What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 145 added, 115 removed, 161 unchanged (62% of the section changed)

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As a result, our net sales historically have been the lowest in the first quarter and have increased in subsequent quarters.

The COVID-19 pandemic continues to create volatility in the global economy, including employment disruptions and supply chain constraints and delays.

These disruptions can negatively affect production, particularly where they cause delays in our receipts of parts and components.

During the first four months of 2021, we temporarily suspended production in a number of our facilities as a result of these issues and expect further challenges during the remainder of 2021.

We will continue to work to mitigate the impact of these issues in order to meet end-market demand.

The COVID-19 pandemic and other economic factors continue to create volatility in the global economy, including employment disruptions and supply chain constraints and delays.

These factors along with increasing industrial demand are negatively affecting our production, particularly caused by delays in our receipts of parts and components.

Supply chain issues of particular concern include semiconductors, transportation and raw materials.

We continue to face supplier bottlenecks and delays in all regions as we continue to work to mitigate the impact of these issues in order to meet increased end-market demand.

RESULTS OF OPERATIONS

For the three months ended March 31, 2021, we generated net income of approximately $150.8 million, or $1.99 per share, compared to approximately $64.7 million, or $0.85 per share, for the same period in 2020.

Net sales during the three months ended March 31, 2021 were approximately $2,378.7 million, which were approximately 23.4% higher than the same period in 2020.

This increase was primarily the result of improved market demand during the three months ended March 31, 2021 compared to the same period in 2020.

Regionally, net sales were higher in all regions for the three months ended March 31, 2021 compared to 2020.

Income from operations for the three months ended March 31, 2021 was approximately $195.2 million compared to approximately $100.4 million for the same period in 2020.

This increase was primarily the result of higher net sales and production volumes along with cost control initiatives.

Price increases implemented during the three months ended March 31, 2021 helped to offset material cost inflation compared to the same period in 2020.

Regionally, income from operations in our Europe/Middle East (“EME”) region increased for the three months ended March 31, 2021 compared to the same period in 2020, primarily due to higher net sales, partially offset by higher warranty and engineering expenses.

In our North American region, income from operations increased for the three months ended March 31, 2021 compared to the same period in 2020.

The increase was primarily due to higher net sales, as well as favorable pricing and cost control initiatives.

In our South American region, income from operations increased in the three months ended March 31, 2021 compared to the same period in 2020.

For the three months ended June 30, 2021, we generated net income of approximately $282.8 million, or $3.73 per share, compared to approximately $69.7 million, or $0.93 per share, for the same periods in 2020.

For the first six months ended June 30, 2021, we generated net income of approximately $433.6 million, or $5.71 per share, compared to approximately $134.4 million, or $1.78 per share, for the same period in 2020.

Net sales during the three and six months ended June 30, 2021 were approximately $2,879.3 million and $5,258.0 million, respectively, which were approximately 43.5% and 33.6% higher than the same periods in 2020.

These increases were primarily the result of improved market demand during the three and six months ended June 30, 2021 compared to the same periods in 2020, which were impacted by extended COVID-related shut downs in both Europe and South America which adversely interrupted our operations.

Regionally, net sales were higher in all regions for the three and six months ended June 30, 2021 compared to 2020.

Income from operations for the three months ended June 30, 2021 was approximately $290.3 million compared to approximately $97.3 million for the same period in 2020.

Income from operations for the six months ended June 30, 2021 was approximately $485.5 million compared to approximately $197.7 million for the same period in 2020.

These increases were primarily the result of higher net sales and production volumes, a favorable sales mix and improved pricing implemented during the three and six months ended June 30, 2021, which helped to offset material cost inflation compared to the same periods in 2020.

Regionally, income from operations in our Europe/Middle East (“EME”) region increased for the three and six months ended June 30, 2021 compared to the same periods in 2020, primarily due to higher net sales, partially offset by higher expenses.

In our North American region, income from operations increased for the three and six months ended June 30, 2021 compared to the same periods in 2020.

The increase was primarily due to higher net sales and production levels, as well as a favorable product mix and positive pricing impacts.

In our South American region, income from operations increased in the three and six months ended June 30, 2021 compared to the same periods in 2020.

The increase reflects higher net sales and production volumes, a richer product mix and improved pricing offsetting material cost inflation.

In our Asia/Pacific/African (“APA”) region, income from operations increased for the three months ended March 31, 2021 compared to the same period in 2020, primarily due to higher net sales and production levels.

In our Asia/Pacific/African (“APA”) region, income from operations increased for the three and six months ended June 30, 2021 compared to the same periods in 2020, primarily due to higher net sales and production levels.

