2017 A N N UA L R E P O R T
Chairman’s Letter and 2017 Highlights
Notice of Annual Meeting
Proxy Statement for the Annual Meeting of Stockholders
Annual Report on Form 10-K
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INNOVATION
FEEDS
GROWTH / SOLUTIONS / IMPACT
FINANCIAL HIGHLIGHTS
(In millions, except per share amounts)
NET SALES
ADJUSTED OPERATING INCOME*
$8,307
$7,467
$7,411
$419
$383
$300
2015
2016
2017
2015
2016
2017
ADJUSTED EARNINGS PER SHARE*
FREE CASH FLOW*
$3.24
$3.02
$2.47
$374
$313
$169
2015
2016
2017
2015
2016
2017
* See reconciliation of non-GAAP measures on page 4.
INNOVATING TO HELP
FEED THE WORLD
Fellow Shareholders
The challenges within the agricultural industry over the last
four years have been significant and so have the opportunities.
In 2017, I am proud to say that AGCO met these challenges and
fulfilled our financial objectives, while making progress on a long
list of strategic initiatives.
Our clear vision at AGCO is to deliver high-tech solutions for farmers feeding
the world. Ensuring there is a sufficient supply of food to meet the demand
of a growing population and its changing diet, while addressing resource and
environmental limitations, will not be an easy task for the world. But AGCO
is the company that can help make it happen. Within this report, you will see
many examples of how AGCO’s culture of innovation is helping us rethink farm
machinery from the ground up and offer more productive solutions to farmers.
2017 Performance
The farm equipment industry downturn that began in 2014 extended through most
of 2017. We responded aggressively and took action during this period to manage
our working capital and align our cost structure in response to the lower demand.
In addition, we continued to make strategic investments in our technology and
products consistent with our priorities. As a result of these efforts, AGCO’s 2017
results improved from 2016, and I am pleased to share with you that we expect
them to be better again in 2018.
AGCO reported 2017 net sales of approximately $8.3 billion, which was an
increase of 12.1% compared to 2016. Reported net income was approximately
$2.32 per share. Adjusted net income* was approximately $3.02 per share, which
increased by 22.7% from the previous year. We generated approximately $373.7
million in free cash flow* after funding significant investments in new products and
other long-term profitability improvement initiatives. Our cash flow also allowed us
to make two strategic acquisitions, while maintaining a strong balance sheet.
*See reconciliation of non-GAAP measures on page 4.
MARTIN RICHENHAGEN
Chairman, President
and Chief Executive Officer
Watch CEO Martin Richenhagen’s
video message at
ar2017.AGCOcorp.com
1
Strategic Update
AGCO’s mission, with the shareholder in mind, is to achieve profitable growth
through superior customer service, innovation, quality and commitment. Our
strategy is focused on achieving organic growth, margin expansion and improved
returns on invested capital. In addition to our cost-focused initiatives, AGCO will
continue to invest in new products, new technology and improved distribution in
order to accomplish these goals.
Focus on Growth
Our investments in new products are proving effective and have been well-
received by customers and industry experts. In 2017, AGCO’s equipment earned
numerous awards at three of the world’s most significant farm shows: SIMA in
France; Agrishow in Brazil; and Agritechnica in Germany. At Agritechnica, the
world’s largest indoor farm show in Hanover, Germany, we received 17 major
awards, including Machine of the Year for our new Fendt track tractor and our
new IDEAL combine. In addition to new product development, we expanded our
product offering through the acquisitions of Precision Planting and the forage
division of Lely in 2017. Precision Planting solidified AGCO as one of the global
leaders in planting technology, and Lely balers and loader wagons are market
leaders in Europe. These additions further support our full-line strategy by
accelerating growth in our harvesting and crop care product lines.
Fuse® is AGCO’s suite of precision-farming products and services. Our Fuse
initiative allows us to find creative new ways to improve productivity. Sensor
and digital technologies are in demand and influence customer decisions when
buying new equipment. By delivering increasingly intelligent machinery, AGCO is
able to enhance the customer experience, improve dealer capabilities and grow
sales of machines, services and parts. Our Fendt 1000 tractor is a great example
of providing cutting-edge connectivity through the AGCO Connectivity Module,
VarioGuide auto steering, Tractor Management System and more. Fuse pioneered
the open approach in agriculture—bringing innovation that optimizes yield and
efficiency through development, joint ventures and partnerships. We will continue
our commitment to putting the grower first by providing solutions that simplify the
data management process.
Inefficiencies in handling crops after harvest create significant long-term
opportunities for our grain storage and handling business, especially in developing
crop export markets such as Brazil and Eastern Europe. In addition, animal-rearing
methods are modernizing in emerging markets in order to drive productivity
as well as food security. In our GSI family of products, we have assembled an
unmatched grain, seed and animal protein business with strong brands, products
and distribution. Our product breadth and global coverage enable customers
to experience world class productivity. GSI recently launched a slate of new
products featuring new sensors, control systems, telematics and data analytics
to make operators more efficient and profitable. In August 2017, we announced
the establishment of a manufacturing joint venture with CP Foods in China to
manufacture protein production equipment. The new manufacturing joint venture
will greatly expand GSI’s production capabilities in Asia and support sales and
margin growth in the region.
FINANCIAL HIGHLIGHTS
$8.3B
NET SALES
$419.3M
ADJUSTED OPERATING INCOME*
$373.7M
FREE CASH FLOW*
$3.02
ADJUSTED EARNINGS PER SHARE*
FENDT 1100 MT
IDEAL COMBINE
2
* See reconciliation of non-GAAP measures on page 4.
“ Our clear vision
at AGCO is to
deliver high-tech
solutions for
farmers feeding
the world.”
Focus on Margin Expansion
During the downturn over the last four years, we worked diligently on our cost
reduction strategies targeted at purchasing actions, factory productivity and
new product development. Our initiatives aim to reduce material costs, improve
productivity in all areas of our operations and lower new product costs through
intelligent engineering. We are continuing to make targeted reductions in sales,
administrative and fixed manufacturing costs, balanced against focused spending
related to development of long-term new market and product opportunities.
Our strategic spend on engineering also includes investments in AGCO’s global
platform and module strategy, which is intended to leverage common product
architectures and integrated solutions across AGCO’s various sites and brands.
We have connected our regional research and development centers to support
increased component standardization to lower costs and improve our products.
We plan to address all of our tractor ranges with distinct platform initiatives. Our
award-winning small tractor platform initiative was launched successfully with the
full product range now in production. Similarly, sales are ahead of expectations for
our ultra-high-horsepower category, which includes the Fendt and Challenger 1000
models. Our new IDEAL combine consolidates a number of combine platforms
and represents a significant milestone for AGCO given its major advancement in
harvesting technology.
ADJUSTED EARNINGS PER SHARE*
Capital Allocation
We have built a strong capital structure and will strive to maintain our investment-
grade credit rating. Our plans include continued capital investments to improve
efficiency and maintain the pace of our new product introductions. Our healthy
balance sheet and strong cash generation have enabled us to return cash to
shareholders, and we plan to maintain this practice through both dividends and
share repurchases.
AGCO enjoyed another successful year in 2017, thanks to the commitment and
contributions of our over 20,000 talented employees across the world. I am also
grateful to our strong network of dealers who provide unmatched service to our
customers. On behalf of our Board of Directors, thank you for your interest and
your investment in AGCO. We know that by working together, we can continue to
deliver innovations that improve lives around the world.
Sincerely,
Martin Richenhagen
Chairman, President and Chief Executive Officer
* See reconciliation of non-GAAP measures on page 4.
3
RECONCILIATION OF NON-GAAP MEASURES
(In millions, except per share amounts)
Years Ended December 31,
2017
Net
Income(1)
Income
from
Operations
Net
Income per
Share(1),(2)
Income
from
Operations
2016
Net
Income(1)
Net
Income per
Share(1)
Income
from
Operations
2015
Net
Income(1)
Net
Income per
Share(1)
As reported
$ 403.3
$ 186.4
$
2.32
$ 288.4
$ 160.1
$
1.96
$ 361.1
$ 266.4
$
3.06
0.11
11.9
9.9
0.12
22.3
16.1
0.18
Restructuring expenses
Non-cash expense related to
waived stock compensation
Deferred income tax adjustment
Tax provision associated
with U.S. tax reform
11.2
4.8
—
8.8
4.8
—
0.06
—
—
42.0
0.52
—
—
—
—
31.6
—
0.39
—
—
—
—
—
—
—
—
—
—
—
As adjusted
$ 419.3
$ 242.0
$
3.02
$ 300.3
$ 201.6
$
2.47
$ 383.4
$ 282.5
$
3.24
(1) Net income and net income per share amounts are after tax.
(2) Rounding may impact summation of amounts.
2017
2016
2015
Net cash provided by
operating activities
Less:
Capital expenditures
$ 577.6
$ 369.5
$ 524.2
(203.9)
(201.0)
(211.4)
Free cash flow
$ 373.7
$ 168.5
$ 312.8
FORWARD-LOOKING STATEMENTS
This annual report includes forward-looking statements,
including the statements in the Chairman’s Message
and other statements in this report regarding market
demand, strategic initiatives, commitments and their
effects, and general economic conditions. These
statements are subject to risks that could cause actual
results to differ materially from those suggested by the
statements, including:
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,
lower commodity prices and changes in the availability
of credit for our retail customers, will adversely affect
us. The poor performance of the general economy
has adversely impacted our sales and may continue
to have an adverse impact on our sales in the future,
the extent of which we are unable to predict, and there
can be no assurance that our results will not continue
to be affected by the weakness in global economic
conditions. Our success depends on the introduction of
new products, which requires substantial expenditures
and may not be well received in the marketplace.
We face significant competition, and if
we are unable to compete successfully against
other agricultural equipment manufacturers,
we would lose customers and our revenues and
profitability would decline.
Most of our sales depend on the 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. A large portion of the retail sales of
our products is financed by our retail finance joint
ventures with Rabobank, and any difficulty on
Rabobank’s part to fund the venture would adversely
impact sales if our customers would be required to
utilize other retail financing providers. We depend on
suppliers for raw materials, components, and parts 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.
A majority of our sales and manufacturing takes
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. These
risks may delay or reduce our realization of value
from our international operations.
Volatility with respect to currency exchange rates
and interest rates can adversely affect our reported
results of operations and the competitiveness of our
products.
We are subject to extensive environmental laws
and regulations, 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 raw material price fluctuations,
which can adversely affect our manufacturing costs.
We disclaim any obligation to update forward-
looking statements except as required by law.
4
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Time and Date:
9:00 a.m., Eastern Time, on Thursday, April 26, 2018
Place:
AGCO Corporation, 4205 River Green Parkway, Duluth, Georgia 30096
Items of Business:
1. To elect ten directors to the Board of Directors for terms expiring at the Annual Meeting
in 2019;
2. To consider a non-binding advisory resolution to approve the compensation of the
Company’s named executive officers;
3. To ratify the appointment of KPMG LLP as the Company’s independent registered
public accounting firm for 2018; and
4. To transact any other business that may properly be brought before the meeting.
Record Date:
Only stockholders of record as of the close of business on March 16, 2018 are entitled to
notice of and to vote at the Annual Meeting or any postponement or adjournment thereof.
Attendance at the Annual Meeting is limited to stockholders of record at the close of business
on March 16, 2018, and to any invitees of the Company.
Inspection of List of
Stockholders of Record:
A list of stockholders as of the close of business on March 16, 2018 will be available for
examination by any stockholder at the Annual Meeting itself as well as for a period of ten
days prior to the Annual Meeting at our offices at the above address during normal business
hours.
We urge you to mark and execute your proxy card and return it promptly in the enclosed envelope. In the event
you are able to attend the meeting, you may revoke your proxy and vote your shares in person.
Atlanta, Georgia
March 26, 2018
By Order of the Board of Directors
ROGER N. BATKIN
Corporate Secretary
This summary highlights information contained elsewhere in this proxy statement. Since this summary does not contain
all of that information, you are encouraged to read the entire proxy statement before voting.
SUMMARY
Annual Meeting of Stockholders
• Time and Date:
9:00 a.m., Eastern Time, on Thursday, April 26, 2018
• Place:
AGCO Corporation, 4205 River Green Parkway, Duluth, Georgia 30096
• Record Date:
March 16, 2018
• Voting:
Stockholders as of the record date are entitled to vote. Each share of common stock is entitled to one
vote for each director nominee and one vote for each of the proposals to be voted on.
Voting Recommendations
Proposal
Election of Directors
Advisory vote on executive compensation
Ratification of the selection of KPMG LLP
Board Vote Recommendation
FOR EACH NOMINEE
FOR
FOR
Director Nominees
The following table provides summary information about each nominee. Directors are elected annually. AGCO has majority
voting in uncontested elections of directors, such as this election. In the event that a nominee does not receive the affirmative vote
of a majority of the votes cast in person or by proxy, he or she is required to tender his or her resignation.
Name
Roy V. Armes
Michael C. Arnold
P. George Benson
Director
Since
2013
2013
2004
Age
65
61
71
Suzanne P. Clark
50
2017
Wolfgang Deml
72
1999
George E. Minnich
68
2008
Martin H. Richenhagen 65
Gerald L. Shaheen
73
2004
2005
Mallika Srinivasan
58
2011
Hendrikus Visser
73
2000
Brief Biography
Former Chairman, President and CEO,
Cooper Tire and Rubber Company
Former President and CEO, Ryerson Inc.
Professor of Decision Sciences and
Former President, College of Charleston
Senior Executive Vice President of the
U.S. Chamber of Commerce
Former President and CEO, BayWa
Corporation (Germany)
Former Senior VP and CFO, ITT
Corporation
Chairman, President and CEO, AGCO
Lead Director of AGCO, Former Group
President, Caterpillar Inc.
Chairman and CEO, Tractors and Farm
Equipment Limited (India)
Former Chairman, Royal Huisman
Shipyards N.V. (Netherlands)
Committee Membership
Independent
X
EC AC CC FC GC SP
X
X
X
X
X
X
X
X
X
X X
X
C
X
X
X
X C
X C X X
C
X
X C X X
X
X
X X C X
EC Executive Committee
FC Finance Committee
AC Audit Committee
GC Governance Committee
CC Compensation Committee
SP Succession Planning Committee
C Chair
Executive Compensation Advisory Vote
We are asking stockholders to approve on an advisory basis our named executive officer compensation.
The Company’s compensation philosophy and program design is intended to pay for performance, support the Company’s
business strategy and align executives’ interests with those of stockholders and employees. A significant portion of the Company’s
executive compensation opportunity is related to factors that directly and indirectly influence stockholder value, including stock
performance, earnings per share, operating expense reduction, operating margin, free cash flow and return on invested capital.
The Company believes that as an executive’s responsibilities increase, so should the portion of his or her total pay comprised of
annual incentive cash bonuses and long-term incentive compensation, which supports and reinforces the Company’s pay for
performance philosophy.
For more information on the Company’s executive compensation programs, please see “Proposal Number 2 — Non-Binding
Advisory Resolution to Approve the Compensation of the Company’s NEOs” and “Compensation Discussion and Analysis” in
this proxy statement.
Independent Registered Public Accounting Firm
As a matter of good corporate governance, we are asking our stockholders to ratify the selection of KPMG LLP as our
independent registered public accounting firm for 2018. The Company’s Audit Committee considers a number of factors when
selecting a firm, including the qualifications, staffing considerations, and the independence and quality controls of the firms
considered. The Audit Committee has appointed KPMG LLP as the Company’s independent registered public accounting firm for
2018. KPMG LLP served as the Company’s independent registered public accounting firm for 2017 and is considered to be well-
qualified.
Set forth below is summary information with respect to KPMG LLP’s fees for services provided in 2017 and 2016.
Type of Fees
Audit Fees
Audit-Related Fees
Tax Fees
Other Fees
Total
2017
2016
(in thousands)
6,925 $
6,460
35
1
12
6,973 $
28
22
288
6,798
$
$
Proxy Statement
for the Annual Meeting
of Stockholders
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TABLE OF CONTENTS
INFORMATION REGARDING THE ANNUAL MEETING...................................................................................
PROPOSAL NUMBER 1 ELECTION OF DIRECTORS.........................................................................................
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE ..........................................................................
PROPOSAL NUMBER 2 NON-BINDING ADVISORY RESOLUTION TO APPROVE THE
COMPENSATION OF THE COMPANY’S NEOS...................................................................................................
PROPOSAL NUMBER 3 RATIFICATION OF COMPANY’S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR 2018.............................................................................................................................
OTHER BUSINESS...................................................................................................................................................
PRINCIPAL HOLDERS OF COMMON STOCK.....................................................................................................
EXECUTIVE COMPENSATION..............................................................................................................................
COMPENSATION DISCUSSION AND ANALYSIS...............................................................................................
SUMMARY OF 2017 COMPENSATION.................................................................................................................
2017 SUMMARY COMPENSATION TABLE .........................................................................................................
2017 GRANTS OF PLAN-BASED AWARDS..........................................................................................................
OUTSTANDING EQUITY AWARDS AT YEAR-END 2017...................................................................................
SSAR EXERCISES AND STOCK VESTED IN 2017..............................................................................................
PENSION BENEFITS ...............................................................................................................................................
2017 PENSION BENEFITS TABLE.........................................................................................................................
OTHER POTENTIAL POST-EMPLOYMENT PAYMENTS ..................................................................................
COMPENSATION COMMITTEE REPORT ............................................................................................................
AUDIT COMMITTEE REPORT...............................................................................................................................
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS...........................................................
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE .......................................................
ANNUAL REPORT TO STOCKHOLDERS ............................................................................................................
ANNUAL REPORT ON FORM 10-K.......................................................................................................................
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..........................................................................
STOCKHOLDERS’ PROPOSALS............................................................................................................................
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AGCO CORPORATION
PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS
April 26, 2018
INFORMATION REGARDING THE ANNUAL MEETING
INFORMATION REGARDING PROXIES
This proxy solicitation is made by the Board of Directors (the “Board”) of AGCO Corporation (“AGCO”, “we”, us”, or the
“Company”), which has its principal executive offices at 4205 River Green Parkway, Duluth, Georgia 30096. By signing and
returning the enclosed proxy card, you authorize the persons named as proxies on the proxy card to represent you at the meeting
and vote your shares.
If you attend the meeting, you may vote by ballot. If you are not present at the meeting, your shares can be voted only when
represented by a proxy either pursuant to the enclosed proxy card or otherwise. You may indicate a vote on the enclosed proxy
card in connection with any of the listed proposals, and your shares will be voted accordingly. If you indicate a preference to
abstain from voting, no vote will be cast. You may revoke your proxy card before balloting begins by notifying the Corporate
Secretary in writing at 4205 River Green Parkway, Duluth, Georgia 30096. In addition, you may revoke your proxy card before
it is voted by signing and duly delivering a proxy card bearing a later date or by attending the meeting and voting in person. If
you return a signed proxy card that does not indicate your voting preferences, the persons named as proxies on the proxy card will
vote your shares (i) in favor of all of the ten director nominees described below; (ii) in favor of the non-binding advisory resolution
to approve the compensation of the Company’s Named Executive Officers (“NEOs”); (iii) in favor of ratification of the appointment
of KPMG LLP as the Company’s independent registered public accounting firm for 2018; and (iv) in their best judgment with
respect to any other business brought before the Annual Meeting.
The enclosed proxy card is solicited by the Board, and the cost of solicitation of proxy cards will be borne by the Company.
The Company may retain an outside firm to aid in the solicitation of proxy cards, the cost of which the Company expects would
not exceed $25,000. Proxy solicitation also may be made personally or by telephone by officers or employees of the Company,
without added compensation. The Company will reimburse brokers, custodians and nominees for their customary expenses in
forwarding proxy material to beneficial owners.
This proxy statement and the enclosed proxy card are first being sent to stockholders on or about March 26, 2018. The
Company’s 2017 Annual Report on Form 10-K is also enclosed and should be read in conjunction with the matters set forth herein.
INFORMATION REGARDING VOTING
Only stockholders of record as of the close of business on March 16, 2018, are entitled to notice of and to vote at the Annual
Meeting. On March 16, 2018, the Company had outstanding 0 shares of common stock, each of which is entitled to one vote on
each matter coming before the meeting. No cumulative voting rights exist, and dissenters’ rights for stockholders are not applicable
to the matters being proposed. For directions to the offices of the Company where the Annual Meeting will be held, you may
contact our corporate office at (770) 813-9200.
Quorum Requirement
A quorum of the Company’s stockholders is necessary to hold a valid meeting. The Company’s By-Laws provide that a
quorum is present if a majority of the outstanding shares of common stock of the Company entitled to vote at the meeting are
present in person or represented by proxy. Votes cast by proxy or in person at the Annual Meeting will be tabulated by the inspector
of elections appointed for the meeting, who will also determine whether a quorum is present for the transaction of business.
Abstentions and “broker non-votes” will be treated as shares that are present and entitled to vote for purposes of determining
whether a quorum is present. A broker non-vote occurs on an item when a broker or other nominee is not permitted to vote on that
item without instruction from the beneficial owner of the shares and no instruction is given.
Vote Necessary for the Election of Directors
Directors are elected by a majority of the votes cast in person or by proxy at the Annual Meeting. See “Proposal
Number 1 — Election of Directors” in this proxy statement for a more detailed description of the majority voting procedures in
our By-Laws.
Under the New York Stock Exchange (“NYSE”) rules, if your broker holds your shares in its name, your broker is not
permitted to vote your shares with respect to the election of directors if your broker does not receive voting instructions from you.
Abstentions and broker non-votes will not affect the election outcome.
Vote Necessary to Adopt the Non-Binding Advisory Resolution to Approve the Compensation of the Company’s NEOs
Adoption of the non-binding advisory resolution to approve the compensation of the Company’s NEOs requires the
affirmative vote of a majority of the votes cast in person or by proxy at the Annual Meeting. Because the stockholder vote on this
proposal is advisory only, it will not be binding on the Company or the Board. However, the Compensation Committee will review
the voting results and take them into consideration when making future decisions regarding executive compensation as the
Compensation Committee deems appropriate.
Under the NYSE rules, if your broker holds your shares in its name, your broker is not permitted to vote your shares with
respect to the non-binding advisory resolution to approve the compensation of the Company’s NEOs if your broker does not receive
voting instructions from you. Abstentions and broker non-votes will not affect the vote on this proposal.
Vote Necessary to Ratify the Appointment of Independent Registered Public Accounting Firm
Ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for 2018
requires the affirmative vote of a majority of the votes cast in person or by proxy at the Annual Meeting.
Under the NYSE rules, if your broker holds your shares in its name, your broker is permitted to vote your shares with respect
to the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for 2018
even if your broker does not receive voting instructions from you. Abstentions and broker non-votes will not affect the vote on
this proposal.
Other Matters
With respect to any other matter that may properly come before the Annual Meeting for stockholder consideration, a matter
generally will be approved by the affirmative vote of a majority of the votes cast in person or by proxy at the Annual Meeting
unless the question is one upon which a different vote is required by express provision of the laws of Delaware, federal law, the
Company’s Certificate of Incorporation or the Company’s By-Laws or, to the extent permitted by the laws of Delaware, the Board
has expressly provided that some other vote shall be required, in which case such express provisions shall govern.
Important Notice Regarding the Availability of Proxy Materials
As required by rules adopted by the United Stated Securities and Exchange Commission (“SEC”), the Company is making
this proxy statement and its annual report available to stockholders electronically via the Internet. The proxy statement and annual
report to stockholders are available at www.agcocorp.com. The proxy statement is available under the heading “SEC Filings” in
our website’s “Investors” section located under “Company,” and the annual report to stockholders is available under the heading
“Annual Reports” in our “Investors” section.
2
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Company’s By-Laws provide for a majority voting standard for the election of directors in uncontested elections. If an
incumbent director does not receive the requisite majority vote, he or she would continue as a “carry over” director, but is required
to tender his or her resignation. In that event, the Governance Committee will determine whether to accept the director’s resignation
and will submit its recommendation to the Board. In deciding whether to accept a director’s resignation, the Board and our
Governance Committee may consider any factors that they deem relevant. Our By-Laws also provide that the director whose
resignation is under consideration will abstain from the deliberation process with respect to his or her resignation.
In the event that a stockholder proposes a nominee to stand for election with nominees selected by the Board, and the
stockholder does not withdraw the nomination prior to the tenth day preceding our mailing the notice of the stockholders meeting
(i.e., a “contested election”), then our By-Laws provide that directors will be elected by a plurality vote.
For this year’s Annual Meeting, the Governance Committee has recommended, and the Board has nominated, the ten
individuals named below to serve as directors until the Annual Meeting in 2019 or until their successors have been duly elected
and qualified. The following is a brief description of the business experience, qualifications and skills of each of the ten nominees
for directorship:
Roy V. Armes, age 65, has been a director of the Company since October 2013.
•
Former, Executive Chairman, President and CEO of Cooper Tire and Rubber Company from 2007 to 2016
• Various executive positions with Whirlpool Corporation from 1975 to 2006 including Senior Vice President, Project
Management Office; Corporate Vice President and General Director, Whirlpool Mexico; Corporate Vice President, Global
Procurement Operations; President/Managing Director, Whirlpool Greater China, Inc. Hong Kong; Vice President,
Manufacturing Technology, Whirlpool Asia (Singapore); and Vice President, Manufacturing & Technology, Refrigeration
Products, Whirlpool Europe (Comerio, Italy).
•
Former member of the Board of Directors of The Manitowoc Company, Inc.
Director Qualifications and Skills: Mr. Armes brings extensive leadership experience with manufacturing companies
and will provide an important perspective and contribution to the Board. The addition of his global manufacturing experience to
the collective knowledge of our Board better positions AGCO for the opportunities facing our industry.
Michael C. Arnold, age 61, has been a director of the Company since October 2013.
•
•
Former President and Chief Executive Officer of Ryerson Inc.
Former member of the Board of Directors of Gardner Denver, Inc.
• Various senior management positions with The Timken Company from 1979 to 2010 including Executive Vice President;
President, Bearings and Power Transmission Group; President, Industrial Group; Vice President, Bearings and Business
Process Advancement; Director, Bearings and Business Process Advancement; Director, Manufacturing and Technology,
Europe, Africa and West Asia (Europe).
Director Qualifications and Skills: Mr. Arnold brings extensive leadership experience with manufacturing
companies and will provide an important perspective and contribution to the Board. The addition of his global manufacturing
experience to the collective knowledge of our Board better positions AGCO for the opportunities facing our industry.
P. George Benson, Ph.D, age 71, has been a director of the Company since December 2004.
•
•
Professor of Decision Sciences at College of Charleston in Charleston, South Carolina from 2014 to present
Former President of College of Charleston in Charleston, South Carolina from 2007 to 2014
• Member of the Board of Directors and Chairman of the Corporate Governance Committee of Crawford & Company
(Atlanta, Georgia)
• Lead Director, Chairman of the Corporate Governance Committee and member of the Audit Committee for
Primerica, Inc.
•
•
Former Member of the Board of Directors and Audit Committee Chair for Nutrition 21, Inc., from 1998 to 2010 and from
2002 to 2010, respectively
Judge for the Malcolm Baldrige National Quality Award from 1997 to 2000, was Chairman of the Board of Overseers
for the Baldrige Award from 2004 to 2007 and is currently Chairman of the Board of Directors for the Foundation for
the Baldrige Award
3
•
•
•
Former Dean of the Terry College of Business at the University of Georgia from 1998 to 2007
Former Dean of the Rutgers Business School at Rutgers University from 1993 to 1998
Former Faculty member of the Carlson School of Management at the University of Minnesota from 1977 to 1993, where
he served as Director of the Operations Management Center from 1992 to 1993 and head of the Decision Sciences Area
from 1983 to 1988.
Director Qualifications and Skills: Mr. Benson has significant academic expertise in business, in particular with
strategic planning and organizational management systems, that adds a valuable perspective to the Board, especially in the area
of improving the delivery of products and services. His ties to the community provide the Board with regional representation and
a critical link to the academic and research sectors.
Suzanne P. Clark, age 50, has been a director of the Company since April 2017.
•
•
Senior Executive Vice President of the U.S. Chamber of Commerce from 2014 to present
Previously served as Chief Operating Officer of the U.S. Chamber of Commerce
• Member of the Board of Directors and Audit Committee of TransUnion
• Led a prominent financial information boutique - Potomac Research Group (PRG)
•
Formerly with the Atlantic Media Company as President of the National Journal Group, a premier provider of information,
news and analysis for Washington’s policy and political communities
• Member of the Board of So Others Might Eat, a Washington, D.C. support system for the homeless
•
Former President of International Women’s Forum (Washington Chapter), a global group of leading women in business,
law, government, technology and the arts
• Named one of Washingtonian Magazine’s “100 Most Powerful Women in Washington”.
Director Qualifications and Skills: Ms. Clark brings extensive leadership experience, entrepreneurial spirit, and a
wealth of political and regulatory knowledge which will provide an important perspective and contribution to the Board.
Wolfgang Deml, age 72, has been a director of the Company since February 1999.
•
Former President and Chief Executive Officer of BayWa Corporation, a trading and services company located in
Munich, Germany, from 1991 until his retirement in 2008
• Non-Executive Chairman of the Board of Directors and Audit Committee of Hauck & Aufhäuser Privatbankiers AG
Director Qualifications and Skills: Mr. Deml adds extensive experience to the Board given his service as the Chief
Executive Officer of an international corporation within our industry. His tenure on our Board provides consistent leadership, and
he serves as an ongoing source for industry-specific knowledge, especially in Europe, which is our largest market.
George E. Minnich, age 68, has been a director of the Company since January 2008.
•
•
Former Senior Vice President and Chief Financial Officer of ITT Corporation from 2005 to 2007
Several senior finance positions at United Technologies Corporation, including Vice President and Chief Financial Officer
of Otis Elevator from 2001 to 2005 and Vice President and Chief Financial Officer of Carrier Corporation from 1996 to
2001
• Various positions within Price Waterhouse (now PricewaterhouseCoopers LLP) from 1971 to 1993, serving as an audit
partner from 1984 to 1993
• Member of the Boards of Directors and Audit Committees of Belden Inc. and Kaman Corporation and the Chairman of
the Audit Committee for Belden Inc.
Director Qualifications and Skills: Mr. Minnich, through his background as a former Audit Partner of Price
Waterhouse and Chief Financial Officer of a publicly-traded company, provides the Board with substantial financial expertise. He
also brings to the Board a familiarity with the challenges facing large, international manufacturing companies.
Martin H. Richenhagen, age 65, has been Chairman of the Board of Directors since August 2006 and has served as President and
Chief Executive Officer of the Company since July 2004.
• Member of the Board of Directors, Chairman of Audit and member of the Officers & Directors Compensation Committee
for PPG Industries, Inc.
• Member of the Board of Directors, Finance & Pension and Governance & Nominating Committees for Praxair, Inc.
4
• Member of United States Chamber of Commerce Board of Directors
• Member of President’s Advisory Council on Doing Business in Africa for the United States Department of Commerce
•
•
•
•
•
Former Chairman of the German American Chambers of Commerce of the United States
Former Chairman of the Board and Lifetime Honorary Director of the Association of Equipment Manufacturers (AEM)
Former Executive Vice President of Forbo International SA, a flooring material business based in Switzerland, from 2003
to 2004
Former Group President of Claas KGaA mbH, a global farm equipment manufacturer and distributor, from 1998 to 2002
Former Senior Executive Vice President for Schindler Deutschland Holdings GmbH, a worldwide manufacturer and
distributor of elevators and escalators, from 1995 to 1998
Director Qualifications and Skills:
In addition to his thirteen years of experience as the Company’s Chief Executive
Officer, Mr. Richenhagen brings to the Board substantial experience in the agricultural equipment industry. His business and
leadership acumen as both a former Executive Vice President and current Chief Executive Officer provides the Board with an
informed resource for a wide range of disciplines, from sales and marketing to broad business strategies.
Gerald L. Shaheen, age 73, has been a director of the Company since October 2005.
• Member of the Board of Trustees and Audit Committee of the Colonial Willamsburg Foundation
•
•
•
•
•
Chairman of the Advisory Board of the Illinois Neurological Institute
Board member and past Chairman of the U.S. Chamber of Commerce
Numerous marketing and general management positions for Caterpillar Inc., both in the United States and Europe,
including Group President from 1998 until his retirement in January 2008
Former Chairman of the Board of Trustees of Bradley University
Former member of Board of Directors of the Ford Motor Company
Director Qualifications and Skills: Mr. Shaheen’s background in management of a global heavy equipment
manufacturer brings to the Board particular knowledge of the Company’s industry, as well as a necessary perspective of the
challenges facing large, publicly-traded companies. His work with the U.S. Chamber of Commerce also provides the Board with
a wealth of knowledge related to international commerce and trade issues.
Mallika Srinivasan, age 58, has been a director of the Company since July 2011.
•
•
Chairman and Chief Executive Officer of Tractors and Farm Equipment Limited, the second largest agricultural tractor
manufacturer in India, since 2011
Various positions at Tractors and Farm Equipment Limited since 1981, including Director (1994 to 2011), Vice President
(1991 to 1994) and General Manager – Planning & Coordination (1986 to 1991)
• Member of the Boards of Directors of Tata Global Beverages Limited (India) and Tata Steel Limited (India)
• Member of the Board of Medical Research Foundation
• Member of the Board of Trustees for The Child’s Trust, Kanchi Kamakoti Child’s Trust Hospital
•
•
Former President of the Tractor Manufacturers Association of India, the Madras Management Association and the Madras
Chamber of Commerce & Industry
Former member of the Board of Governors of the Indian Institute of Technology, Madras and the Indian Institute of
Management, Tiruchirappalli
Director Qualifications and Skills: Ms. Srinivasan’s expertise in strategy, extensive leadership experience in the
farm equipment industry and knowledge of operations in India and other developing markets provide an important perspective
and contribution to the Board.
Hendrikus Visser, age 73, has been a director of the Company since April 2000.
•
•
Chairman of the Supervisory Board of Sterling Strategic Value, Ltd.
Former Chairman of Royal Huisman Shipyards N.V.
5
•
Former Chief Financial Officer of NUON N.V. and former member of the Boards of Directors or Executive Boards of
major international corporations and institutions, including Rabobank Nederland, the Amsterdam Stock Exchange,
Amsterdam Institute of Finance, De Lage Landen, Teleplan International N.V., Vion N.V. and Mediq N.V.
Director Qualifications and Skills: Mr. Visser’s substantial experience with and knowledge of financial capital
markets, particularly in our Europe/Middle East (“EME”) region, including his 15 years of service as Chairman of the Credit
Committee of Rabobank Nederland, provides the Board with significant international financial expertise. His tenure with the
Board also provides stability in leadership, and he serves as a continued source of regional diversity.
The Board recommends a vote “FOR” the nominees set forth above.
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Director Independence
In accordance with the rules of the NYSE, the Board has adopted categorical standards to assist it in making determinations
of its directors’ independence. The Board has determined that in order to be considered independent, a director must not:
•
•
•
•
•
•
be an employee of the Company or have an “immediate family member,” as that term is defined in the General Commentary
to Section 303A.02(b) of the NYSE rules, who is an executive officer of the Company at any time during the preceding
three years;
receive or have an immediate family member who receives or solely own any business that receives during any
twelve-month period within the preceding three years direct compensation from the Company or any subsidiary or other
affiliate in excess of $120,000, other than for director and committee fees and pension or other forms of deferred
compensation for prior service to the Company or, solely in the case of an immediate family member, compensation for
services to the Company as a non-executive employee;
be a current partner or current employee of a firm that is the internal or external auditor of the Company or any subsidiary
or other affiliate, or have an immediate family member that is a current partner or current employee of such a firm who
personally works on an audit of the Company or any subsidiary or other affiliate;
have been or have an immediate family member who was at any time during the preceding three years a partner or
employee of such an auditing firm who personally worked on an audit of the Company or any subsidiary or other affiliate
within that time;
be employed or have an immediate family member that is employed either currently or at any time within the preceding
three years as an executive officer of another company in which any present executive officers of the Company or any
subsidiary or other affiliate serve or served at the same time on the other company’s Compensation Committee; or
be a current employee or have an immediate family member that is a current executive officer of a company that has
made payments to or received payments from the Company or any subsidiary or other affiliate for property or services
in an amount which, in any of the preceding three years of such other company, exceeds (or in the current year of such
other company is likely to exceed) the greater of $1.0 million or two percent of the other company’s consolidated gross
revenues for that respective year.
In addition, in order to be independent for purposes of serving on the Audit Committee, a director may not:
•
•
accept any consulting, advisory or other compensatory fee from the Company or any subsidiary; or
be an “affiliated person,” as that term is used in Section 10A(m)(3)(B)(ii) of the Securities Exchange Act of 1934
(the “Exchange Act”), of the Company or any of its subsidiaries.
Finally, in order to be independent for purposes of serving on the Compensation Committee, a director may not:
•
•
be a current or former employee or former officer of the Company or an affiliate or receive any compensation from the
Company other than for services as a director;
receive remuneration from the Company or an affiliate, either directly or indirectly, in any capacity other than as a
“director,” as that term is defined in Section 162(m) of the IRC; or
•
have an interest in a transaction required under SEC rules to be described in the Company’s proxy statement.
These standards are consistent with the standards set forth in the NYSE rules, the IRC and the Exchange Act. In applying
these standards, the Company takes into account the interpretations of, and the other guidance available from, the NYSE. In
affirmatively determining the independence of any director who will serve on the Compensation Committee, the Board of Directors
considers all factors specifically relevant to determining whether such director has a relationship to the Company which is material
6
to that director’s ability to be independent from management in connection with the duties of the Compensation Committee
member, including, the independence factors set forth in the NYSE rules.
Based upon the foregoing standards, the Board has determined that all of its directors are independent in accordance with
these standards except for Mr. Richenhagen and Ms. Srinivasan, and that none of the independent directors has any material
relationship with the Company, other than as a director or stockholder of the Company.
On August 29, 2014, the Company and Tractors and Farm Equipment Limited (“TAFE”) entered into a Letter Agreement
(the “Letter Agreement”) regarding the current and future accumulation by TAFE of shares of the Company’s common stock and
certain governance matters, including the Company’s nomination of a director candidate selected by TAFE. TAFE’s proposed
director candidate for 2018 is Ms. Srinivasan, TAFE’s Chairman and Chief Executive Officer, and Ms. Srinivasan has been
nominated for election by the Company’s Board of Directors. See “Certain Relationships and Related Party Transactions” below
for additional information.
7
Committees of the Board of Directors
The Board has delegated certain functions to six standing committees: an Executive Committee, an Audit Committee, a
Compensation Committee, a Finance Committee, a Governance Committee and a Succession Planning Committee. Each of the
committees has a written charter. The Board has determined that each member of the Audit, Compensation and Governance
Committees is an independent director under the applicable rules of the IRC, NYSE and SEC with respect to such committees.
The following is a summary of the principal responsibilities and other information regarding each of the committees:
Committee
Executive Committee
Audit Committee
Compensation Committee
Principal Responsibilities
• Is authorized, between meetings of the Board, to take such actions in the management of the
business and affairs of the Company which, in the opinion of the Executive Committee, should
not be postponed until the next scheduled meeting of the Board, except as limited by the General
Corporation Law of the State of Delaware, the rules of the New York Stock Exchange, the
Company’s Certificate of Incorporation or By-Laws or other applicable laws or regulations.
• Assists the Board in its oversight of the integrity of the Company’s consolidated financial
statements, the Company’s compliance with legal and regulatory requirements, the independent
registered public accounting firm’s qualifications and independence and the performance of
the Company’s internal audit function and independent registered public accounting firm.
• Reviews the Company’s internal accounting and financial controls, considers other matters
relating to the financial reporting process and safeguards of the Company’s assets and produces
an annual report of the Audit Committee for inclusion in the Company’s proxy statement.
