdrawal liability or expect to significantly increase its contributions over the remainder of the multiemployer plans’ contract periods.
The Company maintains separate defined contribution plans covering certain employees, primarily in the United States, the United Kingdom and Brazil. Under the plans, the Company contributes a specified percentage of each eligible employee’s compensation. The Company contributed approximately
$15.8 million
,
$15.1 million
and
$14.3 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
9. Stockholders’ Equity
Common Stock
At
December 31, 2018
, the Company had
150,000,000
authorized shares of common stock with a par value of
$0.01
per share, with approximately
76,536,755
shares of common stock outstanding and approximately
3,436,426
shares reserved for issuance under the Company’s 2006 Long-Term Incentive Plan (the “Plan”) (Note 10).
Share Repurchase Program
During 2012 through 2016, the Company’s Board of Directors approved several share repurchase authorizations under which the Company is permitted to repurchase up to
$1,350.0 million
of shares of its common stock.
During
2018
and
2016
, the Company repurchased
3,120,184
and
4,413,250
shares of its common stock, respectively, for approximately
$184.3 million
and
$212.5 million
, respectively, either through Accelerated Share Repurchase (“ASR”) agreements with financial institutions or through open market transactions. During
2017
, the Company received approximately
70,464
shares associated with the remaining balance of shares to be delivered under an ASR agreement that was completed in November 2016. All shares received under the ASR agreements were retired upon receipt, and the excess of the purchase price over par value per share was recorded to “Additional paid-in capital” within the Company’s Consolidated Balance Sheets.
82
During 2019, the Company entered into an ASR agreement with a financial institution to repurchase an aggregate of
$30.0 million
shares of its common stock. The Company received approximately
379,927
shares to date in this transaction. The specific number of shares the Company will ultimately repurchase will be determined at the completion of the term of the ASR based on the daily volume-weighted average share price of the Company’s common stock less an agreed-upon discount. Upon settlement of the ASR, the Company may be entitled to receive additional shares of common stock or, under certain circumstances, be required to remit a settlement amount. The Company expects that additional shares will be received by the Company upon final settlement of its current ASR agreement, which expires during the second quarter of 2019. All shares received under the ASR agreement discussed above were retired upon receipt and the excess of the purchase price over par value per share was recorded to “Additional paid-in capital” within the Company’s Consolidated Balance Sheets.
As of
December 31, 2018
, the remaining amount authorized to be repurchased is approximately
$147.1 million
, of which
$115.7 million
expires in December 2019 and
$31.4 million
has no expiration date.
Dividends
The Company’s Board of Directors has declared and the Company has paid quarterly cash dividends of
$0.13
per common share beginning the first quarter of 2016,
$0.14
per common share beginning the first quarter of 2017 and
$0.15
per common share beginning the first quarter of 2018, respectively, and on January 25, 2019, the Company’s Board of Directors approved a quarterly dividend of
$0.15
per common share beginning the first quarter of 2019.
The following table sets forth changes in accumulated other comprehensive loss by component, net of tax, attributed to AGCO Corporation and its subsidiaries for the years ended
December 31, 2018
and
2017
(in millions):
|
Defined Benefit Pension Plans
|
Cumulative Translation Adjustment
|
Deferred Net Gains (Losses) on Derivatives
|
Total
|
||||||||||||
|
Accumulated other comprehensive loss, December 31, 2016
|
$
|
(304.5
|
)
|
$
|
(1,128.4
|
)
|
$
|
(8.7
|
)
|
$
|
(1,441.6
|
)
|
|||
|
Other comprehensive income before reclassifications
|
6.8
|
|
56.6
|
|
2.0
|
|
65.4
|
|
|||||||
|
Net losses reclassified from accumulated other comprehensive loss
|
12.6
|
|
—
|
|
2.0
|
|
14.6
|
|
|||||||
|
Other comprehensive income, net of reclassification adjustments
|
19.4
|
|
56.6
|
|
4.0
|
|
80.0
|
|
|||||||
|
Accumulated other comprehensive loss, December 31, 2017
|
(285.1
|
)
|
(1,071.8
|
)
|
(4.7
|
)
|
(1,361.6
|
)
|
|||||||
|
Other comprehensive loss before reclassifications
|
(10.3
|
)
|
(202.6
|
)
|
(1.1
|
)
|
(214.0
|
)
|
|||||||
|
Net losses reclassified from accumulated other comprehensive loss
|
13.0
|
|
—
|
|
7.2
|
|
20.2
|
|
|||||||
|
Other comprehensive income (loss), net of reclassification adjustments
|
2.7
|
|
(202.6
|
)
|
6.1
|
|
(193.8
|
)
|
|||||||
|
Accumulated other comprehensive loss, December 31, 2018
|
$
|
(282.4
|
)
|
$
|
(1,274.4
|
)
|
$
|
1.4
|
|
$
|
(1,555.4
|
)
|
|||
83
The following table sets forth reclassification adjustments out of accumulated other comprehensive loss by component attributed to AGCO Corporation and its subsidiaries for the years ended
December 31, 2018
and
2017
(in millions):
|
Details about Accumulated Other Comprehensive Loss Components
|
Amount Reclassified from Accumulated Other Comprehensive Loss
|
Affected Line Item within the Consolidated
Statements of Operations
|
||||||||
|
Year ended December 31, 2018
(1)
|
Year ended December 31, 2017
(1)
|
|||||||||
|
Derivatives:
|
||||||||||
|
Net losses (gains) on foreign currency contracts
|
$
|
2.3
|
|
$
|
(0.2
|
)
|
Cost of goods sold
|
|||
|
Net losses on interest rate swap contract
|
6.3
|
|
2.4
|
|
Interest expense, net
|
|||||
|
Reclassification before tax
|
8.6
|
|
2.2
|
|
||||||
|
(1.4
|
)
|
(0.2
|
)
|
Income tax provision
|
||||||
|
Reclassification net of tax
|
$
|
7.2
|
|
$
|
2.0
|
|
||||
|
Defined benefit pension plans:
|
||||||||||
|
Amortization of net actuarial losses
|
$
|
13.9
|
|
$
|
13.5
|
|
Other expense, net
(2)
|
|||
|
Amortization of prior service cost
|
1.4
|
|
1.4
|
|
Other expense, net
(2)
|
|||||
|
Reclassification before tax
|
15.3
|
|
14.9
|
|
||||||
|
(2.3
|
)
|
(2.3
|
)
|
Income tax provision
|
||||||
|
Reclassification net of tax
|
$
|
13.0
|
|
$
|
12.6
|
|
||||
|
Net losses reclassified from accumulated other comprehensive loss
|
$
|
20.2
|
|
$
|
14.6
|
|
||||
____________________________________
|
(1)
|
Losses (gains) included within the Consolidated Statements of Operations for the years ended
December 31, 2018
and
2017
, respectively.
|
|
(2)
|
These accumulated other comprehensive loss components are included in the computation of net periodic pension and postretirement benefit cost. See Note 8 to the Company
’s Consolidated Financial Statements.
|
84
10. Stock Incentive Plan
Under the Plan, up to
10,000,000
shares of AGCO common stock may be issued. As of
December 31, 2018
, of the
10,000,000
shares reserved for issuance under the Plan, approximately
3,436,426
shares were available for grant, assuming the maximum number of shares are earned related to the performance award grants discussed below. The Plan allows the Company, under the direction of the Board of Directors’ Compensation Committee, to make grants of performance shares, stock appreciation rights, stock options, restricted stock units and restricted stock awards to employees, officers and non-employee directors of the Company.
Long-Term Incentive Plan and Related Performance Awards
The Company’s primary long-term incentive plan is a performance share plan that provides for awards of shares of the Company’s common stock based on achieving financial targets, such as targets for earnings per share, return on invested capital, operating margins and selling, general and administrative expenses and overhead levels, as determined by the Company’s Board of Directors. The stock awards under the Plan are earned over a performance period, and the number of shares earned is determined based on annual cumulative or average results for the specified period, depending on the measurement. Performance periods for the Company’s primary long-term incentive plan are consecutive and overlapping
three
-year cycles, and performance targets are set at the beginning of each cycle. The primary long-term incentive plan provides for participants to earn
33%
to
200%
of the target awards depending on the actual performance achieved, with no shares earned if performance is below the established minimum target. Awards earned under the Plan are paid in shares of common stock at the end of each three-year performance period. The percentage level achievement is determined annually, with the ultimate award that is earned determined based upon the average of the three annual percentages. The compensation expense associated with these awards is amortized ratably over the vesting or performance period based on the Company’s projected assessment of the level of performance that will be achieved and earned.
Compensation expense recorded during
2018
,
2017
and
2016
with respect to awards granted was based upon the stock price as of the grant date. The weighted average grant-date fair value of performance awards granted under the Plan during
2018
,
2017
and
2016
was as follows:
|
Years Ended December 31,
|
||||||||||||
|
2018
|
2017
|
2016
|
||||||||||
|
Weighted average grant-date fair value
|
$
|
71.40
|
|
$
|
61.94
|
|
$
|
47.93
|
|
|||
During
2018
, the Company granted
441,740
performance awards related to varying performance periods assuming the maximum target level of performance is achieved.
Performance award transactions during
2018
were as follows and are presented as if the Company were to achieve its maximum levels of performance under the plan:
|
Shares awarded but not earned at January 1
|
1,645,078
|
|
|
Shares awarded
|
441,740
|
|
|
Shares forfeited or unearned
|
(81,932
|
)
|
|
Shares earned and vested
|
(1,066,024
|
)
|
|
Shares awarded but not earned at December 31
|
938,862
|
|
Based on the level of performance achieved as of
December 31, 2018
,
839,090
shares were earned under the related performance period and
521,888
shares were issued in February 2019, net of
317,202
shares that were withheld for taxes related to the earned awards. The Plan allows for the participant to have the option of forfeiting a portion of the shares awarded in lieu of a cash payment contributed to the participant’s tax withholding to satisfy the participant’s statutory minimum federal, state and employment taxes which would be payable at the time of grant.
During 2017, the Company recorded approximately
$4.8 million
of accelerated stock compensation expense associated with a stock award declined by the Company’s Chief Executive Officer.
