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Item 1A. Risk Factors

2021-03-01 compared with 2020-02-28 · 199 added, 140 removed, 120 unchanged (74% of the section changed)

We make forward-looking statements in this report, in other materials we file with the SEC, on our website, or otherwise release to the public.

We make forward-looking statements in this report, in other materials we file with the SEC, on our website, or in materials that we otherwise release to the public.

In addition, our senior management makes forward-looking statements orally to analysts, investors, the media and others.

Statements, including the statements contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” concerning our future operations, prospects, strategies, products, manufacturing facilities, legal proceedings, financial condition, financial performance (including growth and earnings) and demand for our products and services, and other statements of our plans, beliefs or expectations, net sales, industry conditions, currency translation impacts, market demand, farm incomes, weather conditions, commodity prices, general economic conditions, availability of financing, working capital, capital expenditures, debt service requirements, margins, production volumes, cost reduction initiatives, investments in product development, compliance with financial covenants, support from lenders, recovery of amounts under guarantee, uncertain income tax provisions, funding of our pension and postretirement benefit plans, or realization of net deferred tax assets, are forward-looking statements.

Statements, including the statements contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” concerning our future operations, prospects, strategies, products, manufacturing facilities, legal proceedings, financial condition, financial performance (including growth and earnings) and demand for our products and services, and other statements of our strategic plans, beliefs or expectations, net sales, industry conditions, currency translation impacts, market demand, farm incomes, weather conditions, commodity and protein prices, general economic conditions, availability of financing, working capital, capital expenditures, debt service requirements, margins, production volumes, cost reduction initiatives, investments in product development, compliance with financial covenants, support from lenders, recovery of amounts under guarantee, uncertain income tax provisions, funding of our pension and postretirement benefit plans, or realization of net deferred tax assets, are forward-looking statements.

The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements.

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These risks could impact our business in a number of ways, including by negatively impacting our future results of operations, cash flows and financial condition.

For simplicity, below we collectively refer to these impacts as our “performance.”

For simplicity, below we collectively refer to these potential material impacts on our “performance.”

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Our financial results depend entirely upon the agricultural industry, and factors that adversely affect the agricultural industry generally, including declines in the general economy, increases in farm input costs, weather conditions and lower commodity prices, will adversely affect us.

Risks Related to the COVID-19 Pandemic

Our business could be materially adversely impacted if the coronavirus outbreak continues in duration and severity or otherwise impacts our manufacturing and supply chain or demand for our products.

The COVID-19 pandemic has, and we expect may continue to, negatively impact our business, and further impacts

will depend on future developments, which are unpredictable, including the duration of the pandemic, the timing, distribution and impact of vaccinations and possible mutations of the virus that are more contagious or resistant to current vaccines.

The COVID-19 pandemic has created significant volatility in the global economy and has led to substantially reduced economic activity, employment disruptions, supply chain constraints and delays, and declines in consumer demand.

Measures taken by governments around the world, as well as businesses, including us, and the general public in order to limit the spread of COVID-19 will continue to negatively impact our business and overall financial condition.

These measures have included travel bans or restriction limits, quarantines, shelter in place orders, curfews, business and government office closures, increased border controls or closures, port closures and transportation restrictions.

The impacts of such measures could include, but are not limited to the following:

• Our industry may experience declines in global market demand, thus reducing sales of our products.

• The COVID-19 pandemic is projected to have minimal impact on global crop production.

Most farm operations, which generally have been deemed “essential” throughout the pandemic, are working to relatively normal levels.

However, the consumption of grain for food, fuel (including ethanol) and livestock feed was negatively impacted by economic constraints caused by the pandemic during the first half of 2020.

During the second half of 2020, grain consumption started to recover, consistent with improving economic activities and increased grain exports to China, thus reducing forecasts for ending grain inventories and raising soft commodity prices.

Future market demand for agricultural equipment will be influenced by, among other things, farm income, farm land values, weather conditions, the demand for agricultural commodities, commodity and protein prices, and general economic conditions, and the decrease in market demand because of these factors could materially negatively impact our results of operations and overall financial condition.

• Deteriorating economic and political conditions, such as increased unemployment, economic slowdown or recessions, could cause further decreases in sales of our products.

• We may experience adverse fluctuations in foreign currency rates, particularly an increase in the value of the U.S.

dollar against key market foreign currencies, which could negatively impact our sales and overall business performance.