• The Board has determined that Mr. Minnich is an “audit committee financial expert,” as that
term is defined under regulations of the SEC.
• The report of the Audit Committee for 2017 is set forth under the caption “Audit Committee
Report.”
• Management periodically meets with the Company’s Audit Committee and reviews risks and
relevant strategies.
• Is charged with executing the Board’s overall responsibility for matters related to Chief
Executive Officer and other executive compensation, including assisting the Board in
administering the Company’s compensation programs and producing an annual report of the
Compensation Committee on executive compensation for inclusion in the Company’s proxy
statement.
• Has retained Willis Towers Watson to advise on current trends and best practices in
compensation.
• The report of the Compensation Committee for 2017 is set forth under the caption
“Compensation Committee Report.”
Finance Committee
• Assists the Board in the oversight of the financial management of the Company including:
the capital structure of the Company;
the Company’s global financing strategies, objectives and plans;
the Company’s credit profile and ratings;
capital expenditure and investment programs of the Company;
the Company’s interests in finance joint ventures; and
the Company’s annual budget process and review.
Governance Committee
• Assists the Board in fulfilling its responsibilities to stockholders by:
identifying and screening individuals qualified to become directors of the Company,
consistent with independence, diversity and other criteria approved by the Board, and
recommending candidates to the Board for all directorships and for service on the
committees of the Board;
developing and recommending to the Board a set of corporate governance principles and
guidelines applicable to the Company; and
overseeing the evaluation of the Board.
Succession Planning
Committee
• Assists the Board with respect to selecting, developing, evaluating and retaining the Chief
Executive Officer, executive officers and key talent; and
• Manages the succession planning process in the event the current Chief Executive Officer
cannot continue in the role.
8
Committee Composition and Meetings
The following table shows the current membership of each committee and the number of meetings held by each committee
during 2017. The Company will determine the composition and chair positions of the respective committees for 2018 following
the Annual Meeting.
Director
Roy V. Armes
Michael C. Arnold
P. George Benson
Suzanne P. Clark
Wolfgang Deml
George E. Minnich
Martin H. Richenhagen
Chair
Gerald L. Shaheen
Mallika Srinivasan
Hendrikus Visser
Total meetings in 2017
X
X
—
Executive
Audit
Comp
Finance Governance
Succession
Planning
X
X
Chair
X
X
X
X
X
X
Chair
X
X
X
12
Chair
3
9
X
Chair
X
X
6
X
X
Chair
X
X
X
2
During 2017, the Board held eight meetings and each director attended at least 75% of the aggregate number of meetings
of the Board and respective committees on which he or she served while a member thereof, except for Ms. Srinivasan.
Identification and Evaluation of Director Nominees
With respect to the Governance Committee’s evaluation of nominee candidates, including those recommended by
stockholders, the committee has no formal requirements or minimum standards for the individuals that are nominated. Rather, the
committee considers each candidate on his or her own merits. However, in evaluating candidates, there are a number of factors
that the committee generally views as relevant and is likely to consider to ensure the entire Board, collectively, embraces a wide
variety of characteristics, including:
•
•
•
•
•
•
•
•
career experience, particularly experience that is germane to the Company’s business, such as with agricultural products
and services, legal, human resources, finance and marketing experience;
experience in serving on other boards of directors or in the senior management of companies that have faced issues
generally of the level of sophistication that the Company faces;
contribution to diversity of the Board;
integrity and reputation;
whether the candidate has the characteristics of an independent director;
academic credentials;
other obligations and time commitments and the ability to attend meetings in person; and
current membership on the Company’s Board — our Board values continuity (but not entrenchment).
The Governance Committee does not assign a particular weight to these individual factors. Similarly, the committee does
not expect to see all (or even more than a few) of these factors in any individual candidate. Rather, the committee looks for a mix
of factors that, when considered along with the experience and credentials of the other candidates and existing directors, will
provide stockholders with a diverse and experienced Board. The committee strives to recommend candidates who each bring a
unique perspective to the Board in order to contribute to the collective diversity of the Board. Although the Company has not
adopted a specific diversity policy, the Board believes that a diversity of experience, gender, race, ethnicity and age contributes
to effective governance over the affairs of the Company for the benefit of its stockholders. With respect to the identification of
nominee candidates, the committee has not developed a single, formalized process. Instead, its members and the Company’s senior
management generally recommend candidates whom they are aware of personally or by reputation or may utilize outside consultants
to assist in the process.
9
The Governance Committee welcomes recommendations for nominations from the Company’s stockholders and evaluates
stockholder nominees in the same manner that it evaluates a candidate recommended by other means. In order to make a
recommendation, the committee requires that a stockholder send the committee:
•
a resume for the candidate detailing the candidate’s work experience and academic credentials;
• written confirmation from the candidate that he or she (1) would like to be considered as a candidate and would serve if
nominated and elected, (2) consents to the disclosure of his or her name, (3) has read the Company’s Global Code of
Conduct (the “Code”) and that during the prior three years has not engaged in any conduct that, had he or she been a
director, would have violated the Code or required a waiver, (4) is, or is not, “independent” as that term is defined in the
committee’s charter, and (5) has no plans to change or influence the control of the Company;
•
•
•
the name of the recommending stockholder as it appears in the Company’s books, the number of shares of common stock
that are owned by the stockholder and written confirmation that the stockholder consents to the disclosure of his or her
name. (If the recommending person is not a stockholder of record, he or she should provide proof of share ownership);
personal and professional references for the candidate, including contact information; and
any other information relating to the candidate required to be disclosed in solicitations of proxies for election of directors
or as otherwise required, in each case, pursuant to Regulation 14A of the Exchange Act.
The foregoing information should be sent to the Governance Committee, c/o Corporate Secretary, AGCO Corporation,
4205 River Green Parkway, Duluth, Georgia 30096, who will forward it to the chairperson of the committee. The advance notice
provisions of the Company’s By-Laws provide that for a proposal to be properly brought before a meeting by a stockholder, such
stockholder must disclose certain information and give the Company timely notice of such proposal in written form meeting the
requirements of the Company’s By-Laws no later than 60 days and no earlier than 90 days prior to the anniversary date of the
immediately preceding Annual Meeting of stockholders. The committee does not necessarily respond directly to a submitting
stockholder regarding recommendations.
Board Leadership Structure
Mr. Richenhagen, who is also the Chief Executive Officer of the Company, serves as Chairman of the Board, and Mr. Shaheen
currently serves as Lead Director of the Board. The Company holds executive sessions of its non-management directors at each
regular meeting of its Board. The Lead Director presides over executive sessions and at all meetings of the Board in the absence
of the Chairman, provides input to the Chairman on setting Board agendas, generally approves information sent to the Board
(including meeting schedules to assure sufficient discussion time for all agenda items), ensures that he is available for consultation
and direct communication at the request of major stockholders, leads the performance evaluation process of the Chief Executive
Officer and has the authority to call meetings of the independent directors.
The Board reviews the Company’s board leadership structure annually. As part of this process, the Board considered the
structures used by peer companies, alternative structures and the effectiveness of the Company’s current structure. The Board
believes that having the Chief Executive Officer serve as Chairman is important because it best reflects the Board’s intent that the
Chief Executive Officer function as the Company’s overall leader, while the Lead Director provides independent leadership to the
directors and serves as an intermediary between the independent directors and the Chairman. The resulting structure sends a
message to our employees, customers and stockholders that we believe in having strong, unifying leadership at the highest levels
of management. At the same time, having a Lead Director with a well-defined role provides an appropriate level of independent
oversight and an effective channel for communications when needed.
Risk Oversight
The Company’s management maintains a risk assessment process that identifies the risks that face the Company that
management considers the most significant. The risk assessment process also considers appropriate strategies to mitigate those
risks. Management periodically meets with the Company’s Audit Committee and reviews such risks and relevant strategies.
Corporate Governance Principles, Committee Charters and Global Code of Conduct
We provide various corporate governance and other information on the Company’s website. This information, which is also
available in printed form to any stockholder of the Company upon request to the Corporate Secretary, includes the following:
•
our corporate governance principles and charters for the Audit, Compensation, Executive, Finance, Governance and
Succession Planning Committees of the Board, which are available under the headings “Governance Principles” and
“Charters of the Committees of the Board,” respectively, in the “Corporate Governance” section of our website located
under “Investors;” and
10
•
the Company’s 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.”
In addition, in the event of any waivers of the Global Code of Conduct with respect to certain executive officers, those
waivers will be available under the heading “Corporate Governance” section of our website.
Compensation Committee Interlocks and Insider Participation
During 2017, Messrs. Armes, Minnich and Shaheen (Chairman) and Ms. Clark served as members of the Compensation
Committee. No member of the Compensation Committee was an officer or employee of the Company or any of its subsidiaries
during 2017. None of the Company’s executive officers serve on the board of directors of any company of which any director of
the Company serves as executive officer.
Director Compensation
The following table provides information concerning the compensation of the members of the Board for the most recently
completed year. As reflected in the table, each non-employee director received an annual base retainer of $100,000 plus $120,000
in restricted shares of the Company’s common stock for Board service. Committee chairmen received an additional annual retainer
of $15,000 (or $25,000 for the chairman of the Audit Committee and $20,000 for the chairman of the Compensation Committee).
Mr. Shaheen, who was the Lead Director in 2017, also received an additional annual $30,000 Lead Director’s fee. Effective
January 1, 2016, each non-employee director received an additional annual retainer of $6,000 if they served on three or more
board committees. The Company does not have any consulting arrangements with any of its directors.
Name
Roy V. Armes
Michael C. Arnold
P. George Benson
Suzanne P. Clark(3)
Wolfgang Deml
Luiz F. Furlan(4)
George E. Minnich
Gerald L. Shaheen
Mallika Srinivasan
Hendrikus Visser
Total
2017 DIRECTOR COMPENSATION
Fees Earned or
Paid in Cash
($)
Stock Awards(1)
($)
All Other
Compensation(2)
($)
Total
($)
100,000
100,000
115,000
67,857
115,000
32,143
131,000
156,000
100,000
121,000
1,038,000
120,000
120,000
120,000
—
120,000
—
120,000
120,000
120,000
120,000
960,000
—
—
7,259
—
7,503
—
12,473
10,589
—
4,281
42,105
220,000
220,000
242,259
67,857
242,503
32,143
263,473
286,589
220,000
245,281
2,040,105
(1) The Long-Term Incentive Plan provides for annual restricted stock grants of the Company’s common stock to all
non-employee directors. For 2017, each non-employee director was granted $120,000 in restricted stock. All restricted stock
grants are restricted as to transferability for a period of one year following the award. In the event a director departs from
the Board, the non-transferability period expires immediately. The 2017 annual grant occurred on April 27, 2017. The total
grant on April 27, 2017 was 14,968 shares, or 1,871 shares per director. The amounts above reflect the aggregate grant date
fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic
718, “Compensation-Stock Compensation” (“ASC 718”).
After shares were withheld for income tax purposes, each director held the following shares as of December 31, 2017 related
to this grant: Mr. Armes — 1,871 shares; Mr. Arnold — 1,871 shares; Mr. Benson — 1,122 shares; Mr. Deml — 1,122
shares; Mr. Minnich — 1,216
and
Mr. Visser — 1,871 shares.
shares; Ms. Srinivasan — 1,871
shares; Mr. Shaheen — 1,122
shares;
(2) Relates to travel expenses incurred by spouses to accompany board members to business-related events in India and the
United States.
(3) Ms. Clark joined the Company’s Board of Directors on April 27, 2017.
(4) Mr. Furlan retired from the Company’ Board of Directors at the 2017 Annual Meeting.
11
Director Attendance at the Annual Meeting
The Board has adopted a policy that all directors on the Board are expected to attend Annual Meetings of the Company’s
stockholders. All of the directors on the Board attended the Company’s previous Annual Meeting held in April 2017.
Stockholder Communication with the Board of Directors
The Company encourages stockholders and other interested persons to communicate with members of the Board. Any person
who wishes to communicate with a particular director or the Board as a whole, including the Lead Director or any other independent
director, may write to those directors in care of Corporate Secretary, AGCO Corporation, 4205 River Green Parkway,
Duluth, Georgia 30096. The correspondence should indicate the writer’s interest in the Company and clearly specify whether it
is intended to be forwarded to the entire Board or to one or more particular directors. The Corporate Secretary will forward all
correspondence satisfying these criteria.
12
PROPOSAL NUMBER 2
NON-BINDING ADVISORY RESOLUTION TO APPROVE THE
COMPENSATION OF THE COMPANY’S NEOS
The Board is submitting a “say-on-pay” proposal for stockholder consideration. While the vote on executive compensation
is non-binding and solely advisory in nature, the Board and the Compensation Committee will review the voting results and seek
to determine the causes of any negative voting result to better understand issues and concerns not previously presented. We intend
to hold annual say-on-pay votes. At the 2017 Annual Meeting, our stockholders expressed their continued support of our executive
compensation programs by approving the non-binding advisory vote on our executive compensation, with 61% of shares actually
voted supporting our executive compensation policies and practices. Stockholders who want to communicate with the Board or
management regarding compensation-related matters should refer to “Stockholder Communication with the Board of Directors”
in this proxy statement for additional information.
The Board recommends that stockholders vote to approve, on an advisory basis, the compensation paid to the Company’s
Named Executive Officers (“NEOs”), as described in this proxy statement.
Compensation Philosophy and Program Design
The Company’s compensation philosophy and program design is intended to support the Company’s business strategy and
align executives’ interests with those of stockholders and employees (i.e., pay for performance). A significant portion of the
Company’s executive compensation opportunity is related to factors that directly and indirectly influence stockholder value,
including stock performance, earnings per share, operating margin, free cash flow and return on invested capital. The Company
believes that as an executive’s responsibilities increase, so should the proportion of his or her total pay comprised of annual
incentive cash bonuses and long-term incentive (“LTI”) compensation, which supports and reinforces the Company’s pay for
performance philosophy.
Best Practices in Executive Compensation
The Compensation Committee regularly reviews best practices related to executive compensation to ensure alignment with
the Company’s compensation philosophy, business strategy and stockholder focus. The Company’s executive compensation
programs consist of the following:
•
•
•
•
•
•
•
A formal compensation philosophy approved by the Compensation Committee that targets executive’s total compensation
levels (including NEOs) at the median (or 50th percentile) of the market and provides opportunity for upside compensation
levels for excellent performance;
A well-defined peer group of similar and reasonably sized industrial and manufacturing comparators to benchmark NEO
and other officer compensation;
An annual incentive compensation plan (“IC Plan”) that includes a minimum net income threshold that must be met
before a payout is earned, a maximum payout level of 200% of target, and multiple performance measures that drive
stockholder value and improvement in operational results (e.g., net income, operating cash flow, operating margin as a
percentage of sales and quality improvement), which mitigate too heavy of a focus on any one performance measure in
particular;
A balanced long-term incentive plan (“2006 LTI Plan”) consisting of a performance share plan, which comprises
approximately 60% of an NEO’s target LTI award, restricted stock units (“RSUs”), which comprises approximately 20%
of an NEO’s target LTI award and a grant of stock-settled stock appreciation rights, which comprises approximately 20%
of an NEO’s target LTI award. Each LTI vehicle contains a strong performance or retention orientation and aligns closely
with stockholder interests;
Beginning with 2018 awards under the 2006 LTI Plan, a so-called “double trigger” equity vesting in the event of change
of control;
A clawback policy, which allows the Company to take remedial action against an executive if the Board determines that
an executive’s misconduct contributed to the Company having to restate its financial statements;
Stock ownership requirements that encourage executives to own a specified level of stock, which emphasizes the alignment
of their interests with those of stockholders;
• Modest perquisites for executives (including NEOs);
•
•
A plan design that mitigates the possibility of excessive risk that could harm long-term stockholder value;
For new executive employment agreements beginning in 2017, no gross-ups for excise taxes on severance payments due
to a change of control; and
13
•
A conservative approach to share usage associated with our stock compensation plans.
The Compensation Committee has and will continue to take action to structure the Company’s executive compensation
practices in a manner that is consistent with its compensation philosophy, business strategy and stockholder focus.
Company Performance
The agricultural equipment industry is cyclical, with sales largely dependent on the health of the overall farm economy,
particularly commodity prices and farm income. While industry demand was projected to decline again in 2017 compared to 2016,
the performance targets for payments under the IC Plan were level or higher than 2016. Industry conditions stabilized during 2017,
and AGCO’s financial results improved in 2017 compared to 2016 and exceeded the IC performance targets.
Compensation actions taken for NEOs in 2017 include:
Limited merit increases;
IC Plan payouts for corporate goal achievement at 167% of target; and
2006 LTI Plan payouts at 0% of target for the 2015-2017 three-year performance cycle.
•
•
•
During 2017 and 2018, the Company engaged in discussions with stockholders regarding the Company’s compensation
philosophy and programs, and it received comments and feedback on a number of matters. As a result of these outreach efforts,
we held in-person or telephonic meetings with stockholders representing a significant portion of the Company’s outstanding shares.
Overall, the feedback was positive. Based upon that feedback, the Compensation Committee decided to implement a so-called
“double trigger” equity vesting for awards under the 2006 LTI Plan for the 2018-2020 cycle.
The “Compensation Discussion and Analysis” section of this proxy statement and the accompanying tables and narrative
provide a comprehensive review of the Company’s NEO compensation objectives, programs and rationale. We urge you to read
this disclosure before voting on this proposal.
We are asking our stockholders to indicate their support for the Company’s NEO compensation as described in this proxy
statement. This proposal gives our stockholders the opportunity to express their views on the Company’s NEO compensation.
This vote is not intended to address any specific item of compensation, but rather the overall compensation of the Company’s
NEOs and the philosophy, policies and practices thereof described in this proxy statement. Accordingly, we ask our stockholders
to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s named
executive officers, as disclosed in the Proxy Statement for the 2017 Annual Meeting of Stockholders pursuant to the
compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and
Analysis, the 2017 Summary Compensation Table and the other related tables and accompanying narrative set forth in the
Proxy Statement.”
The Board recommends a vote “FOR”
the non-binding advisory resolution to approve the compensation of the Company’s NEOs.
14
PROPOSAL NUMBER 3
RATIFICATION OF COMPANY’S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR 2018
The Company’s independent registered public accounting firm is appointed annually by the Audit Committee. The Audit
Committee examines a number of factors when selecting a firm, including the qualifications, staffing considerations, and the
independence and quality controls of the firms considered. The Audit Committee has appointed KPMG LLP as the Company’s
independent registered public accounting firm for 2018. KPMG LLP served as the Company’s independent registered public
accounting firm for 2017 and is considered to be well-qualified.
In view of the difficulty and expense involved in changing independent registered public accounting firms on short notice,
should the stockholders not ratify the selection of KPMG LLP as the Company’s independent registered public accounting firm
for 2018 under this proposal, it is contemplated that the appointment of KPMG LLP for 2018 will be permitted to stand unless
the Board finds other compelling reasons for making a change. Disapproval by the stockholders will be considered a
recommendation that the Board select another independent registered public accounting firm for the following year.
Representatives of KPMG LLP are expected to be present at the Annual Meeting and will be given the opportunity to make
a statement, if they desire, and to respond to appropriate questions.
The Board recommends a vote “FOR”
the ratification of the Company’s independent registered public accounting firm for 2018.
OTHER BUSINESS
The Board does not know of any matters to be presented for action at the Annual Meeting other than the election of directors,
the approval of the material terms of the performance goals for qualified performance-based compensation under the IC Plan, the
non-binding advisory resolution to approve the compensation of the Company’s NEOs, and the ratification of the Company’s
independent registered public accounting firm for 2018. If any other business should properly come before the Annual Meeting,
the persons named in the accompanying proxy card intend to vote thereon in accordance with their best judgment.
15
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth certain information as of March 16, 2018 regarding persons or groups known to the Company
who are, or may be deemed to be, the beneficial owner of more than five percent of the Company’s common stock. This information
is based upon SEC filings by the individual and entities listed below, and the percentage given is based on 79,523,429 shares
outstanding.
Name and Address of Beneficial Owner
Mallika Srinivasan
Old No. 35, New No. 77, Nungambakkam High Road
Chennai 600 034, India
Tractor and Farm Equipment Limited
Old No. 35, New No. 77, Nungambakkam High Road
Chennai 600 034, India
BlackRock, Inc.
55 East 52nd Street
New York, NY 10022
The Vanguard Group
100 Vanguard Boulevard
Malvern, PA 19355
Shares of
Common
Stock
12,163,305 (1)
Percent
of
Class
15.3%
12,150,152
15.3%
6,754,418
8.5%
5,721,642
7.2%
(1) Includes shares held individually (13,153 shares) and through TAFE and TAFE Motors and Tractors
Limited (12,150,152 shares). Based upon SEC filings made by Ms. Srinivasan.
16
The following table sets forth information regarding beneficial ownership of the Company’s common stock by the Company’s
directors, the director nominees, the Chief Executive Officer of the Company, the Chief Financial Officer of the Company, the
other NEOs and all executive officers and directors as a group, all as of March 16, 2018. Except as otherwise indicated, each such
individual has sole voting and investment power with respect to the shares set forth in the table.
Name of Beneficial Owner
Roy V. Armes
Michael C. Arnold
P. George Benson
Suzanne P. Clark
Wolfgang Deml
George E. Minnich
Gerald L. Shaheen
Mallika Srinivasan(2)
Hendrikus Visser
Andrew H. Beck
Robert B. Crain
Martin H. Richenhagen(3)
Rob Smith
Hans-Bernd Veltmaat
Shares of
Common
Stock(1)
7,686
8,668
14,129
—
21,249
16,720
14,940
12,163,305
21,390
110,635
31,619
611,738
3,053
38,144
Shares That
May be
Acquired
Within 60
Days
Percent of
Class
—
—
—
—
—
—
—
—
—
16,602
2,956
45,538
1,386
6,444
*
*
*
*
*
*
*
15.3%
*
*
*
*
*
*
All executive officers and directors
as a group (19 persons)
13,160,143
99,956
16.7%
* Less than one percent
(1) Includes the following numbers of restricted shares of the Company’s common stock as a result of
restricted stock grants under the Company’s incentive plans by the following individuals: Mr. Armes
— 1,871; Mr. Arnold — 1,871; Mr. Benson — 1,122; Mr. Deml — 1,122; Mr. Minnich — 1,216;
Mr. Shaheen — 1,122; Ms. Srinivasan — 1,871; Mr. Visser — 1,871; All directors as a group — 12,066.
(2) Includes shares held individually (13,153 shares) and through TAFE and TAFE Motors and Tractors
Limited (12,150,152 shares). Ms. Srinivasan is the Chairman and Chief Executive Officer of TAFE
and the Company owns a 23.75% interest in TAFE.
(3) Includes 193,584 shares that have been pledged as collateral to secure a line of credit.
17
The following table sets forth information as of March 16, 2018, with respect to each person who is an executive of the
EXECUTIVE COMPENSATION
Company.
Name
Martin H. Richenhagen
Roger N. Batkin
Andrew H. Beck
Gary L. Collar
Robert B. Crain
Helmut R. Endres
Eric P. Hansotia
Lucinda B. Smith
Rob Smith
Hans-Bernd Veltmaat
Thomas F. Welke
Age
65
49
54
61
58
62
49
51
52
63
57
Positions
Chairman of the Board, President and Chief Executive Officer
Senior Vice President — General Counsel and Corporate Secretary
Senior Vice President — Chief Financial Officer
Senior Vice President and General Manager, Asia/Pacific/Africa
Senior Vice President and General Manager, Americas
Senior Vice President — Engineering
Senior Vice President — Global Crop Cycle and Fuse Connected Services
Senior Vice President — Global Business Services
Senior Vice President and General Manager, Europe/Middle East
Senior Vice President — Chief Supply Chain Officer
Senior Vice President — Global Grain and Protein, GSI
Roger N. Batkin has been Senior Vice President — General Counsel and Corporate Secretary since January 2018. From
June 2013 to December 2017, Mr. Batkin was Vice President, General Counsel and Corporate Secretary. Mr. Batkin was
Vice President, Legal Services and Chief Compliance Officer for Europe/Africa/Middle East and Asia/Pacific from 2010 to 2013.
Mr. Batkin was also Director of the Company’s U.K. Operations between 2009 and 2013. Prior to joining the Company, Mr. Batkin
was an attorney with an international law firm.
Andrew H. Beck has been Senior Vice President — Chief Financial Officer since June 2002. Mr. Beck was Vice President,
Chief Accounting Officer from January 2002 to June 2002, Vice President and Controller from 2000 to 2002, Corporate Controller
from 1996 to 2000, Assistant Treasurer from 1995 to 1996 and Controller, International Operations from 1994 to 1995.
Gary L. Collar has been Senior Vice President and General Manager Asia/Pacific/Africa since January 2017. Mr. Collar
was Senior Vice President and General Manager, Asia/Pacific from January 2012 to December 2016. Mr. Collar was
Senior Vice President and General Manager, Europe/Africa/Middle East and Australia/New Zealand from January 2009 until
December 2011 and Senior Vice President and General Manager Europe/Africa/Middle East and Asia/Pacific from 2004 to
December 2008. Mr. Collar was Vice President, Worldwide Market Development for the Challenger Division from 2002 until
2004. Between 1994 and 2002, Mr. Collar held various senior executive positions with ZF Friedrichshaven A.G., including
Vice President Business Development, North America, from 2001 until 2002, and President and Chief Executive Officer of
ZF-Unisia Autoparts, Inc., from 1994 until 2001.
Robert B. Crain has been Senior Vice President and General Manager, Americas since January 2015. Mr. Crain was
Senior Vice President and General Manager, North America from January 2006 to December 2014. Mr. Crain held several positions
within CNH Global N.V. and its predecessors, including Vice President of New Holland’s North America Agricultural Business,
from 2004 to 2005, Vice President of CNH Marketing North America Agricultural business, from 2003 to 2004 and Vice President
and General Manager of Worldwide Operations for the Crop Harvesting Division of CNH Global N.V. from 1999 to 2002.
Mr. Crain is also an officer of the Association of Equipment Manufacturers.
Helmut R. Endres has been Senior Vice President — Engineering since December 2011. Between 2006 and 2010, Mr. Endres
was Chief Technological Officer and Vice President, Engineering, International Trucks and Engines for Navistar International
Corporation. Between 1995 and 2006, Mr. Endres worked at Volkswagen (including the Audi division) in various roles, including
Executive Director, Group Powertrain and Director, Gasoline Engines. He was a member of the Audi Executive Board’s product
Strategy Committee and Chairman of the Volkswagen Group Powertrain Strategy Committee. Between 1982 and 1995, Mr. Endres
was with FEV, Inc. in Germany serving in various gasoline and diesel engine engineering roles, including head of the European
Business Unit, and leading the Combustion Technologies Divisions.
Eric P. Hansotia has been Senior Vice President, Global Crop Cycle and Fuse Connected Services since January 2015. He
served as Senior Vice President, Global Harvesting and Advanced Technology Solutions, from July 2013 to January 2015. Prior
to joining AGCO, Mr. Hansotia held several positions within John Deere including Senior Vice President, Global Harvesting,
from 2012 to 2013 and Vice President, Global Crop Care based in Mannheim, Germany from 2009 to 2012. Prior positions with
John Deere include: from 2005 to 2009 — General Manager, Harvester Works; from 2004 to 2005 — Vice President, Global
Forestry; and from 1993 to 2004 — various roles at John Deere.
18
Lucinda B. Smith has been Senior Vice President — Global Business Services since March 2013 and is responsible for the
functional management of all Human Resources and Information Technology organizations worldwide as well as for AGCO’s
Shared Services Center in Budapest, Hungary. Ms. Smith was Senior Vice President — Human Resources from January 2009 to
March 2013; Vice President, Global Talent Management & Rewards from May 2008 to December 2008; and Director of
Organizational Development and Compensation from 2006 to 2008. From 2005 to 2006, Ms. Smith was Global Director of
Human Resources for AJC International, Inc. Ms. Smith also held various domestic and global human resource management
positions at Lend Lease Corporation, Cendian Corporation and Georgia-Pacific Corporation.
Rob Smith has been Senior Vice President and General Manager, Europe/Middle East since January 2017. Mr. Smith was
Senior Vice President and General Manager, Europe/Africa/Middle East from September 2013 to December 2016. Mr. Smith was
the Vice President & General Manager of the global Engine Components Division for TRW Automotive from 2007 to 2013. He
served as the Chairman of the Supervisory Board of TRW Automotive GmbH from 2009 to 2013. Prior to joining TRW, Mr. Smith
served as Vice President of the Global Automotive Division at Tyco Electronics from 2005 to 2006, and Vice President & General
Manager of Bombardier Transportation’s Aftermarket Parts and Material Repair and Overhaul business from 2002 to 2005. From
1993 to 2001, he served in various operations and supply chain roles in the global automotive industry with LucasVarity PLC,
Lucas Industries PLC and BMW. In addition, Mr. Smith is a member of the Board of Directors and is the Chairman of the Technology
Committee for FL Smidth & Co A/S, a publicly traded Danish leading supplier of equipment and services to the global minerals
and cement industries.
Hans-Bernd Veltmaat has been Senior Vice President — Chief Supply Chain Officer since January 2012. Mr. Veltmaat serves
on the Industry Executive Advisory Board for the Executive MBA in Supply Chain Management Program at the Swiss Federal
Institute of Technology Zurich. Mr. Veltmaat was Senior Vice President — Manufacturing & Quality from July 2008 to
December 2011. Mr. Veltmaat was Group Executive Vice President of Recycling Plants at Alba AG from 2007 to June 2008. From
1996 to 2007, Mr. Veltmaat held various positions with Claas KGaA mbH in Germany, including Group Executive Vice President,
a member of the Claas Group Executive Board and Chief Executive Officer of Claas Fertigungstechnik GmbH.
Thomas F. Welke has been Senior Vice President — GSI, Global Grain and Protein, since October 2012. Mr. Welke served
as Vice President and Managing Director for GSI China, from August 2011 to September 2012. From May 2008 to April 2010,
Mr. Welke served as President of the Global Grain business for GSI Holding Corp. Prior to joining GSI, Mr. Welke worked for
Whirlpool Corporation in various leadership roles, including Vice President of European Product Strategy and Business Teams,
Vice President of North America Consumer Services, and Vice President of North America Demand and Supply Planning.
19
Introduction
COMPENSATION DISCUSSION AND ANALYSIS
The design and implementation of our compensation programs are intended to provide appropriate rewards and incentives
to our NEOs at a reasonable cost to the Company and, at the same time, to do so in a manner consistent with the views expressed
by our stockholders. We believe that our current programs, and the actions that we took in 2017, are consistent with this intent.
Highlights include:
• A continuation of compensation that is heavily weighted - on average, approximately 75% - to variable or “at risk”
compensation;
• Targeting compensation at the median (50th percentile) of our peer group;
• A continued focus on aligning incentives with corporate strategy; and
• Extensive stockholder outreach and changes reflective of that process, including the implementation of “double trigger”
vesting in connection with future equity awards, and reconfirmation of our commitment to eliminate excise tax
gross-ups from future employment agreements.
Establishing appropriate executive compensation, particularly incentive compensation, has been a significant challenge
for us over the past several years due to the cyclical nature of the agricultural equipment industry. As result of depressed commodity
prices and the resulting reduction in farm income levels, farm equipment demand declined significantly. In this environment,
setting appropriate targets for our annual and long-term incentives is important. Our objective has been to provide targets that are
achievable within the expected industry conditions during the performance period. We believe this approach maximizes our
performance at all points in the cycle and, critically, supports retention of executives. Our historical practice has generally been
to establish performance targets for the following fiscal year at or above the financial outlook communicated to investors prior to
the start of the next fiscal year.
Despite these efforts, and as a result of further reductions in industry demand from 2014 to 2017, our executives earned
no long-term performance-based awards in the three-year compensation cycles ending in 2015, 2016 and 2017. In order to address
retention concerns and provide focused incentives relating to cost management during this period, in March 2016 we implemented
a Retention and Performance Plan (“RPP”) designed to award achievement of targets for fixed manufacturing cost and selling,
general and administrative expenses (“SG&A”) -- targets designed to yield a result better than our 2016 budget. This bonus program
was successful, and the costs were contained as desired. Also, during the last three years, we established the goals for our annual
incentive plan so that they focused on positive results that we reasonably could achieve (or stretch to achieve) in the current
agricultural equipment market cycle, rather than the results that we would seek in a more robust cycle. This means that our executives
could receive annual incentive payouts based on goals lower than either prior-year goals or actual prior-year performance. While
this resulted in compensation that may not have been as closely aligned with Total Shareholder Return (“TSR”) as in the past, it
directly reflects our conclusion, fully supported by the Compensation Committee, that it is in the best interests of our stockholders
to compensate our executives at levels that represent fair and reasonable compensation for their continuing commitment to
AGCO. In addition, substantially all of our executives had their base pay frozen, with no merit or other salary increases, from
2014 through 2016. We recently have seen some stability in the agricultural equipment industry, and our incentive compensation
goals for 2017 and 2018, as well as base compensation, generally reflect year-over-year increases.
We have executed an ambitious restructuring strategy to maximize performance during the down industry cycle, a strategy
that has kept us solidly profitable every year despite significant investments in product development. In addition, our 2017 results
for net sales, operating income, earnings per share and free cash flow, were all improved over 2016. Our TSR also has outperformed
a majority of our peers over the last three-year period. We also anticipate that our cost management actions taken during this down
cycle will benefit our long-term results.
Below we describe our compensation philosophy, the compensation programs provided to our NEOs, and the
decision-making process followed in setting compensation for our NEOs during 2017. This discussion should be read in conjunction
with the tables and related narratives that follow. Our NEOs for these purposes are:
• Andrew H. Beck, Senior Vice President — Chief Financial Officer
• Robert B. Crain, Senior Vice President and General Manager, Americas
• Martin H. Richenhagen, Chairman of the Board, President and Chief Executive Officer
• Rob Smith, Senior Vice President and General Manager, Europe/Middle East
• Hans-Bernd Veltmaat, Senior Vice President — Chief Supply Chain Officer
20
At the 2017 Annual Meeting, our stockholders expressed their continued support of our executive compensation programs
by approving the non-binding advisory vote on our executive compensation, with approximately 61% of shares voted supporting
our executive compensation policies and practices.
During each of the last three years, we engaged in an outreach program with stockholders to discuss our compensation
philosophy and programs and to receive comments and feedback on a number of matters. We value and seriously consider feedback
from our stockholders. Our Compensation Committee Chairman participated in some of the meetings to answer questions and to
provide his perspective on our compensation plans. Many important topics were discussed, including target-setting and maintaining
a competitive pay structure during the industry down cycles. As a result of these outreach efforts, we held in-person or telephonic
meetings with stockholders representing a significant portion of our outstanding shares. The majority of stockholder feedback was
positive and provided support for our overall compensation policy and decisions. We did make several changes to our compensation
policies based on stockholder feedback, such as eliminating from future employment agreements the gross-up for excise taxes on
severance payments due to a change in control, adopting a “double trigger” equity vesting in connection with future equity awards,
modifying our peer group to better align with our current revenue size, and replacing our earnings per share target with a net
income target in our annual Management Incentive Plan.
We also considered, and discussed with our stockholders, the possibility of including as a performance metric, a measure
of relative performance, such as TSR. Our Compensation Committee concluded that a metric of this nature would not be effective
given the pronounced differences in the business cycles faced by agricultural equipment manufacturers as generally compared to
the business cycles of the companies in our peer group. We believe our current measures in place, such as ROIC, most closely
align with our business strategy and key drivers of stockholder value.
Consistent with our commitment to executive compensation best practices, the following executive compensation practices
are in place:
•
•
•
•
•
•
•
•
The financial performance objectives in our annual and long-term incentive plans are reviewed and approved annually
by the Compensation Committee;
Our annual and long-term incentive plans consist of multiple performance objectives, mitigating focus on any one objective
in particular;
The vesting period for our NEOs’ stock-settled stock appreciation rights is 48 months, and the periods for performance
shares and restricted stock units (“RSUs”) are 36 months;
Our NEOs (and directors) are subject to stock ownership requirements;
Compensation levels for our executives (including NEOs) generally are targeted at median levels of market
competitiveness;
Our compensation programs support a conservative approach to share usage associated with our stock compensation
plans;
The design of our compensation programs attempts to mitigate the possibility of excessive risk-taking that could harm
the long-term value of AGCO;
For new executive employment agreements beginning in 2017, we eliminated the gross-up for excise taxes on severance
payments due to a change in control;
• We adopted double-trigger equity vesting in the case of a change-in-control for equity awards made in 2018 and in
subsequent periods; and
• We have a clawback provision in place that can require the return of any bonus or incentive compensation.
Compensation Philosophy and Governance
It is AGCO’s practice to compensate executive officers through a combination of cash and equity compensation, retirement
programs and other benefits. Our primary objectives are to provide compensation programs that:
•
•
•
•
•
Are aligned with median market levels and competitive with companies of similar revenue size and complexity;
Align with stockholder interests;
Reward performance;
Attract and retain quality management;
Encourage executive stock ownership;
• Mitigate excessive risk-taking; and
21
•
Are substantially consistent among our locations worldwide.
AGCO’s compensation philosophy is reviewed regularly and was updated and approved by the Compensation Committee
in July 2017. The philosophy is intended to articulate our principles and strategy for total compensation and specific pay program
elements. It is closely aligned with our business strategy and reflects performance attributes and, as such, ties executives’ interests
to those of our stockholders and other employees.
We implement this compensation philosophy through four primary elements of compensation:
Component
Base Salary
Philosophy
the
• Establishes
total
compensation and supports attraction and
retention of qualified staff
foundation
of
Annual Management
Incentive Plan
(IC Plan)
• Facilitates alignment of management with
corporate objectives to achieve outstanding
performance
specific AGCO
financial goals
and meet
Strategy/Competitive Positioning
• Generally targeted at median levels of other
industrial companies of similar revenue and
complexity
• Target award opportunities competitive with
median levels of other industrial companies of
similar size and complexity, with minimum and
maximum award opportunities ranging from
50% to 200% of target, respectively
Long-Term
Incentives
(2006 LTI Plan)
• Engages management
in achieving longer-
term performance goals and making decisions
in the best interests of stockholders
• Target award opportunities competitive with
median levels of other industrial companies of
similar size and complexity
Retirement Benefits
• Supports the attraction and retention of key
executives
• Competitive with general market practices; in
the U.S., retirement benefits for executives
consists of 401(k) and non-qualified benefits
• For
eligible
Nonqualified
executives who became
to
participate in the non-qualified benefits prior to
August 1, 2015, these benefits consist of the
Plan
Executive
(“ENPP”), which
requires
to remain employed with the
executives
Company until attaining at least age 50 with ten
years of service (five years of which must
include participation in the ENPP)
Pension
vesting
for
Perquisites
• Supports the attraction and retention of key
• Minimal use, as appropriate
executives
• For newer executives those benefits consist of
a nonqualified defined contribution plan
22
We believe that as an executive’s responsibilities increase, so should the proportion of his or her total pay comprised of
annual incentive cash bonuses and long-term incentive compensation. As illustrated below, on average over 75% of our 2017 NEO
compensation was variable or “at risk” and tied to AGCO’s performance with the greatest portion associated with long-term
incentives:
Chief Executive Officer
Other NEOs
14%
67%
19%
28%
47%
25%
Base Salary
Target Bonus
Target LTI
Base Salary
Target Bonus
Target LTI
When establishing compensation and performance criteria, goals are set that we believe reflect key areas of performance
supporting our long-term success. We consider factors such as our current performance compared to industry peers, desired levels
of performance improvement, and industry trends and conditions when determining performance expectations within our
compensation plans.