Industry Market Conditions

The COVID-19 pandemic has had a minimal impact on global crop production in 2021.

The gradual recovery from the COVID-19 pandemic and reopening of economies have increased the demand for grain, putting pressure on global grain inventories which are well below 2020 levels.

Agricultural commodity prices have risen resulting in more favorable farm economics as well as increased demand for machinery.

The re-opening of economies has also increased the demand for grain, putting pressure on global grain inventories, which remain at low levels.

Agricultural commodity prices continue to support favorable farm economics resulting in increased demand for machinery.

These improved conditions are expected to generate industry growth across all the major equipment markets in 2021.

Future demand for agricultural equipment will be influenced by farm income, which is a function of commodity and protein prices, crop yields and government support.

In North America, industry unit retail sales of utility and high horsepower tractors for the first three months of 2021 increased approximately 31% compared to the same period in 2020.

Industry unit retail sales of combines for the first three months of 2021 increased approximately 17% compared to the first three months of 2020.

Retail sales of low horsepower tractors increased significantly in the first three months of 2021 compared to the prior year period, while retail sales of high

Future demand for

Management’s Discussion and Analysis of Financial Condition and Results of Operations

horsepower tractors improved as well.

An extended fleet age of equipment in North America is helping to boost industry demand.

In Western Europe, industry unit retail sales of tractors increased approximately 23% compared to the same period in 2020.

Industry unit retail sales of combines for the first three months of 2021 increased approximately 16% compared to the first three months of 2020.

During the first three months of 2021, industry sales increased across nearly all major markets compared to the same period in 2020.

In South America, industry unit retail sales of tractors for the first three months of 2021 increased approximately 33% compared to the same period in 2020.

Industry unit retail sales of combines for the first three months of 2021 increased approximately 26% compared to the first three months of 2020.

Industry retail sales increased in Brazil and Argentina compared to the prior year, as well as in most other South American markets.

A robust first crop production in Brazil and Argentina, as well as favorable exchange rates, are both supporting positive economics for farmers.

agricultural equipment will be influenced by farm income, which is a function of commodity and protein prices, crop yields and government support.

In North America, industry unit retail sales of utility and high horsepower tractors for the first six months of 2021 increased approximately 22% compared to the same period in 2020.

Industry unit retail sales of combines for the first six months of 2020 increased approximately 13% compared to the same period in 2020.

Industry growth was most significant in the high horsepower tractor segment.

Row crop farmers are taking advantage of improved commodity prices and projected healthy income levels to upgrade their extended aged fleet of equipment.

In Western Europe, industry unit retail sales of tractors increased approximately 27% for the first six months of 2021 compared to the same period in 2020.

Industry unit retail sales of combines for the first six months of 2021 increased approximately 18% compared to the first six months of 2020.

Industry production and demand was significantly reduced during the first half of 2020 as a result of COVID pandemic related shutdowns.

During the first six months of 2021, industry sales increased across nearly all major markets compared to the same period in 2020.

Higher wheat, dairy and livestock prices combined with healthy levels of crop production are generating positive farm economics and farmer sentiment.

In South America, industry unit retail sales of tractors and combines for the first six months of 2021 increased approximately 35% compared to the same period in 2020.

The improved demand was primarily in Brazil, as well as in smaller export markets.

A healthy first crop as well as favorable exchange rates are supporting positive economic conditions for farmers who continue to replace aged equipment.

STATEMENTS OF OPERATIONS

Net sales for the three months ended March 31, 2021 were approximately $2,378.7 million compared to approximately $1,928.3 million for the same period in 2020.

The following tables set forth, for the three months ended March 31, 2021, the impacts to net sales of currency translation by geographical segment (in millions, except percentages):

Three Months Ended March 31, Change Change Due to Currency Translation

Net sales for the three months ended June 30, 2021 were approximately $2,879.3 million compared to approximately $2,006.8 million for the same period in 2020.

Net sales for the six months ended June 30, 2021 were approximately $5,258.0 million compared to approximately $3,935.1 million for the same period in 2020.

The following tables set forth, for the three and six months ended June 30, 2021, the impacts to net sales of currency translation by geographical segment (in millions, except percentages):

Three Months Ended June 30, Change Change Due to Currency Translation

2021 2020 $ % $ %

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$ 2,879.3 $ 2,006.8 $ 872.5 43.5 % $ 178.9 8.9 %

Regionally, net sales in our EME region were higher during the three months ended March 31, 2021 compared to the same period in 2020.

The increase was primarily due to increased net sales in all major markets, with the largest increases occurring in Germany, Turkey and the United Kingdom.