85
As of
December 31, 2018
, the total compensation cost related to unearned performance awards not yet recognized, assuming the Company’s current projected assessment of the level of performance that will be achieved and earned, was approximately
$31.6 million
, and the weighted average period over which it is expected to be recognized is approximately
two
years. This estimate is based on the current projected levels of performance of outstanding awards. The compensation cost not yet recognized could be higher or lower based on actual achieved levels of performance.
Restricted Stock Units
During the year ended
December 31, 2018
, the Company granted
247,404
restricted stock unit (“RSU”) awards. These awards entitle the participant to receive one share of the Company’s common stock for each RSU granted and vest one-third per year over a
three
-year requisite service period. The compensation expense associated with these awards is being amortized ratably over the requisite service period for the awards that are expected to vest. The weighted average grant-date fair value of the RSUs granted under the Plan during the year ended
December 31, 2018
and
2017
was
$63.99
and
$61.99
, respectively. RSU transactions during the year ended
December 31, 2018
were as follows:
|
Shares awarded but not vested at January 1
|
237,468
|
|
|
Shares awarded
|
247,404
|
|
|
Shares forfeited
|
(11,695
|
)
|
|
Shares vested
|
(120,202
|
)
|
|
Shares awarded but not vested at December 31
|
352,975
|
|
As of
December 31, 2018
, the total compensation cost related to the unvested RSUs not yet recognized was approximately
$14.2 million
, and the weighted average period over which it is expected to be recognized is approximately
two
years.
Stock-settled Appreciation Rights
In addition to the performance share plans, certain executives and key managers are eligible to receive grants of SSARs. The SSARs provide a participant with the right to receive the aggregate appreciation in stock price over the market price of the Company’s common stock at the date of grant, payable in shares of the Company’s common stock. The participant may exercise his or her SSARs at any time after the grant is vested but no later than seven years after the date of grant. The SSARs vest ratably over a four-year period from the date of grant. SSAR awards made to certain executives and key managers under the Plan are made with the base price equal to the price of the Company’s common stock on the date of grant. The Company recorded stock compensation expense of approximately
$2.4 million
,
$3.0 million
and
$3.8 million
associated with SSAR awards during
2018
,
2017
and
2016
, respectively. The compensation expense associated with these awards is being amortized ratably over the vesting period. The Company estimated the fair value of the grants using the Black-Scholes option pricing model.
The weighted average grant-date fair value of SSAR awards granted under the Plan and the weighted average assumptions under the Black-Scholes option model were as follows for the years ended
December 31, 2018
,
2017
and
2016
:
|
|
Years Ended December 31,
|
||||||||||
|
|
2018
|
2017
|
2016
|
||||||||
|
Weighted average grant-date fair value
|
$
|
12.88
|
|
$
|
11.45
|
|
$
|
7.98
|
|
||
|
Weighted average assumptions under Black-Scholes option model:
|
|
|
|
|
|
|
|||||
|
Expected life of awards (years)
|
3.0
|
|
3.0
|
|
3.0
|
|
|||||
|
Risk-free interest rate
|
2.2
|
%
|
1.5
|
%
|
1.1
|
%
|
|||||
|
Expected volatility
|
23.7
|
%
|
25.9
|
%
|
25.9
|
%
|
|||||
|
Expected dividend yield
|
0.8
|
%
|
0.9
|
%
|
1.1
|
%
|
|||||
86
SSAR transactions during the year ended
December 31, 2018
were as follows:
|
SSARs outstanding at January 1
|
1,060,192
|
|
|
|
SSARs granted
|
157,700
|
|
|
|
SSARs exercised
|
(109,950
|
)
|
|
|
SSARs canceled or forfeited
|
(8,350
|
)
|
|
|
SSARs outstanding at December 31
|
1,099,592
|
|
|
|
SSAR price ranges per share:
|
|
|
|
|
Granted
|
$
|
73.14
|
|
|
Exercised
|
43.39 - 63.47
|
|
|
|
Canceled or forfeited
|
43.88 - 63.47
|
|
|
|
Weighted average SSAR exercise prices per share:
|
|
|
|
|
Granted
|
$
|
73.14
|
|
|
Exercised
|
51.01
|
|
|
|
Canceled or forfeited
|
53.68
|
|
|
|
Outstanding at December 31
|
55.58
|
|
|
At
December 31, 2018
, the weighted average remaining contractual life of SSARs outstanding was approximately
four
years. As of
December 31, 2018
, the total compensation cost related to unvested SSARs not yet recognized was approximately
$3.8 million
and the weighted-average period over which it is expected to be recognized is approximately
two
years.
The following table sets forth the exercise price range, number of shares, weighted average exercise price, and remaining contractual lives by groups of similar price as of
December 31, 2018
:
|
|
SSARs Outstanding
|
SSARs Exercisable
|
||||||||||||||
|
Range of Exercise Prices
|
Number of
Shares
|
Weighted Average
Remaining
Contractual Life
(Years)
|
Weighted Average
Exercise Price
|
Exercisable as of December 31, 2018
|
Weighted Average
Exercise Price
|
|||||||||||
|
$43.88-$52.85
|
528,600
|
|
3.3
|
$
|
45.90
|
|
318,675
|
|
$
|
46.06
|
|
|||||
|
$55.07-$73.14
|
570,992
|
|
4.6
|
$
|
64.54
|
|
202,192
|
|
$
|
58.88
|
|
|||||
|
|
1,099,592
|
|
520,867
|
|
$
|
51.03
|
|
|||||||||
The total fair value of SSARs vested during
2018
was approximately
$2.8 million
. There were
578,725
SSARs that were not vested as of
December 31, 2018
. The total intrinsic value of outstanding and exercisable SSARs as of
December 31, 2018
was
$5.2 million
and
$3.1 million
, respectively. The total intrinsic value of SSARs exercised during
2018
was approximately
$1.5 million
.
The excess tax benefit realized for tax deductions in the United States related to the exercise of SSARs, vesting of RSU awards and vesting of performance awards under the Plan was approximately
$1.6 million
for the year ended
December 31, 2018
. The excess tax benefit realized for tax deductions in the United States related to the exercise of SSARs and vesting of RSU awards under the Plan was approximately
$0.1 million
for the year ended
December 31, 2017
. The excess tax benefit realized for tax deductions in the United States related to the exercise of SSARs and vesting of RSU awards under the Plan was less than
$0.1 million
for the year ended
December 31, 2016
. The Company realized an insignificant tax benefit from the exercise of SSARs, vesting of performance awards and vesting of RSU awards in certain foreign jurisdictions during the years ended
December 31, 2018
,
2017
and
2016
.
On January 22, 2019, the Company granted
273,665
performance award shares (subject to the Company achieving future target levels of performance),
243,600
SSARs and
131,116
RSUs under the Plan.
87
Director Restricted Stock Grants
Pursuant to the Plan, all non-employee directors receive annual restricted stock grants of the Company’s common stock. All restricted stock grants made to the Company’s directors are restricted as to transferability for a period of
one
year. In the event a director departs from the Company’s Board of Directors, the non-transferability period expires immediately. The plan allows each director to have the option of forfeiting a portion of the shares awarded in lieu of a cash payment contributed to the participant’s tax withholding to satisfy the statutory minimum federal, state and employment taxes that would be payable at the time of grant. The
2018
grant was made on April 26, 2018 and equated to
17,226
shares of common stock, of which
12,629
shares of common stock were issued, after shares were withheld for taxes. The Company recorded stock compensation expense of approximately
$1.1 million
during
2018
associated with these grants.
11. Derivative Instruments and Hedging Activities
The Company has significant manufacturing operations in the United States, France, Germany, Finland and Brazil, and it purchases a portion of its tractors, combines and components from third-party foreign suppliers, primarily in various European countries and in Japan. The Company also sells products in approximately
140
countries throughout the world. The Company’s most significant transactional foreign currency exposures are the Euro, Brazilian real and the Canadian dollar in relation to the United States dollar, and the British pound in relation to the Euro. The Company attempts to manage its transactional foreign exchange exposure by hedging foreign currency cash flow forecasts and commitments arising from the anticipated settlement of receivables and payables and from future purchases and sales. Where naturally offsetting currency positions do not occur, the Company hedges certain, but not all, of its exposures through the use of foreign currency contracts. The Company’s translation exposure resulting from translating the financial statements of foreign subsidiaries into United States dollars may be partially hedged from time to time. The Company’s most significant translation exposures are the Euro, the British pound and the Brazilian real in relation to the United States dollar. When practical, the translation impact is reduced by financing local operations with local borrowings.
The Company uses floating rate and fixed rate debt to finance its operations. The floating rate debt obligations expose the Company to variability in interest payments due to changes in the EURIBOR and LIBOR benchmark interest rates. The Company believes it is prudent to limit the variability of a portion of its interest payments, and to meet that objective, the Company periodically enters into interest rate swaps to manage the interest rate risk associated with the Company’s borrowings. The Company designates interest rate contracts used to convert the interest rate exposure on a portion of the Company’s debt portfolio from a floating rate to a fixed rate as cash flow hedges, while those contracts converting the Company’s interest rate exposure from a fixed rate to a floating rate are designated as fair value hedges.
To protect the value of the Company’s investment in foreign operations against adverse changes in foreign currency exchange rates, the Company from time to time, may hedge a portion of the Company’s net investment in the foreign subsidiaries by using a cross currency swap. The component of the gains and losses on the Company’s net investment in the designated foreign operations driven by changes in foreign exchange rates are economically offset by movements in the fair value of the cross currency swap contracts.
The Company’s senior management establishes the Company’s foreign currency and interest rate risk management policies. These policies are reviewed periodically by the Finance Committee of the Company’s Board of Directors. The policies allow for the use of derivative instruments to hedge exposures to movements in foreign currency and interest rates. The Company’s policies prohibit the use of derivative instruments for speculative purposes.
All derivatives are recognized on the Company’s Consolidated Balance Sheets at fair value. On the date the derivative contract is entered into, the Company designates the derivative as either (1) a cash flow hedge of a forecasted transaction, (2) a fair value hedge of a recognized liability, (3) a hedge of a net investment in a foreign operation, or (4) a non-designated derivative instrument.
The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk management objectives and strategy for undertaking various hedge transactions. The Company formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flow of hedged items or the net investment hedges in foreign operations. When it is determined that a derivative is no longer highly effective as a hedge, hedge accounting is discontinued on a prospective basis.