Compensation Consultant Independence
The Compensation Committee approves all compensation for executive officers, including the structure and design of the
compensation programs. The Compensation Committee is responsible for retaining compensation consultants and determining
the terms and conditions of their engagement, including fees. Since 2005, the Compensation Committee has engaged Willis Towers
Watson, an internationally recognized human resources consulting firm, to advise the Compensation Committee (and at times
management) with respect to our compensation programs and to perform various related studies and projects, including market
analysis and compensation program design. A Willis Towers Watson representative reports directly to the Compensation Committee
as its compensation advisor.
The Compensation Committee annually reviews the role of its compensation advisor and believes that the advisor is fully
independent for purposes of providing on-going recommendations regarding executive compensation. In addition, and in
conjunction with the SEC requirements that public companies formally review advisor independence, the Compensation Committee
concluded that the compensation advisor is independent and provides candid, direct and objective advice to the Compensation
Committee. To ensure independence:
• The Compensation Committee directly hired and has the authority to terminate the compensation advisor;
• The compensation advisor reports directly to the Compensation Committee and the chairperson;
• The compensation advisor meets regularly and as needed with the Compensation Committee in executive sessions that
are not attended by any of our officers;
• The compensation advisor and the team at Willis Towers Watson have direct access to all members of the Compensation
Committee during and between meetings;
• No regular member of the Willis Towers Watson executive compensation team owns any stock of AGCO, other than
possibly investments in mutual funds or other funds that are managed without the member’s input; and
• The executive compensation advisor and team at Willis Towers Watson do not have any personal or business relationships
with any member of the Compensation Committee or executive officer of AGCO.
Willis Towers Watson provides the Compensation Committee with an annual update on its services and related fees. The
Compensation Committee determines whether Willis Towers Watson’s services are performed objectively and free from the
influence of management. With the full knowledge of the Compensation Committee, AGCO has retained a distinct and separate
unit of Willis Towers Watson for other services, including broad-based employee retirement and benefit services, and specific
projects within multiple countries for various Company subsidiaries, consisting primarily of actuarial services for our defined
benefit plans and pension administration services.
23
The Compensation Committee also closely examines the safeguards and steps Willis Towers Watson takes to ensure that its
executive compensation consulting services are objective. For example:
• Willis Towers Watson has separated its executive compensation consulting services into a single, segregated business
unit within Willis Towers Watson;
• Willis Towers Watson associates are subject to a comprehensive Code of Conduct and Ethics, which addresses issues
including conflicts of interest and associates’ ownership and trading of client company stock, among other areas;
• The compensation advisor receives no direct incentives based on other services Willis Towers Watson provides to AGCO;
• The compensation advisor is not the Willis Towers Watson client relationship manager for AGCO; and
• Neither the compensation advisor nor any member of the advisor’s team participates in any activities related to the services
provided to AGCO by other Willis Towers Watson business units.
For these reasons, the Compensation Committee does not believe that Willis Towers Watson’s services for AGCO’s employee
retirement and benefit plans, or its specific projects, compromise its compensation advisor’s ability to provide the Compensation
Committee with perspective and advice that is independent and objective.
The total amount of fees for consulting services provided to the Compensation Committee in 2017 by its compensation
advisor was approximately $245,000. The total amount of fees paid by AGCO to Willis Towers Watson in 2017 for all other
services, excluding Compensation Committee services, was approximately $1,800,000. These other services are mainly related
to actuarial services for our defined benefit plans and pension administration services and health and group benefits consulting.
Competitive Analyses
We perform competitive analyses with respect to cash compensation, long-term equity incentives and executive retirement
programs. These analyses are conducted periodically and include a comparison to nationally recognized compensation surveys,
as well as a comparison to a peer group of other industrial companies. These competitive analyses provide us with information
regarding ranges and median compensation levels, as well as the types of compensation practices followed at other companies.
The analyses are used to review, monitor and establish appropriate and competitive compensation guidelines, determine the
appropriate mix of compensation programs and establish the specific compensation levels for our executives.
The Compensation Committee performed an external market review in 2017 that examined the competitiveness of the
Company’s NEOs’ total compensation. The analysis reviewed the dollar value of the compensation, as well as the mix of
compensation between base salary, annual cash incentive bonus and LTI pay. The Compensation Committee’s goal is to provide
base salary, target total cash compensation (e.g., base salary plus target bonus opportunity) and target total direct compensation
(e.g., target total cash plus target LTI opportunity) for each NEO at the market median, which reflects an average of published
survey data for companies of similar revenue size and information from peer proxy statements.
The Compensation Committee uses the external market review to help it make informed decisions regarding NEO
compensation. For the Chief Executive Officer, the Compensation Committee recognizes the critical nature of this role, his higher
level of responsibility within the Company and his more pervasive influence over our performance and, therefore, provides market
competitive levels of compensation that differ from levels of compensation paid to other NEOs. Mr. Richenhagen, as
Chief Executive Officer of the Company, is placed in his own level based purely on median market information and benchmarking.
The Company’s Senior Vice Presidents (“SVPs”) are grouped into two tiers for benchmarking purposes. All of the General
Managers, the Chief Financial Officer and the Chief Supply Chain Officer are grouped together in the first tier, and the Company’s
other functional SVPs are grouped together in the second tier. It is our philosophy to compensate SVPs within each tier similarly,
including each of the General Managers and the Chief Financial Officer, even though market data might suggest otherwise.
The Compensation Committee, in recognition of the collaborative efforts of the General Managers operating not only
their respective businesses, but also our worldwide business, sets the compensation of all General Managers at similar levels. In
Mr. Beck’s case, the Compensation Committee’s view is that the Chief Financial Officer should not be paid significantly more
than the General Managers, which is consistent with our compensation philosophy and reinforced by the internal grouping of the
Company’s executives. However, in recognition that external market data for Mr. Beck’s position is higher than external market
data for the General Managers, he received a slightly larger LTI award in 2017. In the case of Mr. Veltmaat, the pay positioning
of his role is targeted to approximate the upper end of the grade range due to the criticality of his role within the organization.
24
As part of its regular process, the Compensation Committee reviewed our peer group in July 2017 to ensure that the included
companies are appropriate comparators for determining whether total compensation for NEOs aligns with market. Industrial and
other equipment manufacturers approximately one-half to two times AGCO’s revenue size are primarily considered by the
Compensation Committee. Prior to the Compensation Committee review, our peer group consisted of 20 companies. Upon review,
Joy Global Inc. was removed due to its acquisition by Komatsu. No other changes were made to the peer group. The Compensation
Committee believes that the companies in the current peer group reflect AGCO’s size and align with our business and the markets
in which we serve and operate as well as recruit talent. The composition of the current peer group (19 companies) is shown below:
• Agrium Inc.
• BorgWarner Inc.
• Ingersoll-Rand Company Limited
• Rockwell Automation, Inc.
• Masco Corporation
• Stanley Black & Decker
• Chicago Bridge & Iron Company
• Navistar International Corporation
• Terex Corporation
• Cummins, Inc.
• Dover Corporation
• Flowserve Corporation
• Illinois Tool Works Inc.
• Oshkosh Corporation
• PACCAR Inc.
• Parker Hannifin Corporation
• Pentair plc
• Trinity Industries, Inc.
• Textron Inc.
The Compensation Committee will continue to regularly review the composition of the peer group and make updates as
needed.
Base Salary
In April 2017, the Compensation Committee provided market-aligned base salary increases to our NEOs. However, no base
salary increase was provided to Martin Richenhagen, our Chief Executive Officer. His base salary remained at $1,345,575. Base
salary increases for Messrs. Beck, Crain, Smith, and Veltmaat ranged from 2% to 10%.
Annual Cash Incentive Bonuses
Incentive compensation is based on AGCO’s performance, as well as the contribution of executive officers through the
leadership of their respective regional or functional areas. For 2017, incentive compensation awards for all NEO’s and senior vice
presidents were based 100% on corporate goals for global alignment purposes. Incentive compensation opportunities are expressed
as a percentage of the executive officer’s base salary. The annual award opportunities for the NEOs in 2017, all of which relate to
corporate goals, are shown in the chart below:
Name
Mr. Beck
Mr. Crain
Mr. Richenhagen
Mr. Smith
Mr. Veltmaat
Opportunity as a Percentage of Base Salary
Maximum
Target
Minimum
Award
Award
Award
200%
100%
50%
180%
90%
45%
280%
140%
70%
180%
90%
45%
180%
90%
45%
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Under the IC Plan, graduated award payments of 50% of target are made if a minimum of approximately 80% of the target
goal is met, increasing to the maximum payout when approximately 140% of the target goal is met. The corporate objectives are
set at the beginning of each year and approved by the Compensation Committee based upon a budget approved by the Finance
Committee. However, unless a threshold adjusted earnings per share (“EPS”) goal is reached, no awards are paid regardless of
performance relative to the other target goals. For the year ended December 31, 2017, the corporate objectives were based on
targets for net income (replacing EPS), free cash flow, operating margin as a percentage of net sales, and quality improvement.
The calculation of these measures and corporate weightings are as follows:
•
•
•
•
Net Income: Net income adjusted to exclude restructuring expenses and certain other approved items (40% weight).
Free Cash Flow: Operating cash flow minus capital expenditures (30% weight).
Operating Margin as a Percentage of Net Sales: The percentage calculated when income from operations is divided
by net sales (20% weight). This measure also excludes restructuring expenses and certain other approved items.
Quality Improvement: Product Concern Resolution Efficiency and Repair Frequency (10% weight).
For 2017, targets for each of the measures and AGCO’s performance are summarized below:
Measure(1)
Net Income
Free Cash Flow
Operating Margin as a Percentage of Sales
Quality Improvement
Weight
Bonus Objective Performance
40%
30%
20%
10%
$199.1
$260.4
4.5%
$242.1
$373.7
5.0%
Percent
Achieved
Earned
Award
122%
144%
111%
>140%
62.0%
60.0%
25.6%
20.0%
(1) Dollar amounts stated in millions; performance amounts reflect adjustments made in accordance with the awards.
In setting performance goals each year, the Compensation Committee performs a comprehensive review of factors that may
influence Company performance, including market trends, industry cyclicality and other volatility factors, and aims to set
performance goals that are calibrated to industry and Company performance expectations. While industry demand was projected
to decline again in 2017 compared to 2016, our 2017 target performance goal for net income was set at amount consistent with
our actual net income achieved in 2016, and the target performance goals for free cash flow and operating margin as a percentage
of sales were set higher as compared to 2016. For 2017, the Compensation Committee determined that we performed above target
on all four performance measures. As a result, the corporate portion of bonuses paid to NEOs reflects approximately 167% of the
established target.
The IC Plan also provides for payment of a pro rata portion of the participant’s bonus upon a change of control, as well as
additional bonus payments to certain participants terminated without cause within two years of a change of control. This is further
explained in “Severance Benefits and Change of Control.”
Long-term Incentives
We provide performance- and retention-based equity opportunities to the NEOs. LTI represents a significant component of
total compensation and weighs heavily in the overall pay mix for executives. The overarching principles of the 2006 LTI Plan are:
•
•
•
•
LTI is performance-based and intended to engage executives in achieving longer-term goals and to make decisions in the
best interests of stockholders;
Target award opportunities are generally competitive with median levels of other companies of similar size, industry and
complexity;
Realizable gains are intended to vary with Company performance and stock price growth; and
Performance goals are aligned with stockholder interests and support the long-term success of AGCO.
While awards under the 2006 LTI Plan generally are made annually, from time to time, the Compensation Committee may also
utilize special incentives to support strategic initiatives and to strengthen retention of management.
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The following table summarizes the mix, performance measurements and general terms for each form of equity awarded to
our NEOs for 2017 under our 2006 LTI Plan:
LTI Mix
Description
Performance
Measurements
Performance Share Plan
(“PSP”)
60%
• Performance shares that are
earned on the basis of
AGCO’s performance
versus pre-established goals
for a three-year cycle
• 50% Earnings Per Share
• 50% Return on Invested
Capital (“ROIC”)
• The percentage level
achievement is determined
annually, with the ultimate
award that is earned
determined based upon the
average of three annual
percentages
Stock-Settled Stock
Appreciation
Rights (“SSARs”)
20%
• SSARs provide the right to
receive share appreciation
over the grant price, payable
in whole shares of AGCO
common stock
• Stock price appreciation
Restricted Stock Units
(“RSUs”)
20%
• RSUs are full share
equivalents, payable at the
end of the vesting period
• Stock price appreciation, as
the total value of RSUs is
influenced by stock price
Vesting Period
• Vest in full at the end of the
• Vest in equal installments
• Vest in equal installments
three-year cycle
• Number of shares earned
depends on performance
over four years
over three years
Restrictions / Expiration
• Converted to AGCO
• Expire seven years from the
• N/A
common stock upon vesting
grant date
Competitive Positioning
• Target award levels set at
median level of market
competitiveness
• Median level of market
• Median level of market
competitiveness
competitiveness
In January 2017, the Compensation Committee approved long-term incentive awards for 2017 eligible plan participants.
Long-term incentive awards for the NEOs in 2017 are summarized in the table below under the caption “2017 Grants of
Plan-Based Awards.”
For grants under the PSP, EPS and average ROIC were chosen as performance measures because they are meaningful measures
of our performance and have a strong correlation to generating stockholder value over the long-term. The Compensation Committee
established three levels of performance for each measure: threshold, representing the minimum level of performance that warrants
a payout; target, representing a level of performance where median target compensation levels are appropriate; and outstanding,
representing a maximum realistic performance level where increased compensation levels are appropriate. The EPS and average
ROIC goals are linked within a performance award matrix which is used to determine the number of shares earned in various
combinations of performance. The award opportunity levels are expressed as multiples of the executive’s “target” award opportunity.
27
The matrix of award opportunities is illustrated below:
Outstanding
Target
Threshold
Below Threshold
Below
Threshold
100.0%
50.0%
16.5%
0.0%
Earnings Per Share (EPS)
Threshold
116.5%
66.6%
33.3%
16.5%
Target
150.0%
100.0%
66.6%
50.0%
Outstanding
200.0%
150.0%
116.5%
100.0%
Average
ROIC
If the actual performance of the goal falls in between the established goals for threshold, target and outstanding performance,
the associated payout factor will be calculated using a straight-line interpolation between the two goals. Unless the Compensation
Committee determines otherwise, the Compensation Committee excludes restructuring and certain other items from the calculation
of EPS or average ROIC in order to ensure the calculations are equitable and appropriate decisions and actions are not discouraged
by their projected impact on the awards.
For the awards granted in 2015 under the PSP, the Compensation Committee determined that, based on the Company’s
performance for the applicable three-year PSP performance cycle (2015-2017), we achieved below “threshold” on both the
cumulative EPS and average ROIC goals, thus producing no payout as shown in the chart below. The information provided below
includes adjustments made by the Compensation Committee in accordance with the 2006 LTI Plan for certain items.
Measure(1)
Cumulative EPS
Average ROIC
Average
Threshold
$9.73
7.2%
Target
$10.76
7.9%
Outstanding
$11.85
8.8%
Actual
$8.77
6.5%
Earned
Award
0%
0%
0%
(1) Performance amounts reflect adjustments made in accordance with the awards.
The target award and actual number of shares received by the NEOs for the three-year performance cycle covering 2015-2017
are shown below:
Name
Mr. Beck
Mr. Crain
Mr. Richenhagen
Mr. Smith
Mr. Veltmaat
Three-Year Performance
Cycle (2015-2017)
Target Award
16,000 shares
12,800 shares
90,500 shares
12,800 shares
12,800 shares
Actual Award
0 shares
0 shares
0 shares
0 shares
0 shares
In 2017, the Compensation Committee established award opportunities for executives covering a new three-year PSP
performance cycle (2017-2019), as well as a new grant of SSARs and RSUs. The Compensation Committee’s strategy is to regularly
evaluate the size of award levels by taking into consideration market trends, the industry’s cyclicality and other appropriate factors.
New targets covering the 2017 three-year performance cycle were established for EPS and average ROIC that take into account
current and projected industry conditions so that the goals are realistically aligned with what the Compensation Committee believes
is achievable. Target percentage level achievement on the new three-year PSP performance cycle (2017-2019) is based upon
averaging the amounts earned during each year in the three-year performance cycle rather than on a cumulative basis during the
entire performance cycle.
We consider the target goals for PSP awards for uncompleted cycles to be confidential. Historically, the Compensation
Committee has established target goals for our executive officers that the Compensation Committee believed at the time of grant
were reasonably achievable.
The Compensation Committee approves all grants of stock-based compensation to the Chief Executive Officer and all other
executive officers. The Chief Executive Officer, with the assistance of the Senior Vice President — Global Business Services,
assists the Compensation Committee with recommendations for award levels for all other executive officers based on external
competitive analyses. Our policy is that SSARs are awarded with exercise prices at or above the fair market value of the Company’s
common stock on the date of the grant.
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Clawback of Incentive Compensation
We have a Compensation Adjustment and Recovery Policy. Pursuant to the policy, if the Board learns of any misconduct by
an officer of AGCO or one of its subsidiaries that contributed to our having to restate our published financial statements, it shall
take, or direct to take, such action as it deems reasonably necessary to remedy the misconduct, prevent its recurrence and, if
appropriate, based on all relevant facts and circumstances, take remedial action against the individual in violation of the policy.
In determining whether remedial action is appropriate, the Board shall take into account such factors as it deems relevant, including
whether the misconduct reflected negligence, recklessness or intentional wrongdoing. Remedial action may include dismissal and
initiating legal action against the officer.
In addition, the Board will, to the full extent permitted by governing law, in all appropriate cases, direct us to seek
reimbursement of any bonus or incentive compensation awarded to an officer, or effect the cancellation of unvested, restricted or
deferred equity awards previously granted to an officer, if: (1) the amount of the bonus or incentive compensation was calculated
based upon the achievement of financial results that were subsequently reduced as part of a restatement; (2) the officer engaged
in intentional wrongdoing that contributed to the restatement; and (3) the amount of the award would have been lower had the
financial results been properly reported.
In determining what action to take or to require to take, the Board may consider, among other things, penalties or punishments
imposed by third parties, such as law enforcement agencies, regulators or other authorities, the impact upon us in any related
proceeding or investigation of taking remedial action against an officer, and the cost and likely outcome of taking remedial action.
The Board’s power to determine the appropriate remedial action is in addition to, and not in replacement of, remedies imposed by
such authorities.
Without by implication limiting the foregoing, following a restatement of the Company’s financial statements, we also shall
be entitled to recover any compensation received by the Chief Executive Officer and Chief Financial Officer that is required to be
recovered by Section 304 of the Sarbanes-Oxley Act of 2002.
The policy further specifies that the authority vested in the Board under the policy may be exercised by any committee
thereof. In addition, this policy will be evaluated after the SEC issues final rules implementing the clawback provisions set forth
in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Share Ownership and Retention Requirements
Share ownership by directors and executive officers emphasizes the alignment of their interests with those of stockholders.
The Company’s stock ownership program requires (i) non-employee directors to own common stock, or other equity equivalents,
equal in value to four times the value of the annual retainer, (ii) the Chief Executive Officer to own common stock, or other equity
equivalents, equal in value to five times annual salary, and (iii) all other executive officers to own common stock, or other equity
equivalents, equal in value to three times their respective annual salaries. Once the minimum ownership level is achieved, an
individual will remain qualified if he or she continues to hold at least the number of shares that is initially required regardless of
the change in market value of the underlying stock. Any person becoming a director or executive officer has four-years from his
or her election to comply with the stock ownership requirements. Our directors all currently meet these requirements. As a result
of no shares being earned under the long-term performance-based awards in the three-year compensation cycles ending in 2015,
2016 and 2017, Mr. Smith does not currently comply with the stock ownership guidelines. He is working with the Company to
meet these requirements as soon as practicable.
Hedging and Pledging Policy
We have a Hedging and Pledging Policy. Board members and officers are prohibited from, directly or indirectly, (1) pledging
a significant number of the Company’s equity securities, or (2) hedging with respect to any of the Company’s equity securities.
For these purposes, (a) “pledging” includes the intentional creation of any form of pledge, security interest, deposit, lien or other
hypothecation, including the holding of shares in a margin account, that entitles a third-party to foreclose against, or otherwise
sell, any equity securities, whether with or without notice, consent, default or otherwise, but does not include either the involuntary
imposition of liens, such as tax liens or liens arising from legal proceedings, or customary purchase and sale agreements, such as
Rule 10b5-1 plans, and (b) “significant” means the lesser of 1% of the Company’s outstanding equity securities and 50% of the
equity securities of the Company owned by the board member or officer. Also for these purposes, “hedging” includes any instrument
or transaction, including put options and forward-sale contracts, through which the board member or officer offsets or reduces
exposure to the risk of price fluctuations in a corresponding equity security. “Equity securities” include common stock, voting
preferred stock and options and other securities exercisable for, or convertible into, settled in, or measured by reference to, any
other equity security determined on an as-exercised and as-converted basis. The equity securities attributable to a board member
or officer for these purposes shall include equity securities attributable to the board member or officer under either Section 13 or
Section 16 of the Securities Exchange Act of 1934. In addition, equity securities that are pledged shall not be counted toward board
member and officer ownership requirements.
29
Compensation Risk Assessment
The Compensation Committee regularly reviews compensation plans and practices to ensure they are appropriately structured
and aligned with business objectives, and not designed to encourage executives to take unwarranted risks. Specifically, the overall
design of the compensation philosophy and plans mitigate risks because: (1) the financial performance objectives of the short and
long-term incentive plans are reviewed and approved annually by the Board; (2) the plans consist of multiple performance
objectives, thus lessening the focus on any one in particular; (3) short and long-term incentive payouts are capped for all participants;
and (4) the Company has in place a clawback provision that can require the return of bonus and other incentive compensation.
Tax Considerations
Section 162(m) of the IRC generally limits to $1 million the U.S. federal tax deductibility of compensation paid in one year
to any employee. Through the end of 2017, performance-based compensation was not subject to this limit on deductibility, provided
that such compensation met certain requirements, including stockholder approval of material terms of compensation. The Company
generally designed its compensation to meet the requirements for the exception to Section 162(m). Effective for 2018 and subsequent
years, Section 162(m) was amended to eliminate the exception for performance-based compensation. As a result, all compensation
in excess of $1 million, regardless of how structured, no longer is deductible. The Company did not modify its compensation
programs in response to the amendment, but may do so in the future.
Retirement Benefits
We believe that offering competitive retirement benefits is important to attract and retain top executives. Our U.S.-based
executives participate in a non-qualified executive defined benefit plan in addition to a traditional defined contribution 401(k)
plan. For our Company’s 401(k) plan, we generally contributed approximately $12,150 to each eligible executive’s 401(k) account
during 2017, which was the maximum contribution match allowable under the Company’s 401(k) Plan.
For U.S. executives, who became eligible to participate prior to August 1, 2015, we maintain an Executive Nonqualified
Pension Plan (“ENPP”), which is designed to provide competitive retirement benefits that will attract and retain our executives.
The ENPP provides U.S.-based executive officers with retirement income for a period of 15 years - for the remainder of their lives
if they retire from the Company after age 65 - based on a percentage of the average of their highest three non-consecutive years
of base salary and bonus during their final 10 years of employment (referred to as their “three-year average compensation”),
reduced by the executive officer’s social security benefits and 401(k) employer-matching contributions, as if the executive had
made the maximum contribution. The benefit paid to the executive officers is 3% of their three-year average compensation multiplied
by credited years of service, with a maximum annual benefit of 60% of their three-year average compensation. Benefits under the
ENPP vest if the participant has attained age 50 with at least ten years of service (five years of which must include participation
in the ENPP), but are not payable until the participant reaches age 65. Newer U.S. executives are eligible to participate in a
supplemental nonqualified defined contribution plan.
For executives not based in the U.S., the Compensation Committee has taken steps in recent years to align certain features
of its pension or retirement plans, recognizing that benefit formulas are driven by local market competition and trends. Additional
details regarding retirement benefits are provided in the tables below under the captions “2017 Summary Compensation Table”
and “2017 Pension Benefits Table.”
Severance Benefits and Change of Control
Reasonable severance benefits are necessary to attract top executives. The levels of severance benefits provided to executives
are designed to take into account the difficulty executives may have to find comparable employment.
Employment agreements with the executives provide severance benefits when the termination is without “cause” or for
termination with “good reason.” The severance benefit depends on whether the termination involved a change of control. For
terminations without “cause” or for “good reason” that do not involve a change of control, the severance benefit allows for the
executives to receive his or her base salary for a period of up to two years and a pro rata portion of the bonus to which the executive
would have been entitled for the year of termination had the executive remained employed for the entire year. Specifically for the
NEOs, Messrs. Crain, Smith and Veltmaat may receive their respective base salaries and bonus amounts for one year upon
termination. Mr. Beck may receive his base salary and bonus amount for two years upon termination. Mr. Richenhagen will not
receive cash severance because he is age 65 or older. His employment agreement stipulates that no cash severance is paid when
he reaches the age of 65. A terminated U.S.-based executive also is entitled to receive any vested benefits under the ENPP payable
beginning at age 65.
We also believe it is important to provide certain additional benefits upon a change of control in order to protect the executive’s
retirement benefits and potential income that would be earned associated with our equity incentive plans. In addition, it is our
belief that the interests of stockholders will be best served if the interests of our senior management are in alignment. By providing
certain change of control benefits, we believe executives will not be reluctant to consider potential change of control transactions
that may be in the best interests of stockholders.
30
The Board has approved post-employment compensation to NEOs for terminations that occur within two years of a change
of control. In such case, the executive would receive a lump-sum payment equal to (i) two times his or her base salary in effect at
the time of termination, (ii) a pro-rata portion of his or her bonus or other incentive compensation earned for the year of termination
and (iii) a bonus equal to two times the three year average of his or her awards received during the prior two completed years and
the current year’s trend (except that for Mr. Richenhagen, the lump sum payment would equal (i) three times his base salary in
effect at the time of termination, (ii) a pro-rata portion of his bonus earned for the year of termination and (iii) a bonus equal to
three times the three year average of Mr. Richenhagen’s awards received during the prior two completed years and the current
year’s trend), and the executive would also be entitled to receive specific retirement benefits and the acceleration of vesting of
outstanding equity awards.
For awards under our equity incentive plan prior to 2018, the plan allows for all unearned awards to become fully vested
and exercisable, and all performance goals applicable to an award will be deemed automatically satisfied with respect to the greater
of the target level of compensation expected to be attained pursuant to such award or the level of performance dictated by the trend
of the Company’s actual performance, so that all of such compensation shall be immediately vested and payable. Effective with
equity awards in 2018, the “single trigger” provision, which stated that shares will vest upon a change in control, was replaced
with a “double-trigger” provision that states that vesting is contingent on a change in control and either termination of employment
or failure of the acquiring company to assume outstanding equity grants or provide participants with the value equal to that of the
unvested equity grants.
All benefits under the ENPP that have been earned based on years of service also become vested upon a change of control.
Executives with employment agreements prior to 2017 are entitled to receive a gross-up for excise taxes due on any of the
change of control payments described above, other than ordinary income taxes associated with payouts from a change of
control. Based upon discussions with stockholders, we have eliminated the gross-up for excise taxes on severance payments due
to a change in control for any executive receiving an initial employment agreement in 2017 and beyond.
For purposes of these benefits, a “change of control” occurs, in general, when either (i) one or more persons acquire common
stock of the Company that, together with other stock owned by the acquirers, amounts to more than 50% of the total fair market
value or total voting power of the stock, (ii) one or more persons acquire during a 12-month period stock of the Company that
amounts to 30% or more of the total voting power of the stock, (iii) a majority of the members of our Board of Directors are
replaced in any 12-month period by directors who are not endorsed by a majority of the directors then in office, or (iv) with some
exceptions, one or more persons acquire assets from the Company that have a total fair market value equal to or greater than 40%
of the aggregate fair market value of all of our assets.
Perquisites and Other Benefits
We believe that cash and incentive compensation should be the primary focus of compensation and that perquisites should
be modest. Perquisites are periodically reviewed for executives to ensure conformity with this policy. The primary perquisites
available to executives are the use of a leased automobile and the reimbursement of dues associated with a social or athletic club.
We do not allow executive officers the use of our leased aircraft for personal use. Supplemental life and disability insurance is
also provided for executives. The life insurance generally provides for a death benefit of six times the executive officer’s base
salary.
For executives on international assignments, additional expatriate benefits are designed to compensate the employee for
differences in costs of living and taxation between the executive’s home country and host country. In addition, financial assistance
is provided to the assignee for expenses such as relocation, children’s education, tax preparation and home leave travel.
Executives also participate in our other benefit plans on the same general terms as other employees. These plans may include
medical, dental and disability insurance coverage.
31
Post-Employment Compensation
Each of the NEOs is covered by an employment agreement. These agreements provide post-employment compensation and
benefits in the event of certain types of termination of employment, including death, disability, involuntary termination without
cause, or termination for good reason by the executive. For further detail on the post-employment compensation and benefits each
NEO is entitled to in the event of certain types of termination, please refer to the tables below under the caption “Other Potential
Post-Employment Payments.”
Summary
Overall, we believe our executive compensation programs accomplish the objectives for which they have been designed and
are in concert with the compensation philosophy. We believe the competitive compensation that is provided to our executives is
reasonable based on competitive market practices and has enabled us to attract and retain a strong management team generating
strong results in a challenging industry environment. We further believe that our short-term and long-term incentive programs
appropriately reward our executives for their achievement of performance goals and that these programs sufficiently align the
interests of the executives with those of the stockholders.
32
SUMMARY OF 2017 COMPENSATION
The following table provides information concerning the compensation of the NEOs for the Company’s three most recently
completed years ended December 31, 2015, 2016 and 2017.
In the column “Salary,” we disclose the amount of base salary paid to the NEO during the year. In the columns
“Stock Awards” and “SSAR Awards,” we disclose the award of stock, SSARs or RSUs measured in dollars and calculated in
accordance with ASC 718. For SSARs, the ASC 718 aggregate grant date fair value per share is based on certain assumptions that
the Company explains in Note 10 to our Consolidated Financial Statements, which are included in our Annual Report on Form
10-K for the year ended December 31, 2017. For awards of stock, the ASC 718 aggregate grant date fair value per share is equal
to the closing price of our common stock on the date of grant. The amounts disclosed as the aggregate grant date fair value of the
stock awards granted under the PSP and RPP are computed at the probable outcome of the performance conditions, or “target”
level. The actual amounts that will be earned are dependent upon the achievement of pre-established performance goals. Please
also refer to the table below under the caption “2017 Grants of Plan-Based Awards.” In the column, “Waived Stock Awards,” we
disclose the stock awards that have been waived measured in dollars and calculated in accordance with ASC 718.
In the column “Non-Equity Incentive Plan Compensation,” we disclose amounts earned under our IC Plan. The amounts
included with respect to any particular year are dependent on whether the achievement of the relevant performance measure was
satisfied during the year.
In the column “Change in Pension Value and Non-Qualified Earnings,” we disclose the aggregate change in the actuarial
present value of the NEO’s accumulated benefit under all defined benefit and actuarial benefit plans (including supplemental
plans) in 2017.
In the column “All Other Compensation,” we disclose the sum of the dollar value of all perquisites and other personal
benefits, or property, unless the aggregate amount of such compensation is less than $10,000.
The Company currently has employment agreements with Messrs. Beck, Crain, Richenhagen, Smith and Veltmaat. The
employment contracts provide for current base salaries at the following annualized rates per annum: Mr. Beck — $583,000;
Mr. Crain — $576,800; Mr. Richenhagen — $1,345,575; Mr. Smith — $588,623; and Mr. Veltmaat — $586,500. Messrs. Beck,
Crain, Richenhagen, Smith and Veltmaat’s employment contracts continue in effect until terminated in accordance with their terms.
Actual amounts paid in the year vary slightly due to timing of pay periods. In addition to the specified base salary, the employment
contracts provide that each executive officer shall be entitled to participate in benefit plans and other arrangements generally
available to senior executive officers of the Company.
33
2017 SUMMARY COMPENSATION TABLE
Salary
($)
Bonus
($)
Stock
Awards(1)
($)
SSAR
Awards(2)
($)
Non-Equity
Incentive
Plan
Compen-
sation(4)
($)
Waived
Stock
Awards(3)
($)
— 1,072,424
— 1,639,338
— 1,019,082
— 892,672
— 1,305,717
131,898
130,074
188,760
105,222
103,740
— 820,237
151,008
— 5,480,030
744,705
—
—
—
—
—
—
—
584,060
641,830
954,901
270,265
337,327
863,710
Change in
Pension
Value and
Non-
Qualified
Earnings(5)
($)
861,996
556,948
1,046,532
662,904
864,660
803,120
All Other
Compen-
sation(6)
($)
35,331
45,514
51,759
40,390
67,944
Total
($)
3,215,709
3,543,704
3,830,784
2,516,453
3,239,388
66,897
3,277,572
2,075,953
4,243,914
85,340 13,975,517
— 5,002,803
734,160
4,219,720
2,281,288
2,911,388
105,609 16,600,543
— 5,747,717 1,063,920
— 892,672
105,222
— 1,305,717
103,740
— 820,237
151,008
— 892,672
105,222
— 1,305,717
103,740
— 820,237
151,008
—
—
—
—
—
—
—
3,157,257
3,317,011
93,116 14,724,596
800,895
793,598
874,271
570,285
626,692
880,340
132,702
183,996
203,755
871,006
864,660
950,747
86,274
2,598,060
93,375
3,046,938
112,843
2,741,715
45,843
3,060,028
70,979
3,546,788
52,843
3,438,800
Name and Principle Position
Andrew H. Beck, Senior Vice
President — Chief Financial
Officer
Robert B. Crain, Senior Vice
President and General Manager,
Americas
Martin H. Richenhagen,
Chairman, President and Chief
Executive Officer
Rob Smith, Senior Vice President
and General Manager, Europe/
Middle East
Hans-Bernd Veltmaat, Senior
Vice President — Chief Supply
Chain Officer
Year
2015
2016
2017
2015
2016
2017
2015
2016
2017
2015
2016
2017
2015
2016
2017
(1) Stock Awards for 2015
530,000
530,000
569,750
545,000
560,000
572,600
1,345,575
1,345,575
1,345,575
580,295
566,512
579,601
575,000
575,000
583,625
In 2015, awards were granted under a three-year performance cycle under the PSP, under a six-month cycle under a former
Margin Growth Improvement Plan (“MGIP”) for a performance period that commenced in July 2015 and ended in
December 2015 and RSUs that vest in equal installments over three years from the date of grant. The amounts above reflect the
aggregate grant date fair value computed in accordance with ASC 718 in relation to both the 2015 three-year performance cycle
and the MGIP at the probable outcome of the performance conditions, or “target” level, at the date of grant, as well as the grant
date fair value of RSUs. The actual amounts that will be earned under the 2015-2017 three-year performance cycle differ as
disclosed above, and are dependent upon the achievement of pre-established performance goals. Assuming the maximum level
of performance conditions under the 2015-2017 three-year performance cycle, the following would be the value of the award
on
Mr. Smith — $1,086,976; and Mr. Veltmaat — $1,086,976. Upon completion of the three-year performance period (2015-2017),
no shares were earned under this grant as we did not achieve the “threshold” goal for any of the pre-established targets.
the date of grant: Mr. Beck — $1,358,720; Mr. Crain — $1,086,976; Mr. Richenhagen — $7,685,260;
Assuming the maximum level of performance conditions under the six-month cycle under the MGIP, which is the “target” level,
the following would be the value of the award on the date of grant: Mr. Beck —$160,500; Mr. Crain —$160,500;
Mr. Richenhagen —$321,000; Mr. Smith —$160,500; and Mr. Veltmaat —$160,500. We did not achieve the “target” goal for
the pre-established target for the six-month MGIP and therefore no shares were earned.
The following were the value of the RSUs on the date of grant: Mr. Beck —$232,564; Mr. Crain —$188,684;
Mr. Richenhagen —$1,316,400; Mr. Smith —$188,684; and Mr. Veltmaat —$188,684.
Stock Awards for 2016
In 2016, awards were granted under a three-year performance cycle under the PSP where the awards earned are based on the
average of each year in the three-year performance cycle, under a one-year performance cycle under the RPP for a performance
period that ended in December 2016 and RSUs that vest in equal installments over three years from the date of grant. The
amounts above reflect the aggregate grant date fair value computed in accordance with ASC 718 in relation to both the 2016
three-year performance cycle and the RPP at the probable outcome of the performance conditions, or “target” level, at the date
of grant, as well as the grant date fair value of RSUs. The actual amounts that will be earned under the 2016-2018 three-year
performance cycle differ as disclosed above, and are dependent upon the achievement of pre-established performance goals.
Assuming the maximum level of performance conditions under the 2016-2018 three-year performance cycle for the PSP, the
following would be the value of the award on the date of grant: Mr. Beck — $1,324,470; Mr. Crain — $1,054,170;
Mr. Richenhagen — $7,478,300; Mr. Smith — $1,054,170; and Mr. Veltmaat — $1,054,170. The pre-established performance
goals for the first and second year of the three-year performance cycle under the PSP were achieved but are not yet vested.
Assuming the maximum level of performance conditions under the one-year cycle under the RPP, the following would be the
value of the award on the date of grant: Mr. Beck — $1,494,696; Mr. Crain —$1,189,656; Mr. Smith —$1,189,656; and
34
Mr. Veltmaat — $1,189,656. The pre-established performance goals for the one-year RPP were achieved; however, the award
is subject to a further vesting period.
The following were the value of the RSUs on the date of grant: Mr. Beck — $229,755; Mr. Crain — $183,804;
Mr. Richenhagen — $1,263,653; Mr. Smith — $183,804; and Mr. Veltmaat —$183,804.
Stock Awards for 2017
In 2017, awards were granted under a three-year performance cycle under the PSP where the awards earned are based on the
average of each year in the three-year performance cycle and RSUs that vest in equal installments over three years from the
date of grant. The amounts above reflect the aggregate grant date fair value computed in accordance with ASC 718 in relation
to the 2017 three-year performance cycle at the probable outcome of the performance conditions, or “target” level, at the date
of grant, as well as the grant date fair value of RSUs. The actual amounts that will be earned under the 2017-2019 three-year
performance cycle differ as disclosed above, and are dependent upon the achievement of pre-established performance goals.
Assuming the maximum level of performance conditions under the 2017-2019 three-year performance cycle for the PSP, the
following would be the value of the award on the date of grant: Mr. Beck — $1,521,018; Mr. Crain — $1,224,234;
Mr. Richenhagen — $8,594,370; Mr. Smith — $1,224,234; and Mr. Veltmaat — $1,224,234. The pre-established performance
goals for the first year of the three-year performance cycle under the PSP were achieved but are not yet vested.
The following were the value of the RSUs on the date of grant: Mr. Beck — $258,573; Mr. Crain — $208,120;
Mr. Richenhagen — $1,450,532; Mr. Smith — $208,120; and Mr. Veltmaat —$208,120.
(2) SSARs were awarded on January 21, 2015, January 26, 2016 and January 24, 2017. The SSARs vest over four years from the
date of grant, or 25% per year. The amounts above reflect the aggregate grant date fair value computed in accordance with
ASC 718.
(3) These awards, which were grants under the PSP - RPP during 2016, were waived by Mr. Richenhagen.
(4) Non-Equity Incentive Plan Compensation for 2015. All annual incentive awards for 2015 were performance-based. These
payments were earned in 2015 and paid in February or March 2016 under the IC Plan.
Non-Equity Incentive Plan Compensation for 2016. All annual incentive awards for 2016 were performance-based. These
payments were earned in 2016 and paid in February or March 2017 under the IC Plan.
Non-Equity Incentive Plan Compensation for 2017. All annual incentive awards for 2017 were performance-based. These
payments were earned in 2017 and paid in January or February 2018 under the IC Plan.
(5) The change in each officer’s pension value is the change in the Company’s obligation to provide pension benefits (at a future
retirement date) from the beginning of the year to the end of the year. The obligation shown in the “2017 Pension Benefits
Table” presented below is the value today of a benefit that will be paid at the officer’s normal retirement age, based on the
benefit formula and his or her current salary and service. The values shown in the Summary Compensation Table represent the
change in the pension obligation since the prior year.