Net sales in North America increased during the three months ended March 31, 2021 compared to the same period in 2020.

The increase was primarily a result of higher net sales of tractors, replacement parts, grain and protein equipment as well as Precision Planting equipment.

Net sales in South America increased during the three months ended March 31, 2021 compared to the same period in 2020.

Net sales increased across all South American markets, with the largest increases in Brazil and Argentina.

In our APA region, net sales increased during the three months ended March 31, 2021 compared to the same period in 2020, primarily driven by net sales increases in China and Australia, as well as recovery in Africa.

We estimate worldwide average price increase was approximately 3.9% during the three months ended March 31, 2021 compared to the same prior year period.

Consolidated net sales of tractors and combines, which combined comprised approximately 56.7% of our net sales for the three months ended March 31, 2021, increased approximately 23.2% compared to the three months ended March 31, 2020.

Unit sales of tractors and combines increased approximately 17.8% for the three months ended March 31, 2021 compared to the same period in 2020.

The difference between the unit sales change and the change in net sales was primarily the result of foreign currency translation, pricing and sales mix changes.

Six Months Ended June 30, Change Change Due to Currency Translation

2021 2020 $ % $ %

Europe/Middle East $ 2,962.4 $ 2,238.3 $ 724.1 32.4 % $ 217.9 9.7 %

North America 1,345.8 1,107.7 238.1 21.5 % 23.8 2.1 %

South America 518.8 332.4 186.4 56.1 % (37.3) (11.2) %

Asia/Pacific/Africa 431.0 256.7 174.3 67.9 % 42.9 16.7 %

$ 5,258.0 $ 3,935.1 $ 1,322.9 33.6 % $ 247.3 6.3 %

Regionally, net sales in our EME region were higher during the three and six months ended June 30, 2021 compared to the same periods in 2020.

These increases were primarily due to increased net sales in all major markets, with the largest increases occurring in Italy, Turkey and the United Kingdom.

Net sales in North America increased during the three and six months ended June 30, 2021 compared to the same periods in 2020.

These increases were primarily a result of higher net sales

Management’s Discussion and Analysis of Financial Condition and Results of Operations

of tractors, replacement parts, as well as Precision Planting equipment.

Net sales in South America increased during the three and six months ended June 30, 2021 compared to the same periods in 2020.

Net sales increased across all South American markets, with the largest increase in Brazil, primarily as a result of higher net sales of combines, mid-size tractors, and grain and protein production equipment.

In our APA region, net sales increased during the three and six months ended June 30, 2021 compared to the same periods in 2020, primarily driven by net sales increases in China and Australia, as well as recovery in Africa.

We estimate worldwide average price increases were approximately 4.5% and 4.2%, respectively, during the three and six months ended June 30, 2021 compared to the same prior year periods.

Consolidated net sales of tractors and combines, which combined comprised approximately 58.2% and 57.5% of our net sales for the three and six months ended June 30, 2021, respectively, increased approximately 55.0% and 39.0% compared to the same periods in 2020, respectively.

Unit sales of tractors and combines increased approximately 34.1% and 26.9%, respectively, for the three and six months ended June 30, 2021 compared to the same periods in 2020.

The difference between the unit sales change and the change in net sales was primarily the result of foreign currency translation, pricing and sales mix changes.

The following tables set forth, for the periods indicated, the percentage of net sales of certain items in our Condensed Consolidated Statements of Operations (in millions, except percentages):

Three Months Ended March 31,

Three Months Ended June 30,

Net Sales (1)

Gross profit $ 692.4 24.0 % $ 432.7 21.6 %

Selling, general and administrative expenses 276.3 9.6 % 219.5 10.9 %

Engineering expenses 107.2 3.7 % 75.8 3.8 %

Amortization of intangibles 14.2 0.5 % 14.9 0.7 %

Goodwill impairment charge — — % 20.0 1.0 %

Restructuring expenses 4.7 0.2 % 3.8 0.2 %

Bad debt expense (0.3) — % 1.4 0.1 %

Income from operations $ 290.3 10.1 % $ 97.3 4.8 %

Six Months Ended June 30,

Net Sales $ % of

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Amortization of intangibles 31.7 0.6 % 29.9 0.8 %

Goodwill impairment charge — — % 20.0 0.5 %

Restructuring expenses 6.0 0.1 % 4.6 0.1 %

Bad debt (credit) expense (0.4) — % 1.8 0.1 %

Bad debt expense (0.7) — % 3.2 0.1 %

Income from operations $ 485.5 9.2 % $ 197.7 5.0 %

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(1) Rounding may impact the summation of amounts.