88
The Company categorizes its derivative assets and liabilities into one of three levels based on the assumptions used in valuing the asset or liability. See Note 13 for a discussion of the fair value hierarchy as per the guidance in ASC 820. The Company’s valuation techniques are designed to maximize the use of observable inputs and minimize the use of unobservable inputs.
Counterparty Risk
The Company regularly monitors the counterparty risk and credit ratings of all the counterparties to the derivative instruments. The Company believes that its exposures are appropriately diversified across counterparties and that these counterparties are creditworthy financial institutions. If the Company perceives any risk with a counterparty, then the Company would cease to do business with that counterparty. There have been no negative impacts to the Company from any non-performance of any counterparties.
Derivative Transactions Designated as Hedging Instruments
Cash Flow Hedges
Foreign Currency Contracts
The Company uses cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused by fluctuations in foreign currency exchange rates. The changes in the fair values of these cash flow hedges are recorded in accumulated other comprehensive loss and are subsequently reclassified into “Cost of goods sold” during the period the sales and purchases are recognized. These amounts offset the effect of the changes in foreign currency rates on the related sale and purchase transactions.
During
2018
,
2017
and
2016
, the Company designated certain foreign currency contracts as cash flow hedges of expected future sales and purchases. The total notional value of derivatives that were designated as cash flow hedges was
$127.0 million
and
$96.8 million
as of
December 31, 2018
and
2017
, respectively.
Interest Rate Swap Contract
The Company monitors the mix of short-term and long-term debt regularly. From time to time, the Company manages the risk to interest rate fluctuations through the use of derivative financial instruments. During 2015, the Company entered into an interest rate swap instrument with a notional amount of
€312.0 million
and an expiration date of June 26, 2020. The swap was designated and accounted for as a cash flow hedge. Under the swap agreement, the Company paid a fixed interest rate of
0.33%
plus the applicable margin, and the counterparty to the agreement paid a floating interest rate based on the three-month EURIBOR. Changes in the fair value of the interest rate swap were recorded in accumulated other comprehensive loss and were subsequently reclassified into “Interest expense, net” as a rate adjustment in the same period in which the related interest on the Company’s floating rate term loan facility affected earnings. As a result of the Company’s new credit facility agreement entered into in October 2018 and the repayment of the
€312.0 million
(or approximately
$360.8 million
) term loan under the Company’s former revolving credit facility, as well as the change in the mix of the Company’s short-term and long-term debt, the Company terminated the interest rate swap instrument and recorded a loss of approximately
$3.9 million
which was recorded in “Interest expense, net” for the year ended
December 31, 2018
. Refer to Note 7 for further information.
89
The following table summarizes the after-tax impact that changes in the fair value of derivatives designated as cash flow hedges had on accumulated other comprehensive loss and net income during
2018
,
2017
and
2016
(in millions):
|
Recognized in Net Income
|
|||||||||||||
|
Gain (Loss) Recognized in Accumulated
Other Comprehensive Loss
|
Classification of Gain (Loss)
|
(Loss) Gain Reclassified from Accumulated
Other Comprehensive Loss into Income
|
Total Amount of the Line Item in the Condensed Consolidated Statements of Operations Containing Hedge Gains (Losses)
|
||||||||||
|
2018
|
|||||||||||||
|
Foreign currency contracts
(1)
|
$
|
0.4
|
|
Cost of goods sold
|
$
|
(2.2
|
)
|
$
|
7,355.3
|
|
|||
|
Interest rate swap contract
|
(1.5
|
)
|
Interest expense, net
|
(5.0
|
)
|
53.8
|
|
||||||
|
Total
|
$
|
(1.1
|
)
|
$
|
(7.2
|
)
|
|||||||
|
2017
|
|||||||||||||
|
Foreign currency contracts
|
$
|
2.7
|
|
Cost of goods sold
|
$
|
0.4
|
|
$
|
6,541.2
|
|
|||
|
Interest rate swap contract
|
(0.7
|
)
|
Interest expense, net
|
(2.4
|
)
|
45.1
|
|
||||||
|
Total
|
$
|
2.0
|
|
$
|
(2.0
|
)
|
|||||||
|
2016
|
|||||||||||||
|
Foreign currency contracts
|
$
|
(2.6
|
)
|
Cost of goods sold
|
$
|
1.0
|
|
$
|
5,895.0
|
|
|||
|
Interest rate swap contract
|
(5.1
|
)
|
Interest expense, net
|
(2.0
|
)
|
52.1
|
|
||||||
|
Total
|
$
|
(7.7
|
)
|
$
|
(1.0
|
)
|
|||||||
(1)
The outstanding contracts as of
December 31, 2018
range in maturity through December 2019.
The following table summarizes the activity in accumulated other comprehensive loss related to the derivatives held by the Company during the years ended
December 31, 2018
,
2017
and
2016
(in millions):
|
Before-Tax
Amount
|
Income
Tax
|
After-Tax
Amount
|
||||||||||
|
Accumulated derivative net losses as of December 31, 2015
|
$
|
(3.3
|
)
|
$
|
(1.3
|
)
|
$
|
(2.0
|
)
|
|||
|
Net changes in fair value of derivatives
|
(7.8
|
)
|
(0.1
|
)
|
(7.7
|
)
|
||||||
|
Net losses reclassified from accumulated other comprehensive loss into income
|
1.0
|
|
—
|
|
1.0
|
|
||||||
|
Accumulated derivative net losses as of December 31, 2016
|
(10.1
|
)
|
(1.4
|
)
|
(8.7
|
)
|
||||||
|
Net changes in fair value of derivatives
|
1.9
|
|
(0.1
|
)
|
2.0
|
|
||||||
|
Net losses reclassified from accumulated other comprehensive loss into income
|
2.2
|
|
0.2
|
|
2.0
|
|
||||||
|
Accumulated derivative net losses as of December 31, 2017
|
(6.0
|
)
|
(1.3
|
)
|
(4.7
|
)
|
||||||
|
Net changes in fair value of derivatives
|
(1.0
|
)
|
0.1
|
|
(1.1
|
)
|
||||||
|
Net losses reclassified from accumulated other comprehensive loss into income
|
8.6
|
|
1.4
|
|
7.2
|
|
||||||
|
Accumulated derivative net gains as of December 31, 2018
|
$
|
1.6
|
|
$
|
0.2
|
|
$
|
1.4
|
|
|||
90
Fair Value Hedges
The Company uses interest rate swap agreements designated as fair value hedges to minimize exposure to changes in the fair value of fixed-rate debt that results from fluctuations in benchmark interest rates. During 2016, the Company terminated an interest rate swap transaction with a notional amount of
$300.0 million
and received cash proceeds of approximately
$7.3 million
. The resulting gain was deferred and was being amortized as a reduction to “Interest expense, net” over the remaining term of the Company’s 5
7
/
8
% senior notes through December 1, 2021. During 2018, the remaining unamortized gain was recognized primarily through accelerated amortization due to the repurchase of the 5
7
/
8
% senior notes as is more fully described in Note 7.
Net Investment Hedges
The Company uses non-derivative and derivative instruments, to hedge a portion of its net investment in foreign operations against adverse movements in exchange rates. For instruments that are designated as hedges of net investments in foreign operations, changes in the fair value of the derivative instruments are recorded in foreign currency translation adjustments, a component of accumulated other comprehensive loss, to offset changes in the value of the net investments being hedged. When the net investment in foreign operations is sold or substantially liquidates, the amounts recorded in accumulated other comprehensive loss are reclassified to earnings. To the extent foreign currency denominated debt is de-designated from a net investment hedge relationship, changes in the value of the foreign currency denominated debt are recorded in earnings through the maturity date.
During 2015, the Company designated its
€312.0 million
term loan facility with a maturity date of June 26, 2020 as a hedge of its net investment in foreign operations to offset foreign currency translation gains or losses on the net investment. In October 2018, the Company repaid the term loan facility and the foreign currency denominated debt was de-designated as a net investment hedge. Refer to Note 7 for further information.
In January 2018, the Company entered into a cross currency swap contract as a hedge of its net investment in foreign operations to offset foreign currency translation gains or losses on the net investment. The cross currency swap has an expiration date of January 19, 2021. At maturity of the cross currency swap contract, the Company will deliver the notional amount of approximately
€245.7 million
(or approximately
$281.0 million
as of
December 31, 2018
) and will receive
$300.0 million
from the counterparties. The Company will receive quarterly interest payments from the counterparties based on a fixed interest rate until maturity of the cross currency swap.
The following table summarizes the notional values of the instrument designated as a net investment hedge (in millions):
|
Notional Amount as of
|
|||||||
|
December 31, 2018
|
December 31, 2017
|
||||||
|
Foreign currency denominated debt
|
$
|
—
|
|
$
|
374.2
|
|
|
|
Cross currency swap contract
|
300.0
|
|
—
|
|
|||
The following table summarizes the after-tax impact of changes in the fair value of the instrument designated as a net investment hedge (in millions):
|
(Loss) Gain Recognized in Accumulated Other Comprehensive Loss for the Years Ended
|
|||||||||||
|
December 31, 2018
|
December 31, 2017
|
December 31, 2016
|
|||||||||
|
Foreign currency denominated debt
|
$
|
(14.4
|
)
|
$
|
(45.0
|
)
|
$
|
12.7
|
|
||
|
Cross currency swap contract
|
17.7
|
|
—
|
|
—
|
|
|||||
91
Derivative Transactions Not Designated as Hedging Instruments
During
2018
,
2017
and
2016
, the Company entered into foreign currency contracts to economically hedge receivables and payables on the Company and its subsidiaries’ balance sheets that are denominated in foreign currencies other than the functional currency. These contracts were classified as non-designated derivative instruments. Gains and losses on such contracts are substantially offset by losses and gains on the remeasurement of the underlying asset or liability being hedged and are immediately recognized into earnings. As of
December 31, 2018
and
2017
, the Company had outstanding foreign currency contracts with a notional amount of approximately
$1,335.8 million
and
$1,701.4 million
, respectively.