• Governmental guidance, directives or regulations around the world could result in factory shutdowns and reduced production related to factory shutdowns or higher absentee rates.

We have had to suspend operations at production facilities due to a rise in COVID-19 infection rates and due to government mandated closures in the past, and may have further factory shutdowns in the future.

• We could incur additional operating costs due to the adherence of cleaning requirements and social distancing guidelines.

• We have severely limited travel by our employees and have taken measures to ensure the health and safety of our employees at our factories.

These measures include employee health screening, using personal protective equipment, enhanced cleaning and sanitation efforts, reworking factory layouts and staggering production schedules to conform with social distancing recommendations.

We may also from time to time have to temporarily close factories due to the level of COVID-19 cases at any factory.

In addition, most of our non-factory workforce are under work-at-home arrangements.

These measures may not be sufficient to prevent material adverse effects of the COVID-19 pandemic.

• We may experience increased costs due to remote working arrangements, adherence to social distancing guidelines and the need for personal protective equipment, in addition to the absence of employees due to illness.

• Our factories are dependent upon parts and components manufactured by others, and to the extent that our suppliers are impacted by the COVID-19 pandemic, it will reduce the availability, or result in delays, of parts and components to us, which in turn could interrupt our ability to produce and sell completed products.

• Freight channels may be disrupted due to additional safety requirements imposed by port authorities and/or capacity constraints experienced by our freight carriers.

As a result, we may also incur increased logistics costs.

• Declines in equity markets and the valuation of assets may negatively affect our pension plan assets, and, if this occurs again, we likely will incur increased pension expenses and funding requirements related to the fair value of our pension plan assets.

• Although we currently believe we have sufficient available funding to support our business, and we have not experienced a significant increase in borrowing costs, the severity and length of the COVID-19 pandemic could have material negative impacts to our financial condition.

This, in turn, could affect our credit ratings and borrowing costs.

• While we have initiated several cost-saving and capital deployment measures and strategies to monitor and manage our cash flows and operating expenses, these measures may not be sufficient to prevent adverse effects of the COVID-19 pandemic.

• We may be required to record significant impairment charges with respect to certain noncurrent assets such as goodwill and other intangible assets and equity method investments, whose fair values may be negatively affected by the COVID-19 pandemic.

We also may be required to write-down inventory that is deemed obsolete due to decreased sales.

• If economic conditions continue to deteriorate, we may experience slower collections and larger write-offs of accounts receivable.

Our customers and dealers may request payment deferrals or contract modifications.

In addition, our finance joint ventures also may experience slower collections and greater write-offs of accounts receivable, which would result in reduced earnings, if not losses, for us from our investments in the retail joint ventures.

• Government authorities in the U.S.

and throughout the world may increase or impose new income or indirect taxes, or revise interpretations of existing tax regulations, as a means of financing the costs of stimulus and other measures taken, or that might be enacted and taken in the future, to protect populations and economies from the impact of the COVID-19 pandemic.

Such actions could have a negative impact on our results of operations.

• It is unclear when a full economic recovery will occur and both the speed and extent of that recovery.

However, we expect the impact of COVID-19 to continue well into 2021.

Market, Economic and Geopolitical Risks

Our success depends entirely on the vitality of the agricultural industry.

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Sales of agricultural equipment, in turn, also are cyclical and generally reflect the economic health of the agricultural industry.

The economic health of the agricultural industry is affected by numerous factors, including farm income, farm input costs, land values and debt levels, all of which are influenced by levels of commodity prices, acreage planted, crop yields, agricultural product demand (including crops used as renewable energy sources), government policies and government subsidies.

The economic health also is influenced by general economic conditions, interest rate and exchange rate levels, and the availability of financing for retail customers, including financing subsidies to farmers, which can be significant in countries such as Brazil.

The economic health of the agricultural industry is affected by

numerous factors, including farm income, farm input costs, farm land values and debt levels, all of which are influenced by levels of commodity and protein prices, acreage planted, crop yields, agricultural product demand (including crops used as renewable energy sources), government policies and government subsidies.

Trends in the agricultural industry, such as farm consolidations, may affect the agricultural equipment market.

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The AGCO Finance joint ventures, which are controlled by Rabobank and are dependent upon Rabobank for financing as well, finance approximately 40% to 50% of the retail sales of our tractors and combines in the markets where the joint ventures operate.

Any difficulty by Rabobank in continuing to provide that financing, or any business decision by Rabobank as the controlling member not to fund the business or particular aspects of it (for example, a particular country or region), would require the joint ventures to find other sources of financing (which may be difficult to obtain) or would require us to find other sources of retail financing for our dealers and their retail customers, or our dealers and their retail customers would be required to utilize other retail financing providers.

If we are unable to obtain other sources, our dealers and their retail customers would be required to utilize other retail financing providers, which may or may not be available.

In an economic downturn, we expect that financing for capital equipment purchases generally would become more difficult or more expensive to obtain.

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To the extent that defaults and losses are higher than expected, our equity in the net earnings of the finance joint ventures would be less, or there could be losses, which could materially impact our performance.

Our success depends on the introduction of new products, which requires substantial expenditures.

Our long-term results depend upon our ability to introduce and market new products successfully.

The success of our new products will depend on a number of factors, including:

customer acceptance;

the efficiency of our suppliers in providing component parts and of our manufacturing facilities in producing final products;

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 may experience delays in the future.

Any delays or other problems with our new product launches will adversely affect our performance.

In addition, introducing new products can result in decreases in revenues from our existing products.

Consistent with our strategy of offering new products and product refinements, we expect to make substantial investments in product development and refinement.

We may need more funding for product development and refinement than is readily available, which could adversely affect our business.

Our expansion plans in emerging markets entail significant risks.

Our long-term strategy includes establishing a greater manufacturing and supply-chain and/or marketing presence in emerging markets such as India, China and Africa.

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 facilities in a timely manner and within cost estimates, the establishment of supply channels, the commencement of efficient manufacturing operations, and, ultimately, the acceptance of the products by retail customers.

While we expect the expansion to be successful, should we encounter difficulties involving these or similar factors, it may not be as successful as we anticipate.

We face significant competition, and, if we are unable to compete successfully against other agricultural equipment manufacturers, we will lose dealers and their retail customers and our net sales and profitability will decline.

The agricultural equipment business is highly competitive, particularly in our major markets.

Our two key competitors, Deere & Company and CNH Industrial N.V., are substantially larger than we are and have greater financial and other resources.

In addition, in some markets, we compete with smaller regional competitors with significant market share in a single country or group of countries.

Our competitors may substantially increase the resources devoted to the development and marketing, including discounting, of products that compete with our products, which would necessitate our making similar expenditures.

In addition, competitive pressures in the agricultural equipment business may affect the market prices of new and used equipment, which, in turn, may adversely affect our performance.

We maintain an independent dealer and distribution network in the markets where we sell products.

The financial and operational capabilities of our dealers and distributors are critical to our ability to compete in these markets.

In addition, we compete with other manufacturers of agricultural equipment for dealers.

If we are unable to compete successfully against other agricultural equipment manufacturers, we could lose dealers and their retail customers and performance may decline.

Rationalization or restructuring of manufacturing facilities, and plant expansions and system upgrades at our manufacturing facilities, may cause production capacity constraints and inventory fluctuations.

The rationalization of our manufacturing facilities has at times resulted in, and similar rationalizations or restructurings in the future may result in, temporary constraints upon our ability to produce the quantity of products necessary to fill orders and thereby complete sales in a timely manner.

In addition, system upgrades at our manufacturing facilities that impact ordering, production scheduling, manufacturing and other related processes are complex, and could impact or delay production.

A prolonged delay in our ability to fill orders on a timely basis could affect customer demand for our products and increase the size of our product inventories, causing future reductions in our manufacturing schedules and adversely affecting our performance.

Moreover, our continuous development and production of new products often involve the retooling of existing manufacturing facilities.

This retooling may limit our production capacity at certain times in the future, which could adversely affect our performance.

In addition, the expansion and reconfiguration of existing manufacturing facilities, as well as the start-up of new manufacturing operations in emerging markets, such as China and Russia, could increase the risk of production delays, as well as require significant investments.

Our business will be adversely impacted if the coronavirus outbreak spreads widely or otherwise impacts our manufacturing and supply chain or demand for our products

The extent that the coronavirus outbreak will spread widely and its impact on our results will depend on future developments, which are highly uncertain and unpredictable.

We have factories and suppliers in China and Italy, where the early outbreaks have been significant and where production of our products could be directly impacted by actions taken to contain the virus.

The virus could spread to areas in other countries where we have other factories and suppliers.

In response to intensifying efforts to contain the spread of this coronavirus, we have limited travel by our employees and stopped travel by our employees to certain countries.

In addition, our factories are dependent upon parts and components manufactured by others, and to the extent that our suppliers are impacted by the virus it likely will reduce the availability, or result in delays, of parts and components to us, which in turn could interrupt our ability to produce and sell completed products.

Recently there have been circumstances of freight channels being interrupted and increases in the freight prices, which also could impact our business.

While we do not anticipate a significant impact upon demand for our products, in the event that the virus spreads widely, or there are negative impacts to economic conditions and resulting farmer confidence, there could be a reduction in market demand or delays in sales.

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 numerous suppliers, and the failure by one or more of our suppliers to perform as needed will result in fewer products being manufactured, shipped and sold.

If the quality of the components or parts provided by our suppliers is less than required and we do not recognize that failure prior to the shipment of our products, we will incur higher warranty costs.

The timely supply of component parts for our products also depends on our ability to manage our relationships with suppliers,

to identify and replace suppliers that fail to meet our schedules or quality standards, and to monitor the flow of components and accurately project our needs.

The shift from our existing suppliers to new suppliers, including suppliers in emerging markets, also may impact the quality and efficiency of our manufacturing capabilities, as well as warranty costs.

Changes in the availability and prices of certain raw materials, components and parts could result in production disruptions or increased costs and lower profits on the sale of our products.

Changes in the availability and price of these raw materials, components and parts, which have fluctuated significantly in the past and are more likely to fluctuate during times of economic volatility, as well as regulatory instability or change in tariffs, can significantly increase the costs of production.

This, in turn, could have a material negative effect on performance, particularly if, due to pricing considerations or other factors, we are unable to recover the increased costs through pricing from our dealers.

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.

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The foreign countries in which our sales are the greatest are Germany, France, Brazil, the United Kingdom, Finland and Canada.

We have significant manufacturing operations in France, Germany, Brazil, Italy and Finland, and we have established manufacturing operations in emerging markets, such as China.

We have significant manufacturing operations in France, Germany, Brazil, Italy and Finland, and we 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 performance can be adversely affected by adverse changes, in either the country of origin or the country of destination, in the factors discussed elsewhere in this “Risk Factors” section, particularly the factors that impact the delivered cost of our products.

Our business practices in these foreign countries generally must comply with U.S.

Our business practices in these foreign countries must comply with not just local law, but also U.S.

law, including limitations on where and to whom we may sell products and the Foreign Corrupt Practices Act (“FCPA”).

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If demand for agricultural equipment declines, our performance will be adversely affected.

The application, modification or adoption of laws, regulations, trade agreements or policies adversely affecting the agricultural industry, including the imposition of import and export duties and quotas, expropriation and potentially burdensome taxation, could have an adverse effect on our business.

As discussed previously in “Risks Related to the COVID -19 Pandemic,” the pandemic has caused a global recession and increased economic and demand uncertainty.

The pandemic impacts, in addition to related or unrelated application, modification or adoption of laws, regulations, trade agreements or policies, can adversely affect the agricultural industry, including the imposition of import and export duties and quotas, expropriation and potentially burdensome taxation, could have an adverse effect on our business.

Trade restrictions, including potential withdrawal from or modification of existing trade agreements, negotiation of new trade agreements, and imposition of new (and retaliatory) tariffs against certain countries or covering certain products, could limit our ability to capitalize on current and future growth opportunities in the international markets in which we operate and impair our ability to expand our business by offering new technologies, products and services.

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These trade restrictions and changes in, or uncertainty surrounding, global trade policy may affect our competitive position.

The health of the agricultural industry and the ability of our international dealers and retail customers to operate their businesses, in general, are affected by domestic and foreign government programs that provide economic support to farmers.

As previously discussed, the health of the agricultural industry and the ability of our international dealers and retail customers to operate their businesses, in general, are affected by domestic and foreign government programs that provide economic support to farmers.

As a result, farm income levels and the ability of farmers to obtain advantageous financing and other protections would be reduced to the extent that any such programs are curtailed or eliminated.

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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 taxation from multiple tax jurisdictions.

In addition, we must comply with a greater level of tax-related regulation and reviews by multiple governmental units than would companies with a more simplified structure.

In addition, we must comply with a greater level of tax-related regulation and reviews by multiple governmental units than do companies with a more simplified structure.

Our foreign and U.S.

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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.