Gross profit as a percentage of net sales increased for the three months ended March 31, 2021 compared to the same period in 2020.

The increase was primarily due to the impact of higher production volumes and the benefit of improved pricing, which was partially offset by increased material costs.

Global production hours increased approximately 25% in the first quarter of 2021 compared to the same period in 2020.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Gross profit as a percentage of net sales increased for both the three and six months ended June 30, 2021 compared to the same periods in 2020.

These increases were primarily due to the impact of higher production volumes and the benefit of improved pricing, which were partially offset by increased material costs.

Global production hours increased approximately 40% and 32%, respectively, in the three and six months ended June 30, 2021 compared to the same periods in 2020.

The increase was primarily due to the suspension of production in our European and South American factories in late March and April of 2020.

Our supply chain continues to be impacted by COVID-19-related disruptions as well as capacity constraints due to increased industrial demand.

While we have been successful in mitigating the effect of these disruptions, we expect these risks to continue which may impact production levels in future periods.

We recorded approximately $0.3 million of stock compensation expense within cost of goods sold during the three months ended March 31, 2021, compared to approximately $0.1 million for the comparable period in 2020.

While we have been successful in mitigating most of the effects of these disruptions, we expect these risks to continue, which may impact production levels in future periods.

We recorded approximately $0.3 million and $0.6 million of stock compensation expense within cost of goods sold during the three and six months ended June 30, 2021, respectively, compared to approximately $0.3 million and $0.4 million for the comparable periods in 2020.

See below and refer to Note 3 to our Condensed Consolidated Financial Statements for additional information on stock compensation expense.

Selling, general and administrative expenses (“SG&A expenses”) and engineering expenses as a percentage of net sales were lower for the three months ended March 31, 2021 compared to the same period in 2020 driven by the increase in net sales.

We recorded approximately $6.5 million of stock compensation expense within SG&A expenses during the three months ended March 31, 2021, compared to approximately $2.5 million during the same period in 2020.

Driven by the increases in net sales, selling, general and administrative expenses (“SG&A expenses”) and engineering expenses as a percentage of net sales were lower for the three and six months ended June 30, 2021 compared to the same periods in 2020.

The absolute level of SG&A expenses increased in the first six months of 2021 following prior year actions to lower expenses while operations were suspended, such as reduced field sales and marketing activities and lower travel expenses.

We recorded approximately $8.2 million and $14.7 million of stock compensation expense within SG&A expenses during the three and six months ended June 30, 2021, respectively, compared to approximately $10.1 million and $12.6 million during the same periods in 2020.

Refer to Note 3 to our Condensed Consolidated Financial Statements for additional information on stock compensation expense.

The restructuring expenses of approximately $1.3 million recorded during the three months ended March 31, 2021, primarily related to severance and related costs associated with the rationalization of certain manufacturing operations and administrative offices located in the United States, South America and Europe.

During the three months ended June 30, 2020, we recorded a non-cash goodwill impairment charge of approximately $20.0 million related to a tillage and seeding joint venture in which we owned a 50% interest.

The impairment charge was recorded as “Goodwill impairment charge” within our Condensed Consolidated Statements of Operations, with an offsetting benefit of approximately $10.0 million included within “Net loss attributable to noncontrolling interests.” During the three months ended June 30, 2021, we sold our 50% interest in the joint venture.

Refer to Note 4 to our Condensed Consolidated Financial Statements for additional information.

Interest expense, net was approximately $3.4 million for both the three months ended March 31, 2021 and 2020.

The restructuring expenses of approximately $4.7 million and $6.0 million recorded during the three and six months ended June 30, 2021, respectively, primarily related to severance and related costs associated with the rationalization of certain manufacturing operations and administrative offices located in the United States, South America and Europe.

Refer to Note 2 to our Condensed Consolidated Financial Statements for additional information.

Interest expense, net was approximately $2.2 million and $5.6 million for the three and six months ended June 30, 2021, respectively, compared to approximately $6.1 million and $9.5 million for the comparable periods in 2020, resulting primarily from higher interest income in 2021 compared to 2020.

See “Liquidity and Capital Resources” for further information.

Other expense, net was approximately $11.5 million for the three months ended March 31, 2021, compared to approximately $12.5 million for the comparable period in 2020.

Losses on sales of receivables, primarily related to our accounts receivable sales agreements with our finance joint ventures in North America, Europe and Brazil and included in “Other expense, net,” were approximately $4.6 million for the three months ended March 31, 2021, compared to approximately $8.1 million for the comparable period in 2020.