The following table summarizes the impact that changes in the fair value of derivatives not designated as hedging instruments had on net income (in millions):
|
For the Years Ended
|
|||||||||||||
|
Classification of
(Loss) Gain
|
December 31, 2018
|
December 31, 2017
|
December 31, 2016
|
||||||||||
|
Foreign currency contracts
|
Other expense, net
|
$
|
(1.4
|
)
|
$
|
38.3
|
|
$
|
(5.7
|
)
|
|||
The table below sets forth the fair value of derivative instruments as of
December 31, 2018
(in millions):
|
Asset Derivatives as of December 31, 2018
|
Liability Derivatives as of December 31, 2018
|
||||||||||
|
Balance Sheet
Location
|
Fair
Value
|
Balance Sheet
Location
|
Fair
Value
|
||||||||
|
Derivative instruments designated as hedging instruments:
|
|
|
|
|
|
|
|||||
|
Foreign currency contracts
|
Other current assets
|
$
|
1.9
|
|
Other current liabilities
|
$
|
0.4
|
|
|||
|
Cross currency swap contract
|
Other noncurrent assets
|
17.7
|
|
Other noncurrent liabilities
|
—
|
|
|||||
|
Derivative instruments not designated as hedging instruments:
|
|||||||||||
|
Foreign currency contracts
|
Other current assets
|
5.1
|
|
Other current liabilities
|
6.2
|
|
|||||
|
Total derivative instruments
|
|
$
|
24.7
|
|
|
$
|
6.6
|
|
|||
The table below sets forth the fair value of derivative instruments as of
December 31, 2017
(in millions):
|
Asset Derivatives as of December 31, 2017
|
Liability Derivatives as of December 31, 2017
|
||||||||||
|
Balance Sheet
Location
|
Fair
Value
|
Balance Sheet
Location
|
Fair
Value
|
||||||||
|
Derivative instruments designated as hedging instruments:
|
|
|
|
|
|
|
|||||
|
Foreign currency contracts
|
Other current assets
|
$
|
—
|
|
Other current liabilities
|
$
|
1.2
|
|
|||
|
Interest rate contract
|
Other noncurrent assets
|
—
|
|
Other noncurrent liabilities
|
4.8
|
|
|||||
|
Derivative instruments not designated as hedging instruments:
|
|||||||||||
|
Foreign currency contracts
|
Other current assets
|
7.8
|
|
Other current liabilities
|
11.0
|
|
|||||
|
Total derivative instruments
|
|
$
|
7.8
|
|
|
$
|
17.0
|
|
|||
92
12. Commitments and Contingencies
The future payments required under the Company’s significant commitments, excluding indebtedness, as of
December 31, 2018
are as follows (in millions):
|
|
Payments Due By Period
|
||||||||||||||||||||||||||
|
|
2019
|
2020
|
2021
|
2022
|
2023
|
Thereafter
|
Total
|
||||||||||||||||||||
|
Interest payments related to indebtedness
(1)
|
$
|
15.0
|
|
$
|
11.4
|
|
$
|
10.6
|
|
$
|
8.2
|
|
$
|
5.2
|
|
$
|
8.6
|
|
$
|
59.0
|
|
||||||
|
Capital lease obligations
|
4.6
|
|
3.9
|
|
2.0
|
|
0.9
|
|
0.6
|
|
3.5
|
|
15.5
|
|
|||||||||||||
|
Operating lease obligations
|
46.7
|
|
39.5
|
|
32.6
|
|
26.0
|
|
21.7
|
|
85.5
|
|
252.0
|
|
|||||||||||||
|
Unconditional purchase obligations
(2)
|
79.1
|
|
10.8
|
|
6.9
|
|
1.0
|
|
—
|
|
—
|
|
97.8
|
|
|||||||||||||
|
Other short-term and long-term obligations
(3)
|
98.9
|
|
83.7
|
|
53.5
|
|
22.1
|
|
26.8
|
|
37.4
|
|
322.4
|
|
|||||||||||||
|
Total contractual cash obligations
|
$
|
244.3
|
|
$
|
149.3
|
|
$
|
105.6
|
|
$
|
58.2
|
|
$
|
54.3
|
|
$
|
135.0
|
|
$
|
746.7
|
|
||||||
|
(1)
|
Estimated interest payments are calculated assuming current interest rates over minimum maturity periods specified in debt agreements. Debt may be repaid sooner or later than such minimum maturity periods (unaudited).
|
|
(2)
|
Unconditional purchase obligations exclude routine purchase orders entered into in the normal course of business.
|
|
(3)
|
Other short-term and long-term obligations include estimates of future minimum contribution requirements under the Company’s U.S. and non-U.S. defined benefit pension and postretirement plans. These estimates are based on current legislation in the countries the Company operates within and are subject to change. Other short-term and long-term obligations also include income tax liabilities related to uncertain income tax positions connected with ongoing income tax audits in various jurisdictions (unaudited).
|
|
|
Amount of Commitment Expiration Per Period
|
||||||||||||||||||||||||||
|
|
2019
|
2020
|
2021
|
2022
|
2023
|
Thereafter
|
Total
|
||||||||||||||||||||
|
Guarantees
|
$
|
36.9
|
|
$
|
4.7
|
|
$
|
5.2
|
|
$
|
3.6
|
|
$
|
3.1
|
|
$
|
0.7
|
|
$
|
54.2
|
|
||||||
Off-Balance Sheet Arrangements
Guarantees
The Company maintains a remarketing agreement with its U.S. finance joint venture, AGCO Finance LLC, whereby the Company is obligated to repurchase up to
$6.0 million
of repossessed equipment each calendar year. The Company believes that any losses that might be incurred on the resale of this equipment will not materially impact the Company’s financial position or results of operations, due to the fair value of the underlying equipment.
At
December 31, 2018
, the Company has outstanding guarantees of indebtedness owed to third parties of approximately
$40.6 million
, primarily related to dealer and end-user financing of equipment. Such guarantees generally obligate the Company to repay outstanding finance obligations owed to financial institutions if dealers or end users default on such loans through
2023
. Losses under such guarantees historically have been insignificant. In addition, the Company generally would expect to be able to recover a significant portion of the amounts paid under such guarantees from the sale of the underlying financed farm equipment, as the fair value of such equipment is expected to be sufficient to offset a substantial portion of the amounts paid. The Company believes the credit risk associated with these guarantees is not material to its financial position or results of operations.
In addition, at
December 31, 2018
, the Company had accrued approximately
$13.6 million
of outstanding guarantees of minimum residual values that may be owed to its finance joint ventures in the United States and Canada due upon expiration of certain eligible operating leases between the finance joint ventures and end users.
Other
At
December 31, 2018
, the Company had outstanding designated and non-designated foreign exchange contracts with a gross notional amount of approximately
$1,462.8 million
. The outstanding contracts as of
December 31, 2018
range in maturity through December 2018 (Note 11).
93
The Company sells a majority of its wholesale receivables in North America, Europe and Brazil to its U.S., Canadian, European and Brazilian finance joint ventures. The Company also sells certain accounts receivable under factoring arrangements to financial institutions around the world. The Company reviewed the sale of such receivables and determined that these facilities should be accounted for as off-balance sheet transactions.
Total lease expense under noncancelable operating leases was
$72.1 million
,
$73.0 million
and
$76.8 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Contingencies
In August 2008, as part of routine audits, the Brazilian taxing authorities disallowed deductions relating to the amortization of certain goodwill recognized in connection with a reorganization of the Company’s Brazilian operations and the related transfer of certain assets to the Company’s Brazilian subsidiaries. The amount of the tax disallowance through
December 31, 2018
, not including interest and penalties, was approximately
131.5 million
Brazilian Reais (or approximately
$33.9 million
). The amount ultimately in dispute will be significantly greater because of interest and penalties. The Company has been advised by its legal and tax advisors that its position with respect to the deductions is allowable under the tax laws of Brazil. The Company is contesting the disallowance and believes that it is not likely that the assessment, interest or penalties will be required to be paid. However, the ultimate outcome will not be determined until the Brazilian tax appeal process is complete, which could take several years.
The Company is a party to various other legal claims and actions incidental to its business. The Company believes that none of these claims or actions, either individually or in the aggregate, is material to its business or financial statements as a whole, including its results of operations and financial condition.
13. Fair Value of Financial Instruments
The Company categorizes its assets and liabilities into one of three levels based on the assumptions used in valuing the asset or liability. Estimates of fair value for financial assets and liabilities are based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, fair value measurements are classified under the following hierarchy:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Model-derived valuations in which one or more significant inputs are unobservable.
The Company categorizes its pension plan assets into one of the three levels of the fair value hierarchy. See Note 8 for a discussion of the valuation methods used to measure the fair value of the Company’s pension plan assets.
The Company enters into foreign currency and interest rate swap contracts. The fair values of the Company’s derivative instruments are determined using discounted cash flow valuation models. The significant inputs used in these models are readily available in public markets, or can be derived from observable market transactions, and therefore have been classified as Level 2. Inputs used in these discounted cash flow valuation models for derivative instruments include the applicable exchange rates, forward rates or interest rates. Such models used for option contracts also use implied volatility. See Note 11 for a discussion of the Company’s derivative instruments and hedging activities.
94
Assets and liabilities measured at fair value on a recurring basis as of
December 31, 2018
and
2017
are summarized below (in millions):
|
As of December 31, 2018
|
||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||
|
Derivative assets
|
$
|
—
|
|
$
|
24.7
|
|
$
|
—
|
|
$
|
24.7
|
|
|
Derivative liabilities
|
$
|
—
|
|
$
|
6.6
|
|
$
|
—
|
|
$
|
6.6
|
|
|
As of December 31, 2017
|
||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||
|
Derivative assets
|
$
|
—
|
|
$
|
7.8
|
|
$
|
—
|
|
$
|
7.8
|
|
|
Derivative liabilities
|
$
|
—
|
|
$
|
17.0
|
|
$
|
—
|
|
$
|
17.0
|
|
Cash and cash equivalents, accounts and notes receivable, and accounts payable are valued at their carrying amounts in the Company’s Consolidated Balance Sheets, due to the immediate or short-term maturity of these financial instruments.
The carrying amounts of long-term debt under the Company’s
1.056%
senior term loan, senior term loans due 2022, credit facility and senior term loans due between 2019 and 2028 (Note 7) approximate fair value based on the borrowing rates currently available to the Company for loans with similar terms and average maturities.