Change in pension values during the year may be due to various sources such as:
•
•
•
•
•
Service accruals: The benefits payable from the pension plans increase as participants earn additional years of service.
Therefore, as each executive officer earns an additional year of service during the year, the benefit payable at retirement
increases. Each of the NEOs who participate in a pension plan earned an additional year of benefit service during 2017
except for Mr. Beck who has already earned the maximum benefit service allowed under the plan.
Compensation increases/decreases since prior year: The benefits payable from the pension plans are related to salary.
As executive officers’ salaries increase (decrease), then the expected benefits payable from the pension plans will increase
(decrease) as well.
Aging: The amounts shown above are present values of retirement benefits that will be paid in the future. As the officers
approach retirement, the present value of the liability increases due to the fact that the executive officer is one year closer
to retirement than he was at the prior measurement date.
Changes in assumptions: The amounts shown in the “2017 Pension Benefits Table” presented below are present values
of retirement benefits that will be paid in the future. The discount rate used to determine the present value is updated each
year based on current economic conditions. This assumption does not impact the actual benefits paid to participants. The
discount rate decreased from 2016 to 2017, which resulted in an increase in the present value of the officers’ benefits.
Plan amendments: The Company periodically amends the retirement programs in order to remain competitive locally
and/or align with our global benefits strategy. There were no such amendments during 2017.
35
The pension benefits and assumptions used to calculate these values are described in more detail under the caption “Pension
Benefits.”
(6) The amount shown as “All Other Compensation” includes the following perquisites and personal benefits for the year ended
December 31, 2017:
Name
Andrew H. Beck
Robert B. Crain
Martin H. Richenhagen
Rob Smith
Hans-Bernd Veltmaat
Club
Membership
($)
Defined
Contribution
Match
($)
Life
Insurance(a)
($)
Car Lease
and
Maintenance(b)
($)
8,460
12,345
7,824
—
7,824
12,150
12,150
12,150
—
12,150
4,647
6,983
37,633
—
9,851
13,087
16,302
31,056
29,338
21,659
Other(c)
($)
Total
($)
13,415
19,117
4,453
51,759
66,897
93,116
83,505
112,843
1,359
52,843
(a) These amounts represent the value of the benefit to the executive officer for life insurance policies funded by the Company.
(b) These amounts represent car lease payments made by the Company for cars used by executives and/or their family members,
as well as payments for related gas and maintenance costs.
(c) The amount for Mr. Beck includes commercial airfare related to attendance by Mr. Beck’s wife at a business-related event
in India — $13,041 and passport fees for Mr. Beck’s family members — $374. The amount for Mr. Crain includes
commercial airfare related to attendance by Mr. Crain’s wife at business-related events in India, South America and the
United States — $18,743 and passport fees for Mr. Crain’s family members — $374. Mr. Crain’s wife accompanied
Mr. Crain when the Company’s corporate aircraft was used for attendance at corporate functions at no incremental cost.
The amount for Mr. Richenhagen includes commercial airfare related to attendance by Mr. Richenhagen’s wife at a business-
related event in India — $4,453. Mr. Richenhagen’s wife and family members accompanied Mr. Richenhagen when the
Company’s corporate aircraft was used for attendance at corporate functions at no incremental cost. The amount for
Mr. Smith includes housing allowance — $48,759, tax preparation fees — $22,378 and commercial airfare related to
attendance by a guest of Mr. Smith at business-related events in India and the United States — $12,368. The amount for
Mr. Veltmaat includes commercial airfare related to attendance by Mr. Veltmaat’s wife at a business-related event in the
United States — $1,089 and passport fees for Mr. Veltmaat’s family members — $270. Mr. Veltmaat’s wife accompanied
Mr. Veltmaat when the Company’s corporate aircraft was used for attendance at corporate functions at no incremental cost.
36
2017 GRANTS OF PLAN-BASED AWARDS
In this table, we provide information concerning each grant of an award made to an NEO in the most recently completed
year. This includes the awards under the Company’s IC Plan, as well as PSP awards, RSUs and SSARs under the 2006 LTI Plan,
each of which is discussed in greater detail under the caption “Compensation Discussion and Analysis.” The “Threshold,” “Target”
and “Maximum” columns reflect the range of estimated payouts under the IC Plan and the range of number of shares to be awarded
under the PSP. In the fourth-to-last column, we report the number of shares of common stock underlying RSUs granted in the year.
In the third- and second-to-last columns, we report the number of shares of common stock underlying SSARs granted in the year
and corresponding per share exercise price. In all cases, the exercise price was equal to the closing market price of the Company’s
common stock on the date of grant. In the last column, we report the aggregate ASC 718 grant date fair value of all stock and
SSAR awards made in 2017. Stock awards include the annual PSP award and the RSU award.
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
(1)
Name
Award
Type
Grant
Date
Thres-
hold
($)
Target
($)
Maxi-
mum
($)
Andrew H. Beck
IC Plan
284,875
569,750
1,139,500
PSP 1/24/17
RSU 1/24/17
SSAR 1/24/17
Robert B. Crain
IC Plan
257,670
515,340
1,030,680
PSP 1/24/17
RSU 1/24/17
SSAR 1/24/17
Martin H. Richenhagen
IC Plan
941,903 1,883,805 3,767,610
PSP 1/24/17
RSU 1/24/17
SSAR 1/24/17
Rob Smith
IC Plan
260,821
521,641
1,043,282
PSP 1/24/17
RSU 1/24/17
SSAR 1/24/17
Hans-Bernd Veltmaat
IC Plan
262,632
525,263
1,050,526
PSP 1/24/17
RSU 1/24/17
SSAR 1/24/17
Estimated Future Payouts
Under Equity Incentive
Plan Awards
(2)
Thres-
hold
(# of
shares)
Target
(# of
shares)
Maxi-
mum
(# of
shares)
4,100
12,300
24,600
3,300
9,900
19,800
23,167
69,500 139,000
3,300
9,900
19,800
3,300
9,900
19,800
All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)
4,182
3,366
23,460
3,366
3,366
Under-
lying
SSARs
Compen-
sation
(#)
Exercise
Price
of SSAR
Awards
($/sh)
Grant
Date Fair
Value of
Stock
and
SSAR
Awards
($)
760,509
258,573
16,500
63.47
188,760
612,117
208,120
13,200
63.47
151,008
4,297,185
1,450,532
93,000
63.47 1,063,920
612,117
208,120
13,200
63.47
151,008
612,117
208,120
13,200
63.47
151,008
(1) Amounts included in the table above represent the potential payout levels related to corporate objectives for the fiscal year
2017 under the Company’s IC Plan. The payment for these awards already have been determined and were paid on
January 31, 2018 and February 23, 2018 to the NEOs. Refer to Note 3 of the 2017 Summary Compensation Table.
(2) The amounts shown represent the number of shares the executive would receive if the “Threshold,” “Target” and “Maximum”
levels of performance are reached.
37
OUTSTANDING EQUITY AWARDS AT YEAR-END 2017
The following table provides information concerning unexercised SSARs and stock (including RSUs) that has not been
earned or vested for each NEO outstanding as of the end of the Company’s most recently completed year. Each outstanding award
is represented by a separate row that indicates the number of securities underlying the award.
For SSAR awards, the table discloses the exercise price and the expiration date. For stock awards, the table provides the
total number of shares of stock that have not vested (or have not been earned) and the aggregate market value of shares of stock
that have not vested (or have not been earned).
SSAR Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
SSARs
Exercisable
(#)
Number of
Securities
Underlying
Unexercised
SSARs
Unexercisable(1)
(#)
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
SSARs
(#)
SSAR
Exercise
Price
($)
SSAR
Expiration
Date
Number
of Shares
or Units
of Stock
That
Have
Not
Vested(2)(3)
(#)
—
—
—
1,810
42,110
12,382
—
1,469
Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested(4)
($)
—
—
—
82,156
2,436,485
884,446
—
66,678
— 52.94
1/25/2019
— 51.84
1/23/2020
— 55.23
1/22/2021
— 43.88
1/21/2022
— 46.58
1/26/2023
— 63.47
1/24/2024
— 55.23
1/22/2021
— 43.88
1/21/2022
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested(5)
(#)
—
—
—
—
4,900
8,200
—
—
3,900
6,600
—
—
Equity
Incentive
Plan
Awards:
Value
Realized
on
Vesting(6)
($)
—
—
—
—
283,514
585,726
—
—
225,654
471,438
—
—
Name
Andrew H. Beck
Robert B. Crain
Martin H. Richenhagen
Rob Smith
Hans-Bernd Veltmaat
14,200
14,900
11,025
8,900
4,075
—
—
—
—
—
—
50,250
23,000
—
21,039
8,550
—
—
—
—
7,100
3,250
—
—
—
3,675
8,900
12,225
16,500
2,850
7,100
9,750
13,200
19,750
50,250
69,000
93,000
—
2,850
7,100
9,750
13,200
2,850
7,100
9,750
13,200
— 46.58
1/26/2023
33,530
1,940,046
— 63.47
1/24/2024
9,966
711,871
— 55.23
1/22/2021
—
—
— 43.88
1/21/2022
10,282
466,700
— 46.58
1/26/2023
100,318
5,804,399
— 63.47
1/24/2024
69,794
4,985,385
27,666
1,600,755
46,333
3,309,566
— 63.64
10/23/2020
— 55.23
1/22/2021
—
—
—
—
— 43.88
1/21/2022
1,469
66,678
— 46.58
1/26/2023
33,530
1,940,046
— 63.47
1/24/2024
9,966
711,871
— 55.23
1/22/2021
—
—
— 43.88
1/21/2022
1,469
66,678
— 46.58
1/26/2023
33,530
1,940,046
— 63.47
1/24/2024
9,966
711,871
—
—
—
3,900
6,600
—
—
3,900
6,600
—
—
—
225,654
471,438
—
—
225,654
471,438
38
(1) SSAR awards vest ratably, or 25% annually, over four years beginning from the date of grant, which was January 22, 2014
for the 2014 grants, January 21, 2015 for the 2015 grants, January 26, 2016 for the 2016 grants, and January 24, 2017 for the
2017 grants.
(2) RSU awards vest in equal installments over three years beginning from the date of grant, which was January 21, 2015 for the
2015 grants, January 26, 2016 for the 2016 grants, and January 24, 2017 for the 2017 grants.
(3) The pre-established performance goals of certain one-year performance cycles under the PSP were achieved; however, the
award is subject to a further vesting period. In addition, the pre-established performance goals for the one-year RPP award
were earned; however, the award is subject to a further vesting period. The number of shares are at the actual level of
performance achieved.
(4) The market value of RSU awards that have not vested is based on the closing price of the Company’s common stock on
December 31, 2017, December 31, 2016 and December 31, 2015, which was $71.43, $57.86 and $45.39, respectively. The
market value of the awards earned under the three one-year performance cycles under the PSP and the one-year RPP are based
on the closing price of the Company’s common stock on December 31, 2017 and December 31, 2016, which was $71.43 and
$57.86, respectively.
(5) The amounts shown represent the number of shares awarded but unearned under the PSP in January 2016 and January 2017,
respectively. The actual amounts that will be earned under the PSP are dependent upon the achievement of pre-established
performance goals during the respective performance cycles.
(6) Based on the closing price of the Company’s common stock on December 31, 2017 and December 31, 2016, which was $71.43
and $57.86, respectively.
SSAR EXERCISES AND STOCK VESTED IN 2017
The following table provides information concerning exercises of SSARs and similar instruments, and vesting of stock
awards including restricted stock and similar instruments, during the most recently completed year for each of the NEOs. The
table reports the number of securities acquired upon exercise of SSARs; the aggregate dollar value realized upon exercise of
SSARs; the number of shares of stock that have vested; and the aggregate dollar value realized upon vesting.
Name
Andrew H. Beck
Robert B. Crain
Martin H. Richenhagen
Rob Smith
Hans-Bernd Veltmaat
SSAR Awards
Stock Awards
Number of Shares
Acquired on Exercise(1)
(#)
Value Realized on
Exercise(2)
($)
Number of Shares
Acquired on Vesting
(#)
Value Realized
on Vesting(3)
($)
1,991
13,357
61,311
3,158
8,974
143,226
951,325
4,347,170
203,297
640,337
3,498
2,817
19,547
2,817
2,817
224,991
181,189
1,257,263
181,189
181,189
(1) The number of shares acquired on exercise of SSARs is computed by dividing the value realized on exercise by the market
price of the underlying securities at exercise. The number of shares acquired upon exercise is inclusive of the following shares
withheld for income tax purposes: Mr. Beck — 956 shares, Mr. Crain — 6,409 shares, Mr. Richenhagen —29,401 shares,
Mr. Smith — 1,121 and Mr. Veltmaat — 3,859 shares.
(2) The dollar amount realized upon exercise is computed by multiplying the number of shares times the difference between the
market price of the underlying securities at exercise and the exercise price of the SSARs.
(3) Shares withheld for income tax purposes related to stock vested were as follows: Mr. Beck — 1,583 shares,
Mr. Crain — 1,259 shares, Mr. Richenhagen — 9,381 shares, Mr. Smith — 999 shares and Mr. Veltmaat — 1,000 shares.
39
PENSION BENEFITS
The “2017 Pension Benefits Table” provides further details regarding the executive officers’ defined benefit retirement plan
benefits. Because the pension amounts shown in the “2017 Summary Compensation Table” and the “2017 Pension Benefits Table”
are projections of future retirement benefits, numerous assumptions must be applied. In general, the assumptions should be the
same as those used to calculate the pension liabilities in accordance with ASC Topic 715, “Compensation – Retirement Benefits,”
on the measurement date, although the SEC specifies certain exceptions, as noted in the table below.
Executive Nonqualified Pension Plan
The ENPP provides the Company’s U.S.-based executives with retirement income for a period of 15 years based on a
percentage of their final average compensation, including base salary and annual incentive bonus, reduced by the executive’s
social security benefits and savings plan benefits attributable to employer matching contributions. In addition, executives who
remain with AGCO until age 65 will have their benefits continue as a lifetime annuity after the 15-year certain period ends
(i.e., at age 80).
The key provisions of the ENPP are as follows:
Monthly Benefit. Senior executives with a vested benefit will be eligible to receive the following retirement benefits each
month for 15 years beginning on their normal retirement date (age 65): 3% of final average monthly compensation times years of
service up to 20 years, reduced by each of (i) the senior executive’s U.S. social security benefit or similar government retirement
program to which the senior executive is eligible, (ii) the benefits payable from the AGCO Savings Plan (payable as a life annuity)
attributable to the Company’s matching contributions and earnings thereon (at the maximum level), and (iii) the benefits payable
from any retirement plan sponsored by the Company in any foreign country attributable to the Company’s contributions.
Final Average Monthly Compensation. The final average monthly compensation is the average of the three years of base
salary and annual incentive payments under the IC Plan paid to the executive during the three years in which such sum was the
highest from among the ten years prior to his or her death, termination or retirement.
Vesting. Participants become vested after meeting all three of the following requirements: (i) turn age 50; (ii) completing
ten years of service with the Company; and (iii) achieving five years of participation in the ENPP. An executive must remain with
the Company until age 65 with at least ten years of service (five years must include tenure as an executive officer) to vest in the
life annuity portion of this benefit that begins at age 80. Alternatively, all participants will become vested in the plan in the event
of a change of control.
Early Retirement Benefits. Participants may not receive retirement benefits prior to normal retirement age.
Swiss Life Collective “BVG” Foundation
The Swiss Life Collective “BVG” Foundation (“BVG”) operates a pension fund in Switzerland, for which Mr. Smith is a
participant. The BVG ensures the plan meets at least the mandated requirements for minimum pension benefits. This plan is a
cash balance formula, with contributions made both by the Company and Mr. Smith. Mr. Smith’s total account balance represents
contributions and interest made by the Company, as well as from his prior employers. The amounts shown in the tables throughout
this proxy reflect the portion of account balance attributable to contributions made while employed by the Company.
The key provisions of the BVG plan are as follows:
Retirement benefit. Upon retirement, participants will receive the value of their cash balance account. They may elect to
receive their benefit as a lump sum or as an annuity. The cash balance account grows each year with pay credits (payable by the
employee and the employer) and interest.
40
Pay credits. Each year, a participant’s cash balance account is credited with the following percentage of pensionable pay
(varies by age):
Age
25 - 34
35 - 44
45 - 54
55 - 65
Credit as a percentage of pay
(paid by the Company)
5.5%
7.5%
11.5%
13.5%
Credit (standard level) as a
percentage of pay
(paid by employee)
2.5%
3.5%
4.5%
5.5%
Pensionable pay. Payable at the annual rate of base pay.
Normal Retirement Age. Age 65 for males; age 64 for females (as in accordance with Swiss law).
Early Retirement Benefits. Participants may elect to retire from the age of 58. Annuity benefits are converted using reduced
actuarial equivalence conversion factors.
Swiss Life Additional Capital Plan
Effective January 1, 2012, the BVG also operates an enhanced pension fund for executives in Switzerland, for which
Mr. Smith is a participant. This plan is a cash balance formula, with contributions made only by the Company, and contributions
are made retroactive to date of hire.
The key provisions of the additional capital plan are as follows:
Retirement benefit. Upon retirement, participants will receive benefits equal to that of their cash balance account. The cash
balance account grows each year with pay credits (payable by the employee and the employer) and interest.
Pay credits. Each year, a participant’s cash balance account is credited with the following percentage of pensionable pay
(varies by age):
Age
35 - 44
45 - 54
55 - 65
Credit as a percentage of pay
(paid by the Company)
11.0%
16.0%
19.0%
Credit as a percentage of pay
(paid by employee)
0.0%
0.0%
0.0%
Pensionable pay. Bonus pay only.
Normal Retirement Age. Age 65 for males; age 64 for females (as in accordance with Swiss law).
Early Retirement Benefits. Participants may elect to retire from the age of 58.
Vesting.
plan at that time).
100% vested (i.e., should Mr. Smith leave the Company he will receive the amount accumulated in the capital
41
2017 PENSION BENEFITS TABLE
Name
Andrew H. Beck
Robert B. Crain
Martin H. Richenhagen
Rob Smith
Hans-Bernd Veltmaat
Plan Name
AGCO executive nonqualified Pension Plan
AGCO executive nonqualified Pension Plan
AGCO executive nonqualified Pension Plan
Swiss Life Collective “BVG” Foundation
AGCO executive nonqualified Pension Plan
Number of
Years of
Credited
Service
(#)
20.00
12.00
13.75
4.25
9.50
Present
Value of
Accumulated
Benefit(1)
($)
6,351,254
3,530,441
21,691,664
720,297
4,339,073
Payments
During
Last Year
($)
—
—
—
—
—
(1) Based on plan provisions in effect as of December 31, 2017. The executive officers participate in pension plans that will
provide a monthly annuity benefit upon retirement. The values shown in this column are the estimated lump sum value today
of the monthly benefits they will receive in the future (based on their current salary and service, as well as the assumptions
and methods prescribed by the SEC). These values are not the monthly or annual benefits that they would receive.
42
OTHER POTENTIAL POST-EMPLOYMENT PAYMENTS
Each NEO’s employment agreement with the Company includes provisions for post-employment compensation related to
certain employment termination events. Pursuant to the 2006 LTI Plan, all outstanding equity awards prior to 2018 become fully
vested and exercisable upon a change of control. Beginning in 2018, all equity awards will be subject to a “double trigger” whereby
accelerated vesting is contingent on a change in control and either termination of employment or failure of the acquiring company
to assume outstanding equity grants or provide participants with the value equal to that of the unvested equity grants. The 2006
LTI Plan does not provide for accelerated vesting of equity under other employment termination events. The table below and its
accompanying footnotes provides specific detail on the post-employment compensation each NEO is entitled to in the event of
certain employment termination events assuming termination on the last day of the prior year (December 31, 2017).
43
Executive /
Termination Scenario(1)
Andrew H. Beck
Change in Control(2)(3)(4)(5)
Voluntary Termination
Without Good Reason
Retirement(6)
Death(7)
Disability(8)
Involuntary With Cause
Involuntary Without Cause or
Good Reason Resignation(9)
Robert B. Crain
Change in Control(2)(3)(4)(5)
Voluntary Termination
Without Good Reason
Retirement(6)
Death(7)
Disability(8)
Involuntary With Cause
Involuntary Without Cause or
Good Reason Resignation(9)
Martin H. Richenhagen
Change in Control(2)(3)(4)(5)
Voluntary Termination
Without Good Reason
Retirement(6)
Death(7)
Disability(8)
Involuntary With Cause
Involuntary Without Cause,
Good Reason, Resignation or
Company’s Non-Renewal of
Employment Agreement(9)
Rob Smith
Change in Control(2)(3)(4)(5)
Voluntary Termination
Without Good Reason
Retirement(6)
Death(7)
Disability(8)
Involuntary With Cause
Involuntary Without Cause or
Good Reason Resignation(9)
Hans-Bernd Veltmaat
Change in Control(2)(3)(4)(5)
Voluntary Termination
Without Good Reason
Retirement
Death(7)
Disability(8)
Involuntary With Cause
Involuntary Without Cause or
Good Reason Resignation(9)
Severance
Bonus
Accelerated
Vesting of
Equity
Benefits
Retirement
Benefits
Death
Benefit
Disability
Benefit
280G
Tax
Gross-
Up
Estimated
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,619,861 $
954,901 $
6,446,130 $
86,264 $ 5,857,214 (10) $
— $
— $ — $ 15,964,370
— $
— $
— $
— $
145,750 $
954,901 $
— $
— $
954,901 $
— $
1,166,000 $
954,901 $
— $
— $
— $
— $
— $
— $
— $
636,273 (10) $
— $
—
$
— $
— $
— $ — $
636,273
— $ — $
—
— $
636,273 (10) $3,498,000 $
— $ — $
5,234,924
— $
636,273 (10) $
— $ 684,756 $ — $
2,275,930
— $
636,273 (10) $
— $
— $ — $
636,273
— $
636,273 (10) $
— $
— $ — $
2,757,174
2,134,468 $
863,710 $
5,152,214 $
98,928 $ 3,418,335 (11) $
— $
— $ — $ 11,667,655
— $
— $
— $
— $
144,200 $
863,710 $
— $
— $
863,710 $
— $
576,800 $
863,710 $
— $
— $
— $
— $
— $
— $
— $
301,703 (11) $
— $
—
$
— $
— $
— $ — $
301,703
— $ — $
—
— $
301,703 (11) $3,460,800 $
— $ — $
4,770,413
— $
301,703 (11) $
— $ 505,596 $ — $
1,671,009
— $
301,703 (11) $
— $
— $ — $
301,703
— $
301,703 (11) $
— $
— $ — $
1,742,213
$ 11,551,223 $
3,157,257 $
26,558,644 $
300,058 $ 22,130,637 (12) $
— $
— $ — $ 63,697,819
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
336,394 $
3,157,257 $
— $
3,157,257 $
— $
— $
— $
— $
— $
— $
— $
— $ 1,459,983 (12) $
— $ 1,459,983
$
— $
— $
— $ — $
1,459,983
— $ — $
1,459,983
— $ 1,459,983 (12) $8,073,450 $
— $ — $ 13,027,084
— $ 1,459,983 (12) $
— $4,944,648
$
9,561,888
— $ 1,459,983 (12) $
— $
— $ — $
1,459,983
— $
3,157,257 $
— $
— $ 1,459,983 (12) $
— $
— $ — $
4,617,240
2,823,137 $
881,414 $
5,152,214 $
17,587 $
605,370 (13) $
— $
— $ — $
9,479,722
— $
— $
— $
— $
146,567 $
881,414 $
— $
— $
881,414 $
— $
586,266 $
881,414 $
— $
— $
— $
— $
— $
— $
— $
605,370 (13) $
— $
—
$
— $ 1,592,164 (13) $
— $
353,174 (13) $
— $
605,370 (13) $
— $
— $
— $
— $
— $
— $ — $
605,370
— $ — $
—
— $ — $
2,620,145
— $ — $
1,234,588
— $ — $
605,370
— $
605,370 (13) $
— $
— $ — $
2,073,050
2,557,878 $
880,340 $
5,152,214 $
120,428 $ 4,370,506 (14) $
— $
— $ — $ 13,081,366
— $
— $
— $
— $
146,625 $
880,340 $
— $
— $
880,340 $
— $
586,500 $
880,340 $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— (14) $
—
$
— $
— $
— $ — $
— $ — $
—
—
— (14) $3,519,000 $
— $ — $
4,545,965
— (14) $
— $ 687,588 $ — $
1,567,928
— (14) $
— $
— $ — $
—
— $
— (14) $
— $
— $ — $
1,466,840
(1) All termination scenarios assume termination occurs on December 31, 2017, and a stock price of $71.43, which was the
closing price of the Company’s common stock on the last trading day of the Company’s year ended December 31, 2017.
(2) Upon termination within two years following a change of control, the following provisions apply to each of the NEOs:
• Mr. Richenhagen receives a lump sum payment equal to (i) three times his base salary in effect at the time of termination,
(ii) a pro-rata portion of his bonus or other incentive compensation earned for the year of termination and (iii) a bonus
equal to three times the three-year average of Mr. Richenhagen’s awards received during the prior two completed years
and the current year’s trend. He continues to receive life insurance and health benefits during a three-year period and
disability benefits during a two-year period.
44
• Messrs. Beck, Crain, Smith and Veltmaat receive a lump sum payment equal to (i) two times base salary in effect at
the time of termination, (ii) a pro-rata portion of bonus or other incentive compensation earned for the year of termination
and (iii) a bonus equal to two times the three-year average of the NEO’s awards received during the prior two completed
years and the current year’s trend. Each of the NEOs continues to receive life insurance, disability and healthcare
benefits during a two-year period.
• Messrs. Beck, Crain, Richenhagen and Veltmaat will receive their ENPP retirement benefit payable as a lump sum.
This lump sum is calculated in a similar fashion as values disclosed in the Pension Benefits Table, except it is determined
based on the plan’s actuarial equivalence definition rather than the SEC prescribed assumptions. There is no enhancement
to their pension benefit amount in the event of a change in control other than immediate vesting of the benefit.
(3) All outstanding equity awards prior to 2018 held by the NEOs at the time of a change of control become non-cancelable,
fully vested and exercisable, and all performance goals associated with any awards are deemed satisfied with respect to the
greater of target performance or the level dictated by the trend of the Company’s performance to date, so that all compensation
is immediately vested and payable.
(4)
In the case of a change of control, the retirement benefits are payable as a lump sum six months after termination of
employment or, if such termination occurs more than twenty-four months after the change in control, in accordance with
the terms of the ENPP. The difference between the “Retirement Benefits” values shown in the table above from the ENPP
and the value shown in the “2017 Pension Benefits Table” is due to the fact that the interest and mortality assumptions
prescribed by the plan in the event of a change of control are different from the assumptions used in the actuarial valuation.
There is no enhancement to the benefit amount under a change of control other than immediate vesting of the benefit.
(5)
The change-in-control calculation has factored into it a value for the executive’s covenant not to compete.
(6) As of December 31, 2017, Mr. Richenhagen is eligible for retirement benefits. Messrs. Beck and Crain are vested in their
ENPP benefit, but are not eligible to commence their benefits.
(7) Upon death, the following provisions apply to each of the NEOs:
• The estate receives the executive’s base salary in effect at the time of death for a period of three months. The estate is
also entitled to all sums payable to the executive through the end of the month in which death occurs, including the
pro-rata portion of his bonus earned at this time. The “Death Benefit” amount represents the value of the insurance
proceeds payable upon death.
(8) Upon disability, the following provisions apply to each of the NEOs:
• Each of the NEOs receives all sums otherwise payable to them by the Company through the date of disability, including
the pro-rata portion of the bonus earned. The “Disability Benefit” amount represents the annual value of the insurance
proceeds payable to the executive on a monthly basis upon disability.
(9) Unless such termination occurs within two years following a change of control, if employment is terminated without cause
or if the executive voluntarily resigns with good reason, the following provisions apply to each of the NEOs:
•
•
•
For Mr. Richenhagen, he does not receive cash severance because he is age 65. His employment agreement stipulates
that no cash severance is paid when he reaches the age of 65. Mr. Richenhagen does receives a pro-rata portion of his
bonus earned for the year of termination, which is payable at the time incentive compensation is generally payable by
the Company.
For Mr. Beck, he receives his base salary in effect at the time of termination for a two-year severance period, paid at
the same intervals as if he had remained employed with the Company. He also receives a pro-rata portion of his bonus
earned for the year of termination, which is payable at the time incentive compensation is generally payable by the
Company.
For Messrs. Crain, Smith and Veltmaat, each of the NEOs receive their base salary in effect at the time of termination
for a one-year severance period, paid at the same intervals as if they had remained employed with the Company. Each
NEO also receives a pro-rata portion of their bonus earned for the year of termination, which is payable at the time
incentive compensation is generally payable by the Company.
(10) Mr. Beck is currently vested in his ENPP retirement benefit. In the event of Mr. Beck’s termination due to a change of
control, he will receive a $5,857,214 lump sum payment. In the event of his termination due to any other cause, he will
receive a $636,273 annual annuity for 15 years beginning at age 65. The present value of this annuity (plus the value of the
life annuity beginning at age 80 if he were to remain employed by the Company until age 65) equals the benefit disclosed
in the Pension Benefits Table, based on the assumptions and methods defined by the SEC. In other words, there is no
enhancement that would be added to his pension benefit if he had been terminated on December 31, 2017.
45
(11) Mr. Crain is currently vested in his ENPP retirement benefit. In the event of Mr. Crain’s termination due to a change of
control, he will receive a $3,418,335 lump sum payment. In the event of his termination due to any other cause, he will
receive a $301,703 annual annuity for 15 years beginning at age 65. The present value of this annuity (plus the value of the
life annuity beginning at age 80 if he were to remain employed by the Company until age 65) equals the benefit disclosed
in the Pension Benefits Table, based on the assumptions and methods defined by the SEC. In other words, there is no
enhancement that would be added to his pension benefit if he had been terminated on December 31, 2017.
(12) Mr. Richenhagen is currently vested in his ENPP retirement benefit. In the event of Mr. Richenhagen’s termination due to
a change of control, he will receive a $22,130,637 lump sum payment. In the event of Mr. Richenhagen’s termination due
to any other cause, he will receive $1,459,983 annually as a 15 year certain and life annuity beginning at age 65. The present
value of this annuity (plus the value of the life annuity beginning 15 years later) equals the benefit disclosed in the Pension
Benefits Table, based on the assumptions and methods defined by the SEC. In other words, there is no enhancement that
would be added to his pension benefit if he had been terminated on December 31, 2017.
(13)
In the event of Mr. Smith’s termination due to a change of control, he will receive a $605,370 lump sum payment from his
retirement plan. In the event of his termination due to death, he will receive a $1,592,164 lump sum payment. In the event
of his termination due to disability, he will receive a $353,174 annual annuity until age 65. In the event of his termination
due to any other cause, he will receive a lump sum payment of $605,370, which corresponds to his vested benefits as per
December 31, 2017.
(14) Mr. Veltmaat is not currently vested in his ENPP retirement benefit on December 31, 2017. In the event of Mr. Veltmaat’s
termination due to a change of control, he will receive a $4,370,506 lump sum payment. In the event of his termination due
to any other cause, he will not receive an ENPP retirement benefit. There is no enhancement that would be added to his
pension benefit if he had been terminated on December 31, 2017.
Mr. Richenhagen’s employment agreement provides certain restrictive covenants that continue for a period of two years
after termination of employment, including a non-competition covenant, a non-solicitation of customers covenant and a
non-recruitment of employees covenant. If Mr. Richenhagen breaches his post-employment obligations under these covenants,
the Company may terminate the severance period and discontinue any further payments or benefits to Mr. Richenhagen.
2017 CEO PAY RATIO
Our analysis began by determining that we had approximately 20,265 employees as of a November 30, 2017 determination
date. Although permitted by the SEC, we did not use the 5% de minimis rule to exclude or eliminate any employee group.
Approximately 560 employees related to acquisitions we completed during 2017 were excluded from the calculation. After
identifying the median employee based on our consistently applied compensation measure of actual total cash compensation, we
calculated the annual total compensation using the same methodology we use for the CEO as set forth in the 2017 Summary
Compensation Table. The median employee’s total compensation was approximately $49,623. Based on this methodology, we
estimate that the ratio of CEO pay to median employee pay is 297:1.
46
THE FOLLOWING REPORTS OF THE COMPENSATION COMMITTEE AND THE AUDIT COMMITTEE
SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE INCORPORATED BY REFERENCE IN ANY
PREVIOUS OR FUTURE DOCUMENTS FILED BY THE COMPANY WITH THE SEC UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THAT THE COMPANY
EXPRESSLY INCORPORATES SAID REPORTS BY REFERENCE IN ANY SUCH DOCUMENT.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board has reviewed and discussed the Compensation Discussion and Analysis included
in this Proxy Statement with management. Based on such review and discussion, the Compensation Committee has recommended
to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the SEC.
The Company has engaged Willis Towers Watson to advise management and the Compensation Committee with respect to
our compensation programs and to perform various related studies and projects. The aggregate fees billed by Willis Towers Watson
for consulting services rendered to the Compensation Committee for 2017 in recommending the amount or form of executive and
director compensation were approximately $245,000. The total amount of fees paid by the Company to Willis Towers Watson in
2017 for all other services, excluding Compensation Committee services, was approximately $1,800,000. These other services
primarily related to actuarial services in respect of our defined benefit plans, general employee compensation consulting services,
benefit plan design services and pension administration services. The Compensation Committee recommended and approved the
provision of these additional services to the Company by Willis Towers Watson.
The foregoing report is submitted by the Compensation Committee of the Board.
Gerald L. Shaheen, Chairman
Roy V. Armes
Suzanne P. Clark
George E. Minnich
To the Board of Directors:
AUDIT COMMITTEE REPORT
The Audit Committee consists of the following members of the Board: Michael C. Arnold, P. George Benson,
George E. Minnich (Chairman) and Hendrikus Visser. Each of the members is “independent” as defined by the NYSE and SEC.
Management is responsible for the Company’s internal controls, financial reporting process and compliance with the laws
and regulations and ethical business standards. The independent registered public accounting firm is responsible for performing
an independent audit of the Company’s consolidated financial statements and an audit of the effectiveness of the Company’s
internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board
(United States) and to issue reports thereon. The Audit Committee’s responsibility is to monitor and oversee these processes and
to report its findings to the Board. The Audit Committee members are not professional accountants or auditors, and their functions
are not intended to duplicate or to certify the activities of management and the independent registered public accounting firm, nor
can the Audit Committee certify that the independent registered public accounting firm is “independent” under applicable rules.
The Audit Committee serves a board-level oversight role, in which it provides advice, counsel and direction to management and
the auditors on the basis of the information it receives, discussions with management and the auditors and the experience of the
Audit Committee’s members in business, financial and accounting matters.
We have reviewed and discussed with management the Company’s audited consolidated financial statements as of and for
the year ended December 31, 2017 and management’s assessment of the effectiveness of the Company’s internal control over
financial reporting and KPMG LLP’s audit of the Company’s internal control over financial reporting as of December 31, 2017.
We have discussed with KPMG LLP the matters required to be discussed by Auditing Standard No. 1301, Communications
with Audit Committees, as adopted by the Public Company Accounting Oversight Board (United States).
We have received and reviewed the written disclosures and the letter from KPMG LLP required by NYSE listing standards
and the applicable requirements of the Public Company Accounting Oversight Board (United States) regarding the independent
registered public accounting firm’s communications with the audit committee and have discussed with the independent registered
public accounting firm the independent registered public accounting firm’s independence.
We also have considered whether the professional services provided by KPMG LLP, not related to the audit of the consolidated
financial statements and internal control over financial reporting referred to above or to the reviews of the interim consolidated
financial statements included in the Company’s Forms 10-Q for the quarters ended March 31, 2017, June 30, 2017, and
September 30, 2017, is compatible with maintaining KPMG LLP’s independence.
47
Based on the reviews and discussions referred to above, we recommended to the Board that the consolidated financial
statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
The foregoing report has been furnished by the Audit Committee of the Board.
George E. Minnich, Chairman
Michael C. Arnold
P. George Benson
Hendrikus Visser
Audit Fees
The aggregate fees billed by KPMG LLPfor professional services rendered for the audit of the Company’s annual consolidated
financial statements for 2017 and 2016, the audit of the Company’s internal control over financial reporting for 2017 and 2016,
subsidiary statutory audits and the reviews of the financial statements included in the Company’s SEC filings on Form 10-K,
Form 10-Q and Form 8-K during such years were approximately $6,925,000 and $6,460,000, respectively.
Audit-Related Fees
The aggregate fees billed by KPMG LLP for professional services rendered for 2017 and 2016 for audit-related fees were
approximately $35,000 and $28,000, respectively. The amounts for 2017 and 2016 primarily represent fees for audits of employee
benefit plans and required auditor certifications for various matters required in certain foreign jurisdictions.
Tax Fees
The aggregate fees billed by KPMG LLP for 2017 and 2016 for professional services rendered for tax services primarily
related to tax consultations were approximately $1,000 and $22,000, respectively.
Financial and Operational Information Systems Design and Implementation Fees
KPMG LLP did not provide any information technology services related to financial and operational information systems
design and implementation to the Company or its subsidiaries for 2017 or 2016.
All Other Fees of KPMG LLP
The aggregate of all other fees billed by KPMG LLP for 2017 and 2016 was $12,000 and $288,000, respectively, all of
which relate to advisory services in connection with the Company’s global procurement reorganization that were rendered by a
firm that KPMG LLP acquired in 2012, subsequent to its acquisition.
A representative of KPMG LLP will be present at the Annual Meeting with the opportunity to make a statement and will be
available to respond to appropriate questions.
All of KPMG’s services and fees for services, whether audit or non-audit, are preapproved by the Audit Committee. In some
instances services and fees initially are preapproved by the Chairman of the Audit Committee and then re-approved subsequently
by the Audit Committee. All services performed by KPMG LLP for 2017 were approved by the Chairman of the Audit Committee
or the Audit Committee. The Audit Committee has appointed KPMG LLP as the Company’s independent registered public
accounting firm for 2018, subject to stockholder ratification. KPMG LLP has served as the Company’s independent registered
public accounting firm since 2002.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company has a written related party transaction policy pursuant to which a majority of the independent directors of an
appropriate committee must approve transactions that exceed $120,000 in amount in which any director, executive officer,
significant stockholder or certain other persons has or have a material interest.
During 2017, the Company paid approximately $7.2 million to PPG Industries, Inc. for painting materials used in the
Company’s manufacturing processes. Mr. Richenhagen, who is the Company’s Chairman, President and Chief Executive Officer,
is currently a member of the board of directors and serves on the Audit as well as the Officers & Directors compensation committees
of PPG Industries, Inc. In addition, the Company paid approximately $1.5 million during the year ended December 31, 2017 to
consumables used in the Company’s manufacturing
Praxair,
processes. Mr. Richenhagen, who is the Company’s Chairman, President and Chief Executive Officer, is currently a member of
the board of directors and serves on the Finance & Pension as well as the Governance & Nominating committees of Praxair, Inc.
and welding and laser
for propane, gas
Inc.
Mr. Richenhagen’s stepson is the Company’s Vice-President, Product Management, Global Electronics and FUSE and his
daughter is the Company’s Manager, Corporate Social Responsibility. Their combined annual salaries, bonuses and all other
compensation was $556,360 and combined grants of stock and SSAR awards was $109,256 during 2017. The stock and SSAR
48
awards reflect the aggregate grant date fair value computed in accordance with ASC 718 and the stock awards are based on the
“target” level of performance at the date of grant.
Ms. Srinivasan, who is currently a member of the Company’s Board of Directors, is the Chairman and Chief Executive
Officer of TAFE, in which the Company holds a 23.75% interest. Individually and through TAFE and TAFE Motors and Tractors
Limited, Ms. Srinivasan is the beneficial owner of 12,163,305 shares of the Company’s common stock. The Company received
dividends of approximately $1.8 million from TAFE during 2017. TAFE manufactures and sells Massey Ferguson branded
equipment primarily in India and also supplies tractors and components to AGCO for sale in other markets. During 2017, the
Company purchased approximately $102.0 million of tractors and components from TAFE and sold approximately $1.2 million
of parts to TAFE.
The Company and TAFE are also parties to the Letter Agreement regarding the current and future accumulation by TAFE
of shares of our common stock and certain governance matters. The Letter Agreement expires on August 29, 2019. Pursuant to
the Letter Agreement, TAFE has agreed not to (i) purchase in excess of 12,170,290 shares of our common stock, subject to certain
adjustments; (ii) subject to its rights to make a non-public offer to acquire all or a part of the Company (or propose another
transaction that would result in a change of control of the Company), form or act as part of a group with respect to the ownership
or voting of our common stock or to otherwise grant a third-party a proxy or other voting rights with respect to our common stock
owned by TAFE or its affiliates (other than to or at the request of the Company), provided that TAFE and its affiliates are expressly
permitted to act as a group, or (iii) publicly announce its intention to commence, or commence, an offer to acquire all or part of
our common stock.
Pursuant to the Letter Agreement, the Company has agreed to: (i) nominate a candidate proposed by TAFE for election to
our Board of Directors at each annual meeting, as long as the collective beneficial ownership by TAFE and its affiliates is 5% or
more of the then outstanding common stock of the Company, subject to certain adjustments and restrictions; and (ii) provide
customary assistance to TAFE in selling its shares, including filing a registration statement with the SEC, if TAFE determines to
dispose of any shares of our common stock in a public distribution.
The foregoing description of the Letter Agreement is qualified in its entirety by reference to the Letter Agreement, a copy
of which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on September 4, 2014.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own more than ten percent
of a registered class of our equity securities to file with the SEC and the NYSE initial reports of ownership and reports of changes
in ownership of the Company’s common stock and other equity securities. Such persons are required by the SEC to furnish the
Company with copies of all Section 16(a) forms that are filed.
To our knowledge, based solely on review of the copies of such reports furnished to the Company and written representations
that no other reports were required, for the year ended December 31, 2017, all required Section 16(a) filings applicable to its
directors, executive officers and greater-than-ten-percent beneficial owners were properly filed, except Mr. Smith filed two late
reports with respect to three transactions between 2014 and 2017.
ANNUAL REPORT TO STOCKHOLDERS
The Company’s 2017 Annual Report to its stockholders and Annual Report on Form 10-K for the year ended
December 31, 2017, including consolidated financial statements and schedule thereto, but excluding other exhibits, is being
furnished with this proxy statement to stockholders of record as of March 16, 2018.
ANNUAL REPORT ON FORM 10-K
We will provide without charge a copy of our Annual Report filed on Form 10-K for the year ended December 31, 2017,
including the consolidated financial statements and schedule thereto, on the written request of the beneficial owner of any shares
of our common stock on March 16, 2018. The written request should be directed to: Corporate Secretary, AGCO Corporation,
4205 River Green Parkway, Duluth, Georgia 30096.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
A representative of KPMG LLP, our independent registered public accounting firm for 2017, is expected to attend the Annual
Meeting and will have the opportunity to make a statement if he or she desires to do so. The representative also will be available
to respond to appropriate questions from stockholders. The Audit Committee has appointed KPMG LLP as our independent
registered public accounting firm for 2018, subject to stockholder ratification.
49
STOCKHOLDERS’ PROPOSALS
Any stockholder of the Company who wishes to present a proposal at the 2019 Annual Meeting of stockholders of the
Company, and who wishes to have such proposal included in the Company’s proxy statement and form of proxy for that meeting,
must deliver a copy of such proposal to the Company at its principal executive offices at 4205 River Green Parkway,
Duluth, Georgia 30096, Attention: Corporate Secretary, no later than November 26, 2018; however, if next year’s Annual Meeting
of stockholders is held on a date more than 30 days before or after the corresponding date of the 2018 Annual Meeting, any
stockholder who wishes to have a proposal included in our proxy statement for that meeting must deliver a copy of the proposal
to the Company at a reasonable time before the proxy solicitation is made. We reserve the right to decline to include in our proxy
statement any stockholder’s proposal which does not comply with the advance notice provisions of our By-Laws or the rules of
the SEC for inclusion therein.
Any stockholder of the Company who wishes to present a proposal at the 2019 Annual Meeting of stockholders of the
Company, but not have such proposal included in our proxy statement and form of proxy for that meeting, must deliver a copy of
such proposal to the Company at its principal executive offices at 4205 River Green Parkway, Duluth, Georgia 30096, Attention:
Corporate Secretary no later than February 25, 2019 and otherwise in accordance with the advance notice provisions of our By-
Laws or the persons appointed as proxies may exercise their discretionary voting authority if the proposal is considered at the
meeting. The advance notice provisions of our By-Laws provide that for a proposal to be properly brought before a meeting by a
stockholder, such stockholder must disclose certain information and must have given the Company notice of such proposal in
written form meeting the requirements of our By-Laws no later than 60 days and no earlier than 90 days prior to the anniversary
date of the immediately preceding Annual Meeting of stockholders.
50
A
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0
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K
Annual Report
on Form 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
For the fiscal year ended December 31, 2017
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 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 and posted on its corporate website every Interactive Data File for the
periods required to be submitted and posted 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, 2017 was approximately $4.5 billion. For this purpose,
directors and officers and the entities that they control have been assumed to be affiliates. As of February 23, 2018,
79,614,896 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 2018 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Form 10-K.
Item 1.
Business
PART I
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 4,200
independent dealers and distributors in approximately 150 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:
Product
Tractors
Replacement Parts
Grain Storage and
Protein Production
Systems
Hay Tools and Forage
Equipment,
Implements & Other
Equipment
Combines
Application Equipment
Product Description
•
•
•
•
•
•
•
•
•
•
•
High horsepower tractors (100 to 600 horsepower); typically used on larger farms, primarily for
row crop production
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
Compact tractors (under 40 horsepower); typically used on small farms and specialty agricultural
industries, as well as for landscaping and residential uses
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
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
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
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
Planters and other planting equipment; used to apply fertilizer and plant seeds in the field,
typically used in row crop seeding
Other equipment, including loaders; used for a variety of tasks, including lifting and transporting
hay crops
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
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”)
Percentage of Net Sales
2017
57%
2016
57%
2015
57%
16%
16%
16%
13%
12%
10%
7%
7%
9%
4%
3%
4%
4%
4%
4%
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 in other countries. We generally license certain technology to these licensees and
associates, and we may sell them certain components used in local manufacturing operations.
Independent Dealers and
Distributors
Geographical region
Europe......................................................................................
North America .........................................................................
South America .........................................................................
Rest of World (1) .......................................................................
2017
1,530
1,830
250
590
____________________________________
(1) Consists of approximately 71 countries in Africa, the Middle East, Australia and Asia.
Dealer Support and Supervision
Percent of Net Sales
2017
2016
2015
53%
23%
13%
11%
53%
24%
12%
11%
51%
26%
13%
10%
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 51 locations worldwide, including seven 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.
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
3
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 in which the Company is responsible for
construction or installation and which 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 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
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
4
respond to any changes in environmental laws and regulations affecting engine emissions. 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 greenhouse gases, 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 150 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, 2017, we employed approximately 20,500 employees, including approximately 4,500 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.
5
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:
•
•
•
•
•
•
annual reports on Form 10-K;
quarterly reports on Form 10-Q;
current reports on Form 8-K;
proxy statements for the annual meetings of stockholders;
reports on Form SD; and
Forms 3, 4 and 5
These reports are made available on our website as soon as practicable after they are filed with the Securities and Exchange
Commission (“SEC”).
We also provide corporate governance and other information on our website. This information includes:
•
•
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
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.”
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.
Financial Information on Geographical Areas
For financial information on geographical areas, see Note 15 of our Consolidated Financial Statements contained in
Item 8, “Financial Statements and Supplementary Data,” under the caption “Segment Reporting,” which is incorporated herein
by reference.
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 concerning our future operations, prospects, strategies, products, manufacturing facilities,
legal proceedings, financial condition, future financial performance (including growth and earnings) and demand for our
products and services, and other statements of our plans, beliefs or expectations, including the statements contained in Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding net sales, industry
conditions, currency translation impacts, market demand, farm incomes, weather conditions, commodity prices, general
economic conditions, availability of financing, working capital, capital expenditure and debt service requirements, margins,
production volumes, cost reduction initiatives, investments in product development, compliance with financial covenants,
support of 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, that could cause actual results to
differ materially from our expectations.
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 retail customers, will adversely affect us.
Our success depends entirely on the vitality of the agricultural industry. Historically, the agricultural industry,
including the agricultural equipment business, has been cyclical and subject to a variety of economic and other factors. Sales
of agricultural equipment generally are related to the economic health of the agricultural industry, which is affected by farm
income, farm input costs, debt levels and land values, all of which reflect 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. 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 sales and profitability, 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 results of operations
and cash flows.
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
our customers’ 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.
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
7
as well, finance approximately 40% 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
another source of retail financing for our customers, or our customers would be required to utilize other retail financing
providers. A result of an economic downturn would be 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 would both 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 could be less, or there
could be losses, which could materially impact our financial results.
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:
•
•
•
innovation;
customer acceptance;
the efficiency of our suppliers in providing component parts and of our manufacturing facilities in producing final
products; and
•
the performance and quality of our products relative to those of our competitors.
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 cannot provide any assurances that we will not
experience delays in the future. Any delays or other problems with our new product launches will adversely affect our operating
results. 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 continue to use a substantial amount of capital for
product development and refinement. We may need more funding for product development and refinement than is readily
available, which could adversely affect our business, financial condition or results of operations.
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 are 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 our 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.
We face significant competition and if we are unable to compete successfully against other agricultural equipment
manufacturers, we would lose customers and our net sales and profitability would 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
8
agricultural equipment business may affect the market prices of new and used equipment, which, in turn, may adversely affect
our sales margins and results of operations.
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 end customers and our net sales and profitability 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 and other related manufacturing processes are complex, and could
impact or delay production targets. 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 results of operations. 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 results of operations and financial condition. 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 of capital.
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 in the future, also may impact the quality and efficiency of our manufacturing capabilities, as well as impact
warranty costs. A significant increase in the price of any component or raw material could adversely affect our profitability. We
cannot avoid exposure to global price fluctuations, such as occurred in the past with the costs of steel and related products, and
our profitability depends on, among other things, our ability to raise equipment and parts prices sufficient enough to recover
any such material or component cost increases.
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 we do the
most significant amount of business 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 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
9
we cannot provide assurances that past violations have not occurred or that future violations will not occur. 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
sales, growth, results of operations and financial condition 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. The ability of our international customers to operate their businesses and the health of the agricultural industry, 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 sales 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.
On June 23, 2016, the U.K. held a referendum in which voters approved an exit from the E.U., commonly referred to
as “Brexit.” As a result of the referendum, it is expected that the British government will negotiate the terms of the U.K.’s
future relationship with the E.U. Although it is unknown what those terms will be, it is possible that there will be greater
restrictions on imports and exports between the U.K. and E.U. countries, increased regulatory complexities, and increased
currency volatility, any of which could adversely affect our operations and financial results.
We can experience substantial and sustained volatility with respect to currency exchange rate and interest rate changes,
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 our results of operations 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
10
adversely affect us. Despite our use of economic hedging transactions, currency exchange rate or interest rate fluctuations may
adversely affect our results of operations, cash flow and financial condition.
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 greenhouse gases. 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
business and results of operations could be adversely affected.
In addition, the products that we manufacture or sell, particularly engines, are subject to increasingly stringent
environmental regulations. 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 available cash flow 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 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 plan. 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,
11
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 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, 2017, 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.
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 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 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 or otherwise are the victim of a cyber attack, we could incur significant losses and liability.
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 will impose more 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 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. As a result,
we could be subject to cyber attacks that, if successful, could compromise our information technology systems and our ability
12
to conduct business. 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 the impacted individuals.
In addition, our business relies on the Internet as well as other electronic communications systems that, by their nature,
may be subject to efforts by so-called “hackers” to either disrupt our business or steal data or funds. While we strive to maintain
customary protections against hackers, there can be no assurance that at some point a hacker will not breach those safeguards
and damage our business, possibly materially. These damages could take many forms, including the interruption of our
business, the loss of important data, and damage to our reputation.
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 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 revenues, operating results and financial condition following the transactions.
Changes to United States tax, tariff and import/export regulations may have a negative effect on global economic
conditions, financial markets and our business.
There have been ongoing discussions and commentary regarding potential significant changes to United States trade
policies, treaties, tariffs and taxes. Although it 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. It is unclear what 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 could have a material adverse effect our business, financial condition and results of operations.
On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted in the United States. The 2017
Tax Act includes a number of changes to existing U.S. tax laws that impact us, including a reduction of the U.S. corporate
income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. The 2017 Tax Act also provides
for a one-time transition tax on certain foreign earnings and the acceleration of depreciation for certain assets placed into
service after September 27, 2017, as well as prospective changes beginning in 2018, including the repeal of the domestic
manufacturing deduction, capitalization of research and development expenditures, additional limitations on executive
compensation and limitations on the deductibility of interest. Our Consolidated Financial Statements reflect both the income
tax effects of the 2017 Tax Act for which the accounting is complete as well as provisional amounts for those specific income
tax effects of the 2017 Tax Act for which the accounting is incomplete but a reasonable estimate could be determined. The final
impact of the tax reform legislation may differ materially due to factors such as further refinement of our calculations, changes
in interpretations and assumptions that we and our advisors have made, additional guidance that may be issued in the future by
the U.S. government, and actions that the we may take as a result of the tax reform legislation. When more guidance and
interpretations are released, specifically with respect to the transition tax and future repatriation of foreign earnings to the U.S.,
13
the Company will complete its accounting and revise any provisional estimates, if required. Future tax changes and
interpretations could be adverse to our business or operations, such as new or additional taxes imposed on earnings and/or
reinvested earnings of our foreign subsidiaries. The aggregate impact of such legislation could have a material adverse impact
on our cash flows and results of operations.
Item 1B.
Unresolved Staff Comments
Not applicable.
14
Item 2.
Properties
Our principal manufacturing locations and/or properties as of January 31, 2018, were as follows:
Location
United States:
Description of Property
Leased
(Sq. Ft.)
Owned
(Sq. Ft.)
Assumption, Illinois .......................................... Manufacturing/Sales and Administrative Office
Batavia, Illinois ................................................. Parts Distribution
Duluth, Georgia................................................. Corporate Headquarters
Hesston, Kansas ................................................ Manufacturing
Jackson, Minnesota ........................................... Manufacturing
International:
Beauvais, France(1) ................................................. Manufacturing
Breganze, Italy .................................................. Manufacturing
Ennery, France................................................... Parts Distribution
Linnavuori, Finland........................................... Manufacturing
Hohenmölsen, Germany.................................... Manufacturing
Marktoberdorf, Germany .................................. Manufacturing
Wolfenbüttel, Germany..................................... Manufacturing
Stockerau, Austria ............................................. Manufacturing
Biatorbagy, Hungary ......................................... Manufacturing
Thisted, Denmark.............................................. Manufacturing
Suolahti, Finland ............................................... Manufacturing/Parts Distribution
Canoas, Brazil ................................................... Regional Headquarters/Manufacturing
Mogi das Cruzes, Brazil.................................... Manufacturing
Santa Rosa, Brazil ............................................. Manufacturing
Changzhou, China ............................................. Manufacturing
_______________________________________
(1)
Includes our joint venture, GIMA, in which we own a 50% interest.
310,200
159,000
51,400
14,300
700,000
16,600
159,000
224,500
133,200
48,100
241,100
933,900
1,461,800
986,400
1,566,600
1,562,000
360,300
396,300
437,000
1,472,200
538,200
160,700
295,300
553,000
1,120,000
727,200
508,900
767,000
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.
15
Item 3.
Legal Proceedings
The Environmental Protection Agency of Victoria, Australia issued a notice to our Australian subsidiary regarding
remediation of contamination of a property located in a suburb of Melbourne, Australia. The property was owned and divested
by our subsidiary before our subsidiary was acquired by us. Our Australian subsidiary is in correspondence with the
Environmental Protection Agency concerning the notice. At this time, we are not able to determine whether our subsidiary
might have any liability or the nature and cost of any possible required remediation.
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, 2017, not
including interest and penalties, was approximately 131.5 million Brazilian reais (or approximately $39.7 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.
16
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 23, 2018, the closing stock price was $68.44, and there were 315 stockholders of record (this
number does not include stockholders who hold their stock through brokers, banks and other nominees). The following table
sets forth, for the periods indicated, the high and low sales prices for our common stock for each quarter within the last two
years, as reported on the NYSE, as well as the amount of the dividend paid.
2017
First Quarter............................................................................................................. $
Second Quarter ........................................................................................................
Third Quarter ...........................................................................................................
Fourth Quarter .........................................................................................................
64.90
$
68.04
74.40
75.95
$
57.76
58.01
64.36
65.30
0.14
0.14
0.14
0.14
High
Low
Dividend
2016
First Quarter............................................................................................................. $
Second Quarter ........................................................................................................
Third Quarter ...........................................................................................................
Fourth Quarter .........................................................................................................
53.35
$
56.00
50.21
61.22
$
42.40
44.68
45.47
48.78
0.13
0.13
0.13
0.13
High
Low
Dividend
Dividend Policy
On January 25, 2018, our Board of Directors approved an increase in our quarterly dividend from $0.14 per share to
$0.15 per share beginning in the first quarter of 2018. Future dividends will be subject to our Board of Directors’ approval. We
cannot provide any assurance that we will continue to pay dividends in the future. Although we are in compliance with all
provisions of our debt agreements, our credit facility and senior term loans contain restrictions on our ability to pay dividends
in certain circumstances. Refer to Note 9 of our Consolidated Financial Statements for further information.
17
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, 2017. Our total returns in the graph are not necessarily indicative of
future performance.
AGCO Corporation.....................................................
S&P Midcap 400 Index...............................................
Peer Group Index........................................................
Cumulative Total Return for the Years Ended December 31
2012
2013
2014
2015
2016
2017
$ 100.00
$ 121.36
$
93.50
$
94.80
$ 122.12
$ 152.04
100.00
100.00
133.50
124.92
146.54
124.30
143.35
96.34
173.08
137.24
201.20
198.60
The total return assumes that dividends were reinvested and is based on a $100 investment on December 31, 2012.
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
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, 2017 and
2016 and for the years ended December 31, 2017, 2016 and 2015 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.
Operating Data:
Net sales .....................................................................
Gross profit.................................................................
Income from operations .............................................
Net income .................................................................
Net (income) loss attributable to noncontrolling
interests ...............................................................
Net income attributable to AGCO Corporation and
subsidiaries..........................................................
Net income per common share — diluted..................
Cash dividends declared and paid per common share
Weighted average shares outstanding — diluted .......
$
$
$
$
$
$
186.4
2.32
0.56
80.2
$
$
$
160.1
1.96
0.52
81.7
$
$
$
266.4
3.06
0.48
87.1
Years Ended December 31,
2017
2016
2015
2014
2013
(In millions, except per share data)
$
8,306.5
$
7,410.5
$
7,467.3
$
9,723.7
$ 10,786.9
1,765.3
1,515.5
1,560.6
2,066.3
2,390.6
403.3
189.3
288.4
160.2
361.1
264.0
(2.9)
(0.1)
2.4
646.5
404.2
6.2
410.4
4.36
0.44
94.2
$
$
$
900.7
592.3
4.9
597.2
6.01
0.40
99.4
As of December 31,
2017
2016
2015
2014
2013
(In millions, except number of employees)
Balance Sheet Data:
Cash and cash equivalents..........................................
Total assets .................................................................
Total long-term debt, excluding current portion and
debt issuance costs .....................................................
Stockholders’ equity...................................................
Other Data:
Number of employees ................................................
$
367.7
$
429.7
$
426.7
$
363.7
$
1,047.2
7,971.7
7,168.4
6,497.7
7,364.5
8,390.2
1,618.1
3,095.3
1,610.0
2,837.2
925.2
2,883.3
993.3
3,496.9
932.9
4,044.8
20,462
19,795
19,588
20,828
22,111
19
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 4,200 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,
2016 (1)
2015 (1)
2017 (1)
Net sales ..................................................................................................................................
Cost of goods sold...................................................................................................................
Gross profit ...........................................................................................................................
Selling, general and administrative expenses .........................................................................
Engineering expenses..............................................................................................................
Restructuring expenses ...........................................................................................................
Amortization of intangibles ....................................................................................................
Income from operations........................................................................................................
Interest expense, net ................................................................................................................
Other expense, net...................................................................................................................
Income before income taxes and equity in net earnings of affiliates......................................
Income tax provision...............................................................................................................
Income before equity in net earnings of affiliates...................................................................
Equity in net earnings of affiliates ..........................................................................................
Net income ..............................................................................................................................
Net loss attributable to noncontrolling interests .....................................................................
Net income attributable to AGCO Corporation and subsidiaries............................................
100.0%
100.0%
100.0%
78.7
21.3
11.7
3.9
0.1
0.7
4.9
0.5
0.9
3.4
1.6
1.8
0.5
2.3
—
2.3%
79.5
20.5
11.7
4.0
0.2
0.7
3.9
0.7
0.4
2.8
1.2
1.5
0.6
2.2
—
79.1
20.9
11.4
3.8
0.3
0.6
4.8
0.6
0.5
3.7
1.0
2.8
0.8
3.5
—
2.2%
3.6%
____________________________________
(1) Rounding may impact summation of amounts.
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 $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 translation impacts. Income from operations was
$403.3 million in 2017 compared to $288.4 million in 2016. The increase in income from operations during 2017 was primarily
a result of higher net sales and improved margins resulting from higher production levels and other cost reduction initiatives.
20
Regionally, income from operations in the Europe/Middle East (“EME”) region increased by approximately
$90.6 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 $25.6 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 $5.4 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 Asia/Pacific/Africa (“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
Record harvests and crop production for the past four years have outpaced demand, thereby keeping commodity prices
and farm income at relatively low levels. Global industry demand for farm equipment has started to recover after three years of
declines. In the United States and Canada, farm equipment fleets have begun to age, causing industry demand to remain mixed
throughout 2017. 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 have been
pressuring 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 continued to damper farmer confidence. The Argentine market remained robust as more supportive
government policies continued to stimulate 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
South America ................................
1,063.5
EME................................................
APA.................................................
4,614.3
752.0
$ 1,807.7
$
69.0
3.8% $
917.5
4,089.7
595.6
146.0
524.6
156.4
15.9%
12.8%
26.3%
$
4.7
41.3
57.6
13.9
%
$
%
0.3% $
38.8
4.5%
1.4%
2.3%
4.1
110.6
24.1
2.1%
0.4%
2.7%
4.0%
2.4%
$ 8,306.5
$ 7,410.5
$ 896.0
12.1% $ 117.5
1.6% $ 177.6
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.
21
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
$
$
Gross profit............................................................................................................... $ 1,765.3
970.7
Selling, general and administrative expenses ........................................................
Engineering expenses.............................................................................................
Restructuring expenses ..........................................................................................
Amortization of intangibles ...................................................................................
Income from operations ........................................................................................... $
323.1
11.2
57.0
403.3
21.3% $ 1,515.5
11.7%
3.9%
0.1%
0.7%
867.9
296.1
11.9
51.2
4.9% $
288.4
% of
Net
Sales
20.5%
11.7%
4.0%
0.2%
0.7%
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.
Selling, general and administrative expenses (“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 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 $74.4 million in 2017 compared to $31.4 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 the
enactment of U.S. tax reform legislation on December 22, 2017. The final impact of the tax reform legislation may differ
materially due to factors such as further refinement of our calculations, changes in interpretations and assumptions that we and
our advisors have made, additional guidance that may be issued in the future by the U.S. government, and actions that we may
take as a result of the legislation. 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,
22
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. Realization of the remaining deferred tax assets as of
December 31, 2017 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
$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.
2016 Compared to 2015
Net income attributable to AGCO Corporation and subsidiaries for 2016 was $160.1 million, or $1.96 per diluted
share, compared to net income for 2015 of $266.4 million, or $3.06 per diluted share.
Net sales for 2016 were approximately $7,410.5 million, or 0.8% lower than 2015, primarily due to continued
weakening global market conditions and the unfavorable impact of currency translation. Income from operations was
$288.4 million in 2016 compared to $361.1 million in 2015. The decrease in income from operations during 2016 was a
result of decreased production levels, a weaker sales mix and negative currency translation impacts.
Regionally, income from operations in North American and South American regions decreased approximately
$84.3 million and $14.5 million, respectively, in 2016 compared to 2015. Lower sales and production volumes, a weaker
product mix and other cost increases contributed to a reduction in income from operations in North America. In South America,
lower margins due primarily to material cost inflation and the negative impact of currency translation adversely impacted
income from operations. Income from operations in our EME and APA regions increased approximately $8.1 million and
$31.9 million, respectively, in 2016 compared to 2015. Income from operations in EME benefited from higher net sales but was
negatively impacted by unfavorable currency translation impacts. In the APA region, operating results were bolstered by the
significant growth in net sales in the region as well as increased small tractor production levels in China.
Industry Market Conditions
A record grain harvest in the U.S., combined with healthy crop production across Europe and South America, resulted
in increased global grain inventories and low soft commodity prices during 2016. As a result, deteriorating farm economics
negatively impacted both farmer sentiment and industry equipment demand in all major markets. In the United States and
Canada, industry demand declined during 2016, particularly in the row crop and professional hay producer sectors, with
significantly lower industry retail sales of high-horsepower tractors, combines, sprayers, and grain storage and handling
equipment. Specifically industry unit retail sales of higher horsepower tractors decreased approximately 10%, while industry
unit retail sales of combines decreased approximately 21% in 2016 compared to 2015. Industry retail demand was also lower
in Western Europe during 2016 as compared to 2015 levels. Difficult economic conditions for dairy producers and lower
commodity prices in the arable farming sector negatively impacted demand across the region. Declines were most pronounced
in France and Germany, partially offset by modest growth in Finland and Scandinavia. Industry unit retail sales of tractors and
combines decreased approximately 4% and 14%, respectively, in 2016 compared to 2015 in the region. Industry demand in
South America stabilized throughout 2016. While market conditions in Brazil declined for the full year of 2016 compared to
2015, stronger farm fundamentals in the second half of the year helped to overcome previous weaknesses caused by political
uncertainty and depressed economic conditions. Supportive government policies and improved crop production in Argentina
also resulted in higher industry sales in that market. Industry unit retail sales of tractors decreased approximately 6% in 2016
compared to 2015 in the region. Industry retail sales of combines in South America increased approximately 14% during 2016
compared to 2015. Industry sales declines of tractors were most pronounced in Brazil and other South American markets, while
industry sales increases of combines were principally in Brazil and Argentina.
23
Results of Operations
Net sales for 2016 were $7,410.5 million compared to $7,467.3 million for 2015, primarily due to softer global market
conditions and the unfavorable impact of foreign currency translation. The following table sets forth, for the year ended
December 31, 2016, 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
2016
2015
North America ................................ $ 1,807.7
South America ................................
917.5
EME................................................
APA.................................................
4,089.7
595.6
$ 1,965.0
949.0
4,037.6
515.7
$ 7,410.5
$ 7,467.3
$
$ (157.3)
(31.5)
52.1
79.9
$ (56.8)
$
%
(8.0)% $ (25.9)
(72.2)
(3.3)%
(87.4)
(10.5)
15.5 %
(0.8)% $ (196.0)
1.3 %
%
$
%
(1.3)% $
82.4
(7.6)%
(2.2)%
(2.0)%
3.6
46.2
41.0
(2.6)% $ 173.2
4.2%
0.4%
1.1%
8.0%
2.3%
Regionally, net sales in North America decreased during 2016 compared to 2015, with the most significant decreases
in grain storage equipment, sprayers and hay tools, partially offset by net sales growth of low and mid-sized horsepower
tractors. Net sales were lower in South America in 2016 compared to 2015. Higher net sales in Argentina were partially offset
by lower net sales in Brazil and other South American markets. In the EME region, net sales were relatively flat in 2016
compared to 2015, with growth in the United Kingdom and Scandinavia mostly offset by declines in France and Germany. In
the APA region, net sales increased in 2016 compared to 2015, primarily due to a significant growth in sales in China offset by
declines in Africa. We estimate that worldwide average price increases were approximately 1.5% and 1.8% in 2016 and 2015,
respectively. Consolidated net sales of tractors and combines, which consisted of approximately 61% of our net sales in 2016,
decreased approximately 1.0% in 2016 compared to 2015. Unit sales of tractors and combines decreased approximately 1.5%
during 2016 compared to 2015. The unit sales decrease and the decrease 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, 2016 and 2015, the percentage relationship to net
sales of certain items included in our Consolidated Statements of Operations (in millions, except percentages):
2016
2015
% of
Net
Sales
$
$
Gross profit............................................................................................................... $ 1,515.5
867.9
Selling, general and administrative expenses ........................................................
Engineering expenses.............................................................................................
Restructuring expenses ..........................................................................................
Amortization of intangibles ...................................................................................
Income from operations ........................................................................................... $
296.1
11.9
51.2
288.4
20.5% $ 1,560.6
11.7%
4.0%
0.2%
0.7%
3.9% $
852.3
282.2
22.3
42.7
361.1
% of
Net
Sales
20.9%
11.4%
3.8%
0.3%
0.6%
4.8%
Gross profit as a percentage of net sales decreased during 2016 compared to 2015, primarily due to lower production
levels, a weaker product mix and other cost increases, including higher warranty expenses. The benefits from material cost
containment and productivity initiatives helped to partially offset these negative impacts. Production hours decreased
approximately 5% during 2016 compared to 2015. We recorded stock compensation expense of approximately $1.5 million
and $0.9 million during 2016 and 2015, 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 both increased in dollars and as a percentage of net sales during 2016
compared to 2015. The increases in SG&A and engineering expenses were primarily the result of acquisitions during 2016.
Engineering expenses also increased during 2016 to support investments in future new product introductions. We recorded
stock compensation expense of approximately $16.9 million and $11.6 million during 2016 and 2015, respectively, within
SG&A expenses, as is more fully explained in Note 10 of our Consolidated Financial Statements.
24
We recorded restructuring expenses of approximately $11.9 million and $22.3 million during 2016 and 2015,
respectively. The restructuring expenses recorded in 2016 and 2015 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 $52.1 million for 2016 compared to $45.4 million for 2015. The increase was primarily due
to higher outstanding indebtedness. See “Liquidity and Capital Resources” for further information.
Other expense, net was $31.4 million in 2016 compared to $36.3 million in 2015. The decrease was primarily due to
lower foreign exchange losses in 2016 as compared to 2015. 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
$19.5 million and $18.8 million in 2016 and 2015, respectively.
We recorded an income tax provision of $92.2 million in 2016 compared to $72.5 million in 2015. 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. During 2016, we also 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 and concluded a valuation allowance should be established. At December 31, 2016 and 2015, we had
gross deferred tax assets of $447.4 million and $390.0 million, respectively, including $85.5 million and $74.0 million,
respectively, related to net operating loss carryforwards. At December 31, 2016, we had total valuation allowances as an
offset to our gross deferred tax assets of $116.0 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, 2015, we had total valuation allowances as an offset to the gross deferred tax assets of
approximately $75.8 million, primarily related to net operating loss carryforwards in Brazil, China, Russia and the Netherlands.
Equity in net earnings of affiliates, which is primarily comprised of income from our finance joint ventures, was
$47.5 million in 2016 compared to $57.1 million in 2015 primarily due to declining operating results as a consequence of
weaker market conditions. 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.
25
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.
2017:
Net sales............................................................................... $
Gross profit..........................................................................
Income from operations.......................................................
Net (loss) income.................................................................
Net income attributable to noncontrolling interests ............
Net (loss) income attributable to AGCO Corporation and
subsidiaries ...................................................................
Net (loss) income per common share attributable to
AGCO Corporation and subsidiaries — diluted ..........
2016:
Net sales............................................................................... $
Gross profit..........................................................................
Income from operations.......................................................
Net income...........................................................................
Net (income) loss attributable to noncontrolling interests ..
Net income attributable to AGCO Corporation and
subsidiaries .................................................................
Net income per common share attributable to AGCO
Corporation and subsidiaries — diluted .....................
Finance Joint Ventures
Three Months Ended
March 31
June 30
September 30 December 31
(In millions, except per share data)
1,627.6
$
2,165.2
$
1,986.3
$
2,527.4
330.3
15.6
(8.2)
(1.9)
(10.1)
(0.13)
475.4
148.4
91.6
(0.1)
91.5
1.14
428.6
97.0
60.8
(0.1)
60.7
0.76
531.0
142.3
45.1
(0.8)
44.3
0.55
1,559.3
$
1,995.6
$
1,761.6
$
2,094.0
314.7
19.4
10.2
(2.4)
7.8
0.09
427.0
118.6
49.4
0.9
50.3
0.61
353.5
59.0
39.4
0.6
40.0
0.50
420.3
91.4
61.2
0.8
62.0
0.77
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, 2017, our
capital investment in the finance joint ventures, which is included in “Investment in affiliates” on our Consolidated Balance
Sheets, was approximately $373.7 million compared to $380.8 million as of December 31, 2016. The total finance portfolio in
our finance joint ventures was approximately $8.8 billion and $8.0 billion as of December 31, 2017 and 2016, respectively. The
total finance portfolio as of December 31, 2017 and 2016 included approximately $7.3 billion and $6.7 billion, respectively, of
retail receivables and $1.5 billion and $1.3 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 2017, we did not make additional investments in our finance joint
ventures. During 2016, we made a total of approximately $2.8 million of additional investments in our finance joint venture in
the Netherlands. During 2017 and 2016, we received dividends of approximately $78.5 million and $44.5 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 $39.9 million and $45.5 million for the years
ended December 31, 2017 and 2016, respectively, with the decrease in earnings primarily due to lower income in the U.S.,
French and German finance joint ventures during 2017 as compared to 2016.
26
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, availability of financing and general economic conditions.
Relatively stable industry demand is anticipated across all major geographical regions during 2018. Our net sales are
expected to increase in 2018 compared to 2017, primarily due to improved sales volumes, positive pricing impacts as well as
the benefit of acquisitions and foreign currency translation. Gross and operating margins are expected to improve from 2017
levels, reflecting the positive impact of pricing and cost reduction efforts, partially offset by higher engineering expenses
targeted at new product offerings.
Recent Acquisitions
On October 2, 2017, we acquired the forage division of the Lely Group (“Lely”) for approximately €80.5 million
(or approximately $95.0 million), net of cash acquired of approximately €6.0 million (or approximately $7.1 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 preliminary estimates of 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
$17.4 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 preliminary estimates of 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.
27
On April 17, 2015, we acquired Farmer Automatic GmbH & Co. KG (“Farmer Automatic”) for approximately
$17.9 million, net of cash acquired of approximately $0.1 million. Farmer Automatic, headquartered in Laer, Germany,
manufactures and supplies poultry housing and related products, including egg production cages and broiler production
equipment. The acquisition was financed with available cash on hand. 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 identifiable intangible assets. We recorded approximately $9.6 million of customer
relationship, technology and trademark identifiable intangible assets and approximately $10.0 million of goodwill associated
with the acquisition.
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):
1.056% Senior term loan due 2020 .............................................................................................................. $
Credit facility, expires 2020 .........................................................................................................................
Senior term loans due 2021 ..........................................................................................................................
57/8% Senior notes due 2021 ........................................................................................................................
Senior term loans due between 2019 and 2026............................................................................................
Other long-term debt ....................................................................................................................................
Debt issuance costs.......................................................................................................................................
$
239.8
471.2
119.9
305.3
449.7
131.6
(4.0)
1,713.5
December 31, 2017
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, 2017 and 2016, the cash received from receivables sold under the U.S., Canadian, European and Brazilian
accounts receivable sales agreements was approximately $1.3 billion and $1.1 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, 2017 and 2016, these
finance joint ventures had approximately $41.6 million and $41.5 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.
Cash Flows
Cash flows provided by operating activities were $577.6 million during 2017 compared to $369.5 million during 2016
and $524.2 million during 2015. The increase during 2017 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. In addition, as previously discussed, we
received an increased amount of dividends from our finance joint ventures in 2017 as compared to 2016. The decrease in cash
flows provided by operating activities during 2016 as compared to 2015 was primarily due to a decrease in net income as well
as an increase in inventories.
28
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 $977.1 million in working capital at
December 31, 2017, as compared with $1,020.8 million at December 31, 2016. Accounts receivable and inventories,
combined, at December 31, 2017 were $487.1 million higher than at December 31, 2016. The increase in accounts receivable
and inventories as of December 31, 2017 compared to December 31, 2016 was primarily the result of foreign currency
translation, acquisitions and higher sales levels, as well as the impact of new product introductions.
Our debt to capitalization ratio, which is total indebtedness divided by the sum of total indebtedness and stockholders’
equity, was 35.7% at December 31, 2017 compared to 37.5% at December 31, 2016.
Share Repurchase Program
During 2016 and 2015, we repurchased 4,413,250 and 5,541,930 shares of our common stock, respectively, for
approximately $212.5 million and $287.5 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.
Contractual Obligations
The future payments required under our significant contractual obligations, excluding foreign currency option and
forward contracts, as of December 31, 2017 are as follows (in millions):
Total
Payments Due By Period
2019 to
2020
2021 to
2022
2018
2023 and
Beyond
Indebtedness(1).............................................................. $
Interest payments related to indebtedness(2) ................
Capital lease obligations ..............................................
Operating lease obligations..........................................
Unconditional purchase obligations.............................
Other short-term and long-term obligations(3) .............
Total contractual cash obligations................................ $
1,713.5
$
95.4
$
802.9
$
657.9
$
132.4
17.8
167.2
74.9
356.1
2,461.9
$
29.2
5.5
47.5
64.4
105.8
347.8
$
74.1
6.2
51.7
9.5
121.1
1,065.5
$
23.4
2.6
28.4
1.0
93.3
806.6
$
157.3
5.7
3.5
39.6
—
35.9
242.0
Amount of Commitment Expiration Per Period
2019 to
2020
2021 to
2022
2018
2023 and
Beyond
Total
Standby letters of credit and similar instruments......... $
Guarantees....................................................................
Total commercial commitments and letters of credit... $
15.2
115.1
130.3
$
$
15.2
109.2
124.4
$
$
— $
4.8
4.8
$
— $
1.1
1.1
$
—
—
—
_______________________________________
(1)
(2) Estimated interest payments are calculated assuming current interest rates over minimum maturity periods specified in debt agreements. Debt may be
Indebtedness amounts reflect the principal amount of our senior term loan, senior notes and credit facility.
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.
29
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 repossessed inventory at market value. We have an agreement with our finance joint venture in the United States
that limits our purchase obligations under this arrangement to $6.0 million in the aggregate per 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, 2017, we guaranteed indebtedness owed to third parties of approximately $115.1 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 2022. We believe the credit risk
associated with these guarantees is not material to our financial position or results of operations. 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.
Other
At December 31, 2017, we had outstanding designated and non-designated foreign exchange contracts with a gross
notional amount of approximately $1,798.2 million. The outstanding contracts as of December 31, 2017 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.
Tractors and Farm Equipment Limited (“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, 2017, 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 2017, 2016 and 2015, we purchased approximately $102.0 million, $128.5 million and $129.2 million,
respectively, of tractors and components from TAFE. During 2017, 2016 and 2015, we sold approximately $1.2 million,
$1.1 million and $2.2 million, respectively, of parts to TAFE. We received dividends from TAFE of approximately $1.8 million,
$1.6 million and $1.7 million during 2017, 2016 and 2015, respectively.
30
During 2017, 2016 and 2015, we paid approximately $7.2 million, $3.1 million and $3.5 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 2017, 2016 and 2015, we paid approximately $1.5 million, $2.0 million and $0.6 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 150 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 15 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 $1,798.2 million and $1,661.4 million as of
December 31, 2017 and 2016, inclusive of both those instruments that are designated and qualified for hedge accounting and
non-designated derivative instruments. We also enter into 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 $56.7 million as of December 31, 2017. 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, 2017, a 10%
increase in interest rates, would have increased, collectively, “Interest expense, net” and “Other expense, net” for the year
ended December 31, 2017 by approximately $5.5 million.
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.
31
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 is recorded at the later of (a) the date at which the related revenue is
recognized, or (b) the date at which the sales incentive is offered. 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. 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. We record the cost of interest subsidy payments, which is a reduction in the retail financing rates, at the later of (a) the
date at which the related revenue is recognized, or (b) the date at which the sales incentive is offered. 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 an identifiable benefit 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, 2017, we had recorded an allowance for discounts and sales incentives of approximately
$250.9 million, related to allowances in our North America geographical segment 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 in the United States and Canada, our reserve would increase by
approximately $7.8 million as of December 31, 2017. 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 $7.8 million as of December 31, 2017.
Deferred Income Taxes and Uncertain Income Tax Positions
We recorded an income tax provision of $133.6 million in 2017 compared to $92.2 million in 2016 and $72.5 million
in 2015. 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.
On December 22, 2017, the Tax Cuts and Jobs Act (“the 2017 Tax Act”) was enacted in the United States. The 2017
Tax Act includes a number of changes to existing U.S. tax laws that impact us, including a reduction of the U.S. corporate
income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. The 2017 Tax Act also provides
for a one-time transition tax on certain foreign earnings and the acceleration of depreciation for certain assets placed into
service after September 27, 2017, as well as prospective changes beginning in 2018, including the repeal of the domestic
32
manufacturing deduction, capitalization of research and development expenditures, additional limitations on executive
compensation and limitations on the deductibility of interest.
During the three months ended December 31, 2017, we recorded a provision of approximately $42.0 million in
accordance with Staff Accounting Bulletin No. 118, which provides 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. Our
Consolidated Financial Statements reflect both the income tax effects of the 2017 Tax Act for which the accounting under
ASC 740 is complete as well as provisional amounts for those specific income tax effects of the 2017 Tax Act for which the
accounting under ASC 740 is incomplete but a reasonable estimate could be determined. We did not identify any items for
which the income tax effects of the 2017 Tax Act have not been completed and a reasonable estimate could not be determined
as of December 31, 2017.
The $42.0 million provision included a provisional income tax charge of approximately $14.3 million related to the
one-time transition tax associated with the mandatory deemed repatriation of approximately $3.4 billion of unremitted foreign
earnings. Our provision also included a provisional income tax charge of approximately $10.4 million for the income tax
consequences associated with the expected future repatriation of certain underlying foreign earnings, as historically, we had
considered them to be indefinitely reinvested. The remaining balance of our 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. The final impact of the tax reform legislation may differ materially due to factors such as further refinement of our
calculations, changes in interpretations and assumptions that we and our advisors have made, additional guidance that may be
issued in the future by the U.S. government, and actions that we may take as a result of the tax reform legislation. Additional
information and analysis are needed for factors such as whether non-U.S. entities are subject to withholding taxes, have reserve
requirements, or have projected working capital and other capital needs in the country where the earnings were generated that
would result in a decision to indefinitely reinvest a portion or all of their earnings. When more guidance and interpretations are
released, specifically with respect to the transition tax and future repatriation of foreign earnings to the U.S., we will complete
our accounting and revise any provisional estimates, if required.
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, 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 and
2016, we had total valuation allowances as an offset to our gross deferred tax assets of $81.9 million and $116.0 million,
respectively, 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. Realization of the remaining deferred
tax assets as of December 31, 2017 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, 2017 and 2016, we had approximately $163.4 million and $139.9 million, respectively, of
unrecognized tax benefits, all of which would impact our effective tax rate if recognized. As of December 31, 2017 and 2016,
we had approximately $61.8 million and $47.0 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, 2017 and
2016, we had accrued interest and penalties related to unrecognized tax benefits of approximately $23.0 million and
$16.4 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.
33
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.
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
• Salary growth
• Retirement rates and ages
• Inflation
• Expected return on plan assets
• Mortality rates
For the years ended December 31, 2017, 2016 and 2015, 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. 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. Effective
January 1, 2016, we adopted a spot yield curve to determine the discount rate in the United Kingdom to measure the plan’s
service cost and interest cost for the year ended December 31, 2016. Previously, we had utilized a single weighted-average
discount rate derived from the “yield curve approach” to measure the plan’s benefit obligation, service cost and interest cost.
Since 2016, we have elected to utilize an approach that discounts the individual expected cash flows underlying benefit
obligation and service cost using the applicable spot rates derived from the yield curve over the projected cash flow period.
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 2016 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 2017 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.
34
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 87% of our
consolidated projected benefit obligation as of December 31, 2017. If the discount rate used to determine the 2017 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 $4.0 million at December 31, 2017, and our 2018 pension
expense would increase by approximately $0.4 million. If the discount rate used to determine the 2017 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 $3.8 million at December 31, 2017, and our 2018 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 $27.5 million at December 31, 2017, and our 2018 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 $26.2 million at
December 31, 2017, and our 2018 pension expense would decrease by approximately $0.3 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
points, our 2018 pension expense would decrease or increase by approximately $1.6 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 2018 pension expense by approximately $0.1 million, respectively.
Unrecognized actuarial net losses related to our defined benefit pension plans and ENPP were $360.1 million as of
December 31, 2017 compared to $384.7 million as of December 31, 2016. The decrease in unrecognized losses between years
primarily resulted from higher than expected actual asset returns during 2017. The unrecognized 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 average remaining service period of active employees expected to receive benefits. 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, 2017, the average
amortization period was 17 years for our U.S. defined benefit pension plans and 21 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. As of December 31, 2017, the average amortization period was
nine years for our ENPP. The estimated net actuarial loss for our defined benefit pension plans and ENPP expected to be
amortized from our accumulated other comprehensive loss during the year ended December 31, 2018 is approximately
$12.2 million compared to approximately $13.4 million during the year ended December 31, 2017.
As of December 31, 2017, our unfunded or underfunded obligations related to our defined benefit pension plans and
ENPP were approximately $224.9 million, primarily related to our defined benefit pension plans in the United Kingdom and
the United States. In 2017, we contributed approximately $30.3 million towards those obligations, and we expect to fund
approximately $32.9 million in 2018. 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
£15.3 million per year (or approximately $20.6 million) towards that obligation through September 2022. 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.
Other Postretirement Benefits (Retiree Health Care and Life Insurance)
We provide certain postretirement health care and life insurance benefits for certain employees, principally in the
United States and Brazil. Participation in these plans generally has been limited to older employees and existing retirees. See
Note 8 of our Consolidated Financial Statements for more information regarding costs and assumptions for other postretirement
benefits.
35
Nature of Estimates Required. The measurement of our obligations, costs and liabilities associated with other
postretirement benefits, such as retiree health care and life insurance, requires that we make use of estimates of the present
value of the projected future payments to all participants, taking into consideration the likelihood of potential future events such
as health care cost increases and demographic experience, which may have an effect on the amount and timing of future
payments.
Assumptions and Approach Used. The assumptions used in developing the required estimates include the following
key factors:
• Health care cost trends
• Discount rates
• Retirement rates
• Inflation
• Medical coverage elections
• Mortality rates
Our health care cost trend assumptions are developed based on historical cost data, the near-term outlook, efficiencies,
and other cost-mitigating actions, including further employee cost sharing, administrative improvements and other efficiencies,
as well as an assessment of likely long-term trends. For the years ended December 31, 2017, 2016 and 2015, we used a globally
consistent methodology as previously discussed to set the discount rate in the countries where our largest benefit obligations
exist. In the United States, 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. 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. plan’s projected benefit
payments. After the bond portfolio is selected, a single discount rate is determined such that the market value of the bonds
purchased equals the discounted value of the plan’s benefit payments. For our Brazilian plan, we based the discount rate on
government bond indices within that country. The indices used were chosen to match our expected plan obligations and related
expected cash flows. Our inflation assumptions are based on an evaluation of external market indicators. Retirement and
termination rates are based primarily on actual plan experience and actuarial standards of practice. The mortality rates for the
U.S. plans were updated during 2017 to reflect the Society of Actuaries’ most recent findings on the topic of mortality. 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 future periods.
Our U.S. postretirement health care and life insurance plans represent approximately 81% of our consolidated
accumulated postretirement benefit obligation. If the discount rate used to determine the 2017 accumulated postretirement
benefit obligation for our U.S. postretirement benefit plans was decreased by 25 basis points, our accumulated postretirement
benefit obligation would have increased by approximately $0.6 million at December 31, 2017, and our 2018 postretirement
benefit expense would increase by a nominal amount. If the discount rate used to determine the 2017 accumulated
postretirement benefit obligation for our U.S. postretirement benefit plans was increased by 25 basis points, our accumulated
postretirement benefit obligation would have decreased by approximately $0.6 million at December 31, 2017, and our 2018
postretirement benefit expense would decrease by a nominal amount.
Unrecognized actuarial losses related to our U.S. and Brazilian postretirement benefit plans were $3.8 million as of
December 31, 2017 compared to $2.0 million as of December 31, 2016, of which $3.4 million and $2.5 million, respectively,
related to our U.S. postretirement benefit plans. The unrecognized actuarial losses will be impacted in future periods by
discount rate changes, actual demographic experience, actual health care inflation and certain other factors. These 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
postretirement benefit plans. As of December 31, 2017, the average amortization period was 13 years for our U.S.
postretirement benefit plans. The estimated net actuarial loss for postretirement health care benefits expected to be amortized
from our accumulated other comprehensive loss during the year ended December 31, 2018 is $0.1 million, compared to
$0.1 million during the year ended December 31, 2017.
As of December 31, 2017, we had approximately $30.2 million in unfunded obligations related to our U.S. and
Brazilian postretirement health and life insurance benefit plans. In 2017, we made benefit payments of approximately
$1.6 million towards these obligations, and we expect to make benefit payments of approximately $1.6 million towards these
obligations in 2018.
For measuring the expected U.S. postretirement benefit obligation at December 31, 2017, we assumed a 6.75% health
care cost trend rate for 2018 decreasing to 5.0% by 2025. For measuring the expected U.S. postretirement benefit obligation at
December 31, 2016, we assumed a 7.0% health care cost trend rate for 2017 decreasing to 5.0% by 2025. For measuring the
36
Brazilian postretirement benefit plan obligation at December 31, 2017, we assumed an 11.0% health care cost trend rate for
2018, decreasing to 5.3% by 2029. For measuring the Brazilian postretirement benefit plan obligation at December 31, 2016,
we assumed an 11.8% health care cost trend rate for 2017, decreasing to 6.1% by 2028. Changing the assumed health care cost
trend rates by one percentage point each year and holding all other assumptions constant would have had the following effect to
service and interest cost for 2017 and the accumulated postretirement benefit obligation at December 31, 2017 (in millions):
Effect on service and interest cost ....................................................................................... $
Effect on accumulated postretirement benefit obligation.................................................... $
0.2
3.9
$
$
(0.1)
(3.2)
One Percentage
Point Increase
One Percentage
Point Decrease
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.
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, 2017, 2016 and
2015 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, 2017 indicated that the fair value in excess of the
carrying value related to our GSI EME reporting unit was approximately 12%. The percentage of the fair value in excess of the
carrying value increased slightly compared to our 2016 annual analysis, and more recent analyses during 2017. The operations
of the GSI reporting unit include the manufacturing and distribution of grain storage and protein production equipment. The
amount of goodwill allocated to GSI EME as of October 1, 2017 was approximately $248.1 million.
37
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, 2017, we had approximately $1,541.4 million of goodwill. While our annual impairment testing
in 2017 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.
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.
38
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, 2017 are included in this Item:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
The information under the heading “Quarterly Results” of Item 7 of this Form 10-K is incorporated herein by
reference.
Page
40
41
42
43
44
45
46
39
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
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, 2017 and 2016, 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, 2017,
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, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2017, 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, 2017, 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 February 28, 2018 expressed an unqualified opinion
on the effectiveness of the Company’s internal control over financial reporting.
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
February 28, 2018
40
AGCO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Net sales ...................................................................................................................... $
Cost of goods sold.......................................................................................................
Gross profit ...............................................................................................................
Selling, general and administrative expenses .............................................................
Engineering expenses..................................................................................................
Restructuring expenses ...............................................................................................
Amortization of intangibles ........................................................................................
Income from operations............................................................................................
Interest expense, net ....................................................................................................
Other expense, net.......................................................................................................
Income before income taxes and equity in net earnings of affiliates..........................
Income tax provision...................................................................................................
Income before equity in net earnings of affiliates.......................................................
Equity in net earnings of affiliates ..............................................................................
Net income ..................................................................................................................
Net (income) loss attributable to noncontrolling interests ..........................................
Net income attributable to AGCO Corporation and subsidiaries................................ $
Net income per common share attributable to AGCO Corporation and subsidiaries:
Basic ......................................................................................................................... $
Diluted ...................................................................................................................... $
Cash dividends declared and paid per common share ................................................ $
Weighted average number of common and common equivalent shares outstanding:
Basic .........................................................................................................................
Diluted ......................................................................................................................
Years Ended December 31,
2017
2016
2015
8,306.5
$
7,410.5
$
7,467.3
6,541.2
1,765.3
5,895.0
1,515.5
5,906.7
1,560.6
970.7
323.1
11.2
57.0
403.3
45.1
74.4
283.8
133.6
150.2
39.1
189.3
(2.9)
186.4
2.34
2.32
0.56
79.5
80.2
$
$
$
$
867.9
296.1
11.9
51.2
288.4
52.1
31.4
204.9
92.2
112.7
47.5
160.2
(0.1)
160.1
1.97
1.96
0.52
81.4
81.7
$
$
$
$
852.3
282.2
22.3
42.7
361.1
45.4
36.3
279.4
72.5
206.9
57.1
264.0
2.4
266.4
3.06
3.06
0.48
87.0
87.1
See accompanying notes to Consolidated Financial Statements.
41
AGCO CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
Years Ended December 31,
2017
2016
2015
189.3
$
160.2
$
264.0
Net income .................................................................................................................. $
Other comprehensive income (loss), net of reclassification adjustments:
Defined benefit pension plans, net of taxes:
Prior service cost arising during the year .........................................................
Net loss recognized due to settlement ..............................................................
Net gain recognized due to curtailment............................................................
Net actuarial gain (loss) arising during the year ..............................................
Amortization of prior service cost included in net periodic pension cost ........
Amortization of net actuarial losses included in net periodic pension cost .....
Derivative adjustments:
Net changes in fair value of derivatives ...........................................................
Net losses reclassified from accumulated other comprehensive loss into
income...........................................................................................................
Foreign currency translation adjustments..............................................................
Other comprehensive income (loss), net of reclassification adjustments ...................
Comprehensive income (loss) .....................................................................................
Comprehensive (income) loss attributable to noncontrolling interests.......................
Comprehensive income (loss) attributable to AGCO Corporation and subsidiaries... $
—
0.2
—
6.6
1.3
11.3
2.0
2.0
57.8
81.2
(2.6)
0.4
(0.1)
(62.9)
1.1
8.6
(4.7)
0.2
—
2.1
0.4
6.3
(7.7)
(4.6)
1.0
82.4
20.2
2.7
(558.2)
(555.8)
(291.8)
4.5
(287.3)
270.5
(4.1)
266.4
$
180.4
(1.7)
178.7
$
See accompanying notes to Consolidated Financial Statements.
42
AGCO CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
December 31,
2017
December 31,
2016
ASSETS
Current Assets:
Cash and cash equivalents........................................................................................................ $
Accounts and notes receivable, net ..........................................................................................
Inventories, net .........................................................................................................................
Other current assets ..................................................................................................................
Total current assets ..............................................................................................................
Property, plant and equipment, net .............................................................................................
Investment in affiliates ...............................................................................................................
Deferred tax assets......................................................................................................................
Other assets.................................................................................................................................
Intangible assets, net...................................................................................................................
Goodwill .....................................................................................................................................
Total assets.................................................................................................................................. $
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt ............................................................................................ $
Accounts payable .....................................................................................................................
Accrued expenses .....................................................................................................................
Other current liabilities.............................................................................................................
Total current liabilities.........................................................................................................
Long-term debt, less current portion and debt issuance costs ....................................................
Pensions and postretirement health care benefits .......................................................................
Deferred tax liabilities ................................................................................................................
Other noncurrent liabilities .........................................................................................................
Total liabilities .....................................................................................................................
Commitments and contingencies (Note 12)
Stockholders’ Equity:
AGCO Corporation stockholders’ equity:
$
$
$
367.7
1,019.4
1,872.9
367.7
3,627.7
1,485.3
409.0
112.2
147.1
649.0
1,541.4
7,971.7
95.4
917.5
1,407.9
229.8
2,650.6
1,618.1
247.3
130.5
229.9
4,876.4
429.7
890.4
1,514.8
330.8
3,165.7
1,361.3
414.9
99.7
143.1
607.3
1,376.4
7,168.4
85.4
722.6
1,160.8
176.1
2,144.9
1,610.0
270.0
112.4
193.9
4,331.2
Preferred stock; $0.01 par value, 1,000,000 shares authorized, no shares issued or
outstanding in 2017 and 2016...............................................................................................
Common stock; $0.01 par value, 150,000,000 shares authorized, 79,553,825 and
79,465,393 shares issued and outstanding at December 31, 2017 and 2016, respectively ..
Additional paid-in capital.........................................................................................................
Retained earnings .....................................................................................................................
Accumulated other comprehensive loss ...................................................................................
Total AGCO Corporation stockholders’ equity ...................................................................
Noncontrolling interests..............................................................................................................
Total stockholders’ equity....................................................................................................
Total liabilities and stockholders’ equity .................................................................................... $
—
—
0.8
136.6
4,253.8
(1,361.6)
3,029.6
65.7
3,095.3
7,971.7
$
0.8
103.3
4,113.6
(1,441.6)
2,776.1
61.1
2,837.2
7,168.4
See accompanying notes to Consolidated Financial Statements.
43
AGCO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except share amounts)
Accumulated Other Comprehensive Loss
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Noncontrolling
Interests
Total
Stockholders’
Equity
Balance, December 31, 2014............................................................................
Net income (loss)..........................................................................................
Payment of dividends to shareholders ..........................................................
Issuance of restricted stock...........................................................................
Issuance of stock awards ..............................................................................
SSARs exercised...........................................................................................
Stock compensation......................................................................................
Excess tax benefit of stock awards ...............................................................
Changes in noncontrolling interest ...............................................................
Purchases and retirement of common stock .................................................
Defined benefit pension plans, net of taxes:
Prior service cost arising during year ...........................................................
Net loss recognized due to settlement ..........................................................
Net actuarial gain arising during year...........................................................
Amortization of prior service cost included in net periodic pension cost ....
Amortization of net actuarial losses included in net periodic pension cost..
$
89,146,093
—
—
15,711
172,759
22,176
—
—
—
(5,541,930)
$
0.9
—
—
—
—
—
—
—
—
(0.1)
—
—
—
—
—
Deferred gains and losses on derivatives, net...............................................
Change in cumulative translation adjustment...............................................
Balance, December 31, 2015............................................................................
Net income....................................................................................................
—
—
83,814,809
—
Payment of dividends to shareholders ..........................................................
Issuance of restricted stock...........................................................................
Issuance of stock awards ..............................................................................
SSARs exercised...........................................................................................
Stock compensation......................................................................................
Investment by noncontrolling interests.........................................................
Changes in noncontrolling interest ...............................................................
—
15,395
27,333
21,106
—
—
—
Purchases and retirement of common stock .................................................
(4,413,250)
Defined benefit pension plans, net of taxes:
Prior service cost arising during year ...........................................................
Net loss recognized due to settlement ..........................................................
Net gain recognized due to curtailment........................................................
Net actuarial loss arising during year ...........................................................
Amortization of prior service cost included in net periodic pension cost ....
Amortization of net actuarial losses included in net periodic pension cost..
Deferred gains and losses on derivatives, net...............................................
Change in cumulative translation adjustment...............................................
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Defined
Benefit
Pension
Plans
$ (253.3)
—
—
—
—
—
—
—
—
—
(4.7)
0.2
2.1
0.4
6.3
—
—
(249.0)
—
—
—
—
—
—
—
—
—
(2.6)
0.4
(0.1)
(62.9)
1.1
8.6
—
—
Cumulative
Translation
Adjustment
$
(653.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(556.1)
(1,209.2)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
80.8
582.5
—
—
0.8
(5.6)
(0.7)
11.4
0.7
—
(287.4)
—
—
—
—
—
—
—
301.7
—
—
0.8
(0.9)
(0.9)
17.3
—
(2.2)
(212.5)
—
—
—
—
—
—
—
—
$
3,771.6
266.4
(42.0)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,996.0
160.1
(42.5)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance, December 31, 2016............................................................................
79,465,393
0.8
103.3
4,113.6
(304.5)
(1,128.4)
Net income....................................................................................................
Payment of dividends to shareholders ..........................................................
Issuance of restricted stock...........................................................................
Issuance of stock awards ..............................................................................
SSARs exercised...........................................................................................
Stock compensation......................................................................................
Investment by noncontrolling interests.........................................................
—
—
12,066
54,309
92,521
—
—
Purchases and retirement of common stock .................................................
(70,464)
Adjustment related to the adoption of ASU 2016-09 ...................................
Defined benefit pension plans, net of taxes:
Net loss recognized due to settlement ..........................................................
Net actuarial gain arising during year...........................................................
Amortization of prior service cost included in net periodic pension cost ....
Amortization of net actuarial losses included in net periodic pension cost..
Deferred gains and losses on derivatives, net...............................................
Change in cumulative translation adjustment...............................................
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.8
(2.2)
(4.4)
39.1
—
—
—
—
—
—
—
—
—
186.4
(44.5)
—
—
—
—
—
—
(1.7)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.2
6.6
1.3
11.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
56.6
Deferred
(Losses)
Gains on
Derivatives
$
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1.9)
—
(2.0)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6.7)
—
(8.7)
—
—
—
—
—
—
—
—
—
—
—
—
—
4.0
—
$
$
(906.5)
—
—
—
—
—
—
—
—
—
(4.7)
0.2
2.1
0.4
6.3
(1.9)
(556.1)
(1,460.2)
—
—
—
—
—
—
—
—
—
(2.6)
0.4
(0.1)
(62.9)
1.1
8.6
(6.7)
80.8
(1,441.6)
—
—
—
—
—
—
—
—
—
0.2
6.6
1.3
11.3
4.0
56.6
Balance, December 31, 2017............................................................................
79,553,825
$
0.8
$
136.6
$
4,253.8
$ (285.1)
$
(1,071.8)
$
(4.7)
$
(1,361.6)
$
See accompanying notes to Consolidated Financial Statements.
44
48.4
(2.4)
—
—
—
—
—
—
1.1
—
—
—
—
—
—
—
(2.1)
45.0
0.1
—
—
—
—
—
12.2
2.2
—
—
—
—
—
—
—
—
1.6
61.1
2.9
—
—
—
—
—
0.5
—
—
—
—
—
—
—
1.2
65.7
$
3,496.9
264.0
(42.0)
0.8
(5.6)
(0.7)
11.4
0.7
1.1
(287.5)
(4.7)
0.2
2.1
0.4
6.3
(1.9)
(558.2)
2,883.3
160.2
(42.5)
0.8
(0.9)
(0.9)
17.3
12.2
—
(212.5)
(2.6)
0.4
(0.1)
(62.9)
1.1
8.6
(6.7)
82.4
2,837.2
189.3
(44.5)
0.8
(2.2)
(4.4)
39.1
0.5
—
(1.7)
0.2
6.6
1.3
11.3
4.0
57.8
$
3,095.3
AGCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Years Ended December 31,
2016
2015
2017
Cash flows from operating activities:
Net income................................................................................................................ $
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation.........................................................................................................
Deferred debt issuance cost amortization ............................................................
Amortization of intangibles .................................................................................
Stock compensation expense ...............................................................................
Proceeds from termination of hedging instrument...............................................
Equity in net earnings of affiliates, net of cash received .....................................
Deferred income tax (benefit) provision..............................................................
Other ....................................................................................................................
Changes in operating assets and liabilities, net of effects from purchase of
businesses:
Accounts and notes receivable, net .................................................................
Inventories, net................................................................................................
Other current and noncurrent assets................................................................
Accounts payable ............................................................................................
Accrued expenses............................................................................................
Other current and noncurrent liabilities ..........................................................
Total adjustments..........................................................................................
Net cash provided by operating activities.....................................................
Cash flows from investing activities:
Purchases of property, plant and equipment.............................................................
Proceeds from sale of property, plant and equipment...............................................
Purchase of businesses, net of cash acquired............................................................
Investment in consolidated affiliates, net of cash acquired ......................................
Investments in unconsolidated affiliates...................................................................
Restricted cash and other ..........................................................................................
Net cash used in investing activities.............................................................
Cash flows from financing activities:
189.3
$
160.2
$
264.0
222.8
0.7
57.0
38.2
—
41.2
(14.1)
2.3
(34.7)
(196.0)
(36.6)
123.5
149.0
35.0
388.3
577.6
(203.9)
4.1
(293.1)
—
(0.8)
—
(493.7)
223.4
1.0
51.2
18.1
7.3
(1.4)
2.1
1.3
(4.5)
(33.1)
(98.7)
62.8
47.0
(67.2)
209.3
369.5
(201.0)
2.4
(383.8)
(11.8)
(4.5)
0.4
(598.3)
217.4
2.0
42.7
12.2
—
(19.0)
(26.8)
(0.1)
3.8
117.6
(49.3)
37.3
(34.8)
(42.8)
260.2
524.2
(211.4)
1.5
(25.4)
—
(3.8)
(1.7)
(240.8)
Proceeds from debt obligations ................................................................................
Repayments of debt obligations................................................................................
Purchases and retirement of common stock .............................................................
Payment of dividends to stockholders ......................................................................
Payment of minimum tax withholdings on stock compensation ..............................
Payment of debt issuance costs.................................................................................
Excess tax benefit related to stock compensation.....................................................
Investments by noncontrolling interests ...................................................................
Net cash (used in) provided by financing activities......................................
Effects of exchange rate changes on cash and cash equivalents.................................
(Decrease) increase in cash and cash equivalents .......................................................
Cash and cash equivalents, beginning of year ............................................................
Cash and cash equivalents, end of year....................................................................... $
3,513.9
(3,639.7)
—
(44.5)
(6.9)
—
—
0.5
(176.7)
30.8
(62.0)
429.7
367.7
$
3,117.9
(2,622.4)
(212.5)
(42.5)
(2.0)
(2.5)
—
0.4
236.4
(4.6)
3.0
426.7
429.7
$
1,951.9
(1,769.5)
(287.5)
(42.0)
(6.3)
(0.7)
0.7
—
(153.4)
(67.0)
63.0
363.7
426.7
See accompanying notes to Consolidated Financial Statements.
45
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 4,200
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.
Revenue Recognition
Sales of equipment and replacement parts are recorded by the Company when title and risks of ownership have been
transferred to an independent dealer, distributor or other customer. In certain countries, sales of certain grain storage and protein
production systems in which the Company is responsible for construction or installation and which may be contingent upon
customer acceptance, are recorded on an over-time basis, using a percentage of completion method. Payment terms vary by
market and product, with fixed payment schedules on all sales. The terms of sale generally require that a purchase order or
order confirmation accompany all shipments. 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
third-party carrier at the point of the stated shipping or delivery term. In certain foreign countries, the Company retains a form
of title to goods delivered to dealers until the dealer makes payment so that the Company can recover the goods in the event of
customer default on payment. This occurs as the laws of some foreign countries do not provide for a seller’s retention of a
security interest in goods in the same manner as established in the United States Uniform Commercial Code. The only right the
Company retains with respect to the title is that enabling recovery of the goods in the event of customer default on payment.
The dealer or distributor may not return equipment or replacement parts while its contract with the Company is in force.
Replacement parts may be returned only under promotional and annual return programs. Provisions for returns under these
programs are made at the time of sale based on the terms of the program and historical returns experience. The Company may
46
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
provide certain sales incentives to dealers and distributors. Provisions for sales incentives are made at the time of sale for
existing incentive programs. These provisions are revised in the event of subsequent modification to the incentive program. See
“Accounts and Notes Receivable” for further discussion.
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. Some specified programs in the United States and Canada may allow for interest-free periods and due
dates of up to 24 months for certain products. Interest generally is charged on the outstanding balance six to 12 months after
shipment or delivery. 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.
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. 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 and which may be
contingent upon customer acceptance, payment terms vary by market and product, with fixed payment schedules on all sales.
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.
Cash and Cash Equivalents
Cash at December 31, 2017 and 2016 of $317.0 million and $386.2 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, 2017 and 2016 of $50.7 million and $43.5 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. Payments due under the Company’s terms of sale generally range from one to 12 months and
are not contingent upon the sale of the equipment by the dealer or distributor to a retail customer. Under normal circumstances,
payment terms are not extended and 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.
The Company offers various sales terms with respect to its products. 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. For sales to certain dealers or distributors in the United States and Canada, interest is charged at or above prime
47
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
lending rates on outstanding receivable balances after interest-free periods. These interest-free periods vary by product and
generally range from one to 12 months as previously discussed. 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, predominantly in the United States and Canada, in which interest is charged after a period of up to 24 months
depending on the year of the sale and the dealer or distributor’s ordering or sales volume during the preceding year. 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. 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.
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):
North
Year Ended December 31, 2017
America
0 to 6 months ................................................. $ 1,399.6
7 to 12 months ...............................................
467.7
13 to 24 months .............................................
9.4
South
America
Europe/
Middle East
Asia/
Pacific/
Africa
Consolidated
$ 1,063.5
$
4,603.9
$
752.0
$ 7,819.0
94.1%
—
—
10.4
—
—
—
478.1
9.4
5.8%
0.1%
$ 1,876.7
$ 1,063.5
$
4,614.3
$
752.0
$ 8,306.5
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 often based on a percentage of the sales price and is recorded at the later of (a) the date at
which the related revenue is recognized, or (b) the date at which the sales incentive is offered. 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. 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. The Company records the cost of interest subsidy payments, which is a reduction
in the retail financing rates, at the later of (a) the date at which the related revenue is recognized, or (b) the date at which the
sales incentive is offered. 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 the Company does not receive an
identifiable benefit 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.
48
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2017 and 2016 were as follows (in millions):
Sales incentive discounts ........................................................................................................................ $
Doubtful accounts...................................................................................................................................
$
2017
2016
33.1
37.5
70.6
$
$
34.5
33.7
68.2
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
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, 2017 and 2016, the Company had recorded $165.7 million and $137.2 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, 2017 and 2016 were as follows (in millions):
Finished goods ............................................................................................................................ $
Repair and replacement parts......................................................................................................
Work in process ..........................................................................................................................
Raw materials .............................................................................................................................
2017
2016
684.1
$
605.9
178.7
404.2
589.3
532.5
113.8
279.2
Inventories, net ......................................................................................................................... $
1,872.9
$
1,514.8
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.
49
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
Property, plant and equipment, net at December 31, 2017 and 2016 consisted of the following (in millions):
Land ................................................................................................................................................ $
Buildings and improvements ..........................................................................................................
Machinery and equipment ..............................................................................................................
Furniture and fixtures .....................................................................................................................
Gross property, plant and equipment..............................................................................................
Accumulated depreciation and amortization ..................................................................................
Property, plant and equipment, net............................................................................................... $
2017
2016
130.6
792.0
2,391.6
147.6
3,461.8
(1,976.5)
1,485.3
$
$
112.1
681.8
2,116.1
126.4
3,036.4
(1,675.1)
1,361.3
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, 2017,
2016 and 2015 indicated that no reduction in the carrying amount of the Company’s goodwill and long-lived assets was
required.
50
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
Changes in the carrying amount of goodwill during the years ended December 31, 2017, 2016 and 2015 are
summarized as follows (in millions):
North
America
South
America
Europe/
Middle East
Asia/Pacific/
Africa
Consolidated
513.6
$
169.7
$
445.4
$
64.1
$
Balance as of December 31, 2014 ................ $
Acquisition ...................................................
Foreign currency translation.........................
Balance as of December 31, 2015 ................
Acquisitions..................................................
Foreign currency translation.........................
Balance as of December 31, 2016 ................
Acquisitions..................................................
Foreign currency translation.........................
Balance as of December 31, 2017 ................ $
5.1
—
518.7
25.2
—
543.9
67.2
—
611.1
$
—
(55.3)
114.4
—
24.4
138.8
—
(2.4)
136.4
4.4
(38.6)
411.2
196.4
(25.7)
581.9
17.4
71.7
12.7
(6.6)
70.2
47.6
(6.0)
111.8
—
11.1
1,192.8
22.2
(100.5)
1,114.5
269.2
(7.3)
1,376.4
84.6
80.4
$
671.0
$
122.9
$
1,541.4
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
Patents and technology.................................................................................................................................
Customer relationships.................................................................................................................................
Trademarks and trade names........................................................................................................................
Land use rights .............................................................................................................................................
Weighted-Average
Useful Life
12 years
13 years
19 years
45 years
For the years ended December 31, 2017, 2016 and 2015, acquired intangible asset amortization was $57.0 million,
$51.2 million and $42.7 million, respectively. The Company estimates amortization of existing intangible assets will be
$62.8 million in 2018 and 2019, $62.4 million in 2020, $59.8 million in 2021, and $59.1 million in 2022.
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 120 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 80 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.
51
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Changes in the carrying amount of acquired intangible assets during 2017 and 2016 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, 2015.............. $
Acquisitions ...............................................
Foreign currency translation ......................
Balance as of December 31, 2016..............
Acquisitions ...............................................
Foreign currency translation ......................
Balance as of December 31, 2017.............. $
122.2
$
492.3
$
92.5
$
9.1
$
61.2
(4.2)
179.2
19.5
9.7
69.0
(3.3)
558.0
24.4
18.0
32.3
(2.7)
122.1
28.1
9.8
208.4
$
600.4
$
160.0
$
—
(0.6)
8.5
—
0.6
9.1
$
716.1
162.5
(10.8)
867.8
72.0
38.1
977.9
Trademarks
and
Trade Names
Customer
Relationships
Patents and
Technology
Land Use
Rights
Total
Accumulated amortization:
Balance as of December 31, 2015 .............. $
Amortization expense .................................
Foreign currency translation .......................
Balance as of December 31, 2016 ..............
Amortization expense .................................
Foreign currency translation .......................
Balance as of December 31, 2017 .............. $
41.9
$
193.8
$
55.1
$
2.9
$
8.0
(0.2)
49.7
10.3
1.4
37.4
1.8
233.0
38.5
8.2
5.6
(1.2)
59.5
8.0
5.9
61.4
$
279.7
$
73.4
$
0.2
(0.4)
2.7
0.2
0.1
3.0
$
293.7
51.2
—
344.9
57.0
15.6
417.5
Indefinite-lived intangible assets:
Balance as of December 31, 2015 ......................................................................................................................... $
Foreign currency translation..................................................................................................................................
Balance as of December 31, 2016 .........................................................................................................................
Foreign currency translation..................................................................................................................................
Balance as of December 31, 2017 ......................................................................................................................... $
85.3
(0.9)
84.4
4.2
88.6
Trademarks
and
Trade Names
52
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Accrued Expenses
Accrued expenses at December 31, 2017 and 2016 consisted of the following (in millions):
Reserve for volume discounts and sales incentives................................................................................ $
Warranty reserves ...................................................................................................................................
Accrued employee compensation and benefits.......................................................................................
Accrued taxes..........................................................................................................................................
Other .......................................................................................................................................................
489.1
273.6
283.3
135.4
226.5
$ 1,407.9
2017
2016
$
407.3
223.1
234.0
113.5
182.9
$ 1,160.8
Warranty Reserves
The warranty reserve activity for the years ended December 31, 2017, 2016 and 2015 consisted of the following
(in millions):
Balance at beginning of the year....................................................................................... $
Acquisitions ......................................................................................................................
Accruals for warranties issued during the year .................................................................
Settlements made (in cash or in kind) during the year......................................................
Foreign currency translation .............................................................................................
Balance at the end of the year ........................................................................................... $
255.6
$
230.3
$
284.6
5.1
215.9
(183.1)
22.5
316.0
$
3.7
214.6
(188.7)
(4.3)
255.6
$
0.2
152.6
(186.2)
(20.9)
230.3
2017
2016
2015
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 $42.4 million and $32.5 million of warranty reserves are included in “Other
noncurrent liabilities” in the Company’s Consolidated Balance Sheets as of December 31, 2017 and 2016, respectively.
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 2017, 2016 and 2015:
Cost of goods sold............................................................................................................. $
Selling, general and administrative expenses ...................................................................
Total stock compensation expense .................................................................................... $
2.8
35.6
38.4
$
$
1.5
16.9
18.4
$
$
0.9
11.6
12.5
Years Ended December 31,
2017
2016
2015
53
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2017, 2016 and 2015 totaled approximately
$42.6 million, $46.8 million and $50.0 million, respectively.
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 $29.5 million, $24.3 million and $24.6 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
Interest Expense, Net
Interest expense, net for the years ended December 31, 2017, 2016 and 2015 consisted of the following (in millions):
Interest expense................................................................................................................. $
Interest income ..................................................................................................................
$
2017
2016
2015
54.5
(9.4)
45.1
$
$
65.4
(13.3)
52.1
$
$
64.1
(18.7)
45.4
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.
54
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2017, 2016 and 2015 is as follows (in millions, except per share data):
Basic net income per share:
Net income attributable to AGCO Corporation and subsidiaries...................................... $
Weighted average number of common shares outstanding...............................................
Basic net income per share attributable to AGCO Corporation and subsidiaries ............. $
Diluted net income per share:
Net income attributable to AGCO Corporation and subsidiaries ................................... $
Weighted average number of common shares outstanding ............................................
Dilutive SSARs, performance share awards and restricted stock units..........................
Weighted average number of common shares and common share equivalents
outstanding for purposes of computing diluted net income per share ........................
Diluted net income per share attributable to AGCO Corporation and subsidiaries
$
2017
2016
2015
186.4
79.5
2.34
186.4
79.5
0.7
80.2
2.32
$
$
$
$
160.1
81.4
1.97
160.1
81.4
0.3
81.7
1.96
$
$
$
$
266.4
87.0
3.06
266.4
87.0
0.1
87.1
3.06
SSARs to purchase 0.3 million shares, 1.1 million shares and 1.2 million shares of the Company’s common stock were
outstanding for the years ended December 31, 2017, 2016 and 2015, 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 income (loss) and the related tax effects for the
years ended December 31, 2017, 2016 and 2015 are as follows (in millions):
AGCO Corporation and
Subsidiaries
Noncontrolling
Interests
Before-tax
Amount
2017
Income
Taxes
After-tax
Amount
2017
After-tax
Amount
Defined benefit pension plans ......................................................... $
Net gain on derivatives....................................................................
Foreign currency translation adjustments........................................
Total components of other comprehensive income ......................... $
24.2
$
4.1
56.6
84.9
$
(4.8) $
(0.1)
—
(4.9) $
19.4
$
4.0
56.6
80.0
$
—
—
1.2
1.2
AGCO Corporation and
Subsidiaries
Noncontrolling
Interests
Before-tax
Amount
2016
Income
Taxes
After-tax
Amount
2016
After-tax
Amount
Defined benefit pension plans ......................................................... $
Net loss on derivatives.....................................................................
Foreign currency translation adjustments........................................
Total components of other comprehensive income ......................... $
(68.2) $
(6.8)
80.8
5.8
$
12.7
$
0.1
—
12.8
$
(55.5) $
(6.7)
80.8
18.6
$
—
—
1.6
1.6
55
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
AGCO Corporation and
Subsidiaries
Noncontrolling
Interests
Before-tax
Amount
2015
Income
Taxes
After-tax
Amount
2015
After-tax
Amount
Defined benefit pension plans ......................................................... $
Net loss on derivatives.....................................................................
Foreign currency translation adjustments........................................
Total components of other comprehensive loss............................... $
$
4.9
(3.1)
(556.1)
(554.3) $
(0.6) $
1.2
—
0.6
$
$
4.3
(1.9)
(556.1)
(553.7) $
—
—
(2.1)
(2.1)
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.
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 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“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 2017-07 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 effective January 1, 2018. The
standard did not have a material impact on the Company’s results of operations, financial condition and cash flows.
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
56
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 expects to adopt ASU 2017-07 on
January 1, 2018 and that the adoption will not have a material impact on its results of operations, financial condition and cash
flows.
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 expects to adopt ASU 2016-18 on January 1, 2018 and that the adoption will
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
expects to adopt ASU 2016-16 on January 1, 2018 and that the adoption will not have a material impact on its results of
operations, financial condition and cash flows.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments”
(“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in
practice. The standard is effective for annual periods beginning after December 15, 2017, and interim periods within those
fiscal years. ASU 2016-15 may be applied using a retrospective approach or a prospective approach, if impracticable to apply
the amendments retrospectively. Early adoption is permitted in any interim or annual period. The Company adopted
ASU 2016-15 on January 1, 2017 and the adoption did not have a material impact on its 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. 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”
upon adoption. The Company’s finance joint ventures are currently evaluating the standard’s impact to their results of
operations and financial condition.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment
Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment
transactions, including the accounting for forfeitures, employer tax withholding on share-based compensation and the financial
statement presentation of excess tax benefits or deficiencies. In addition, the standard clarifies the statement of cash flow
presentation for certain components of share-based awards. The Company adopted ASU 2016-09 on January 1, 2017 by
prospectively recognizing excess tax benefits and tax deficiencies in the Company’s Consolidated Statements of Operations as
the awards vest or were settled, when applicable, and by prospectively presenting excess tax benefits as an operating activity,
57
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
rather than a financing activity, in the Company’s Consolidated Statements of Cash Flows, when applicable. In addition, the
Company elected to change its accounting policy to recognize actual forfeitures, rather than estimate the number of awards that
are expected to vest, by adjusting stock compensation expense in the same period as the forfeitures occur. The change in
accounting policy was adopted using a modified retrospective approach, with a cumulative effect adjustment to “Retained
Earnings” of approximately $1.7 million as of January 1, 2017 for the difference between stock compensation expense
previously recorded and the amount that would have been recorded without assuming forfeitures.
In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”), which supersedes 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 standard does not significantly change the lessees’ recognition, measurement and presentation of
expenses and cash flows from the previous accounting standard. Leases are 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 asset representing
the right to use the leased asset during the term of an operating lease arrangement. Lessees are 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
standard is largely unchanged from the previous accounting standard. In addition, ASU 2016-02 expands the disclosure
requirements of lease arrangements. The standard is effective for reporting periods beginning after December 15, 2018, and
interim periods within those annual periods. Early adoption is permitted. Upon adoption, lessees and lessors are required to
recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The
Company is currently evaluating the impact of adopting this standard on the Company’s results of operations, financial
condition and cash flows, but the Company has elected not to early adopt the standard for the year ended December 31, 2017.
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 will require 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 will be 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. The standard is effective for reporting periods beginning after December 15, 2017, with early adoption
permitted for reporting periods beginning after December 31, 2016. 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 has
completed its evaluation process, including the identification of new controls and processes designed to meet the requirements
of the standard, as well as assessed the impact of adoption on the Consolidated Financial Statements and disclosures. Under the
new model, the Company will recognize a contract asset for the value of expected replacement parts returns. Effective
January 1, 2018, the Company adopted the new standard under the modified retrospective approach resulting in an insignificant
cumulative adjustment to “Retained Earnings”. The disclosures included in the Company’s Consolidated Financial Statements
related to revenue recognition will be significantly expanded under the new standard during 2018.
2.
Acquisitions
On October 2, 2017, the Company acquired the hay and forage division of the Lely Group (“Lely”) for
approximately €80.5 million (or approximately $95.0 million), net of cash acquired of approximately €6.0 million
(or approximately $7.1 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, loader wagons and other
harvesting tools. The acquisition was financed by the Company’s credit facility (Note 7).
58
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The preliminary fair values of the assets acquired and liabilities assumed as of the acquisition date are presented in the
following table (in millions):
Current assets ................................................................................................................................................ $
Property, plant and equipment.......................................................................................................................
Intangible assets ............................................................................................................................................
Goodwill........................................................................................................................................................
Total assets acquired................................................................................................................................
Current liabilities...........................................................................................................................................
Long-term liabilities......................................................................................................................................
Total liabilities assumed.........................................................................................................................
Net assets acquired................................................................................................................................. $
84.6
24.3
7.6
17.4
133.9
23.6
8.2
31.8
102.1
The acquired identifiable intangible assets of Lely as of the date of the acquisition are summarized in the following
table (in millions):
Intangible Asset
Customer relationships .................................................................................................. $
Technology ....................................................................................................................
Trademarks ....................................................................................................................
$
Amount
Weighted-Average
Useful Life
3.0
3.0
1.6
7.6
5 years
12 years
10 years
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).
The preliminary fair values of the assets acquired and liabilities assumed as of the acquisition date are presented in the
following table (in millions):
Current assets ................................................................................................................................................ $
Property, plant and equipment.......................................................................................................................
Intangible assets ............................................................................................................................................
Goodwill........................................................................................................................................................
Total assets acquired................................................................................................................................
Current liabilities...........................................................................................................................................
Total liabilities assumed.........................................................................................................................
Net assets acquired................................................................................................................................. $
59.5
20.8
64.4
67.2
211.9
12.2
12.2
199.7
59
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
Customer relationships .................................................................................................. $
Technology ....................................................................................................................
Trademarks ....................................................................................................................
$
Amount
Weighted-Average
Useful Life
21.4
25.1
17.9
64.4
14 years
10 years
20 years
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 DKK83.4 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 ................................................................................................................................................. $
Property, plant and equipment .......................................................................................................................
Intangible assets .............................................................................................................................................
Goodwill ........................................................................................................................................................
Total assets acquired ................................................................................................................................
Current liabilities ...........................................................................................................................................
Deferred tax liabilities....................................................................................................................................
Long-term debt and other noncurrent liabilities ............................................................................................
Total liabilities assumed..........................................................................................................................
Net assets acquired.................................................................................................................................. $
74.2
21.9
128.9
237.9
462.9
63.8
38.5
10.5
112.8
350.1
The acquired identifiable intangible assets of Cimbria as of the date of the acquisition are summarized in the following
table (in millions):
Intangible Asset
Customer relationships .................................................................................................. $
Technology ....................................................................................................................
Trademarks ....................................................................................................................
Amount
Weighted-Average
Useful Life
50.4
22.5
56.0
9 years
10 years
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
60
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
Customer relationships .................................................................................................. $
Technology ....................................................................................................................
Trademarks ....................................................................................................................
$
Amount
Weighted-Average
Useful Life
15.7
7.9
3.9
27.5
10 years
10 years
10 years
On April 17, 2015, the Company acquired Farmer Automatic GmbH & Co. KG (“Farmer Automatic”) for
approximately $17.9 million, net of cash acquired of approximately $0.1 million. Farmer Automatic, headquartered in Laer,
Germany, manufactures and supplies poultry housing and related products, including egg production cages and broiler
production equipment. The acquisition was financed with available cash on hand. 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, property, plant and equipment,
and customer relationship, technology and trademark identifiable intangible assets. The Company recorded approximately
$9.6 million of identifiable intangible assets and approximately $10.0 million of goodwill associated with the acquisition. The
results of operations of Farmer Automatic have been included in the Company’s Consolidated Financial Statements as of and
from the date of the acquisition. The associated goodwill has been included in the Company’s Europe/Middle East,
North America and Asia/Pacific/Africa geographical reportable segments.
The acquired identifiable intangible assets of Farmer Automatic as of the date of the acquisition are summarized in the
following table (in millions):
Intangible Asset
Customer relationships .................................................................................................. $
Technology ....................................................................................................................
Trademarks ....................................................................................................................
$
Weighted-Average
Useful Life
10 years
10 years
10 years
Amount
4.1
3.6
1.9
9.6
61
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3.
Restructuring Expenses
Beginning in 2014 through 2017, 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 2,750 employees in 2014, 2015 and 2016. During 2017, the Company
recorded severance and related costs associated with further rationalizations in connection with the termination of
approximately 620 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, 2014 .............................................. $
2015 provision ............................................................................
2015 provision reversal...............................................................
2015 cash activity .......................................................................
Foreign currency translation .......................................................
Balance as of December 31, 2015 ..............................................
2016 provision ............................................................................
2016 provision reversal...............................................................
2016 cash activity .......................................................................
Foreign currency translation .......................................................
Balance as of December 31, 2016 ..............................................
2017 provision ............................................................................
Less: Non-cash expense..............................................................
Cash expense ....................................................................
2017 provision reversal...............................................................
2017 cash activity .......................................................................
Foreign currency translation .......................................................
Balance as of December 31, 2017 .............................................. $
4.
Accounts Receivable Sales Agreements
— $
25.3
$
—
—
—
—
—
—
—
—
—
—
0.2
(0.2)
—
—
—
—
23.0
(0.7)
(29.4)
(1.3)
16.9
11.0
(0.1)
(13.1)
(0.2)
14.5
12.4
—
12.4
(1.4)
(16.0)
1.4
$
0.1
—
—
(0.1)
—
—
1.0
—
(0.2)
—
0.8
—
—
—
—
(0.8)
—
— $
10.9
$
— $
25.4
23.0
(0.7)
(29.5)
(1.3)
16.9
12.0
(0.1)
(13.3)
(0.2)
15.3
12.6
(0.2)
12.4
(1.4)
(16.8)
1.4
10.9
At December 31, 2017 and 2016, 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, 2017 and 2016, the cash received from receivables sold under the
U.S., Canadian, European and Brazilian accounts receivable sales agreements was approximately $1.3 billion and $1.1 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 $39.2 million,
$19.5 million and $18.8 million during 2017, 2016 and 2015, respectively.
62
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2017 and 2016, these finance joint ventures had approximately $41.6 million and $41.5 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, 2017 and 2016 were as follows (in millions):
Finance joint ventures......................................................................................................... $
Manufacturing joint ventures..............................................................................................
Other affiliates ....................................................................................................................
373.7
$
20.1
15.2
$
409.0
$
380.8
17.8
16.3
414.9
2017
2016
The Company’s manufacturing joint ventures as of December 31, 2017 consisted 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), and joint ventures with third-party manufacturers to assemble tractors in
Algeria and engines in South America. The other joint ventures represent investments in farm equipment manufacturers, an
electronic and software system manufacturer, distributors and licensees.
The Company’s equity in net earnings of affiliates for the years ended December 31, 2017, 2016 and 2015 were as
follows (in millions):
Finance joint ventures ......................................................................... $
Manufacturing and other joint ventures ..............................................
$
2017
2016
2015
39.9
(0.8)
39.1
$
$
45.5
2.0
47.5
$
$
53.8
3.3
57.1
Summarized combined financial information of the Company’s finance joint ventures as of December 31, 2017 and
2016 and for the years ended December 31, 2017, 2016 and 2015 were as follows (in millions):
Total assets.......................................................................................................................... $
Total liabilities ....................................................................................................................
Partners’ equity ...................................................................................................................
8,440.0
$
7,677.3
762.7
7,448.0
6,670.8
777.2
As of December 31,
2017
2016
For the Years Ended December 31,
2016
2017
2015
Revenues ............................................................................................. $
Costs....................................................................................................
Income before income taxes ............................................................... $
305.7
183.0
122.7
$
$
297.4
159.0
138.4
$
$
313.0
158.1
154.9
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 (Note 14).
63
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At December 31, 2017 and 2016, the Company’s receivables from affiliates were approximately $23.4 million and
$54.4 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 $321.9 million and $312.6 million as of December 31, 2017 and 2016, 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, 2017, 2016 and 2015 (in millions):
United States ..................................................................................................................... $
Foreign ..............................................................................................................................
Income before income taxes and equity in net earnings of affiliates ................................ $
(141.6) $
425.4
283.8
$
(150.0) $
354.9
204.9
$
(49.1)
328.5
279.4
2017
2016
2015
The provision (benefit) for income taxes by location of the taxing jurisdiction for the years ended December 31, 2017,
2016 and 2015 consisted of the following (in millions):
Current:
United States:
Federal........................................................................................................................ $
State............................................................................................................................
Foreign............................................................................................................................
Deferred:
United States:
Federal........................................................................................................................
State............................................................................................................................
Foreign............................................................................................................................
$
2017
2016
2015
20.3
0.6
126.8
147.7
0.9
—
(15.0)
(14.1)
133.6
$
$
(24.3) $
0.2
114.2
90.1
21.9
—
(19.8)
2.1
92.2
$
(1.3)
2.8
97.8
99.3
(19.0)
—
(7.8)
(26.8)
72.5
On December 22, 2017, the Tax Cuts and Jobs Act (“the 2017 Tax Act”) was enacted in the United States. The 2017
Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, including a reduction of the U.S.
corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. The 2017 Tax Act
also provides for a one-time transition tax on certain foreign earnings and the acceleration of depreciation for certain assets
placed into service after September 27, 2017, as well as prospective changes beginning in 2018, including the repeal of the
domestic manufacturing deduction, capitalization of research and development expenditures, additional limitations on
executive compensation and limitations on the deductibility of interest.
During the three months ended December 31, 2017, the Company recorded a provision of approximately $42.0 million
in accordance with Staff Accounting Bulletin No. 118, which provides SEC Staff guidance for the application of ASC 740,
“Income Taxes,” in the reporting period in which the 2017 Tax Act was enacted. The Company’s Consolidated Financial
Statements reflect both the income tax effects of the 2017 Tax Act for which the accounting under ASC 740 is complete as well
as provisional amounts for those specific income tax effects of the 2017 Tax Act for which the accounting under ASC 740 is
incomplete but a reasonable estimate could be determined. The Company did not identify any items for which the income tax
effects of the 2017 Tax Act have not been completed and a reasonable estimate could not be determined as of
December 31, 2017.
The $42.0 million provision included a provisional income tax charge of approximately $14.3 million related to the
one-time transition tax associated with the mandatory deemed repatriation of approximately $3.4 billion of unremitted foreign
earnings. The $42.0 million provision included in the Company’s rate reconciliation below as “Impacts related to the 2017 Tax
Act” is net of (a) a $49.6 million benefit associated with 2017 U.S. pre-tax losses that were netted against the determination of
64
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
the U.S. transition tax and (b) a $37.0 million benefit from the use of certain tax credits. The offsets of these benefits are
reflected within “Tax effect of permanent differences” and “Change in valuation allowance”, respectively. The Company’s
provision also included a provisional income tax charge of approximately $10.4 million for the income tax consequences
associated with the expected future repatriation of certain underlying foreign earnings as, historically, the Company had
considered them to be indefinitely reinvested. The remaining balance of the Company’s 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. The final impact of the tax reform legislation may differ materially due to factors such as further refinement of
the Company’s calculations, changes in interpretations and assumptions that the Company and its advisors have made,
additional guidance that may be issued in the future by the U.S. government, and actions that the Company may take as a result
of the tax reform legislation. Additional information and analysis are needed for factors such as whether non-U.S. entities are
subject to withholding taxes, have reserve requirements, or have projected working capital and other capital needs in the
country where the earnings were generated that would result in a decision to indefinitely reinvest a portion or all of their
earnings. When more guidance and interpretations are released, specifically with respect to the transition tax and future
repatriation of foreign earnings to the U.S., the Company will complete its accounting and revise any provisional estimates, if
required.
A reconciliation of income taxes computed at the United States federal statutory income tax rate (35%) to the
provision for income taxes reflected in the Company’s Consolidated Statements of Operations for the years ended
December 31, 2017, 2016 and 2015 is as follows (in millions):
Provision for income taxes at United States federal statutory rate of 35%....................... $
State and local income taxes, net of federal income tax effects........................................
Taxes on foreign income which differ from the United States statutory rate ...................
Tax effect of permanent differences..................................................................................
Change in valuation allowance .........................................................................................
Change in tax contingency reserves..................................................................................
Research and development tax credits ..............................................................................
Impacts related to the 2017 Tax Act..................................................................................
Other..................................................................................................................................
$
2017
2016
2015
99.3
(5.7)
(57.7)
60.6
(1.4)
3.8
(5.0)
42.0
(2.3)
133.6
$
$
71.7
(6.0)
(44.5)
14.4
37.9
23.4
(3.8)
—
(0.9)
92.2
$
$
97.8
(2.0)
(34.9)
7.1
(4.5)
15.4
(4.9)
—
(1.5)
72.5
65
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The significant components of the deferred tax assets and liabilities at December 31, 2017 and 2016 were as follows
(in millions):
Deferred Tax Assets:
Net operating loss carryforwards ......................................................................................................... $
Sales incentive discounts......................................................................................................................
Inventory valuation reserves ................................................................................................................
Pensions and postretirement health care benefits.................................................................................
Warranty and other reserves.................................................................................................................
Research and development tax credits .................................................................................................
Foreign tax credits ................................................................................................................................
Other.....................................................................................................................................................
Total gross deferred tax assets.........................................................................................................
Valuation allowance .............................................................................................................................
Total net deferred tax assets.............................................................................................................
Deferred Tax Liabilities:
Tax over book depreciation and amortization ......................................................................................
Investment in affiliates .........................................................................................................................
Other.....................................................................................................................................................
Total deferred tax liabilities.............................................................................................................
Net deferred tax (liabilities) assets .................................................................................................. $
Amounts recognized in Consolidated Balance Sheets:
Deferred tax assets - noncurrent........................................................................................................... $
Deferred tax liabilities - noncurrent .....................................................................................................
$
2017
2016
$
83.4
60.2
34.4
52.2
92.2
2.9
10.4
19.2
354.9
(81.9)
273.0
229.1
53.9
8.3
291.3
(18.3) $
85.5
73.7
39.9
70.4
118.1
11.2
24.0
24.6
447.4
(116.0)
331.4
284.9
45.6
13.6
344.1
(12.7)
$
112.2
(130.5)
(18.3) $
99.7
(112.4)
(12.7)
The Company recorded a net deferred tax liability of $18.3 million and $12.7 million as of December 31, 2017 and
December 31, 2016, respectively. As reflected in the preceding table, the Company had a valuation allowance of $81.9 million
and $116.0 million as of December 31, 2017 and 2016, respectively.
During the second quarter of 2016, the Company established a valuation allowance to fully reserve its net deferred tax
assets in the United States. The decrease in the Company’s valuation allowance during 2017 was primarily related to the release
of a portion of the Company’s valuation allowance in China, which it had maintained against the deferred tax assets of one of
its Chinese subsidiaries. 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 $272.3 million as of December 31, 2017, with expiration dates
as follows: 2018 - $26.5 million; 2019 - $41.1 million; 2020 - $48.2 million and thereafter or unlimited - $156.5 million. The
net operating loss carryforwards of $272.3 million were entirely in tax jurisdictions outside of the United States.
The Company paid income taxes of $111.2 million, $106.2 million and $97.6 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
At December 31, 2017 and 2016, the Company had $163.4 million and $139.9 million, respectively, of unrecognized
income tax benefits, all of which would affect the Company’s effective tax rate if recognized. At December 31, 2017 and 2016,
the Company had approximately $61.8 million and $47.0 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
66
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
next 12 months. The Company accrued approximately $4.6 million and $3.4 million of interest and penalties related to
unrecognized tax benefits in its provision for income taxes during 2017 and 2016, respectively. At December 31, 2017 and
2016, the Company had accrued interest and penalties related to unrecognized tax benefits of $23.0 million and $16.4 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, 2017 and 2016 is as follows (in millions):
Gross unrecognized income tax benefits ............................................................................................ $
Additions for tax positions of the current year ...................................................................................
Additions for tax positions of prior years ...........................................................................................
Reductions for tax positions of prior years for:
Changes in judgments ......................................................................................................................
Settlements during the year ..............................................................................................................
Lapses of applicable statute of limitations .......................................................................................
Foreign currency translation ............................................................................................................
Gross unrecognized income tax benefits ............................................................................................ $
2017
2016
139.9
$
133.0
16.4
4.8
1.4
(0.4)
(14.4)
15.7
163.4
$
14.4
15.2
(1.2)
(13.8)
(5.0)
(2.7)
139.9
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, 2017, 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 2014 through 2017 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 2012 through 2017 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).
7.
Indebtedness
Indebtedness consisted of the following at December 31, 2017 and 2016 (in millions):
1.056% Senior term loan due 2020..................................................................................... $
Credit facility, expires 2020................................................................................................
Senior term loans due 2021 ................................................................................................
5
7/8% Senior notes due 2021 ..............................................................................................
Senior term loans due between 2019 and 2026 ..................................................................
Other long-term debt...........................................................................................................
Debt issuance costs .............................................................................................................
Less: Current portion of other long-term debt..................................................................
Total indebtedness, less current portion ........................................................................... $
December 31,
2017
December 31,
2016
239.8
471.2
119.9
305.3
449.7
131.6
(4.0)
1,713.5
(95.4)
1,618.1
$
$
211.0
329.2
316.5
306.6
395.6
141.6
(5.1)
1,695.4
(85.4)
1,610.0
67
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At December 31, 2017, the aggregate scheduled maturities of long-term debt, excluding the current portion of
long-term debt, are as follows (in millions):
2019.................................................................................................................................................................... $
2020....................................................................................................................................................................
2021....................................................................................................................................................................
2022....................................................................................................................................................................
Thereafter ...........................................................................................................................................................
81.0
721.9
655.4
2.5
157.3
$
1,618.1
Cash payments for interest were approximately $51.4 million, $58.8 million and $63.0 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
1.056% Senior Term Loan
In December 2014, the Company entered into a term loan with the European Investment Bank, under which the
Company borrowed €200.0 million (or approximately $239.8 million as of December 31, 2017). The 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 contains
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.
Credit Facility
The Company’s revolving credit and term loan facility consists of an $800.0 million multi-currency revolving
credit facility and a €312.0 million (or approximately $374.2 million as of December 31, 2017) term loan facility. The
maturity date of the credit facility is June 26, 2020. Under the credit facility agreement, interest accrues 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. 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. The credit facility contains 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 a default. 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, 2017, the Company had $471.2 million of outstanding borrowings under the credit facility and the ability to
borrow approximately $703.0 million under the facility. Approximately $97.0 million was outstanding under the multi-currency
revolving credit facility and €312.0 million (or approximately $374.2 million) was outstanding under the term loan facility as of
December 31, 2017. As of December 31, 2016, no amounts were outstanding under the Company’s multi-currency revolving
credit facility, and the Company had the ability to borrow approximately $800.0 million under the facility. Approximately
€312.0 million (or approximately $329.2 million) was outstanding under the term loan facility as of December 31, 2016.
During 2015, the Company designated its €312.0 million ( $374.2 million at December 31, 2017) 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 2021
In April 2016, the Company entered into two term loan agreements with Coöperatieve Centrale Raiffeisen-
Boerenleenbank B.A. (“Rabobank”), in the amount of €100.0 million and
funding was received on April 26, 2016 and was partially used to repay the Company’s former 4½% senior term loan with
Rabobank which was due May 2, 2016. The Company received net proceeds of approximately €99.6 million (or approximately
$112.2 million) after debt issuance costs. The provisions of the two term loans were identical in nature. In December 2017,
€200.0 million, respectively. The €300.0 million of
68
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
the Company repaid its €200.0 million (or approximately $239.8 million) term loan. The Company’s
(or approximately $119.9 million as of December 31, 2017) remains outstanding. The Company had the ability to prepay the
term loans before their maturity date on April 26, 2021. Interest is and was payable on the term loans per annum, equal to the
EURIBOR plus a margin ranging from 1.0% to 1.75% based on the Company’s net leverage ratio. Interest is and was paid
quarterly in arrears. The remaining term loan contains 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. The Company
also has to fulfill financial covenants with respect to a total debt to EBITDA ratio and an interest coverage ratio.
€100.0 million
57/8% Senior Notes
The Company’s $305.3 million of 57/8% senior notes due December 1, 2021 constitute senior unsecured and
unsubordinated indebtedness. Interest is payable on the notes semi-annually in arrears. At any time prior to
September 1, 2021, the Company may 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 may 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 will be amortized as a reduction to “Interest expense, net” over the remaining term of the 57/8% senior notes through
December 1, 2021. As of December 31, 2017 and 2016, the unamortized portion of the deferred gain was approximately
$5.3 million and $6.6 million, respectively. The amortization for 2017 and 2016 was approximately $1.3 million and
$0.7 million, respectively.
Senior Term Loans Due Between 2019 and 2026
In October 2016, the Company borrowed an aggregate amount of €375.0 million (or approximately $449.7 million as
of December 31, 2017) through a group of seven related term loan agreements. The Company received net proceeds of
approximately €373.2 million (or approximately $409.5 million as of October 19, 2016) after debt issuance costs and were used
to repay borrowings made under the Company’s revolving credit facility. 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. Interest is payable on the term loans in arrears either semi-annually or annually as provided
below (in millions):
Maturity Date
October 19, 2019
October 19, 2019
October 19, 2021
October 19, 2021
October 19, 2023
October 19, 2023
October 19, 2026
Floating or Fixed
Interest Rate
Floating
Fixed
Floating
Fixed
Floating
Fixed
Fixed
Interest Rate
Interest Payment
EURIBOR + 0.75%
Semi-Annually
0.75%
Annually
EURIBOR + 1.00%
Semi-Annually
1.00%
Annually
EURIBOR + 1.25%
Semi-Annually
1.33%
1.98%
Annually
Annually
Term Loan
Amount
1.0
55.0
25.5
166.5
1.0
73.5
52.5
375.0
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.
69
€
€
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2017 and 2016, outstanding letters of credit totaled $15.2 million and $17.1 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, 2017, 2016 and 2015 for the Company’s defined benefit
pension plans and ENPP are set forth below (in millions):
Pension benefits
Service cost ....................................................................................................................
Interest cost ....................................................................................................................
Expected return on plan assets .......................................................................................
Amortization of net actuarial losses ...............................................................................
Amortization of prior service cost..................................................................................
Net loss recognized due to settlement ............................................................................
Net gain recognized due to curtailment..........................................................................
Special termination benefits ...........................................................................................
Net annual pension cost..................................................................................................
2017
2016
2015
$
17.1
$
16.2
$
20.6
(35.9)
13.4
1.2
0.2
—
—
24.6
(38.8)
10.0
1.0
0.4
(0.1)
—
18.7
31.2
(44.4)
8.0
0.4
0.2
—
0.5
$
16.6
$
13.3
$
14.6
70
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2017, 2016 and 2015 are as follows:
All plans:
Weighted average discount rate ..........................................................
Weighted average expected long-term rate of return on plan assets...
Rate of increase in future compensation .............................................
U.S.-based plans:
Weighted average discount rate ..........................................................
Weighted average expected long-term rate of return on plan assets(1)
Rate of increase in future compensation(2) ..........................................
___________________________________
(1) Applicable for U.S. funded, qualified plans.
(2) Applicable for U.S. unfunded, nonqualified plan.
2017
2016
2015
2.7%
5.8%
3.6%
6.8%
3.5%
6.8%
1.5%-5.0%
2.0%-5.0%
2.25%-5.0%
4.25%
6.0%
5.0%
4.60%
6.0%
5.0%
4.15%
6.0%
5.0%
Net annual postretirement benefit costs, and the weighted average discount rate used to determine them, for the years
ended December 31, 2017, 2016 and 2015 are set forth below (in millions, except percentages):
Postretirement benefits
Service cost........................................................................................
Interest cost........................................................................................
Amortization of prior service cost.....................................................
Amortization of net actuarial losses ..................................................
Net annual postretirement benefit cost ..............................................
$
$
0.1
1.4
0.2
0.1
1.8
$
$
2017
2016
2015
— $
1.4
0.2
—
1.6
$
5.1%
—
1.3
0.2
0.1
1.6
4.6%
Weighted average discount rate.........................................................
5.3%
71
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following tables set forth reconciliations of the changes in benefit obligation, plan assets and funded status as of
December 31, 2017 and 2016 (in millions):
Change in benefit obligation
Benefit obligation at beginning of year .............
Service cost ........................................................
Interest cost ........................................................
Plan participants’ contributions..........................
Actuarial losses ..................................................
Amendments ......................................................
Settlements.........................................................
Curtailments.......................................................
Benefits paid ......................................................
Foreign currency exchange rate changes ...........
Benefit obligation at end of year........................
Change in plan assets
Fair value of plan assets at beginning of year....
Actual return on plan assets ...............................
Employer contributions......................................
Plan participants’ contributions..........................
Benefits paid ......................................................
Settlements.........................................................
Foreign currency exchange rate changes ...........
Fair value of plan assets at end of year ..............
Funded status .....................................................
Unrecognized net actuarial losses......................
Unrecognized prior service cost.........................
Accumulated other comprehensive loss.............
Net amount recognized ......................................
Amounts recognized in Consolidated
Balance Sheets:
Other current liabilities ......................................
Accrued expenses...............................................
Pensions and postretirement health care
benefits (noncurrent)..........................................
Net amount recognized ......................................
Pension and ENPP
Benefits
Postretirement
Benefits
2017
2016
2017
2016
$
849.8
$
844.4
$
28.6
$
27.3
—
1.4
—
0.6
—
—
—
(1.2)
0.5
28.6
—
—
1.2
—
(1.2)
—
—
—
(28.6)
2.0
3.4
(5.4)
(28.6)
(1.5)
—
(27.1)
(28.6)
17.1
20.6
1.1
0.5
—
(0.7)
—
(42.6)
70.9
916.7
$
16.2
24.6
1.1
121.9
3.3
(3.8)
(0.4)
(44.1)
(113.4)
849.8
$
0.1
1.4
—
1.8
—
—
—
(1.6)
(0.1)
30.2
$
Pension and ENPP
Benefits
Postretirement
Benefits
2017
2016
2017
2016
601.7
$
630.7
$
— $
—
1.6
—
(1.6)
—
—
— $
(30.2) $
3.8
3.2
(7.0)
(30.2) $
(1.6)
—
(28.6)
(30.2) $
47.3
30.3
1.1
(42.6)
(0.7)
54.7
691.8
$
(224.9) $
360.1
12.2
(372.3)
(224.9) $
84.4
31.3
1.1
(44.1)
(3.8)
(97.9)
601.7
$
(248.1) $
384.7
13.4
(398.1)
(248.1) $
(3.9)
(2.3)
(3.5)
(1.7)
(218.7)
(224.9) $
(242.9)
(248.1) $
72
$
$
$
$
$
$
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2017 and 2016 (in millions):
Before-Tax
Amount
Income
Tax
After-Tax
Amount
Accumulated other comprehensive loss as of December 31, 2015............................
Prior service cost arising during the year ...................................................................
Net loss recognized due to settlement ........................................................................
Net gain recognized due to curtailment......................................................................
Net actuarial loss arising during the year ...................................................................
Amortization of prior service cost..............................................................................
Amortization of net actuarial losses ...........................................................................
Accumulated other comprehensive loss as of December 31, 2016............................
Net loss recognized due to settlement ........................................................................
Net actuarial gain arising during the year ..................................................................
Amortization of prior service cost..............................................................................
Amortization of net actuarial losses ...........................................................................
Accumulated other comprehensive loss as of December 31, 2017............................
$
$
$
(336.6) $
(3.3)
0.5
(0.1)
(76.5)
1.2
10.0
(404.8) $
0.3
9.0
1.4
13.5
(380.6) $
(87.6) $
(0.7)
0.1
—
(13.6)
0.1
1.4
(100.3) $
0.1
2.4
0.1
2.2
(95.5) $
(249.0)
(2.6)
0.4
(0.1)
(62.9)
1.1
8.6
(304.5)
0.2
6.6
1.3
11.3
(285.1)
As of December 31, 2017, the Company’s accumulated other comprehensive loss included net actuarial losses of
approximately $360.1 million and net prior service cost of approximately $12.2 million related to the Company’s defined
benefit pension plans and ENPP. The estimated net actuarial losses and net prior service cost for the defined benefit pension
plans and ENPP expected to be amortized from the Company’s accumulated other comprehensive loss during the year ended
December 31, 2018 are approximately $12.2 million and $1.2 million, respectively.
As of December 31, 2017, the Company’s accumulated other comprehensive loss included net actuarial losses of
approximately $3.8 million and net prior service cost of approximately $3.2 million related to the Company’s U.S. and
Brazilian postretirement health care benefit plans. The estimated net actuarial losses and net prior service cost for
postretirement health care benefit plans expected to be amortized from the Company’s accumulated other comprehensive loss
during the year ended December 31, 2018 are approximately $0.1 million and $0.2 million, respectively.
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 $946.0 million, $891.2 million and $690.8 million, respectively, as of December 31, 2017, and $877.6 million,
$823.8 million and $600.9 million, respectively, as of December 31, 2016. 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 $129.6 million, $111.5 million and $36.6 million, respectively,
as of December 31, 2017, and $118.1 million, $101.9 million and $36.2 million, respectively, as of December 31, 2016. The
Company’s accumulated comprehensive loss as of December 31, 2017 reflects 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, where the projected benefit obligation exceeded
the plan assets. In addition, the Company’s accumulated comprehensive loss as of December 31, 2017 reflects a reduction in
equity of approximately $1.3 million, net of taxes of $0.5 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 2017 of approximately $0.1 million. The
Company’s accumulated comprehensive loss as of December 31, 2016 reflected a reduction in equity of $403.5 million, net of
taxes of $99.8 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, 2016 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 2016 of approximately
$0.1 million.
73
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2017 and 2016 are as follows:
All plans:
Weighted average discount rate ..........................................................................................
Rate of increase in future compensation.............................................................................
U.S.-based plans:
Weighted average discount rate ..........................................................................................
Rate of increase in future compensation(1)..........................................................................
____________________________________
(1) Applicable for U.S. unfunded, nonqualified plan.
2017
2016
2.5%
2.7%
1.75%-5.0%
1.5%-5.0%
3.70%
5.0%
4.25%
5.0%
The weighted average discount rate used to determine the benefit obligation for the Company’s postretirement benefit
plans for the years ended December 31, 2017 and 2016 was 4.9% and 5.3%, respectively.
For the years ended December 31, 2017, 2016 and 2015, 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
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. 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. Effective January 1, 2016, the Company adopted a spot yield curve to determine the discount rate in the
United Kingdom to measure the plan’s service cost and interest cost for the year ended December 31, 2016. Previously, the
Company had utilized a single weighted-average discount rate derived from the “yield curve approach” to measure the plan’s
benefit obligation, service cost and interest cost. Since 2016, the Company has elected to utilize an approach that discounts the
individual expected cash flows underlying benefit obligation and service cost using the applicable spot rates derived from the
yield curve over the projected cash flow period.
74
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 expected U.S. postretirement benefit
obligation at December 31, 2016, the Company assumed a 7.0% health care cost trend rate for 2017 decreasing to 5.0% by
2025. 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. For measuring the Brazilian postretirement benefit plan
obligation at December 31, 2016, the Company assumed an 11.8% health care cost trend rate for 2017, decreasing to 6.1% by
2028. Changing the assumed health care cost trend rates by one percentage point each year and holding all other assumptions
constant would have had the following effect to service and interest cost for 2017 and the accumulated postretirement benefit
obligation for both the U.S. and Brazilian postretirement plans at December 31, 2017 (in millions):
One Percentage
Point Increase
One Percentage
Point Decrease
Effect on service and interest cost ...................................................................................... $
Effect on accumulated postretirement benefit obligation ................................................... $
0.2
3.9
$
$
(0.1)
(3.2)
The Company currently estimates its minimum contributions and benefit payments to its U.S.-based underfunded
defined benefit pension plans and unfunded ENPP for 2018 will aggregate approximately $3.1 million. The Company currently
estimates its benefit payments for 2018 to its U.S.-based postretirement health care and life insurance benefit plans will
aggregate approximately $1.6 million and its benefit payments for 2018 to its Brazilian postretirement health care benefit plans
will aggregate approximately less than $0.1 million. The Company currently estimates its minimum contributions for
underfunded plans and benefit payments for unfunded plans for 2018 to its non-U.S.-based defined benefit pension plans will
aggregate approximately $29.8 million, of which approximately $20.6 million relates to its U.K. pension plan.
During 2017, approximately $43.3 million of benefit payments were made related to the Company’s defined benefit
pension plans and ENPP. At December 31, 2017, the aggregate expected benefit payments for the Company’s defined benefit
pension plans and ENPP are as follows (in millions):
2018.................................................................................................................................................................... $
2019....................................................................................................................................................................
2020....................................................................................................................................................................
2021....................................................................................................................................................................
2022....................................................................................................................................................................
2023 through 2027 .............................................................................................................................................
$
47.6
46.6
48.5
49.4
50.0
271.6
513.7
During 2017, approximately $1.6 million of benefit payments were made related to the Company’s U.S. and Brazilian
postretirement benefit plans. At December 31, 2017, the aggregate expected benefit payments for the Company’s U.S. and
Brazilian postretirement benefit plans are as follows (in millions):
2018.................................................................................................................................................................... $
2019....................................................................................................................................................................
2020....................................................................................................................................................................
2021....................................................................................................................................................................
2022....................................................................................................................................................................
2023 through 2027 .............................................................................................................................................
1.6
1.7
1.7
1.8
1.8
9.4
$
18.0
75
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Investment Strategy and Concentration of Risk
The weighted average asset allocation of the Company’s U.S. pension benefit plans as of December 31, 2017 and 2016
are as follows:
Asset Category
Large and small cap domestic equity securities................................................................
International equity securities ...........................................................................................
Domestic fixed income securities .....................................................................................
Other investments .............................................................................................................
Total...................................................................................................................................
2017
2016
31%
12%
43%
14%
100%
29%
11%
42%
18%
100%
The weighted average asset allocation of the Company’s non-U.S. pension benefit plans as of December 31, 2017 and
2016 are as follows:
Asset Category
Equity securities ................................................................................................................
Fixed income securities.....................................................................................................
Other investments .............................................................................................................
Total...................................................................................................................................
2017
2016
40%
53%
7%
100%
39%
54%
7%
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.
76
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 ....................................................... $
Non-U.S. equities...................................................
U.K. equities ..........................................................
U.S. large cap equities ...........................................
U.S. small cap equities...........................................
Total equity securities .......................................
Fixed income:
Aggregate fixed income.........................................
International fixed income .....................................
Total fixed income share(1) ...............................
Alternative investments:
Private equity fund.................................................
Hedge funds measured at net asset value(4)............
Total alternative investments(2)..........................
Miscellaneous funds(3)..............................................
Cash and equivalents measured at net asset value(4)
Total assets ........................................................ $
121.7
$
121.7
$
— $
4.3
129.9
6.9
4.4
267.2
136.0
214.4
350.4
2.4
34.8
37.2
25.4
11.6
691.8
4.3
129.9
6.9
4.4
267.2
136.0
214.4
350.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
617.6
$
— $
—
—
—
—
—
—
—
—
—
2.4
—
2.4
25.4
—
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):
Beginning balance as of December 31, 2016...................................... $
Actual return on plan assets:
(a) Relating to assets still held at reporting date...............................
(b) Relating to assets sold during period ..........................................
Purchases, sales and /or settlements....................................................
Foreign currency exchange rate changes ............................................
Ending balance as of December 31, 2017........................................... $
Total
Alternative
Investments
Miscellaneous
Funds
23.8
$
2.4
$
(2.3)
—
3.4
2.9
27.8
$
(0.1)
—
0.1
—
2.4
$
21.4
(2.2)
—
3.3
2.9
25.4
77
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The fair value of the Company’s pension assets as of December 31, 2016 is as follows (in millions):
Total
Level 1
Level 2
Level 3
Equity securities:
Global equities ....................................................... $
Non-U.S. equities...................................................
U.K. equities ..........................................................
U.S. large cap equities ...........................................
U.S. small cap equities...........................................
Total equity securities .......................................
Fixed income:
Aggregate fixed income.........................................
International fixed income .....................................
Total fixed income share(1) ...............................
Alternative investments:
Private equity fund.................................................
Hedge funds measured at net asset value(4)............
Total alternative investments(2)..........................
Miscellaneous funds(3)..............................................
Cash and equivalents measured at net asset value(4)
103.6
$
103.6
$
— $
4.1
109.1
6.2
4.3
227.3
118.0
191.9
309.9
2.4
34.4
36.8
21.4
6.3
4.1
109.1
6.2
4.3
227.3
118.0
191.9
309.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total assets ........................................................ $
601.7
$
537.2
$
— $
—
—
—
—
—
—
—
—
—
2.4
—
2.4
21.4
—
23.8
_______________________________________
(1) 31% of “fixed income” securities are in foreign securities; 25% are in government treasuries; 19% are in investment-grade corporate bonds; 13% are in
high-yield securities; and 12% are in other various fixed income securities.
(2) 32% of “alternative investments” are in relative value funds; 27% are in long-short equity funds; 23% are in event-driven funds; 12% 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, 2016 (in millions):
Beginning balance as of December 31, 2015...................................... $
Actual return on plan assets:
(a) Relating to assets still held at reporting date...............................
(b) Relating to assets sold during period ..........................................
Purchases, sales and /or settlements....................................................
Foreign currency exchange rate changes ............................................
Ending balance as of December 31, 2016........................................... $
Total
Alternative
Investments
Miscellaneous
Funds
24.1
$
2.4
$
1.0
—
(0.8)
(0.5)
23.8
—
—
—
—
$
2.4
$
21.7
1.0
—
(0.8)
(0.5)
21.4
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
78
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 30% large- and small-cap domestic equity securities, 12% international equity securities, 44%
broad fixed income securities and 14% in alternative investments. The Company has noted that over very long periods, this mix
of investments would achieve an average return of approximately 6.4%. In arriving at the choice of an expected return
assumption of 6.0% for its U.S. plans for the year ended December 31, 2018, 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 6.0%. In arriving at the
choice of an expected return assumption of 5.5% for its U.K.-based plans for the year ended December 31, 2018, 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 $12.3 million, $11.6 million and $12.0 million
for the years ended December 31, 2017, 2016 and 2015, respectively.
9.
Stockholders’ Equity
Common Stock
At December 31, 2017, the Company had 150,000,000 authorized shares of common stock with a par value of
$0.01 per share, with approximately 79,553,825 shares of common stock outstanding and approximately 4,053,539 shares
reserved for issuance under the Company’s 2006 Long-Term Incentive Plan (the “2006 Plan”) (Note 10).
Share Repurchase Program
During 2012, 2013, 2014 and 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.
79
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During 2016 and 2015, the Company repurchased 4,413,250 and 5,541,930 shares of its common stock, respectively,
for approximately $212.5 million and $287.5 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.
As of December 31, 2017, the remaining amount authorized to be repurchased is approximately $331.4 million. The
authorization for $300.0 million of this amount will expire in December 2019. The remaining amount authorized has no
expiration date.
Dividends
The Company’s Board of Directors has declared and the Company has paid quarterly cash dividends of $0.12 per
common share beginning in the first quarter of 2015, $0.13 per common share beginning the first quarter of 2016, and
$0.14 per common share beginning the first quarter of 2017, respectively, and on January 25, 2018, the Company’s Board of
Directors approved an increase in the quarterly dividend to $0.15 per common share beginning the first quarter of 2018.
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, 2017 and 2016 (in millions):
Defined Benefit
Pension Plans
Cumulative
Translation
Adjustment
Deferred Net
Gains (Losses)
on Derivatives
Total
Accumulated other comprehensive loss,
December 31, 2015......................................... $
Other comprehensive loss before
reclassifications .......................................
Net losses reclassified from accumulated
other comprehensive loss ........................
Other comprehensive (loss) income, net of
reclassification adjustments ............................
Accumulated other comprehensive loss,
December 31, 2016.........................................
Other comprehensive income before
reclassifications .......................................
Net losses reclassified from accumulated
other comprehensive loss ........................
Other comprehensive income, net of
reclassification adjustments ............................
Accumulated other comprehensive loss,
December 31, 2017......................................... $
(249.0) $
(1,209.2) $
(2.0) $
(1,460.2)
(65.2)
9.7
(55.5)
80.8
—
80.8
(304.5)
(1,128.4)
6.8
12.6
19.4
56.6
—
56.6
(7.7)
1.0
(6.7)
(8.7)
2.0
2.0
4.0
7.9
10.7
18.6
(1,441.6)
65.4
14.6
80.0
(285.1) $
(1,071.8) $
(4.7) $
(1,361.6)
80
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2017 and 2016 (in millions):
Details about Accumulated Other
Comprehensive Loss Components
Year ended
December 31, 2017 (1)
Year ended
December 31, 2016 (1)
Amount Reclassified from Accumulated Other
Comprehensive Loss
Affected Line Item
within the
Consolidated
Statements of
Operations
Derivatives:
Net gains on foreign currency contracts........
$
Net losses on interest rate contract ................
Reclassification before tax ................................
Reclassification net of tax .................................
$
Defined benefit pension plans:
Amortization of net actuarial losses...............
Amortization of prior service cost .................
Reclassification before tax ................................
$
Reclassification net of tax .................................
$
Net losses reclassified from accumulated other
comprehensive loss ........................................
$
(0.2) $
2.4
2.2
(0.2)
2.0
$
13.5
$
1.4
14.9
(2.3)
12.6
$
14.6
$
(1.0) Cost of goods sold
2.0
Interest expense, net
1.0
— Income tax provision
(2)
(2)
Income tax provision
1.0
10.0
1.2
11.2
(1.5)
9.7
10.7
____________________________________
(1)
(2) These accumulated other comprehensive loss components are included in the computation of net periodic pension and postretirement benefit cost. See
(Gains) losses included within the Consolidated Statements of Operations for the years ended December 31, 2017 and 2016, respectively.
Note 8 to the Company’s Consolidated Financial Statements.
81
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10.
Stock Incentive Plan
Under the 2006 Plan, up to 10,000,000 shares of AGCO common stock may be issued. As of December 31, 2017, of
the 10,000,000 shares reserved for issuance under the 2006 Plan, approximately 4,053,539 shares were available for grant,
assuming the maximum number of shares are earned related to the performance award grants discussed below. The 2006 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 margin and selling, general and administrative expenses and overhead levels, as determined by the
Company’s Board of Directors. The stock awards under the 2006 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 2006 Plan are paid in shares of common stock
at the end of each performance period. 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 2017, 2016 and 2015 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 2006 Plan
during 2017, 2016 and 2015 was as follows:
Years Ended December 31,
2017
2016
2015
Weighted average grant-date fair value ............................................
$
61.94
$
47.93
$
45.54
During 2017, the Company granted 539,598 performance awards related to varying performance periods. The awards
granted assume the maximum target level of performance is achieved.
Performance award transactions during 2017 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 ......................................................................................................
Shares awarded...................................................................................................................................................
Shares forfeited or unearned ..............................................................................................................................
Shares earned and vested....................................................................................................................................
Shares awarded but not earned at December 31 ................................................................................................
1,982,120
539,598
(876,640)
—
1,645,078
The 2006 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. Based on the level of performance achieved as of
December 31, 2017 and 2016, no shares were earned and vested or issued.
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.
As of December 31, 2017, 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 $35.5 million, and the weighted average period over which it is expected to be recognized is approximately
82
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2017, the Company granted 111,166 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. Dividends on grants prior to January 2016 will accrue on all unvested grants
until the end of each vesting date within this grant’s three-year requisite service period. Subsequent grants do not accrue
dividends. 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 2006 Plan
during the year ended December 31, 2017 and 2016 was $61.99 and $45.10, respectively. RSU transactions during the year
ended December 31, 2017 were as follows:
Shares awarded but not vested at January 1 .......................................................................................................
Shares awarded...................................................................................................................................................
Shares forfeited ..................................................................................................................................................
Shares vested ......................................................................................................................................................
Shares awarded but not vested at December 31 .................................................................................................
222,730
111,166
(7,783)
(88,645)
237,468
As of December 31, 2017, the total compensation cost related to the unvested RSUs not yet recognized was
approximately $6.9 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 award grants made to certain executives and key
managers under the 2006 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 $3.0 million, $3.8 million and $5.0 million
associated with SSAR award grants during 2017, 2016 and 2015, 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 SSARs granted under the 2006 Plan and the weighted average
assumptions under the Black-Scholes option model were as follows for the years ended December 31, 2017, 2016 and 2015:
Weighted average grant-date fair value............................................... $
Weighted average assumptions under Black-Scholes option model:
Expected life of awards (years)...........................................................
Risk-free interest rate ..........................................................................
Expected volatility ..............................................................................
Expected dividend yield......................................................................
Years Ended December 31,
2017
2016
2015
11.45
$
7.98
$
7.41
3.0
1.5%
25.9%
0.9%
3.0
1.1%
25.9%
1.1%
3.0
0.9%
25.9%
1.1%
83
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SSAR transactions during the year ended December 31, 2017 were as follows:
SSARs outstanding at January 1 ........................................................................................................................
SSARs granted ...................................................................................................................................................
SSARs exercised ................................................................................................................................................
SSARs canceled or forfeited ..............................................................................................................................
SSARs outstanding at December 31 ..................................................................................................................
SSAR price ranges per share:
Granted.............................................................................................................................................................
Exercised..........................................................................................................................................................
Canceled or forfeited........................................................................................................................................
Weighted average SSAR exercise prices per share:
Granted.............................................................................................................................................................
Exercised..........................................................................................................................................................
Canceled or forfeited........................................................................................................................................
Outstanding at December 31............................................................................................................................
1,458,611
286,200
(670,269)
(14,350)
1,060,192
63.47-70.41
32.01-55.23
32.01-63.47
63.51
52.04
48.42
52.48
$
$
At December 31, 2017, the weighted average remaining contractual life of SSARs outstanding was approximately
five years. As of December 31, 2017, the total compensation cost related to unvested SSARs not yet recognized was
approximately $4.3 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, 2017:
Range of Exercise
Prices
Number of
Shares
$43.39-$52.94
$55.07-$70.41
614,600
445,592
1,060,192
SSARs Outstanding
Weighted
Average
Remaining
Contractual
Life
(Years)
SSARs Exercisable
Weighted
Average
Exercise Price
Exercisable as of
December 31, 2017
Weighted
Average
Exercise Price
4.1
5.0
$
$
46.35
60.94
248,975
99,067
348,042
$
$
$
47.62
57.11
50.32
The total fair value of SSARs vested during 2017 was approximately $3.5 million. There were 712,150 SSARs that
were not vested as of December 31, 2017. The total intrinsic value of outstanding and exercisable SSARs as of
December 31, 2017 was $20.1 million and $7.3 million, respectively. The total intrinsic value of SSARs exercised during 2017
was approximately $10.8 million.
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 2006 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
2006 Plan was less than $0.1 million for the year ended December 31, 2016. 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 2006 Plan was approximately
$0.7 million for the year ended December 31, 2015. 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, 2017, 2016 and 2015.
On January 23, 2018, the Company granted 220,900 performance award shares (subject to the Company achieving
future target levels of performance), 157,700 SSARs and 111,119 of restricted stock units under the 2006 Plan.
84
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Director Restricted Stock Grants
Pursuant to the 2006 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 2017 grant was made on April 27, 2017 and equated to 14,968 shares of common stock, of
which 12,066 shares of common stock were issued, after shares were withheld for taxes. The Company recorded stock
compensation expense of approximately $1.0 million during 2017 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 150 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 Euro in relation to the British pound.
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 and
the Swiss franc in relation to the Euro. 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.
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.
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.
85
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 2017, 2016 and 2015, 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
$96.8 million and $111.2 million as of December 31, 2017 and 2016, respectively.
Interest Rate 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 (or approximately $374.2 million at
December 31, 2017) 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 pays a fixed interest rate of 0.33% plus the applicable margin, and the counterparty to
the agreement pays a floating interest rate based on the three-month EURIBOR.
Changes in the fair value of the interest rate swap are recorded in accumulated other comprehensive loss and are
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 affects earnings.
86
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 earnings during 2017, 2016 and 2015 (in millions):
Gain (Loss)
Recognized in
Accumulated
Other
Comprehensive
Loss
Recognized in Earnings
Gain (Loss)
Reclassified from
Accumulated
Other
Comprehensive
Loss into Income
Classification of
Gain (Loss)
2017
Foreign currency contracts(1)............................................. $
Interest rate contract..........................................................
Total.......................................................................... $
2016
Foreign currency contracts................................................ $
Interest rate contract..........................................................
Total.......................................................................... $
2015
Cost of goods sold
Interest expense, net
2.7
(0.7)
2.0
(2.6) Cost of goods sold
(5.1)
(7.7)
Interest expense, net
Foreign currency contracts................................................ $
(2.3) Cost of goods sold
Interest rate contract..........................................................
Total.......................................................................... $
(2.3)
(4.6)
Interest expense, net
____________________________________
(1) The outstanding contracts as of December 31, 2017 range in maturity through December 2018.
$
$
$
$
$
$
0.4
(2.4)
(2.0)
1.0
(2.0)
(1.0)
(2.4)
(0.3)
(2.7)
There was no ineffectiveness with respect to the cash flow hedges during the years ended December 31, 2017, 2016
and 2015.
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, 2017, 2016 and 2015 (in millions):
Before-Tax
Amount
Income
Tax
After-Tax
Amount
Accumulated derivative net losses as of December 31, 2014 ..................................
Net changes in fair value of derivatives ...................................................................
Net losses reclassified from accumulated other comprehensive loss into income...
Accumulated derivative net losses as of December 31, 2015 ..................................
Net changes in fair value of derivatives ...................................................................
Net losses reclassified from accumulated other comprehensive loss into income...
Accumulated derivative net losses as of December 31, 2016 ..................................
Net changes in fair value of derivatives ...................................................................
Net losses reclassified from accumulated other comprehensive loss into income...
Accumulated derivative net losses as of December 31, 2017 ..................................
$
$
(0.2) $
(6.2)
3.1
(3.3)
(7.8)
1.0
(10.1)
1.9
2.2
(6.0) $
(0.1) $
(1.6)
0.4
(1.3)
(0.1)
—
(1.4)
(0.1)
0.2
(1.3) $
(0.1)
(4.6)
2.7
(2.0)
(7.7)
1.0
(8.7)
2.0
2.0
(4.7)
87
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 2015, the Company entered
into an interest rate swap instrument with a notional amount of $300.0 million and an expiration date of December 1, 2021
designated as a fair value hedge of the Company’s 57/8% senior notes (Note 7). Under the interest rate swap, the Company paid
a floating interest rate based on the three-month LIBOR plus a spread of 4.14% and the counterparty to the agreement paid a
fixed interest rate of 57/8%. The gains and losses related to changes in the fair value of the interest rate swap were recorded to
“Interest expense, net” and offset changes in the fair value of the underlying hedged 57/8% senior notes.
During 2016, the Company terminated the existing interest rate swap transaction and received cash proceeds of
approximately $7.3 million. The resulting gain was deferred and is being amortized as a reduction to “Interest expense, net”
over the remaining term of the Company’s 57/8% senior notes through December 1, 2021. Refer to Note 7 for further
information.
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 dedesignated 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 (or approximately $374.2 million as of December 31, 2017)
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.
The following table summarizes the notional values and the after-tax impact of changes in the fair value of the
instrument designated as a net investment hedge (in millions):
Notional Amount as of
(Loss) Gain Recognized in
Accumulated
Other Comprehensive Loss for
the Years Ended
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
Foreign currency denominated debt.............................. $
374.2
$
329.2
$
(45.0) $
12.7
There was no ineffectiveness with respect to the net investment hedge during the years ended December 31, 2017 and
2016.
Derivative Transactions Not Designated as Hedging Instruments
During 2017, 2016 and 2015, 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, 2017 and 2016, the Company had outstanding foreign currency
contracts with a notional amount of approximately $1,701.4 million and $1,550.2 million, respectively.
88
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the impact that changes in the fair value of derivatives not designated as hedging
instruments had on earnings (in millions):
For the Years Ended
Foreign currency contracts ..........................
Other expense, net
$
38.3
$
(5.7) $
(67.3)
Classification of
Gain (Loss)
December 31,
2017
December 31,
2016
December 31,
2015
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
Interest rate contract ...................................... Other noncurrent assets
$
— Other current liabilities
— Other noncurrent liabilities
$
1.2
4.8
Derivative instruments not designated as
hedging instruments:
Foreign currency contracts ............................ Other current assets
7.8 Other current liabilities
Total derivative instruments .....................
$
7.8
11.0
$ 17.0
The table below sets forth the fair value of derivative instruments as of December 31, 2016 (in millions):
Asset Derivatives as of
December 31, 2016
Liability Derivatives as of
December 31, 2016
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivative instruments designated as hedging
instruments:
Foreign currency contracts ............................ Other current assets
Interest rate contract ...................................... Other noncurrent assets
$
0.2 Other current liabilities
$
— Other noncurrent liabilities
3.9
6.4
Derivative instruments not designated as
hedging instruments:
Foreign currency contracts ............................ Other current assets
Total derivative instruments .....................
6.3 Other current liabilities
6.5
$
3.1
$ 13.4
89
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12.
Commitments and Contingencies
The future payments required under the Company’s significant commitments, excluding indebtedness, as of
December 31, 2017 are as follows (in millions):
2018
2019
2020
2021
2022
Thereafter
Total
Payments Due By Period
Interest payments related to indebtedness(1) ..... $
Capital lease obligations ...................................
Operating lease obligations...............................
Unconditional purchase obligations(2) ..............
Other short-term and long-term obligations(3) ..
105.8
Total contractual cash obligations .................. $ 252.4
5.5
47.5
64.4
29.2
$
26.8
$
47.3
$
20.9
$
3.8
30.0
7.3
71.0
2.4
21.7
2.2
50.1
$ 138.9
$ 123.7
$
1.5
16.3
0.9
60.2
99.8
$
2.5
1.1
12.1
0.1
33.1
48.9
$
$
5.7
3.5
39.6
—
35.9
84.7
$ 132.4
17.8
167.2
74.9
356.1
$ 748.4
____________________________________
(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).
Guarantees ........................................................ $ 109.2
$
2.8
$
2.0
$
0.9
$
0.2
$
— $ 115.1
Amount of Commitment Expiration Per Period
2018
2019
2020
2021
2022
Thereafter
Total
Off-Balance Sheet Arrangements
Guarantees
The Company maintains a remarketing agreement with its U.S. finance joint venture, whereby the Company is
obligated to repurchase repossessed inventory at market values. The Company has an agreement with its U.S. finance joint
venture, AGCO Finance LLC, that limits the Company’s purchase obligations under this arrangement to $6.0 million in the
aggregate per 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, 2017, the Company has outstanding guarantees of indebtedness owed to third parties of
approximately $115.1 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 2022. The Company believes the credit risk associated with these guarantees is not material to its financial
position or results of operations. 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.
Other
At December 31, 2017, the Company had outstanding designated and non-designated foreign exchange contracts with
a gross notional amount of approximately $1,798.2 million. The outstanding contracts as of December 31, 2017 range in
maturity through December 2018 (Note 11).
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
90
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 $73.0 million, $76.8 million and $77.2 million for the
years ended December 31, 2017, 2016 and 2015, respectively.
Contingencies
The Environmental Protection Agency of Victoria, Australia issued a notice to the Company’s Australian subsidiary
regarding remediation of contamination of a property located in a suburb of Melbourne, Australia. The property was owned and
divested by the subsidiary before the subsidiary was acquired by the Company. The Australian subsidiary is in correspondence
with the Environmental Protection Agency concerning the notice. At this time, the Company is not able to determine whether
the subsidiary might have any liability or the nature and cost of any possible required remediation.
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, 2017, not including interest and penalties, was approximately 131.5 million Brazilian Reais (or approximately
$39.7 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.
91
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016 are summarized
below (in millions):
Derivative assets .................................................................................. $
Derivative liabilities............................................................................. $
— $
— $
7.8 $
17.0 $
— $
— $
7.8
17.0
As of December 31, 2017
Level 1
Level 2
Level 3
Total
As of December 31, 2016
Level 1
Level 2
Level 3
Total
Derivative assets .................................................................................. $
Derivative liabilities............................................................................. $
— $
— $
6.5 $
13.4 $
— $
— $
6.5
13.4
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, credit facility, senior term
loans due 2021 and senior term loans due between 2019 and 2026 (Note 7) approximate fair value based on the borrowing rates
currently available to the Company for loans with similar terms and average maturities. At December 31, 2017, the estimated
fair value of the Company’s 57/8% senior notes (Note 7), based on their listed market values, was approximately $324.7 million,
compared to its carrying value of $305.3 million.
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 2017 and 2015, 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 2017 and 2016, the Company received dividends of approximately $78.5 million and $44.5 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, 2017, 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 2017, 2016 and 2015, the Company
purchased approximately $102.0 million, $128.5 million and $129.2 million, respectively, of tractors and components from
TAFE. During 2017, 2016 and 2015, the Company sold approximately $1.2 million, $1.1 million and $2.2 million, respectively,
of parts to TAFE. The Company received dividends from TAFE of approximately $1.8 million, $1.6 million and $1.7 million
during 2017, 2016 and 2015, respectively.
92
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During 2017, 2016 and 2015, the Company paid approximately $7.2 million, $3.1 million and $3.5 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 2017, 2016 and 2015, the Company paid approximately $1.5 million, $2.0 million and $0.6 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, 2017, 2016 and 2015 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, 2017, 2016 and 2015 based on the Company’s current reportable segments are as follows
(in millions):
Years Ended December 31,
2017
Net sales..................................................................
Income from operations..........................................
Depreciation............................................................
Assets......................................................................
Capital expenditures ...............................................
2016
Net sales..................................................................
Income from operations..........................................
Depreciation............................................................
Assets......................................................................
Capital expenditures ...............................................
2015
Net sales..................................................................
Income (loss) from operations ................................
Depreciation............................................................
Assets......................................................................
Capital expenditures ...............................................
North
America
South
America
Europe/
Middle East
Asia/
Pacific/
Africa
Consolidated
$ 1,876.7
$ 1,063.5
$
4,614.3
$
752.0
$
8,306.5
64.7
61.5
1,064.1
59.1
14.5
30.5
752.1
43.0
500.0
113.0
2,074.4
92.9
48.8
17.8
499.4
8.9
628.0
222.8
4,390.0
203.9
$ 1,807.7
$
917.5
$
4,089.7
$
595.6
$
7,410.5
39.1
62.5
978.5
45.3
19.9
22.9
739.4
56.0
409.4
116.6
1,635.2
90.1
$ 1,965.0
$
949.0
$
4,037.6
$
34.4
20.9
495.7
28.6
401.3
120.3
1,732.9
95.4
123.4
62.7
984.4
48.6
93
19.7
21.4
426.3
9.6
515.7
(12.2)
13.5
396.5
38.8
488.1
223.4
3,779.4
201.0
$
7,467.3
546.9
217.4
3,609.5
211.4
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation from the segment information to the consolidated balances for income from operations and total
assets is set forth below (in millions):
Segment income from operations ....................................................... $
Corporate expenses .............................................................................
Stock compensation expense ..............................................................
Restructuring expenses .......................................................................
Amortization of intangibles ................................................................
Consolidated income from operations ................................................ $
Segment assets .................................................................................... $
Cash and cash equivalents...................................................................
Investments in affiliates ......................................................................
Deferred tax assets, other current and noncurrent assets ....................
Intangible assets, net ...........................................................................
Goodwill..............................................................................................
Consolidated total assets ..................................................................... $
2017
2016
2015
$
$
$
628.0
(120.9)
(35.6)
(11.2)
(57.0)
403.3
4,390.0
367.7
409.0
614.6
649.0
1,541.4
$
$
$
488.1
(119.7)
(16.9)
(11.9)
(51.2)
288.4
3,779.4
429.7
414.9
560.7
607.3
1,376.4
7,971.7
$
7,168.4
$
546.9
(109.2)
(11.6)
(22.3)
(42.7)
361.1
3,609.5
426.7
392.9
446.4
507.7
1,114.5
6,497.7
Net sales by customer location for the years ended December 31, 2017, 2016 and 2015 were as follows (in millions):
Net sales:
United States..................................................................................... $
Canada ..............................................................................................
Germany ...........................................................................................
France ...............................................................................................
United Kingdom and Ireland ............................................................
Finland and Scandinavia...................................................................
Other Europe.....................................................................................
South America ..................................................................................
Middle East and Algeria ...................................................................
Africa ................................................................................................
Asia ...................................................................................................
Australia and New Zealand ..............................................................
Mexico, Central America and Caribbean..........................................
2017
2016
2015
1,445.7
$
1,404.6
$
1,624.0
296.9
997.4
815.7
512.6
721.3
1,396.0
1,046.0
171.3
138.1
366.4
247.4
151.7
286.7
891.2
746.9
440.7
677.7
233.6
913.2
762.6
414.5
637.0
1,127.9
1,077.7
898.2
205.4
116.2
266.8
212.6
135.6
932.3
232.8
113.6
201.0
201.1
123.9
$
8,306.5
$
7,410.5
$
7,467.3
Net sales by product for the years ended December 31, 2017, 2016 and 2015 were as follows (in millions):
Net sales:
Tractors ............................................................................................. $
Replacement parts.............................................................................
Grain storage and protein production systems..................................
Other machinery ...............................................................................
Combines ..........................................................................................
Application equipment......................................................................
$
94
2017
2016
2015
4,785.2
1,305.0
1,049.6
582.5
349.0
235.2
8,306.5
$
$
4,225.1
1,211.3
892.5
521.6
302.8
257.2
7,410.5
$
$
4,244.1
1,204.4
766.2
629.6
331.9
291.1
7,467.3
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property, plant and equipment and amortizable intangible assets by country as of December 31, 2017 and 2016 was as
follows (in millions):
United States....................................................................................................................... $
Germany .............................................................................................................................
Brazil...................................................................................................................................
Finland ................................................................................................................................
China...................................................................................................................................
Denmark .............................................................................................................................
Italy .....................................................................................................................................
France .................................................................................................................................
Other ...................................................................................................................................
$
2017
2016
647.9
405.5
217.9
149.9
127.7
125.7
123.0
66.0
182.1
2,045.7
$
$
594.6
344.8
210.4
145.9
130.0
119.6
106.7
59.9
172.3
1,884.2
95
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, 2017, 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).”
The Company acquired the Precision Planting LLC and the hay and forage division of Lely Group (collectively, the
“acquired entities”) during 2017, and management of the Company excluded from its assessment of the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2017, the acquired entities’ internal control over
financial reporting associated with total assets of approximately $350.1 million and net sales of approximately $55.5 million
included in the Consolidated Financial Statements as of and for the year ended December 31, 2017.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2017. Based on this assessment, management believes that, as of December 31, 2017, 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, 2017 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, 2017. 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.
96
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
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, 2017, 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, 2017, 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, 2017 and 2016, and 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, 2017, and the related notes and financial statement schedule and our
report dated February 28, 2018 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Precision Planting LLC and the hay and forage division of Lely Group (collectively the
“Acquired Entities”) during 2017, and management excluded from its assessment of the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2017, the Acquired Entities’ internal control over financial
reporting associated with total assets of approximately $350.1 million and net sales of approximately $55.5 million included in
the consolidated financial statements of the Company as of and for the year ended December 31, 2017. Our audit of internal
control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of
the Acquired Entities.
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.
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.
97
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
February 28, 2018
98
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
2018 Annual Meeting of Stockholders, which we intend to file in March 2018.
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
2018 Annual Meeting of Stockholders in the sections entitled “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 2018 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 2018 Annual Meeting of Stockholders in the sections entitled “Board of Directors and Corporate
Governance,” “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 2006 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.
Plan Category
Equity compensation plans approved by
security holders ......................................
Equity compensation plans not approved
by security holders .................................
Total .............................................................
(a)
(b)
(c)
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)
2,942,738
$
—
2,942,738
$
53.88
—
53.88
4,053,539
—
4,053,539
(b) Security Ownership of Certain Beneficial Owners and Management
The information required by this Item set forth in our Proxy Statement for the 2018 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 2018 Annual Meeting of Stockholders
in the section entitled “Certain Relationships and Related Party Transactions” is incorporated herein by reference.
99
Item 14.
Principal Accounting Fees and Services
The information required by this Item set forth in our 2018 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
Schedule II
Description
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 (*).
100
Exhibit
Number
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
Description of Exhibit
Certificate of Incorporation
By-Laws
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
Indenture dated as of December 5, 2011
December 6, 2011, Form 8-K, Exhibit 4.1
2006 Long-Term Incentive Plan*
September 30, 2017, Form 10-Q, Exhibit 10.5
Form of Non-Qualified Stock Option Award Agreement* March 31, 2006, Form 10-Q, Exhibit 10.2
Form of Incentive Stock Option Award Agreement*
March 31, 2006, Form 10-Q, Exhibit 10.3
Form of Stock Appreciation Rights Agreement*
March 31, 2006, Form 10-Q, Exhibit 10.4
Form of Restricted Stock Units Agreement*
January 27, 2016, Form 8-K, Exhibit 10.1
Form of Performance Share Award*
March 31, 2006, Form 10-Q, Exhibit 10.6
Amended and Restated Management Incentive Plan*
March 25, 2013, Form DEF14A, Appendix A
Amended and Restated Executive Nonqualified Pension
Plan*
October 2, 2015, Form 8-K, Exhibit 99.1
Executive Nonqualified Defined Contribution Plan*
December 31, 2015, Form 10-K, Exhibit 10.9
Employment and Severance Agreement with Martin
Richenhagen*
Employment and Severance Agreement with Andrew H.
Beck*
Employment and Severance Agreement with Gary L.
Collar*
Employment and Severance Agreement with Robert B.
Crain*
Employment and Severance Agreement with Rob
Smith*
Employment and Severance Agreement with Hans-
Bernd Veltmaat*
December 31, 2009, Form 10-K, Exhibit 10.12
March 31, 2010, Form 10-Q, Exhibit 10.2
June 30, 2008, Form 10-Q, Exhibit 10.6
Filed herewith
December 31, 2015, Form 10-K, Exhibit 10.13
December 31, 2009, Form 10-K, Exhibit 10.17
Debt Agreement dated December 18, 2014
December 31, 2014, Form 10-K, Exhibit 10.15
Amended and Restated Credit Agreement dated as of
June 30, 2014
First Amendment to Amended and Restated Credit
Agreement dated as of June 19, 2015
Letter Agreement, dated November 5, 2015, between
AGCO International GmbH and TAFE International
LLC, Turkey and Tractors and Farm Equipment Limited
Letter Agreement, dated August 29, 2014, between
AGCO Corporation and Tractors and Farm Equipment
Limited
Farm and Machinery Distributor Agreement, dated
January 1, 2012, between AGCO International GmbH
and Tractors and Farm Equipment Limited
Letter Agreement, dated August 3, 2007, between AGCO
Corporation and Tractors and Farm Equipment Limited
Letter Agreement for Far East Markets, dated July 24,
2017, between AGCO International GmbH and Tractors
and Farm Equipment Limited
Letter Agreement for Mexico, dated July 24, 2017,
between AGCO International GmbH and Tractors and
Farm Equipment Limited
Letter Agreement for Australia/New Zealand, dated July
24, 2017, between AGCO International GmbH and
Tractors and Farm Equipment Limited
June 30, 2014, Form 10-Q, Exhibit 10.1
June 30, 2015, 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
101
Exhibit
Number
10.26
10.27
Description of Exhibit
Amendment to the Letter Agreement for Africa, dated
July 24, 2017, between AGCO International GmbH and
Tractors and Farm Equipment Limited
Consultancy Agreement, dated December 8, 2014,
between AGCO Do Brasil Comércio E Industria Ltda
and André Carioba*
10.28
Current Director Compensation*
21.1
23.1
24.1
31.1
31.2
32.1
Subsidiaries of the Registrant
Consent of KPMG LLP
Powers of Attorney
Certification of Martin Richenhagen
Certification of Andrew H. Beck
Certification of Martin Richenhagen and Andrew H.
Beck
101.INS
101.SCH
XBRL Instance Document
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Item 16.
Form 10-K Summary
None.
The Filings Referenced for
Incorporation by References are
AGCO Corporation
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
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
102
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.
SIGNATURES
AGCO Corporation
By:
/s/ MARTIN RICHENHAGEN
Martin Richenhagen
Chairman of the Board, President
and Chief Executive Officer
Dated: February 28, 2018
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
Chairman of the Board, President and Chief
Executive Officer
Date
February 28, 2018
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
February 28, 2018
/s/ MARTIN RICHENHAGEN
Martin Richenhagen
/s/ ANDREW H. BECK
Andrew H. Beck
/s/ ROY V. ARMES *
Roy V. Armes
/s/ MICHAEL C. ARNOLD *
Michael C. Arnold
/s/ P. GEORGE BENSON *
P. George Benson
/s/ SUZANNE P. CLARK *
Suzanne P. Clark
/s/ WOLFGANG DEML *
Wolfgang Deml
/s/ GEORGE E. MINNICH *
George E. Minnich
/s/ GERALD L. SHAHEEN *
Gerald L. Shaheen
/s/ MALLIKA SRINIVASAN *
Mallika Srinivasan
/s/ HENDRIKUS VISSER *
Hendrikus Visser
*By:
/s/ ANDREW H. BECK
Andrew H. Beck
Attorney-in-Fact
103
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
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AGCO CORPORATION AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In millions)
SCHEDULE II
Description
Year ended December 31, 2017
Allowances for doubtful accounts
Year ended December 31, 2016
Allowances for doubtful accounts
Year ended December 31, 2015
Allowances for doubtful accounts
Description
Year ended December 31, 2017
Accruals of severance, relocation and
other integration costs
Year ended December 31, 2016
Accruals of severance, relocation and
other integration costs
Year ended December 31, 2015
Accruals of severance, relocation and
other integration costs
Description
Year ended December 31, 2017
Deferred tax valuation allowance
Year ended December 31, 2016
Deferred tax valuation allowance
Year ended December 31, 2015
Deferred tax valuation allowance
Additions
Balance at
Beginning
of Period
Acquired
Businesses
Charged to
Costs and
Expenses
Deductions
Foreign
Currency
Translation
Balance at
End of
Period
$
$
$
33.7
29.3
32.1
$
$
$
2.2
2.2
$
$
— $
Additions
4.9
3.6
5.6
$
$
$
(5.3) $
2.0
$
37.5
(1.1) $
(0.3) $
33.7
(3.0) $
(5.4) $
29.3
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Reversal of
Accrual
Deductions
Foreign
Currency
Translation
Balance at
End of
Period
$
$
$
15.3
$
12.4
$
(1.4) $
(16.8) $
1.4
$
10.9
16.9
$
12.0
$
(0.1) $
(13.3) $
(0.2) $
15.3
25.4
$
23.0
$
(0.7) $
(29.5) $
(1.3) $
16.9
Additions
Balance at
Beginning
of Period
Acquired
Businesses
Charged
(Credited)
to
Costs and
Expenses
Deductions
Foreign
Currency
Translation
Balance at
End of
Period
$
$
$
116.0
75.8
93.3
$
$
$
— $
(38.4) $
— $
— $
37.9
$
— $
4.3
2.3
$
$
81.9
116.0
— $
(4.5) $
— $
(13.0) $
75.8
II-1
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OUR LEADERSHIP
BOARD OF DIRECTORS
Roy V. Armes
Former Executive Chairman,
President and CEO
Cooper Tire and Rubber Company
Suzanne P. Clark
Senior Executive Vice President
U.S. Chamber of Commerce
Michael C. Arnold
Former President and CEO
Ryerson Inc.
Wolfgang Deml
Former President and
Chief Executive Officer
BayWa Corporation
Martin H. Richenhagen
Chairman, President and
Chief Executive Officer
AGCO
Gerald L. Shaheen
Former Group President
Caterpillar Inc.
Mallika Srinivasan
Chairman and CEO
Tractors and Farm
Equipment Limited (TAFE)
Hendrikus Visser
Former Chairman
Royal Huisman Shipyards N.V.
P. George Benson
Professor of Decision Sciences
and former President
College of Charleston
George E. Minnich
Former Senior Vice
President and CFO
ITT Corporation
SENIOR MANAGEMENT
Roger N. Batkin
Senior Vice President,
General Counsel
and Corporate Secretary
Andrew H. Beck
Senior Vice President,
Chief Financial Officer
Gary L. Collar
Senior Vice President,
General Manager,
Asia/Pacific and Africa
Robert B. Crain
Senior Vice President,
General Manager,
Americas
Helmut R. Endres
Senior Vice President,
Engineering
Eric P. Hansotia
Senior Vice President,
Global Crop Cycle and
Fuse Connected Services
Martin H. Richenhagen
Chairman, President and
Chief Executive Officer
Lucinda B. Smith
Senior Vice President,
Global Business Services
Rob Smith
Senior Vice President,
General Manager,
Europe and Middle East
Hans-Bernd Veltmaat
Senior Vice President,
Chief Supply Chain Officer
Thomas F. Welke
Senior Vice President,
Global Grain and
Protein, GSI
SHAREHOLDER INFORMATION
Corporate Headquarters
4205 River Green Parkway
Duluth, Georgia 30096 U.S.
+1-770-813-9200
Stock Exchange
AGCO Corporation common stock
(trading symbol is “AGCO”) is traded
on the New York Stock Exchange.
Independent Registered
Public Accounting Firm
KPMG LLP
Atlanta, Georgia U.S.
Transfer Agent & Registrar
You can contact Computershare
through the following methods:
Overnight Mail Delivery
462 South 4th Street, Suite 1600
Louisville, KY 40202 U.S.
Regular Mail Delivery
P.O. Box 505000
Louisville, KY 40233 U.S.
Telephone
+1-800-962-4284
Form 10-K
The Form 10-K Annual Report filed
with the Securities and Exchange
Commission is available in the
“Investors” Section of our corporate
website (www.AGCOcorp.com),
under the heading “SEC Filings,”
or upon request from the Investor
Relations Department at our
corporate headquarters.
Annual Meeting
The annual meeting of the
Company’s stockholders will be held
at 9:00 a.m. ET on April 26, 2018 at
the offices of AGCO Corporation,
4205 River Green Parkway, Duluth,
Georgia 30096 U.S.
© 2018 AGCO Corporation
All rights reserved. Incorporated in Delaware. An Equal Opportunity Employer. AGCO®, Fendt®, GSI®, Massey Ferguson®, Valtra® and their respective logos as well as
corporate and product identity used herein are trademarks of AGCO or its subsidiaries and may not be used without permission. Challenger® is a registered trademark
of Caterpillar, Inc. and may not be used without permission.
6
4205 River Green Parkway
Duluth, Georgia 30096 U.S.
+1-770-813-9200
www.agcocorp.com
Innovation is creating vital opportunities
for AGCO, our dealers, end-customers and
humankind—inspiring our thoughts and actions as
we work to feed a growing world.
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For a truly interactive experience online,
visit our annual report at:
ar2017.agcocorp.com