The decrease in losses was primarily as a result of lower sales of accounts receivables and reduced interest rates in 2021 as compared to 2020.

We recorded an income tax provision of approximately $43.6 million for the three months ended March 31, 2021, compared to approximately $29.4 million for the comparable period in 2020.

Other expense, net was approximately $14.6 million and $26.1 million for the three and six months ended June 30, 2021, respectively, compared to approximately $10.0 million and $22.5 million for the comparable periods in 2020.

Losses on sales of receivables, primarily related to our accounts receivable sales agreements with our finance joint ventures in North America, Europe and Brazil and included in “Other expense, net,” were approximately $5.1 million and $9.7 million for the three and six months ended June 30, 2021, respectively, compared to approximately $4.3 million and $12.4 million for the comparable periods in 2020.

These decreases in losses for the six months ended June 30, 2021 were primarily as a result of lower sales of accounts receivables as compared to 2020.

We recorded an income tax provision of approximately $7.7 million and $51.3 million for the three and six months ended June 30, 2021, respectively, compared to approximately $31.3 million and $60.7 million for the comparable periods in 2020.

Our effective tax rate varies from period to period due to the mix of taxable income and losses in the various tax jurisdictions in which we operate.

We maintain a valuation allowance to fully reserve against our net deferred tax assets in the United States, Brazil and certain other foreign jurisdictions.

We maintain a valuation allowance to fully reserve against our net deferred tax assets in Brazil and certain other foreign jurisdictions.

During the three months ended June 30, 2021, our income tax provision includes the benefit of a reversal of approximately $67.8 million related to a valuation allowance previously established against our net

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our effective tax rate for the three months ended March 31, 2021 include the impact of valuation allowances against certain of our Brazilian and U.S.

net deferred tax assets and, accordingly, we recorded no tax benefit against our Brazilian and U.S.

Equity in net earnings of affiliates, which is primarily comprised of income from our AGCO Finance joint ventures, was approximately $14.7 million for the three months ended March 31, 2021, compared to approximately $11.2 million for the comparable period in 2020, primarily due to higher net earnings from our AGCO Finance joint ventures.

deferred tax assets in the United States.

Improvements in income in the United States during 2020 and year-to-date 2021, along with updated future projected income levels, supported the reversal of the valuation allowance.

Equity in net earnings of affiliates, which is primarily comprised of income from our AGCO Finance joint ventures, was approximately $18.6 million and $33.3 million for the three and six months ended June 30, 2021, respectively, compared to approximately $10.1 million and $21.3 million for the comparable periods in 2020, primarily due to higher net earnings from our AGCO Finance joint ventures.

Refer to “Finance Joint Ventures” for further information regarding our finance joint ventures and their results of operations.

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In the United States and Canada, we guarantee certain minimum residual values to those joint ventures upon expiration of certain eligible leases between the finance joint ventures and end users.

See “Commitments, Off-Balance Sheet Arrangements and Contingencies” and Note 17 for additional information.

As of March 31, 2021, our investment in the finance joint ventures, which is included in “Investment in affiliates” on our Condensed Consolidated Balance Sheets, was approximately $396.8 million compared to $395.3 million as of December 31, 2020.

The total finance portfolio in our finance joint ventures was approximately $10.4 billion and $10.7 billion as of March 31, 2021 and December 31, 2020, respectively.

The total finance portfolio as of March 31, 2021 included approximately $8.7 billion of retail receivables and $1.7 billion of wholesale receivables from our dealers.

See “Commitments, Off-Balance Sheet Arrangements and Contingencies” and Note 17.

for additional information.

As of June 30, 2021, our investment in the finance joint ventures, which is included in “Investment in affiliates” on our Condensed Consolidated Balance Sheets, was approximately $426.6 million compared to $395.3 million as of December 31, 2020.

The total finance portfolio in our finance joint ventures was approximately $10.8 billion and $10.7 billion as of June 30, 2021 and December 31, 2020, respectively.

The total finance portfolio as of June 30, 2021 included approximately $9.0 billion of retail receivables and $1.8 billion of wholesale receivables from our dealers.

The total finance portfolio as of December 31, 2020 included approximately $8.8 billion of retail receivables and $1.9 billion of wholesale receivables from our dealers.

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During 2021, we made no additional investments in our finance joint ventures and there were no dividends paid from our finance joint ventures.

For the three months ended March 31, 2021, our share in the earnings of the finance joint ventures, included in “Equity in net earnings of affiliates” within our Condensed Consolidated Statements of Operations, was approximately $14.3 million compared to approximately $11.3 million for the same period in 2020.