14. Related Party Transactions
Rabobank, a financial institution based in the Netherlands, is a
51%
owner in the Company’s finance joint ventures, which are located in the United States, Canada, Europe, Brazil, Argentina and Australia. Rabobank is also the principal agent and participant in the Company’s revolving credit facility (Note 7). The majority of the assets of the Company’s finance joint ventures represents finance receivables. The majority of the liabilities represents notes payable and accrued interest. Under the various joint venture agreements, Rabobank or its affiliates provide financing to the joint venture companies, primarily through lines of credit. During both
2018
and
2017
, the Company did not make additional investments in its finance joint ventures. During
2016
, the Company made a total of approximately
$2.8 million
of additional investments in its retail finance joint venture in the Netherlands, primarily related to additional capital required as a result of increased retail finance portfolios during
2016
. During
2018
and
2017
, the Company received dividends of approximately
$29.4 million
and
$78.5 million
, respectively, from certain of the Company’s finance joint ventures.
The Company’s finance joint ventures provide retail financing and wholesale financing to its dealers. The terms of the financing arrangements offered to the Company’s dealers are similar to arrangements the finance joint ventures provide to unaffiliated third parties. In addition, the Company transfers, on an ongoing basis, a majority of its wholesale receivables in North America, Europe and Brazil to its U.S., Canadian, European and Brazilian finance joint ventures (Note 4). The Company maintains a remarketing agreement with its U.S. finance joint venture (Note 12). In addition, as part of sales incentives provided to end users, the Company may from time to time subsidize interest rates of retail financing provided by its finance joint ventures. The cost of those programs is recognized at the time of sale to the Company’s dealers.
Tractors and Farm Equipment Limited (“TAFE”), in which the Company holds a
23.75%
interest, manufactures and sells Massey Ferguson-branded equipment primarily in India, and also supplies tractors and components to the Company for sale in other markets. Mallika Srinivasan, who is the Chairman and Chief Executive Officer of TAFE, is currently a member of the Company’s Board of Directors. As of
December 31, 2018
, TAFE owned
12,150,152
shares of the Company’s common stock. The Company and TAFE are parties to an agreement pursuant to which, among other things, TAFE has agreed not to purchase in excess of
12,170,290
shares of the Company’s common stock, subject to certain adjustments, and the Company has agreed to annually nominate a TAFE representative to its Board of Directors. During
2018
,
2017
and
2016
, the Company purchased approximately
$109.6 million
,
$102.0 million
and
$128.5 million
, respectively, of tractors and components from TAFE. During
2018
,
2017
and
2016
, the Company sold approximately
$1.8 million
,
$1.2 million
and
$1.1 million
, respectively, of parts to TAFE. The Company received dividends from TAFE of approximately
$1.8 million
, during both
2018
and
2017
, and
$1.6 million
during
2016
.
95
During
2018
,
2017
and
2016
, the Company paid approximately
$3.5 million
,
$7.2 million
and
$3.1 million
, respectively, to PPG Industries, Inc. for painting materials used in the Company’s manufacturing processes. The Company’s Chairman, President and Chief Executive Officer is currently a member of the board of directors of PPG Industries, Inc.
During
2018
,
2017
and
2016
, the Company paid approximately
$1.6 million
,
$1.5 million
and
$2.0 million
, respectively, to Praxair, Inc. for propane, gas and welding, and laser consumables used in the Company’s manufacturing processes. The Company’s Chairman, President and Chief Executive Officer is currently a member of the board of directors of Praxair, Inc.
15. Segment Reporting
Effective January 1, 2017, the Company modified its system of reporting, resulting from changes to its internal management and organizational structure, which changed its reportable segments from North America; South America; Europe/Africa/Middle East; and Asia/Pacific to North America; South America; Europe/Middle East; and Asia/Pacific/Africa. The Asia/Pacific/Africa reportable segment includes the regions of Africa, Asia, Australia and New Zealand, and the Europe/Middle East segment no longer includes certain markets in Africa. Effective January 1, 2017, these reportable segments are reflective of how the Company’s chief operating decision maker reviews operating results for the purposes of allocating resources and assessing performance. Disclosures for the years ended
December 31, 2018
,
2017
and
2016
have been adjusted to reflect the change in reportable segments.
The Company’s
four
reportable segments distribute a full range of agricultural equipment and related replacement parts. The Company evaluates segment performance primarily based on income from operations. Sales for each 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 income from operations for one segment may not be comparable to another segment. Segment results for the years ended
December 31, 2018
,
2017
and
2016
based on the Company’s current reportable segments are as follows (in millions):
|
Years Ended December 31,
|
North America
|
South America
|
Europe/Middle East
|
Asia/Pacific/Africa
|
Consolidated
|
|||||||||||||||
|
2018
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net sales
|
$
|
2,180.1
|
|
$
|
959.0
|
|
$
|
5,385.1
|
|
$
|
827.8
|
|
$
|
9,352.0
|
|
|||||
|
Income (loss) from operations
|
103.1
|
|
(10.1
|
)
|
601.1
|
|
49.6
|
|
743.7
|
|
||||||||||
|
Depreciation
|
67.6
|
|
30.5
|
|
111.3
|
|
15.8
|
|
225.2
|
|
||||||||||
|
Assets
|
1,032.1
|
|
736.1
|
|
1,905.8
|
|
501.1
|
|
4,175.1
|
|
||||||||||
|
Capital expenditures
|
43.3
|
|
30.4
|
|
120.3
|
|
9.3
|
|
203.3
|
|
||||||||||
|
2017
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net sales
|
$
|
1,876.7
|
|
$
|
1,063.5
|
|
$
|
4,614.3
|
|
$
|
752.0
|
|
$
|
8,306.5
|
|
|||||
|
Income from operations
|
66.9
|
|
15.4
|
|
493.3
|
|
48.8
|
|
624.4
|
|
||||||||||
|
Depreciation
|
61.5
|
|
30.5
|
|
113.0
|
|
17.8
|
|
222.8
|
|
||||||||||
|
Assets
|
1,064.1
|
|
752.1
|
|
2,074.4
|
|
499.4
|
|
4,390.0
|
|
||||||||||
|
Capital expenditures
|
59.1
|
|
43.0
|
|
92.9
|
|
8.9
|
|
203.9
|
|
||||||||||
|
2016
|
||||||||||||||||||||
|
Net sales
|
$
|
1,807.7
|
|
$
|
917.5
|
|
$
|
4,089.7
|
|
$
|
595.6
|
|
$
|
7,410.5
|
|
|||||
|
Income from operations
|
41.6
|
|
20.4
|
|
400.2
|
|
19.7
|
|
481.9
|
|
||||||||||
|
Depreciation
|
62.5
|
|
22.9
|
|
116.6
|
|
21.4
|
|
223.4
|
|
||||||||||
|
Assets
|
978.5
|
|
739.4
|
|
1,635.2
|
|
426.3
|
|
3,779.4
|
|
||||||||||
|
Capital expenditures
|
45.3
|
|
56.0
|
|
90.1
|
|
9.6
|
|
201.0
|
|
||||||||||
96
A reconciliation from the segment information to the consolidated balances for income from operations and total assets is set forth below (in millions):
|
2018
|
2017
|
2016
|
|||||||||
|
Segment income from operations
|
$
|
743.7
|
|
$
|
624.4
|
|
$
|
481.9
|
|
||
|
Corporate expenses
|
(133.7
|
)
|
(116.2
|
)
|
(114.9
|
)
|
|||||
|
Stock compensation expense
|
(44.3
|
)
|
(35.6
|
)
|
(16.9
|
)
|
|||||
|
Restructuring expenses
|
(12.0
|
)
|
(11.2
|
)
|
(11.9
|
)
|
|||||
|
Amortization of intangibles
|
(64.7
|
)
|
(57.0
|
)
|
(51.2
|
)
|
|||||
|
Consolidated income from operations
|
$
|
489.0
|
|
$
|
404.4
|
|
$
|
287.0
|
|
||
|
Segment assets
|
$
|
4,175.1
|
|
$
|
4,390.0
|
|
$
|
3,779.4
|
|
||
|
Cash and cash equivalents
|
326.1
|
|
367.7
|
|
429.7
|
|
|||||
|
Investments in affiliates
|
400.0
|
|
409.0
|
|
414.9
|
|
|||||
|
Deferred tax assets, other current and noncurrent assets
|
656.6
|
|
614.6
|
|
560.7
|
|
|||||
|
Intangible assets, net
|
573.1
|
|
649.0
|
|
607.3
|
|
|||||
|
Goodwill
|
1,495.5
|
|
1,541.4
|
|
1,376.4
|
|
|||||
|
Consolidated total assets
|
$
|
7,626.4
|
|
$
|
7,971.7
|
|
$
|
7,168.4
|
|
||
Property, plant and equipment and amortizable intangible assets by country as of December 31, 2018 and 2017 was as follows (in millions):
|
2018
|
2017
|
||||||
|
United States
|
$
|
593.6
|
|
$
|
647.9
|
|
|
|
Germany
|
371.5
|
|
405.5
|
|
|||
|
Brazil
|
187.7
|
|
217.9
|
|
|||
|
Finland
|
130.0
|
|
149.9
|
|
|||
|
China
|
109.4
|
|
127.7
|
|
|||
|
Denmark
|
108.7
|
|
125.7
|
|
|||
|
Italy
|
115.1
|
|
123.0
|
|
|||
|
France
|
75.6
|
|
66.0
|
|
|||
|
Other
|
167.7
|
|
182.1
|
|
|||
|
|
$
|
1,859.3
|
|
$
|
2,045.7
|
|
|
16. REVENUE
Revenue is recognized when the Company satisfies the performance obligation by transferring control over goods or services to a dealer, distributor or other customer. The amount of revenue recognized is measured as the consideration the Company expects to receive in exchange for those goods or services pursuant to a contract with the customer. A contract exists once the Company receives and accepts a purchase order under a dealer sales agreement, or once the Company enters into a contract with an end user. The Company does not recognize revenue in cases where collectability is not probable, and defers the recognition until collection is probable or payment is received.
The Company generates revenue from the manufacture and distribution of agricultural equipment and replacement parts. Sales of equipment and replacement parts, which represents a majority of the Company’s net sales, are recorded by the Company at the point in time when title and control have been transferred to an independent dealer, distributor or other customer. Title generally passes to the dealer or distributor upon shipment or specified delivery, and the risk of loss upon damage, theft or destruction of the equipment is the responsibility of the dealer, distributor or designated third-party carrier. The Company believes control passes and the performance obligation is satisfied at the point of the stated shipping or delivery term with respect to such sales.
