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Agco Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 4, 2011 11:54AM
Agco Corp. (AGCO) filed Quarterly Report for the period ended 2011-09-30.
Highlight of Business Operations:Net sales for the third quarter of 2011 were $2,099.1 million compared to $1,657.4 million for the same period in 2010. Net sales for the first nine months of 2011 were $6,255.4 million compared to $4,728.6 million for the prior year period. Foreign currency translation positively impacted net sales by approximately $120.9 million, or 7.3%, in the third quarter of 2011 and by $390.0 million, or 8.2%, in the first nine months of 2011. The following table sets forth, for the three and nine months ended September 30, 2011 and 2010, the impact to net sales of currency translation by geographical segment (in millions, except percentages):
Other expense, net was $7.1 million and $17.3 million during the third quarter and first nine months of 2011, respectively, compared to $4.9 million and $9.7 million, respectively, for the same periods in 2010. Foreign currency gains were lower during the first nine months of 2011 compared to the same period in 2010. Losses on sales of receivables, primarily under our accounts receivable sales agreements with AGCO Finance in North America and Europe, were $6.1 million and $13.5 million in the third quarter and first nine months of 2011, respectively, compared to losses of $3.3 million and $9.6 million, respectively, for the comparable periods in 2010. The increase in 2011 was due to a higher amount of receivables sold in Europe under our accounts receivable sales agreement with AGCO Finance entities in Europe, as is more fully discussed in “Retail Finance Joint Ventures.”
Our AGCO Finance retail finance joint ventures provide retail financing to end customers and wholesale financing to our dealers in the United States, Canada, Brazil, Germany, France, the United Kingdom, Australia, Ireland, the Netherlands, Argentina and Austria. The joint ventures are owned 49% by AGCO and 51% by a wholly-owned subsidiary of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank”, a AAA rated financial institution based in the Netherlands. The majority of the assets of the retail 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 are obligated to provide financing to the joint venture companies, primarily through lines of credit. We do not guarantee the debt obligations of the retail finance joint ventures other than a portion of the retail portfolio in Brazil that is held outside the joint venture by Rabobank Brazil, which was approximately $2.8 million as of December 31, 2010 and will gradually be eliminated over time. As of September 30, 2011, our capital investment in the retail finance joint ventures, which is included in “Investment in affiliates” on our Condensed Consolidated Balance Sheets, was approximately $321.2 million compared to $305.7 million as of December 31, 2010. The total finance portfolio in our retail finance joint ventures was approximately $7.3 billion and $7.0 billion as of September 30, 2011 and December 31, 2010, respectively. The total finance portfolio as of September 30, 2011 included approximately $6.4 billion of retail receivables and $0.9 billion of wholesale receivables from AGCO dealers. The total finance portfolio as of December 31, 2010 included approximately $6.2 billion of retail receivables and $0.8 billion of wholesale receivables from AGCO dealers. The wholesale receivables were either sold to AGCO Finance without recourse from our operating companies or AGCO Finance provided the financing directly to the dealers. For the nine months ended September 30, 2011, our share in the earnings of the retail finance joint ventures, included in “Equity in net earnings of affiliates” on our Condensed Consolidated Statements of Operations, was $32.9 million compared to $31.1 million for the same period in 2010.
Our accounts receivable sales agreements in North America permit the sale, on an ongoing basis, of substantially all of our wholesale interest-bearing and non-interest bearing receivables in North America to AGCO Finance LLC and AGCO Finance Canada, Ltd., our U.S. and Canadian retail finance joint ventures. We have a 49% ownership in these joint ventures. The accounts receivable sales agreements provide for funding up to $600.0 million of U.S. accounts receivable and up to C$250.0 million (or approximately $240.7 million as of September 30, 2011) of Canadian accounts receivable. The sale of the receivables is 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 September 30, 2011 and December 31, 2010, net cash received from receivables sold under the U.S. and Canadian accounts receivable sales agreements with AGCO Finance LLC and AGCO Finance Canada, Ltd. was approximately $414.8 million and $375.9 million, respectively.
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 $1,323.0 million in working capital at September 30, 2011, as compared with $1,208.1 million at December 31, 2010 and $1,229.0 million at September 30, 2010. Accounts receivable and inventories, combined, at September 30, 2011 were $364.1 million higher than at December 31, 2010 and $210.4 million higher than at September 30, 2010. The increase in accounts receivable and inventories during the first nine months of 2011 was as a result of our recent acquisitions, the impact of currency translation and net sales growth.