For the six months ended June 30, 2021, our share in the earnings of the finance joint ventures, included in “Equity in net earnings of affiliates” within our Condensed Consolidated Statements of Operations, was approximately $32.3 million compared to approximately $21.0 million for the same period in 2020.

LIQUIDITY AND CAPITAL RESOURCES

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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):

March 31 2021 (1)

June 30 2021 (1)

Credit facility expires 2023 $ 260.0

1.002% Senior term loan due 2025 296.8

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(1) The amounts above are gross of debt issuance costs of an aggregate amount of approximately $1.8 million.

On January 25, 2019, we borrowed €250.0 million (or approximately $293.4 million as of March 31, 2021) from the European Investment Bank.

The loan matures on January 24, 2025.

We are permitted to prepay the term loan before its maturity date.

Interest is payable on the term loan at 1.002% per annum, payable semi-annually in arrears.

In October 2018, we entered into a term loan agreement with Rabobank in the amount of €150.0 million (or approximately $176.1 million as of March 31, 2021).

We are permitted to prepay the term loan before its maturity date on October 28, 2022.

Interest is payable on the term loan quarterly in arrears at an annual rate, equal to the EURIBOR plus a margin ranging from 0.875% to 1.875% based on our credit rating.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

In October 2016, we borrowed an aggregate amount of €375.0 million through a group of seven related term loan agreements.

These agreements had maturities ranging from October 2019 to October 2026.

In October 2019, we repaid an aggregate amount of €56.0 million (or approximately $61.1 million) of two of these term loans.

In August 2018, we borrowed an additional aggregate amount of indebtedness of €338.0 million through a group of another seven related term loan agreements.

Proceeds from the borrowings were used to repay borrowings under our former revolving credit facility.

The provisions of the term loan agreements are identical in nature with the exception of interest rate terms and maturities.

In aggregate, as of March 31, 2021 we have indebtedness of approximately €657.0 million (or approximately $771.1 million) under a total group of twelve term loan agreements with remaining maturities ranging from August 2021 to August 2028.

Four of the term loan agreements in the aggregate amount of €264.0 million (or approximately $309.7 million net of debt issuance costs, as of March 31, 2021) will mature in August and October 2021.

On April 9, 2020, we entered into an amendment to our credit facility to include incremental term loans (“2020 term loans”) that allow us to borrow aggregate principal amounts of €235.0 million and $267.5 million (or an aggregate of approximately $543.3 million as of March 31, 2021).

Amounts can be drawn incrementally at any time prior to maturity, but must be drawn down proportionately.

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The maturity date of the 2020 term loans is April 8, 2022.

Interest accrues on amounts outstanding under the 2020 term loans, at our option, at either (1) LIBOR plus a margin based on our credit rating ranging from 1.125% to 2.125% until April 8, 2021 and ranging from 1.375% to 2.375% thereafter, 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.

Interest accrues on amounts outstanding under the 2020 term loans, at our option, at either (1) LIBOR plus a margin based on our credit rating ranging from 1.125% to 2.125% until April 8, 2021

Management’s Discussion and Analysis of Financial Condition and Results of Operations

and ranging from 1.375% to 2.375% thereafter, 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 based on our credit rating ranging from 0.125% to 1.375% until April 8, 2021 and ranging from 0.375% to 1.375% thereafter.

On April 15, 2020, we borrowed €117.5 million and $133.8 million of 2020 term loans.

We simultaneously repaid €100.0 million (or approximately $108.7 million) of our revolving credit facility from the borrowings received.

There were no other borrowings on the 2020 term loans subsequent to the initial borrowings in April 2020.

On February 16, 2021, we repaid the 2020 term loans of €117.5 million and $133.8 million (or an aggregate of approximately $276.0 million as of February 16, 2021).

As of March 31, 2021, we had the ability to borrow €117.5 million and $133.7 million, respectively, (or an aggregate of approximately $271.6 million) of 2020 term loans.

As of June 30, 2021, we had the ability to borrow €117.5 million and $133.7 million, respectively, (or an aggregate of approximately $273.2 million) of 2020 term loans.

Refer to Note 5 to the Condensed Consolidated Financial Statements for additional information regarding our current facilities.

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dollars plus 1.0%, plus a margin ranging from 0.0% to 0.875% based on our credit rating.

As of March 31, 2021, we had no outstanding borrowings under the revolving credit facility, and the ability to borrow is approximately $800.0 million under the revolving credit facility.

As of March 31, 2021 and December 31, 2020, we had short-term borrowings due within one year of approximately $51.8 million and $33.8 million, respectively.

As of June 30, 2021, we had $260.0 million outstanding borrowings under the revolving credit facility, and the ability to borrow approximately $540.0 million under the revolving credit facility.