The amount of consideration the Company receives and the revenue recognized varies with certain sales incentives the Company offers to dealers and distributors. Estimates for sales incentives are made at the time of sale for existing incentive
97
programs using the expected value method. These estimates are revised in the event of subsequent modification to the incentive program. All incentive programs are recorded and presented as a reduction of revenue, due to the fact that the Company does not receive a distinct good or service in exchange for the consideration provided.
Dealers or distributors may not return equipment or replacement parts while its contract with the Company is in force, except for under established promotional and annual replacement parts return programs. At the time of sale, the Company estimates the amount of returns based on the terms of promotional and annual return programs and anticipated returns in the future.
Sales and other related taxes are excluded from the transaction price. Shipping and handling costs associated with freight are accounted for as fulfillment costs and are expensed at the time revenue is recognized in “Cost of goods sold” and “Selling, general and administrative expenses” in the Company’s Consolidated Statements of Operations.
The Company applied the practical expedient in ASU 2014-09 to not adjust the amount of revenue to be recognized under a contract with a dealer, distributor or other customer for the time value of money when the difference between the receipt of payment and the recognition of revenue is less than one year.
Although, substantially all revenue is recognized at a point in time, a relatively insignificant amount of installation revenue associated with the sale of grain storage and protein production systems is recognized on an “over time” basis as discussed below. The Company also recognizes revenue “over time” with respect to extended warranty or maintenance contracts and certain technology services. Generally, all of the contracts with customers that relate to “over time” revenue recognition have contract durations of less than 12 months.
Grain Storage and Protein Production Systems Installation Revenue.
In certain countries, the Company sells grain storage and protein production systems where the Company is responsible for construction and installation, and the sale is contingent upon customer acceptance. Under these conditions, the revenues are recognized over the term of the contract when the Company can objectively determine control has been transferred to the customer in accordance with agreed-upon specifications in the contract. For these contracts, the Company may be entitled to receive an advance payment, which is recognized as a contract liability for the amount in excess of the revenue recognized. The Company uses the input method using costs incurred to date relative to total estimated costs at completion to measure the progress toward satisfaction of the performance obligation. Revenues are recorded proportionally as costs are incurred. Costs include labor, material and overhead. The estimation of the progress toward completion is subject to various assumptions. As part of the estimation process, the Company reviews the length of time to complete the performance obligation, the cost of materials and labor productivity. If a significant change in one of the assumptions occurs, then the Company will recognize an adjustment under the cumulative catch-up method and the impact of the adjustment on the revenue recorded to date is recognized in the period the adjustment is identified.
Extended Warranty Contracts.
The Company sells separately priced extended warranty contracts, which extends coverage beyond the base warranty period. Revenue is recognized for the extended warranty contract on a straight-line basis, which the Company believes approximates the costs expected to be incurred in satisfying the obligations, over the extended warranty period. The extended warranty period ranges from
one
to
five
years. Payment is received at the inception of the extended warranty contract, which is recognized as a contract liability for the amount in excess of the revenue recognized. The revenue associated with the sale of extended warranty contracts is insignificant.
Technology Services Revenue.
The Company sells a combination of technology products and services. When the bundled package of technology products and services is sold, the portion of the consideration received related to the services component is recognized over time as the Company satisfies the future performance obligation. Revenue is recognized for the hardware component when control is transferred to the dealer or distributor. The revenue associated with the sale of technology services is insignificant.
Contract Assets and Liabilities
Contract assets relate to the Company’s right to recover returned replacement parts. When the refund for the returned replacement part is settled with the dealer or distributor, the contract asset is then transferred to inventory. Contract liabilities relate to the following: (1) the obligation to refund dealers or distributors for the expected return of replacement parts, (2) unrecognized revenues where advance payment of consideration precedes the Company’s performance with respect to extended warranty contracts and where the performance obligation is satisfied over time, (3) unrecognized revenues where advance
98
payment of consideration precedes the Company’s performance with respect to certain grain storage and protein production systems and where the performance obligation is satisfied over time and (4) unrecognized revenues where advance payment consideration precedes the Company’s performance with respect to technology services and where the performance obligation is satisfied over time.
Significant changes in the balance of contract assets and liabilities for the year ended December 31, 2018 were as follows (in millions):
|
Contract Assets
|
||||
|
Year Ended December 31, 2018
(1)
|
||||
|
Balance at beginning of period
|
$
|
10.1
|
|
|
|
Additions for expected returns of replacement parts sold during the period
|
21.0
|
|
||
|
Transfer of returned replacement parts to inventory
|
(18.8
|
)
|
||
|
Foreign currency translation
|
(0.1
|
)
|
||
|
Balance as of December 31, 2018
|
$
|
12.2
|
|
|
|
Contract Liabilities
|
||||
|
Year Ended December 31, 2018
(1)
|
||||
|
Balance at beginning of period
|
$
|
104.4
|
|
|
|
Advance consideration received
|
124.9
|
|
||
|
Accrual for expected reimbursement of replacement parts sold during the period
|
52.3
|
|
||
|
Revenue recognized during the period for extended warranty contracts
|
(29.0
|
)
|
||
|
Revenue recognized during the period related to installation of grain storage and protein production systems
|
(100.9
|
)
|
||
|
Replacement part settlements made during the period
|
(45.7
|
)
|
||
|
Foreign currency translation
|
(1.0
|
)
|
||
|
Balance as of December 31, 2018
|
$
|
105.0
|
|
|
____________________________________
(1) The beginning of the period is from the date of adoption of ASU 2014-09 or January 1, 2018.
The contract assets are classified as “Other current assets” and “Other assets”, and the contract liabilities are classified as either “Other current and noncurrent liabilities” or “Accrued expenses” in the Company’s Consolidated Balance Sheets.
Remaining Performance Obligations
The estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of
December 31, 2018
are
$29.6 million
in 2019,
$21.1 million
in 2020,
$11.8 million
in 2021,
$5.8 million
in 2022 and
$1.8 million
thereafter, and relate primarily to extended warranty contracts. The Company applied the practical expedient in ASU 2014-09 and has not disclosed information about remaining performance obligations that have original expected durations of 12 months or less.
99
Disaggregated Revenue
Net sales for the year ended
December 31, 2018
disaggregated by primary geographical markets and major products consisted of the following (in millions):
|
North America
|
South America
|
Europe/Middle East
(1)
|
Asia/Pacific/Africa
|
Consolidated
(1)
|
||||||||||||||||
|
Primary geographical markets:
|
|
|
|
|
|
|
||||||||||||||
|
United States
|
$
|
1,723.6
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,723.6
|
|
|||||
|
Canada
|
329.0
|
|
—
|
|
—
|
|
—
|
|
329.0
|
|
||||||||||
|
Germany
|
—
|
|
—
|
|
1,213.6
|
|
—
|
|
1,213.6
|
|
||||||||||
|
France
|
—
|
|
—
|
|
1,002.9
|
|
—
|
|
1,002.9
|
|
||||||||||
|
United Kingdom and Ireland
|
—
|
|
—
|
|
614.4
|
|
—
|
|
614.4
|
|
||||||||||
|
Finland and Scandinavia
|
—
|
|
—
|
|
826.5
|
|
—
|
|
826.5
|
|
||||||||||
|
Other Europe
|
—
|
|
—
|
|
1,627.8
|
|
—
|
|
1,627.8
|
|
||||||||||
|
South America
|
—
|
|
943.1
|
|
—
|
|
—
|
|
943.1
|
|
||||||||||
|
Middle East and Algeria
|
—
|
|
—
|
|
100.0
|
|
—
|
|
100.0
|
|
||||||||||
|
Africa
|
—
|
|
—
|
|
—
|
|
135.5
|
|
135.5
|
|
||||||||||
|
Asia
|
—
|
|
—
|
|
—
|
|
414.5
|
|
414.5
|
|
||||||||||
|
Australia and New Zealand
|
—
|
|
—
|
|
—
|
|
277.8
|
|
277.8
|
|
||||||||||
|
Mexico, Central America and Caribbean
|
127.5
|
|
15.9
|
|
—
|
|
—
|
|
143.4
|
|
||||||||||
|
|
$
|
2,180.1
|
|
$
|
959.0
|
|
$
|
5,385.1
|
|
$
|
827.8
|
|
$
|
9,352.0
|
|
|||||
|
Major products:
|
||||||||||||||||||||
|
Tractors
|
$
|
665.8
|
|
$
|
599.1
|
|
$
|
3,743.0
|
|
$
|
353.2
|
|
$
|
5,361.1
|
|
|||||
|
Replacement parts
|
298.7
|
|
91.0
|
|
880.3
|
|
76.0
|
|
1,346.0
|
|
||||||||||
|
Grain storage and protein production systems
|
570.3
|
|
70.1
|
|
187.6
|
|
285.5
|
|
1,113.5
|
|
||||||||||
|
Combines
|
63.1
|
|
104.0
|
|
143.2
|
|
9.4
|
|
319.7
|
|
||||||||||
|
Application equipment
|
225.6
|
|
34.1
|
|
27.3
|
|
18.7
|
|
305.7
|
|
||||||||||
|
Other machinery
|
356.6
|
|
60.7
|
|
403.8
|
|
85.0
|
|
906.1
|
|
||||||||||
|
$
|
2,180.1
|
|
$
|
959.0
|
|
$
|
5,385.1
|
|
$
|
827.8
|
|
$
|
9,352.0
|
|
||||||
___________________________________
|
(1)
|
Rounding may impact summation of amounts.
|
100
Net sales for the year ended
December 31, 2017
disaggregated by primary geographical markets and major products consisted of the following (in millions):
|
North America
(1)
|
South America
|
Europe/Middle East
|
Asia/Pacific/Africa
(1)
|
Consolidated
|
||||||||||||||||
|
Primary geographical markets:
|
|
|
|
|
|
|
||||||||||||||
|
United States
|
$
|
1,445.7
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,445.7
|
|
|||||
|
Canada
|
296.9
|
|
—
|
|
—
|
|
—
|
|
296.9
|
|
||||||||||
|
Germany
|
—
|
|
—
|
|
997.4
|
|
—
|
|
997.4
|
|
||||||||||
|
France
|
—
|
|
—
|
|
815.7
|
|
—
|
|
815.7
|
|
||||||||||
|
United Kingdom and Ireland
|
—
|
|
—
|
|
512.6
|
|
—
|
|
512.6
|
|
||||||||||
|
Finland and Scandinavia
|
—
|
|
—
|
|
721.3
|
|
—
|
|
721.3
|
|
||||||||||
|
Other Europe
|
—
|
|
—
|
|
1,396.0
|
|
—
|
|
1,396.0
|
|
||||||||||
|
South America
|
—
|
|
1,039.2
|
|
—
|
|
—
|
|
1,039.2
|
|
||||||||||
|
Middle East and Algeria
|
—
|
|
—
|
|
171.3
|
|
—
|
|
171.3
|
|
||||||||||
|
Africa
|
—
|
|
—
|
|
—
|
|
138.1
|
|
138.1
|
|
||||||||||
|
Asia
|
—
|
|
—
|
|
—
|
|
366.4
|
|
366.4
|
|
||||||||||
|
Australia and New Zealand
|
—
|
|
—
|
|
—
|
|
247.4
|
|
247.4
|
|
||||||||||
|
Mexico, Central America and Caribbean
|
134.2
|
|
24.3
|
|
—
|
|
—
|
|
158.5
|
|
||||||||||
|
|
$
|
1,876.7
|
|
$
|
1,063.5
|
|
$
|
4,614.3
|
|
$
|
752.0
|
|
$
|
8,306.5
|
|
|||||
|
Major products:
|
||||||||||||||||||||
|
Tractors
|
$
|
624.8
|
|
$
|
673.5
|
|
$
|
3,149.7
|
|
$
|
337.2
|
|
$
|
4,785.2
|
|
|||||
|
Replacement parts
|
287.0
|
|
108.4
|
|
835.3
|
|
74.3
|
|
1,305.0
|
|
||||||||||
|
Grain storage and protein production systems
|
537.2
|
|
72.9
|
|
182.9
|
|
256.6
|
|
1,049.6
|
|
||||||||||
|
Combines
|
67.4
|
|
131.9
|
|
139.2
|
|
10.5
|
|
349.0
|
|
||||||||||
|
Application equipment
|
166.4
|
|
26.1
|
|
32.1
|
|
10.6
|
|
235.2
|
|
||||||||||
|
Other machinery
|
193.9
|
|
50.7
|
|
275.1
|
|
62.8
|
|
582.5
|
|
||||||||||
|
$
|
1,876.7
|
|
$
|
1,063.5
|
|
$
|
4,614.3
|
|
$
|
752.0
|
|
$
|
8,306.5
|
|
||||||
___________________________________
|
(1)
|
Rounding may impact summation of amounts.
|
101
Net sales for the year ended
December 31, 2016
disaggregated by primary geographical markets and major products consisted of the following (in millions):
|
North America
|
South America
(1)
|
Europe/Middle East
(1)
|
Asia/Pacific/Africa
|
Consolidated
|
||||||||||||||||
|
Primary geographical markets:
|
|
|
|
|
|
|
||||||||||||||
|
United States
|
$
|
1,404.6
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,404.6
|
|
|||||
|
Canada
|
286.7
|
|
—
|
|
—
|
|
—
|
|
286.7
|
|
||||||||||
|
Germany
|
—
|
|
—
|
|
891.2
|
|
—
|
|
891.2
|
|
||||||||||
|
France
|
—
|
|
—
|
|
746.9
|
|
—
|
|
746.9
|
|
||||||||||
|
United Kingdom and Ireland
|
—
|
|
—
|
|
440.7
|
|
—
|
|
440.7
|
|
||||||||||
|
Finland and Scandinavia
|
—
|
|
—
|
|
677.7
|
|
—
|
|
677.7
|
|
||||||||||
|
Other Europe
|
—
|
|
—
|
|
1,127.9
|
|
—
|
|
1,127.9
|
|
||||||||||
|
South America
|
—
|
|
893.9
|
|
—
|
|
—
|
|
893.9
|
|
||||||||||
|
Middle East and Algeria
|
—
|
|
—
|
|
205.4
|
|
—
|
|
205.4
|
|
||||||||||
|
Africa
|
—
|
|
—
|
|
—
|
|
116.2
|
|
116.2
|
|
||||||||||
|
Asia
|
—
|
|
—
|
|
—
|
|
266.8
|
|
266.8
|
|
||||||||||
|
Australia and New Zealand
|
—
|
|
—
|
|
—
|
|
212.6
|
|
212.6
|
|
||||||||||
|
Mexico, Central America and Caribbean
|
116.4
|
|
23.5
|
|
—
|
|
—
|
|
139.9
|
|
||||||||||
|
|
$
|
1,807.7
|
|
$
|
917.5
|
|
$
|
4,089.7
|
|
$
|
595.6
|
|
$
|
7,410.5
|
|
|||||
|
Major products:
|
||||||||||||||||||||
|
Tractors
|
$
|
506.2
|
|
$
|
594.3
|
|
$
|
2,846.4
|
|
$
|
278.2
|
|
$
|
4,225.1
|
|
|||||
|
Replacement parts
|
288.3
|
|
88.0
|
|
771.0
|
|
64.0
|
|
1,211.3
|
|
||||||||||
|
Grain storage and protein production systems
|
574.6
|
|
66.1
|
|
85.2
|
|
166.6
|
|
892.5
|
|
||||||||||
|
Combines
|
64.0
|
|
93.8
|
|
123.4
|
|
21.6
|
|
302.8
|
|
||||||||||
|
Application equipment
|
190.8
|
|
23.7
|
|
34.8
|
|
7.9
|
|
257.2
|
|
||||||||||
|
Other machinery
|
183.8
|
|
51.6
|
|
228.9
|
|
57.3
|
|
521.6
|
|
||||||||||
|
$
|
1,807.7
|
|
$
|
917.5
|
|
$
|
4,089.7
|
|
$
|
595.6
|
|
$
|
7,410.5
|
|
||||||
___________________________________
|
(1)
|
Rounding may impact summation of amounts.
|
102
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that the Company’s disclosure controls or the Company’s internal controls will prevent all errors and all fraud. However, our principal executive officer and principal financial officer have concluded the Company’s disclosure controls and procedures are effective at the reasonable assurance level. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. We will conduct periodic evaluations of our internal controls to enhance, where necessary, our procedures and controls.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of
December 31, 2018
, have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles. In assessing the effectiveness of the Company’s internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “
Internal Control — Integrated Framework
(2013).”
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2018
. Based on this assessment, management believes that, as of
December 31, 2018
, the Company’s internal control over financial reporting is effective based on the criteria referred to above.
The effectiveness of the Company’s internal control over financial reporting as of
December 31, 2018
has been audited by KPMG LLP, an independent registered public accounting firm, which also audited the Company’s Consolidated Financial Statements as of and for the year ended
December 31, 2018
. KPMG LLP’s report on internal control over financial reporting is set forth below.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, as a result of the Company’s processes to comply with the Sarbanes-Oxley Act of 2002, enhancements to the Company’s internal control over financial reporting were implemented as management addressed and remediated deficiencies that had been identified.
103
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
AGCO Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited AGCO Corporation and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2018
, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2018
, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of
December 31, 2018
and
2017
, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2018
, and the related notes and financial statement schedule (collectively, the consolidated financial statements), and our report dated
March 1, 2019
expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
104
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Atlanta, Georgia
March 1, 2019
105
Item 9B.
Other Information
None.
PART III
The information called for by Items 10, 11, 12, 13 and 14, if any, will be contained in our Proxy Statement for the
2019
Annual Meeting of Stockholders, which we intend to file in March
2019
.
Item 10
Directors, Executive Officers and Corporate Governance
The information with respect to directors and committees required by this Item set forth in our Proxy Statement for the
2019
Annual Meeting of Stockholders in the sections entitled Proposal Number 1 “Election of Directors” and “Board of Directors and Corporate Governance” is incorporated herein by reference. The information with respect to executive officers required by this Item set forth in our Proxy Statement for the
2019
Annual Meeting of Stockholders in the sections entitled “Executive Compensation” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference.
See the information under the heading “Available Information” set forth in Part I of this Form 10-K. The code of conduct referenced therein applies to our principal executive officer, principal financial officer, principal accounting officer and controller and the persons performing similar functions.
Item 11.
Executive Compensation
The information with respect to executive compensation and its establishment required by this Item set forth in our Proxy Statement for the
2019
Annual Meeting of Stockholders in the sections entitled “Board of Directors and Corporate Governance,” “2018 CEO Pay Ratio,” “Executive Compensation” and “Compensation Committee Report” is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
(a)
|
Securities Authorized for Issuance Under Equity Compensation Plans
|
AGCO maintains its Plan pursuant to which we may grant equity awards to eligible persons. For additional information, see Note 10, “Stock Incentive Plan,” in the Notes to Consolidated Financial Statements included in this filing. The following table gives information about equity awards under our Plan.
|
(a)
|
(b)
|
(c)
|
||||||||
|
Plan Category
|
Number of Securities
to be Issued
upon Exercise
of Outstanding
Awards Under the Plans
|
Weighted-Average
Exercise Price
of Outstanding
Awards Under
the Plans
|
Number of Securities
Remaining Available for Future
Issuance Under Equity
Compensation Plans
(Excluding Securities Reflected
in Column (a)
|
|||||||
|
Equity compensation plans approved by security holders
|
2,391,429
|
|
$
|
60.63
|
|
3,436,426
|
|
|||
|
Equity compensation plans not approved by security holders
|
—
|
|
—
|
|
—
|
|
||||
|
Total
|
2,391,429
|
|
$
|
60.63
|
|
3,436,426
|
|
|||
|
(b)
|
Security Ownership of Certain Beneficial Owners and Management
|
The information required by this Item set forth in our Proxy Statement for the
2019
Annual Meeting of Stockholders in the section entitled “Principal Holders of Common Stock” is incorporated herein by reference.
Item 13.
Certain Relationships and Related Party Transactions, and Director Independence
The information required by this Item set forth in our Proxy Statement for the
2019
Annual Meeting of Stockholders in the section entitled “Certain Relationships and Related Party Transactions” is incorporated herein by reference.
106
Item 14.
Principal Accounting Fees and Services
The information required by this Item set forth in our
2019
Proxy Statement for the Annual Meeting of Stockholders in the sections entitled “Audit Committee Report” and “Board of Directors and Corporate Governance” is incorporated herein by reference.
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Form 10-K:
(1) The Consolidated Financial Statements, Notes to Consolidated Financial Statements, Report of Independent Registered Public Accounting Firm for AGCO Corporation and its subsidiaries are presented under Item 8 of this Form 10-K.
(2) Financial Statement Schedules:
The following Consolidated Financial Statement Schedule of AGCO Corporation and its subsidiaries is included herein and follows this report.
|
Schedule
|
|
Description
|
|
Schedule II
|
|
Valuation and Qualifying Accounts
|
Schedules other than that listed above have been omitted because the required information is contained in Notes to the Consolidated Financial Statements or because such schedules are not required or are not applicable.
(3) The following exhibits are filed or incorporated by reference as part of this report. Each management contract or compensation plan required to be filed as an exhibit is identified by an asterisk (*). The exhibits below may not include all instruments defining the rights of holders of long-term debt where the debt does not exceed 10% of the Company’s total assets. The Company agrees to furnish copies of those instruments to the Commission upon request.
|
Exhibit
Number
|
Description of Exhibit
|
The Filings Referenced for
Incorporation by Reference are
AGCO Corporation
|
||
|
June 30, 2002, Form 10-Q, Exhibit 3.1
|
||||
|
December 10, 2014, Form 8-K, Exhibit 3.1
|
||||
|
September 30, 2017, Form 10-Q, Exhibit 10.5
|
||||
|
March 31, 2006, Form 10-Q, Exhibit 10.2
|
||||
|
March 31, 2006, Form 10-Q, Exhibit 10.3
|
||||
|
March 31, 2006, Form 10-Q, Exhibit 10.4
|
||||
|
January 22, 2019, Form 8-K, Exhibit 10.2
|
||||
|
January 27, 2016, Form 8-K, Exhibit 10.1
|
||||
|
June 30, 2018, Form 10-Q, Exhibit 10.1
|
||||
|
January 22, 2019, Form 8-K, Exhibit 10.1
|
||||
|
March 31, 2006, Form 10-Q, Exhibit 10.6
|
||||
|
January 22, 2019, Form 8-K, Exhibit 10.3
|
||||
|
March 25, 2013, Form DEF14A, Appendix A
|
||||
|
October 2, 2015, Form 8-K, Exhibit 99.1
|
||||
|
December 31, 2015, Form 10-K, Exhibit 10.9
|
||||
|
December 31, 2009, Form 10-K, Exhibit 10.12
|
||||
|
March 31, 2010, Form 10-Q, Exhibit 10.2
|
||||
107
|
Exhibit
Number
|
Description of Exhibit
|
The Filings Referenced for
Incorporation by Reference are
AGCO Corporation
|
||
|
Filed herewith
|
||||
|
December 31, 2017, Form 10-K, Exhibit 10.13
|
||||
|
December 31, 2015, Form 10-K, Exhibit 10.13
|
||||
|
December 31, 2009, Form 10-K, Exhibit 10.17
|
||||
|
December 31, 2014, Form 10-K, Exhibit 10.15
|
||||
|
September 30, 2018, Form 10-Q, Exhibit 10.1
|
||||
|
September 30, 2015, Form 10-Q, Exhibit 10.1
|
||||
|
September 4, 2014, Form 8-K, Exhibit 10.1
|
||||
|
September 4, 2014, Form 8-K, Exhibit 10.2
|
||||
|
September 4, 2014, Form 8-K, Exhibit 10.3
|
||||
|
July 27, 2017, Form 8-K, Exhibit 10.1
|
||||
|
July 27, 2017, Form 8-K, Exhibit 10.2
|
||||
|
July 27, 2017, Form 8-K, Exhibit 10.3
|
||||
|
July 27, 2017, Form 8-K, Exhibit 10.4
|
||||
|
December 10, 2014, Form 8-K, Exhibit 10.1
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
108
|
Exhibit
Number
|
Description of Exhibit
|
The Filings Referenced for
Incorporation by Reference are
AGCO Corporation
|
||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
|
Filed herewith
|
||||
Item 16.
Form 10-K Summary
None.
109
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
AGCO Corporation
|
|||
|
|
By:
|
/s/ MARTIN RICHENHAGEN
|
|
|
Martin Richenhagen
|
|||
|
Chairman of the Board, President
and Chief Executive Officer
|
|||
|
Dated:
|
March 1, 2019
|
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
/s/ MARTIN RICHENHAGEN
|
|
Chairman of the Board, President and Chief
Executive Officer
|
|
March 1, 2019
|
|
|
Martin Richenhagen
|
|
|
|
|
|
|
/s/ ANDREW H. BECK
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
March 1, 2019
|
|
|
Andrew H. Beck
|
|
|
|
|
|
|
/s/ LARA T. LONG
|
Vice President, Chief Accounting Officer
(Principal Accounting Officer)
|
March 1, 2019
|
|||
|
Lara T. Long
|
|||||
|
/s/ ROY V. ARMES *
|
Director
|
March 1, 2019
|
|||
|
Roy V. Armes
|
|||||
|
/s/ MICHAEL C. ARNOLD *
|
Director
|
March 1, 2019
|
|||
|
Michael C. Arnold
|
|||||
|
/s/ P. GEORGE BENSON *
|
|
Director
|
|
March 1, 2019
|
|
|
P. George Benson
|
|
|
|
|
|
|
/s/ SUZANNE P. CLARK *
|
Director
|
March 1, 2019
|
|||
|
Suzanne P. Clark
|
|||||
|
/s/ WOLFGANG DEML *
|
|
Director
|
|
March 1, 2019
|
|
|
Wolfgang Deml
|
|
|
|
|
|
|
/s/ GEORGE E. MINNICH *
|
|
Director
|
|
March 1, 2019
|
|
|
George E. Minnich
|
|
|
|
|
|
|
/s/ GERALD L. SHAHEEN *
|
|
Director
|
|
March 1, 2019
|
|
|
Gerald L. Shaheen
|
|||||
|
/s/ MALLIKA SRINIVASAN *
|
|
Director
|
|
March 1, 2019
|
|
|
Mallika Srinivasan
|
|||||
|
/s/ HENDRIKUS VISSER *
|
|
Director
|
|
March 1, 2019
|
|
|
Hendrikus Visser
|
|||||
|
|
|
|
|
|
|
|
*By:
|
/s/ ANDREW H. BECK
|
|
|
|
March 1, 2019
|
|
Andrew H. Beck
|
|||||
|
Attorney-in-Fact
|
|||||
110
ANNUAL REPORT ON FORM 10-K
ITEM 15 (A)(2)
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED
DECEMBER 31, 2018
II-1
SCHEDULE II
AGCO CORPORATION AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In millions)
|
|
|
Additions
|
|
|
|
|||||||||||||||||||
|
Description
|
Balance at
Beginning
of Period
|
Acquired
Businesses
|
Charged to
Costs and
Expenses
|
Deductions
|
Foreign
Currency
Translation
|
Balance at
End of Period
|
||||||||||||||||||
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Allowances for doubtful accounts
|
$
|
38.7
|
|
$
|
—
|
|
$
|
6.4
|
|
$
|
(11.4
|
)
|
$
|
(2.0
|
)
|
$
|
31.7
|
|
||||||
|
Year ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Allowances for doubtful accounts
|
$
|
33.7
|
|
$
|
2.2
|
|
$
|
4.6
|
|
$
|
(3.8
|
)
|
$
|
2.0
|
|
$
|
38.7
|
|
||||||
|
Year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Allowances for doubtful accounts
|
$
|
29.3
|
|
$
|
2.2
|
|
$
|
3.2
|
|
$
|
(0.7
|
)
|
$
|
(0.3
|
)
|
$
|
33.7
|
|
||||||
|
|
|
Additions
|
|
|
|
|||||||||||||||||||
|
Description
|
Balance at
Beginning
of Period
|
Charged to
Costs and
Expenses
|
Reversal of
Accrual
|
Deductions
|
Foreign
Currency
Translation
|
Balance at
End of Period
|
||||||||||||||||||
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Accruals of severance, relocation and other integration costs
|
$
|
10.9
|
|
$
|
13.8
|
|
$
|
(2.1
|
)
|
$
|
(14.4
|
)
|
$
|
(1.1
|
)
|
$
|
7.1
|
|
||||||
|
Year ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Accruals of severance, relocation and other integration costs
|
$
|
15.3
|
|
$
|
12.4
|
|
$
|
(1.4
|
)
|
$
|
(16.8
|
)
|
$
|
1.4
|
|
$
|
10.9
|
|
||||||
|
Year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Accruals of severance, relocation and other integration costs
|
$
|
16.9
|
|
$
|
12.0
|
|
$
|
(0.1
|
)
|
$
|
(13.3
|
)
|
$
|
(0.2
|
)
|
$
|
15.3
|
|
||||||
|
|
|
Additions
|
|
|
|
|||||||||||||||||||
|
Description
|
Balance at
Beginning
of Period
|
Acquired
Businesses
|
Charged
(Credited) to
Costs and
Expenses
(1)
|
Deductions
|
Foreign
Currency
Translation
|
Balance at
End of Period
|
||||||||||||||||||
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Deferred tax valuation allowance
|
$
|
81.9
|
|
$
|
—
|
|
$
|
6.3
|
|
$
|
—
|
|
$
|
(4.3
|
)
|
$
|
83.9
|
|
||||||
|
Year ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Deferred tax valuation allowance
|
$
|
116.0
|
|
$
|
—
|
|
$
|
(38.4
|
)
|
$
|
—
|
|
$
|
4.3
|
|
$
|
81.9
|
|
||||||
|
Year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Deferred tax valuation allowance
|
$
|
75.8
|
|
$
|
—
|
|
$
|
37.9
|
|
$
|
—
|
|
$
|
2.3
|
|
$
|
116.0
|
|
||||||
(1)
Amount charged through other comprehensive income during the year ended December 31, 2018 was
$18.3 million
.
II-2
II-3
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. Mine Safety DisclosuresprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10 Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Party Transactions, and Director IndependenceprintItem 14. Principal Accounting Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement SchedulesprintItem 16. Form 10-k SummaryprintItem 15 (a)(2)print