On January 25, 2019, we borrowed €250.0 million (or approximately $296.8 million as of June 30, 2021) from the European Investment Bank.

The loan matures on January 24, 2025.

We are permitted to prepay the term loan before its maturity date.

Interest is payable on the term loan at 1.002% per annum, payable semi-annually in arrears.

In October 2018, we entered into a term loan agreement with Rabobank in the amount of €150.0 million (or approximately $178.1 million as of June 30, 2021).

We are permitted to prepay the term loan before its maturity date on October 28, 2022.

Interest is payable on the term loan quarterly in arrears at an annual rate, equal to the EURIBOR plus a margin ranging from 0.875% to 1.875% based on our credit rating.

In October 2016, we borrowed an aggregate amount of €375.0 million through a group of seven related term loan agreements.

These agreements had maturities ranging from October 2019 to October 2026.

In October 2019, we repaid an aggregate amount of €56.0 million (or approximately $61.1 million) of two of these term loans.

In August 2018, we borrowed an additional aggregate amount of indebtedness of €338.0 million through a group of another seven related term loan agreements.

The provisions of the term loan agreements are identical in nature with the exception of interest rate terms and maturities.

In aggregate, as of June 30, 2021 we have indebtedness of approximately €657.0 million (or approximately $779.9 million) under a total group of twelve term loan agreements with remaining maturities ranging from August 2021 to August 2028.

Four of the term loan agreements in the aggregate amount of €264.0 million (or approximately $313.4 million net of debt issuance costs, as of June 30, 2021) will mature in August and October 2021.

As of June 30, 2021 and December 31, 2020, we had short-term borrowings due within one year of approximately $55.8 million and $33.8 million, respectively.

Interest on U.S.

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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 March 31, 2021 and December 31, 2020, the cash received from receivables sold under the U.S., Canadian, European and Brazilian accounts receivable sales agreements was approximately $1.3 billion and $1.5 billion, respectively.

As of June 30, 2021 and December 31, 2020, the cash received from receivables sold under the U.S., Canadian, European and Brazilian accounts receivable sales agreements was approximately $1.4 billion and $1.5 billion, respectively.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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The receivables associated with these arrangements are also without recourse to us.

As of March 31, 2021 and December 31, 2020, these finance joint ventures had approximately $80.7 million and $85.2 million, respectively, of outstanding accounts receivable associated with these arrangements.

As of June 30, 2021 and December 31, 2020, these finance joint ventures had approximately $82.7 million and $85.2 million, respectively, of outstanding accounts receivable associated with these arrangements.

These arrangements are accounted for as off-balance sheet transactions.

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Should we not be able to negotiate extended payment terms with our vendors, or should financial institutions no longer be willing to participate in early payment programs with us, we would expect to have sufficient liquidity to timely pay our vendors without any material impact on us or our financial position.

Our debt to capitalization ratio, which is total indebtedness divided by the sum of total indebtedness and stockholders’ equity, was 29.4% and 34.8% at March 31, 2021 and December 31, 2020, respectively.

Cash flows used in operating activities were approximately $315.3 million for the first three months of 2021 compared to $435.3 million for the same period in 2020.

The decrease in cash flow used in operating activities was primarily as a result of the increase in net income during the three months ended March 31, 2021 as compared to the same period in 2020.

Our debt to capitalization ratio, which is total indebtedness divided by the sum of total indebtedness and stockholders’ equity, was 33.2% and 34.8% at June 30, 2021 and December 31, 2020, respectively.

Cash flows used in operating activities were approximately $124.9 million for the first six months of 2021 compared to $221.6 million for the same period in 2020.

The decrease in cash flow used in operating activities during the six months ended June 30, 2021 was primarily as a result of the increase in net income and accounts payable, largely offset by an increase in inventories as compared to the same period in 2020.

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 approximately $883.7 million in working capital at March 31, 2021 as compared to $1,005.6 million at December 31, 2020 and $1,247.9 million at March 31, 2020.

Accounts receivable and inventories, combined, at March 31, 2021 were approximately $578.1 million and $396.0 million higher, respectively, than at December 31, 2020 and March 31, 2020.

Accounts receivable and inventories, combined, at March 31, 2021 were higher than March 31, 2020 primarily due to higher net sales and production levels, as well as positive currency translation.

Capital expenditures for the first three months of 2021 were approximately $63.5 million compared to $60.6 million for the same period in 2020.

We had approximately $1,108.9 million in working capital at June 30, 2021 as compared to $1,005.6 million at December 31, 2020 and $1,263.2 million at June 30, 2020.

Accounts receivable and inventories, combined, as of June 30, 2021 were approximately $935.6 million and $693.7 million higher, respectively, than at December 31, 2020 and June 30, 2020.

Accounts receivable and inventories, combined, at June 30, 2021 were higher than June 30, 2020 primarily due to higher net sales and production levels, as well as positive currency translation.

Capital expenditures for the first six months of 2021 were approximately $120.6 million compared to $117.5 million for the same period in 2020.

We anticipate capital expenditures for the full year of 2021 will be approximately $300.0 million and will be used primarily to upgrade our system capabilities, improve our factory productivity, and to support the development and enhancement of new and existing products, including investments in smart farming, precision agriculture and digital technologies.

Share Repurchase Program and New Capital Return Framework

During the three months ended March 31, 2021, we did not purchase any shares directly or enter into any accelerated share repurchase agreements.

In April 2021, we announced a new capital return framework that includes, among other things, reinstating share repurchases in 2021.

As of March 31, 2021, the remaining amount authorized to be repurchased under board-approved share repurchase authorizations was approximately $245.0 million, which has no expiration date.

As part of our announced new capital return framework, we also are increasing our quarterly dividend by 25%, and declaring a variable special dividend of $4.00 per share to be paid during the second quarter of 2021.

Share Repurchase and Dividends

During the three and six months ended June 30, 2021, we did not purchase any shares directly or enter into any accelerated share repurchase agreements.

As of June 30, 2021, the remaining amount authorized to be repurchased under board-approved share repurchase authorizations was approximately $245.0 million, which has no expiration date.

In addition, we increased our quarterly dividend commencing in the second quarter of 2021 by 25% to $0.20 per common share and declared a variable special dividend of $4.00 per share that was paid during the second quarter of 2021.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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We are party to a number of commitments and other financial arrangements, which may include off-balance sheet arrangements.

At March 31, 2021, we guaranteed indebtedness owed to third parties of approximately $18.8 million, primarily related to dealer and end-user financing of equipment.

At June 30, 2021, we guaranteed indebtedness owed to third parties of approximately $19.3 million, primarily related to dealer and end-user financing of equipment.

In addition, we had accrued approximately $24.9 million of outstanding guarantees of residual values that may be owed to our finance joint ventures in the United States and Canada due upon expiration of certain eligible operating leases between the finance joint ventures and end users.

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We also sell a majority of our wholesale receivables in North America, Europe and Brazil to our U.S., Canadian, European and Brazilian finance joint ventures.

At March 31, 2021, we had outstanding designated and non-designated foreign currency contracts with a gross notional amount of approximately $3.3 billion.

At June 30, 2021, we had outstanding designated and non-designated foreign currency contracts with a gross notional amount of approximately $3.5 billion.

Refer to “Liquidity and Capital Resources” and “Item 3.

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Global industry demand for farm equipment is expected to be higher in 2021 compared to 2020 with improved demand across all major markets.

Our net sales are expected to increase in 2021 compared to 2020, resulting from improved forecasted industry demand as well as positive pricing and foreign currency impacts.

Gross and operating margins are expected to improve from 2020 levels, reflecting increased net sales and production volumes as well as favorable pricing, net of material cost inflation.

Engineering expenses and other technology investments are expected to increase in 2021 compared to 2020 to support our product development plans as well as our precision agriculture and digital initiatives.

Although not contemplated in the above outlook, the COVID-19 pandemic may negatively impact our operations.

Our net sales are expected to increase in 2021 compared to 2020, resulting from an increase in improved forecasted industry demand, as well as positive pricing and favorable currency translation.

Gross and operating margins are expected to improve from 2020 levels, reflecting increased net sales and production volumes and the benefit of cost reduction initiatives.

The improved profitability is expected to fund increases in engineering expenses and other technology investments to support our product development plans as well as our precision agriculture and digital initiatives.

Although not contemplated in the above outlook, the COVID-19 pandemic and other economic events may negatively impact our operations.

Factory closures or other production constraints as a result of government mandates, supply chain disruptions or other factors could significantly negatively impact our net sales and earnings.

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• uncertainty regarding changes in the international tariff regimes and their impact on the cost of the products that we sell;

• suspension of agricultural products into China and the impact to global agricultural equipment demand, if any;

• suspension of sales of agricultural products into China and the impact to global agricultural equipment demand, if any;

• weather conditions;

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• technological difficulties

• the impact of the COVID-19 pandemic.

• the impact of the COVID-19 pandemic on product demand and production;

• the occurrence of a cyber attack, including a ransomware attack.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis