What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-09 · 144 added, 105 removed, 207 unchanged (55% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our operations are subject to the cyclical nature of the agricultural industry.

Our operations are subject to the cyclical and seasonal nature of the agricultural industry.

Sales of our equipment are affected by, among other things, changes in net cash farm income, farm land values, weather conditions, the demand for agricultural commodities, commodity prices and general economic conditions.

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The COVID-19 pandemic and other economic and geopolitical factors, including inflation and the conflict in Ukraine, continue to create volatility in the global economy, including the potential for energy shortages, employment disruptions, supply chain constraints and delays in deliveries, as well as logistics interruptions.

These factors, along with increasing industrial demand, can have an adverse effect on production levels, particularly as a result of delays in the receipts of parts and components.

Supply chain issues of particular concern include a wide range of parts and components, including semiconductors.

We may continue to face supplier bottlenecks and delays in all regions as well as challenges with logistics, and we continue to work to mitigate the impact of these issues in order to meet end-market demand.

These factors, along with fluctuating industrial demand, can have an adverse effect on production levels, particularly as a result of delays in the receipts of parts and components.

We may continue to face supplier delays in all regions as well as challenges with logistics, and we continue to work to mitigate the impact of these issues in order to meet end-market demand.

RESULTS OF OPERATIONS

For the three months ended March 31, 2023, we generated net income of approximately $232.6 million, or $3.10 per share, compared to approximately $151.8 million, or $2.03 per share, for the same period in 2022.

Net sales during the three months ended March 31, 2023 were approximately $3,333.5 million, which was approximately 24.1% higher than the same periods in 2022.

This increase was primarily as a result of net sales growth in high horsepower tractors, combines, application equipment and Precision Ag products during the three months ended March 31, 2023 compared to the same period in 2022, inclusive of approximately 5.4% of unfavorable foreign currency translation.

In addition, favorable pricing more than offset significant material and freight cost inflation.

Regionally, net sales were higher in our Europe/Middle East, North America and South America for the three months ended March 31, 2023 compared to 2022, as discussed below.

Income from operations for the three months ended March 31, 2023 was approximately $387.3 million compared to approximately $204.0 million for the same period in 2022.

This increase was primarily the result of higher net sales and production volumes, along with a richer sales mix and positive net pricing compared to the same period in 2022.

Regionally, income from operations in our Europe/Middle East region increased for the three months ended March 31, 2023 compared to the same period in 2022 due to higher net sales and production volumes and a favorable sales mix.

In our North American region, income from operations increased for the three months ended March 31, 2023 compared to the same period in 2022 due to elevated net sales and production volumes, as well as positive net pricing and a richer sales mix.

In our South American region, income from operations increased in the three months ended March 31, 2023 compared to the same period in 2022 due to the benefit of elevated net sales, as well as significant pricing realization and a favorable sales mix, particularly of high horsepower, higher margin tractors.

In our Asia/Pacific/Africa (“APA”) region, income from operations decreased for the three months ended March 31, 2023 compared to the same period in 2022, primarily due to lower net sales and production volumes.

For the three months ended June 30, 2023, we generated net income of approximately $319.2 million, or $4.26 per share, compared to approximately $177.7 million or $2.37 per share, for the same period in 2022.

For the six months ended June 30, 2023, we generated net income of approximately $551.8 million, or $7.36 per share, compared to approximately $329.5 million, or $4.40 per share, for the same period in 2022.

Net sales during the three and six months ended June 30, 2023 were approximately $3,822.7 million and $7,156.2 million, respectively, which were approximately 29.8% and 27.1% higher than the same periods in 2022.

These increases were primarily as a result of favorable pricing and net sales growth in high horsepower tractors, combines and application equipment, which more than offset the negative impact of currency translation.

Regionally, net sales were higher in all four geographical regions, excluding the negative impact of currency translation, for the three and six months ended June 30, 2023 compared to the same periods in 2022, as presented below.

Income from operations for the three months ended June 30, 2023 was approximately $496.4 million compared to approximately $263.5 million for the same period in 2022.

Income from operations for the six months ended June 30, 2023 was approximately $883.7 million compared to approximately $467.5 million for the same period in 2022.

These increases were primarily the result of higher net sales and production volumes, along with a richer sales mix and positive net pricing, offsetting material cost inflation, compared to the same periods in 2022.

Regionally, income from operations in our Europe/Middle East region increased for the three and six months ended June 30, 2023 compared to the same periods in 2022 due to higher net sales and production levels and positive net pricing.

In our North American region, income from operations increased for the three and six months ended June 30, 2023 compared to the same periods in 2022 due to increased net sales and production volumes, as well as positive net pricing and a richer sales mix.

In our South American region, income from operations increased in the three and six months ended June 30, 2023 compared to the same periods in 2022 due to the benefit of higher net sales and production volumes, as well as a favorable sales mix and net pricing.

In our Asia/Pacific/Africa (“APA”) region, income from operations decreased for the three and six months ended June 30, 2023 compared to the same periods in 2022, primarily due to a weaker sales mix and higher logistics costs.

Industry Market Conditions

Agricultural commodity prices continue to support favorable farm fundamentals resulting in strong demand for larger agricultural equipment as farmers continue to replace aging machines.

Farmer input costs have moderated from levels experienced during 2022, and easing supply chain constraints are enabling industry production to keep pace with strong market demand.

Farmer input costs have moderated from levels experienced during 2022, and easing supply chain constraints are enabling industry production to keep pace with market demand.

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.

Recent volatility of commodity prices due to uncertainty of current crop yield in the northern hemisphere has tempered farmer sentiment.

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

In North America, industry unit retail sales of utility and high horsepower tractors for the first three months of 2023 decreased approximately 3% compared to the same period in 2022.

In North America, industry unit retail sales of utility and high horsepower tractors for the first six months of 2023 decreased approximately 2% compared to the same period in 2022.

The decrease was driven by lower sales of smaller tractors, partially offset by increased sales of higher horsepower units.

Industry unit retail sales of combines for the first three months of 2023 increased approximately 117% compared to the same period in 2022 due to supply chain constraints experienced in 2022.

In Western Europe, industry unit retail sales of tractors decreased approximately 3% for the first three months of 2023 compared to the same period in 2022.

Farmer sentiment in the region continues to be negatively impacted by the conflict in Ukraine and input cost inflation.

Industry unit retail sales of combines for the first three months of 2023 increased approximately 60% compared to the first three months of 2022 due to supply chain constraints experienced in 2022.

In South America, industry unit retail sales of tractors decreased approximately 3% for the first three months of 2023 compared to the same period in 2022.

Industry unit retail sales of combines for the first three months of 2023 increased approximately 18% compared to the first three months of 2022.

Healthy farm income, supportive exchange rates and continued expansion in planted acreage are driving increased investments in high tech farm equipment and resulting in an outlook of modest growth in the South American tractor industry in 2023 compared to elevated levels in the prior year.

Industry unit retail sales of combines for the first six months of 2023 increased approximately 57% compared to the same period in 2022 due to improving supply chains.

In Western Europe, industry unit retail sales of tractors decreased approximately 1% for the first six months of 2023 compared to the same period in 2022.

Farmer sentiment in the region continues to be negatively influenced by the conflict in Ukraine and input cost inflation.

Industry unit retail sales of combines for the first six months of 2023 increased approximately 44% compared to the first six months of 2022 due to supply chain constraints experienced in 2022.

In South America, industry unit retail sales of tractors decreased approximately 3% for the first six months of 2023 compared to the same period in 2022.

Industry unit retail sales of combines for the first six months of 2023 decreased approximately 3% compared to the first six months of 2022.

Healthy farm income, supportive exchange rates and continued expansion in planted acreage are driving increased investments in high tech farm equipment, resulting in an outlook of modestly positive demand in the South American tractor industry in 2023 compared to elevated levels in the prior year.

STATEMENTS OF OPERATIONS

Net sales for the three months ended March 31, 2023 were approximately $3,333.5 million compared to approximately $2,685.7 million for the same period in 2022.

The following tables set forth, for the three months ended March 31, 2023, 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, 2023 were approximately $3,822.7 million compared to approximately $2,945.2 million for the same period in 2022.

Net sales for the six months ended June 30, 2023 were approximately $7,156.2 million compared to approximately $5,630.9 million for the same period in 2022.

The following tables set forth, for the three and six months ended June 30, 2023, 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

2023 2022 $ % $ %

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$ 3,822.7 $ 2,945.2 $ 877.5 29.8 % $ (22.7) (0.8) %

Regionally, net sales in our EME region were higher during the three months ended March 31, 2023 compared to the same period in 2022 primarily due to higher net sales of high horsepower tractors, utility tractors and Fuse Precision Ag products, as well as positive pricing impacts, partially offset by negative foreign currency translation.

Net sales in North America increased during the three months ended March 31, 2023 compared to the same period in 2022 primarily related to higher net sales of high horsepower tractors, application equipment and combines, as well as positive pricing impacts to offset inflationary cost pressures.

Net sales in South America increased during the three months ended March 31, 2023 compared to the same period in 2022, primarily as a result of higher net sales of tractors, combines and application equipment, as well as favorable pricing impacts.

In our APA region, net sales decreased during the three months ended March 31, 2023 compared to the same period in 2022, primarily driven by delayed shipments from European factories partially offset by higher net sales in Australia and China.

We estimate our worldwide average price increase was approximately 11.7% during the three months ended March 31, 2023 compared to the same prior year period.

Consolidated net sales of tractors and combines, which combined comprised approximately 61.9% of our net sales for the three months ended March 31, 2023, increased approximately 29.8% compared to the same period in 2022.

Unit sales of tractors and combines increased approximately 3.5% for the three months ended March 31, 2023 compared to the same period in 2022.

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

2023 2022 $ % $ %

Europe/Middle East $ 3,694.6 $ 2,870.7 $ 823.9 28.7 % $ (128.1) (4.5) %

North America 1,919.9 1,440.9 479.0 33.2 % (7.8) (0.5) %

South America 1,102.4 875.6 226.8 25.9 % (6.7) (0.8) %

Asia/Pacific/Africa 439.3 443.7 (4.4) (1.0) % (26.3) (5.9) %

$ 7,156.2 $ 5,630.9 $ 1,525.3 27.1 % $ (168.9) (3.0) %

Regionally, net sales in our EME region were higher during the three and six months ended June 30, 2023 compared to the same periods in 2022 primarily due to higher net sales of high horsepower tractors, utility tractors and combines, as well as positive pricing impacts, partially offset by negative foreign currency translation.

Net sales in North America increased during the three and six months ended June 30, 2023 compared to the same periods in 2022 primarily due to higher net sales of high horsepower tractors, application equipment and combines, as well as positive pricing impacts to offset inflationary cost pressures.

Net sales in South America increased during the three and six months ended June 30, 2023 compared to the same periods in 2022, primarily as a result of higher net sales of high horsepower tractors and planters, as well as favorable pricing impacts.

In our APA region, net sales increased during the three and six months ended June 30, 2023 compared to the same periods in 2022, excluding the negative impact of currency translation, primarily driven by higher net sales in Australia and China, which were partially offset by delayed shipments from European factories.

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

We estimate our worldwide average price increase was approximately 14.1% and 13.0%, respectively, during the three and six months ended June 30, 2023 compared to the same prior-year periods.

Consolidated net sales of tractors and combines, which combined comprised approximately 63.5% and 62.8% of our net sales for the three and six months ended June 30, 2023, respectively, increased approximately 38.6% and 34.4% compared to the same periods in 2022.

Unit sales of tractors and combines increased approximately 11.2% and 8.1%, respectively, for the three and six months ended June 30, 2023 compared to the same periods in 2022.

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 $ % of

Gross profit $ 1,005.7 26.3 % $ 690.5 23.4 %

Selling, general and administrative expenses 349.3 9.1 % 302.5 10.3 %

Engineering expenses 138.8 3.6 % 107.1 3.6 %

Amortization of intangibles 14.1 0.4 % 15.4 0.5 %

Restructuring expenses 6.1 0.2 % 0.4 — %

Bad debt expense 1.0 — % 1.6 0.1 %

Income from operations $ 496.4 13.0 % $ 263.5 8.9 %

Six Months Ended June 30,

Net Sales (1)

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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, 2023 compared to the same period in 2022 primarily as a result of higher sales and production as well as favorable pricing that more than offset inflationary material and freight cost increases.

Global production hours increased approximately 8.2% in the three months ended March 31, 2023 compared to the same period in 2022.

The increase was primarily due to higher market demand during the three months ended March 31, 2023, as well as easing of supply chain and logistics disruptions experienced in 2022.

Some of our production facilities continue to face supply chain and logistics disruptions as well as material, labor and freight cost inflation.

These disruptions have impacted our ability to produce and ship units, which also has contributed to labor inefficiencies and resulted in higher than anticipated raw material and work in process inventory levels.

Gross profit as a percentage of net sales increased for the three and six months ended June 30, 2023 compared to the same periods in 2022.

These increases were primarily as a result of higher sales and production levels, as well as favorable pricing that more than offset inflationary material and freight cost increases.

Global production hours increased approximately 18.0% and 13.1%, respectively, in the three and six months ended June 30, 2023 compared to the same periods in 2022.

These increases were primarily due to robust market demand during the three and six months ended June 30, 2023, as well as easing of supply chain and logistics disruptions experienced in 2022.

In addition, second quarter 2022 production levels were negatively impacted by a cyberattack we experienced in May 2022.

Some of our production facilities continue to face supply chain and logistics disruptions that have impacted our ability to produce and ship units, which also has contributed to labor inefficiencies and resulted in higher than anticipated raw material and work in process inventory levels.

We also are continuing to experience material, labor and freight cost inflation.

These factors may continue, which could impact production and inventory levels and net sales and margins in future periods.

We recorded approximately $0.5 million and $0.3 million of stock compensation expense within cost of goods sold during the three months ended March 31, 2023 and 2022, respectively.

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

We recorded approximately $0.5 million and $1.0 million of stock compensation expense within cost of goods sold during the three and six months ended June 30, 2023, respectively, compared to approximately $0.3 million and $0.6 million for the comparable periods in 2022, respectively.

See below and refer to Note 4 to our Condensed Consolidated Financial Statements for additional information on stock compensation expense.

Selling, general and administrative expenses (“SG&A expenses”) as a percentage of net sales were lower for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to higher net sales and foreign currency translation impacts.

We recorded approximately $13.5 million of stock compensation expense within SG&A expenses during the three months ended March 31, 2023, compared to approximately $6.7 million during the same period in 2022.

Selling, general and administrative expenses (“SG&A expenses”) as a percentage of net sales were lower for the three and six months ended June 30, 2023 compared to the same periods in 2022 primarily due to higher net sales and foreign currency translation impacts.

We recorded approximately $12.8 million and $26.3 million of stock compensation expense within SG&A expenses during the three and six months ended June 30, 2023, compared to approximately $10.3 million and $17.0 million during the same periods in 2022.

Refer to Note 4 to our Condensed Consolidated Financial Statements for additional information on stock compensation expense.

The restructuring expenses of approximately $1.4 million recorded during the three months ended March 31, 2023 primarily related to severance and other related costs associated with the rationalization of certain South American manufacturing operations.

The restructuring expenses of approximately $6.1 million and $7.5 million, respectively, recorded during the three and six months ended June 30, 2023, primarily related to severance and other related costs associated with the rationalization of certain South American, North American, European and Asian manufacturing operations.

Refer to Note 3 to our Condensed Consolidated Financial Statements for additional information.

Interest expense, net was approximately $0.5 million for the three months ended March 31, 2023 compared to approximately $0.4 million for the comparable period in 2022, resulting primarily from increased interest rates and debt levels in 2023 compared to 2022.

“Interest expense, net” was approximately $5.8 million and $6.3 million, respectively, for the three and six months ended June 30, 2023 compared to approximately $5.9 million and $6.3 million, respectively, for the comparable periods in 2022.

See “Liquidity and Capital Resources” for further information.

Other expense, net was approximately $50.4 million for the three months ended March 31, 2023 compared to approximately $17.5 million for the comparable period in 2022.

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 $28.5 million for the three months ended March 31, 2023 compared to approximately $7.9 million for the comparable period in 2022.

This increase in losses for the three months ended March 31, 2023 was primarily a result of higher interest rates as compared to 2022.

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

We recorded an income tax provision of approximately $120.2 million for the three months ended March 31, 2023 compared to approximately $60.2 million for the comparable period in 2022.

“Other expense, net” was approximately $78.0 million and $128.4 million, respectively, for the three and six months ended June 30, 2023 compared to approximately $21.7 million and $39.2 million, respectively, for the comparable periods in 2022.

The increase in “Other expense, net” reflects an increase in foreign exchange losses related to the devaluation of the Turkish lira and Argentina peso during the six months ended June 30, 2023 as compared to the same period in 2022.

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 $30.3 million and $58.8 million, respectively, for the three and six months ended June 30, 2023 compared to approximately $10.2 million and $18.1 million, respectively, for the comparable periods in 2022.

The increase in losses for the three and six months ended June 30, 2023 was primarily a result of higher sales of accounts receivable and higher interest rates as compared to 2022.

We recorded an income tax provision of approximately $111.0 million and $231.2 million, respectively, for the three and six months ended June 30, 2023 compared to approximately $71.5 million and $131.7 million, respectively, for the comparable periods in 2022.

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 reserve against our net deferred tax assets in certain foreign jurisdictions.

In addition, we recorded approximately $29.5 million within our income tax provision during the three months ended March 31, 2023 associated with our enrollment in a Brazilian tax amnesty program as is more fully described in Notes 12 and 19 of our Condensed Consolidated Financial Statements.

Equity in net earnings of affiliates, which is primarily comprised of income from our AGCO Finance joint ventures, was approximately $16.4 million for the three months ended March 31, 2023 compared to approximately $11.1 million for the comparable period in 2022.

In addition, we recorded approximately $26.4 million within our income tax provision during the six months ended June 30, 2023 associated with our enrollment in a Brazilian tax amnesty program as is more fully described in Note 12 of our Condensed Consolidated Financial Statements.

Equity in net earnings of affiliates, which is primarily comprised of income from our AGCO Finance joint ventures, was approximately $17.6 million and $34.0 million, respectively, the three and six months ended June 30, 2023 compared to approximately $13.2 million and $24.3 million, respectively, for the comparable periods in 2022 primarily due to higher earnings in our European finance joint ventures.

A write-down of our investment in our Russian finance joint venture of approximately $4.8 million was recorded during the three months ended March 31, 2022.

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

There was no loss or income attributable to noncontrolling interests during the three months ended March 31, 2023 compared to approximately $14.8 million of losses in the same period in 2022.

There was no loss or income attributable to noncontrolling interests during the three and six months ended June 30, 2023 compared to approximately $0.1 million and $14.9 million, respectively, of losses in the same periods in 2022.

The losses during 2022 related to our Russia joint venture.

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

We previously invested in two joint ventures that operated in Russia primarily for the manufacture and distribution of equipment and parts.

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Refer to Note 3 of our Condensed Consolidated Financial Statements for additional information.

FINANCE JOINT VENTURES

AGCO FINANCE JOINT VENTURES

Our AGCO Finance joint ventures provide both retail financing and wholesale financing to our dealers in the United States, Canada, Europe, Brazil, Argentina and Australia.

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See “Commitments, Off-Balance Sheet Arrangements and Contingencies” and Note 19 for additional information.

As of March 31, 2023, our investment in the finance joint ventures, which is included in “Investment in affiliates” on our Condensed Consolidated Balance Sheets, was approximately $408.5 million compared to $390.2 million as of December 31, 2022.

The total finance portfolio in our finance joint ventures was approximately $12.1 billion and $11.8 billion as of March 31, 2023 and December 31, 2022, respectively.

The total finance portfolio as of March 31, 2023 included approximately $9.8 billion of retail receivables and $2.3 billion of wholesale receivables from our dealers.

As of June 30, 2023, our investment in the finance joint ventures, which is included in “Investment in affiliates” on our Condensed Consolidated Balance Sheets, was approximately $457.9 million compared to $390.2 million as of December 31, 2022.

The total finance portfolio in our finance joint ventures was approximately $12.6 billion and $11.8 billion as of June 30, 2023 and December 31, 2022, respectively.

The total finance portfolio as of June 30, 2023 included approximately $10.1 billion of retail receivables and $2.5 billion of wholesale receivables from our dealers.

The total finance portfolio as of December 31, 2022 included approximately $9.5 billion of retail receivables and $2.3 billion of wholesale receivables from our 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 the three months ended March 31, 2023, 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, 2023, 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 $15.9 million compared to approximately $11.3 million for the same period in 2022.

In addition, during the three months ended March 31, 2022, we recorded a write-down of our investment in our Russian finance joint venture of approximately $4.8 million, reflected within “Equity in net earnings of affiliates” in our Condensed Consolidated Statements of Operations.

During the six months ended June 30, 2023, we made an investment in our Brazilian finance joint venture of approximately $24.6 million.

There were no dividends paid from our finance joint ventures during 2023.

For the six months ended June 30, 2023, 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 $33.1 million compared to approximately $24.6 million for the same period in 2022.

In addition, during the six months ended June 30, 2022 we recorded a write-down of our investment in our Russian finance joint venture of approximately $4.8 million, reflected within “Equity in net earnings of affiliates” in our Condensed Consolidated Statements of Operations.

The Russian finance joint venture was sold during the three months ended December 31, 2022.

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

LIQUIDITY AND CAPITAL RESOURCES

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We believe that the following facilities and 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, 2023 (1)

June 30, 2023 (1)

Credit facility, expires 2027 $ 927.9

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(1) The amounts above are gross of debt issuance costs of an aggregate amount of approximately $3.4 million.

In December 2022, we, certain of our subsidiaries and Rabobank, and other named lenders entered into an amendment to our credit facility providing for a $1.25 billion multi-currency unsecured revolving credit facility (“credit facility”), which replaced our former $800.0 million multi-currency unsecured revolving credit facility, which is discussed below.

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

replaced our former $800.0 million multi-currency unsecured revolving credit facility, which is discussed below.

The amendment provided an additional $450.0 million in borrowing capacity.

An initial borrowing under the credit facility was used to repay and retire a $240.0 million short-term multi-currency revolving credit facility with Rabobank that was due to mature on March 31, 2023.

An initial borrowing under the credit facility was used to repay and retire a $240.0 million short-term multi-currency revolving credit facility with Rabobank that matured on March 31, 2023.

The credit facility consists of a $325.0 million U.S.

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Interest accrues on amounts outstanding for any borrowings denominated in Euros at the Euro Interbank Offered Rate (“EURIBOR”) plus a margin ranging from 0.875% to 1.875% based on our credit rating.

As of March 31, 2023, we had approximately $706.2 million outstanding borrowings under the revolving credit facility and had the ability to borrow approximately $543.8 million.

In June 2022, we entered into an uncommitted revolving credit facility that allows us to borrow up to €100.0 million (or approximately $108.9 million as of March 31, 2023).

As of June 30, 2023, we had approximately $927.9 million outstanding borrowings under the revolving credit facility and had the ability to borrow approximately $322.1 million.

In June 2022, we entered into an uncommitted revolving credit facility that allows us to borrow up to €100.0 million (or approximately $109.2 million as of June 30, 2023).

The credit facility expires on December 31, 2026.

Any loans will bear interest at the EURIBOR plus a credit spread.

As of March 31, 2023, we had no outstanding borrowings under the revolving credit facility and had the ability to borrow €100.0 million (or approximately $108.9 million).

On October 6, 2021, we issued €600.0 million (or approximately $653.5 million as of March 31, 2023) of senior notes at an issue price of 99.993%.

As of June 30, 2023, we had no outstanding borrowings under the revolving credit facility.

On October 6, 2021, we issued €600.0 million (or approximately $655.0 million as of June 30, 2023) of senior notes at an issue price of 99.993%.

The notes mature on October 6, 2028, and interest is payable annually, in arrears, at 0.800%.

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The senior notes are subject to both optional and mandatory redemption in certain events.

On January 25, 2019, we borrowed €250.0 million (or approximately $272.3 million as of March 31, 2023) from the European Investment Bank.

On January 25, 2019, we borrowed €250.0 million (or approximately $272.9 million as of June 30, 2023) from the European Investment Bank.

The loan matures on January 24, 2025.

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Of the 2018 senior term loans, we repaid an aggregate amount of €144.5 million in August 2021 and February 2022.

In aggregate, as of March 31, 2023, we have indebtedness of approximately €319.5 million (or approximately $348.0 million) through a group of six remaining term loan agreements.

Two of the term loan agreements in the aggregate amount of €173.0 million (or approximately $188.4 million net of debt issuance costs, as of March 31, 2023) will mature in August and October 2023.

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

expect to pay the amounts that mature during 2023 either through refinancing them under a similar program or cash on hand or available to us through our revolving credit facility.

As of March 31, 2023, for the term loans with a fixed interest rate, interest is payable in arrears on an annual basis, with interest rates ranging from 1.20% to 2.26% and maturity dates between August 2023 and August 2028.

In aggregate, as of June 30, 2023, we have indebtedness of approximately €319.5 million (or approximately $348.8 million) through a group of six remaining term loan agreements.

Two of the term loan agreements in the aggregate amount of €173.0 million (or approximately $188.8 million net of debt issuance costs, as of June 30, 2023) will mature in August and October 2023.

We expect to pay the amounts that mature during 2023 either through refinancing them under a similar program or cash on hand or funding available to us through our revolving credit facility.

As of June 30, 2023, for the term loans with a fixed interest rate, interest is payable in arrears on an annual basis, with interest rates ranging from 1.20% to 2.26% and maturity dates between August 2023 and August 2028.

For the term loan with a floating interest rate, interest is payable in arrears on a semi-annual basis, with an interest rate based on the EURIBOR plus a margin of 1.10% and a maturity date of August 2025.

As of March 31, 2023 and December 31, 2022, we had other short-term borrowings due within one year of approximately $4.9 million and $8.9 million, respectively.

On August 1, 2023, we repaid our 2018 senior term loan due August 2023 of €99.5 million (or approximately $109.2 million).

As of June 30, 2023 and December 31, 2022, we had other short-term borrowings due within one year of approximately $56.0 million and $8.9 million, respectively.

We are in compliance with the financial covenants contained in these facilities and expect to continue to maintain such compliance.

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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, 2023 and December 31, 2022, the cash received from receivables sold under the U.S., Canadian, European and Brazilian accounts receivable sales agreements was approximately $1.7 billion and $1.8 billion, respectively.

As of June 30, 2023 and December 31, 2022, the cash

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

received from receivables sold under the U.S., Canadian, European and Brazilian accounts receivable sales agreements was approximately $1.9 billion and $1.8 billion, respectively.

In addition, we sell certain trade receivables under factoring arrangements to other financial institutions around the world.

As of March 31, 2023 and December 31, 2022, the cash received from these arrangements was approximately $233.3 million and $226.0 million, respectively.

As of June 30, 2023 and December 31, 2022, the cash received from these arrangements was approximately $227.4 million and $226.0 million, respectively.

Our finance joint ventures in Europe, Brazil and Australia also provide wholesale financing directly to our dealers.

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

As of March 31, 2023 and December 31, 2022, these finance joint ventures had approximately $108.3 million and $69.5 million, respectively, of outstanding accounts receivable associated with these arrangements.

As of June 30, 2023 and December 31, 2022, these finance joint ventures had approximately $130.0 million and $69.5 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.

As of June 30, 2023 and December 31, 2022, the amount outstanding that remains unpaid to the banks or other intermediaries associated with these programs totaled $93.8 million and $121.5 million, respectively.

Refer to Note 10 of our Condensed Consolidated Financial Statements for further discussion.

Our debt to capitalization ratio, which is total indebtedness divided by the sum of total indebtedness and stockholders’ equity, was 32.5% and 29.7% at March 31, 2023 and December 31, 2022, respectively.

Cash flows used in operating activities were approximately $557.1 million for the first three months of 2023 compared to cash flows used in operating activities of $576.5 million for the same period in 2022.

Supply chain disruptions continue to result in higher raw material and work-in-process inventory levels during the first three months in 2023.

Our debt to capitalization ratio, which is total indebtedness divided by the sum of total indebtedness and stockholders’ equity, was 34.8% and 27.3% at June 30, 2023 and December 31, 2022, respectively.

Cash flows used in operating activities were approximately $365.0 million for the first six months of 2023 compared to $566.2 million for the same period in 2022.

The decrease in cash flows used in operating activities during the six months ended June 30, 2023 was primarily as a result of an increase in net income as compared to the same period in 2022.

Supply chain disruptions continued to result in higher raw material and work-in-process inventory levels during the first six months of 2023.

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 $2,344.5 million in working capital at March 31, 2023 as compared to $1,651.3 million at December 31, 2022 and $2,201.8 million at March 31, 2022.

Accounts receivable and inventories, combined, as of March 31, 2023 were approximately $762.5 million and $805.6 million higher, respectively, than at December 31, 2022 and March 31, 2022.

Accounts receivable and inventories, combined, at March 31, 2023 were higher than at December 31, 2022 and March 31, 2022 primarily due to higher net sales and the lingering impact of supply chain constraints.

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

Capital expenditures for the first three months of 2023 were approximately $125.3 million compared to $66.3 million for the same period in 2022 primarily due to capital investments made in our smart farming and precision agriculture manufacturing capacity.

We had approximately $2,444.5 million in working capital at June 30, 2023 as compared to $1,651.3 million at December 31, 2022 and $2,073.8 million at June 30, 2022.

Accounts receivable and inventories, combined, as of June 30, 2023 were approximately $1,125.3 million and $1,004.7 million higher, respectively, than at December 31, 2022 and June 30, 2022.

Accounts receivable and inventories, combined, at June 30, 2023 were higher than at December 31, 2022 and June 30, 2022 primarily due to higher net sales and the continuing impact of supply chain constraints.

Capital expenditures for the first six months of 2023 were approximately $237.0 million compared to $139.2 million for the same period in 2022 primarily due to capital investments made in our smart farming and precision agriculture manufacturing capacity.

We anticipate capital expenditures for the full year of 2023 will be approximately $400.0 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.

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

Share Repurchase and Dividends

During the three months ended March 31, 2023, we did not purchase any shares directly or enter into any accelerated share repurchase agreements.

As of March 31, 2023, the remaining amount authorized to be repurchased under board-approved share repurchase authorizations was approximately $110.0 million, which has no expiration date.

In addition, on April 27, 2023, our Board of Directors approved an increase to our quarterly dividend commencing in the second quarter of 2023 by 21% to $0.29 per common share and declared a special variable dividend of $5.00 per common share that will be paid during the second quarter of 2023.

During the three and six months ended June 30, 2023, we did not purchase any shares directly or enter into any accelerated share repurchase agreements.

As of June 30, 2023, the remaining amount authorized to be repurchased under board-approved share repurchase authorizations was approximately $110.0 million, which has no expiration date.

COMMITMENTS, OFF-BALANCE SHEET ARRANGEMENTS AND CONTINGENCIES

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

At March 31, 2023, we guaranteed indebtedness owed to third parties of approximately $30.3 million, primarily related to dealer and end-user financing of equipment.

At June 30, 2023, we guaranteed indebtedness owed to third parties of approximately $33.1 million, primarily related to dealer and end-user financing of equipment.

In addition, we had accrued approximately $15.4 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, 2023, we had outstanding designated and non-designated foreign currency contracts with a gross notional amount of approximately $4.2 billion.

At June 30, 2023, we had outstanding designated and non-designated foreign currency contracts with a gross notional amount of approximately $4.5 billion.

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

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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 our Brazilian operations and the related transfer of certain assets to our Brazilian subsidiaries.

Refer to Notes 12 and 19 of our Condensed Consolidated Financial Statements for further discussion of this matter.

Refer to Note 12 of our Condensed Consolidated Financial Statements for further discussion of this matter.

During 2017, we purchased Precision Planting, which provides precision agricultural technology solutions.

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In July 2022, the case was tried before a jury, which determined that we and Precision Planting had not infringed the Deere patents.

Following customary post-trial procedures, the Court entered a judgement in our favor, and in April 2023 Deere filed a Notice of Appeal.

Following customary post-trial procedures, the Court entered a judgement in our favor, and in April 2023 Deere filed a Notice of Appeal to the U.S.

Court of Appeals for the Federal Circuit.

We have an indemnity right under the purchase agreement related to the acquisition of Precision Planting from its previous owner.

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Refer to Note 19 of our Condensed Consolidated Financial Statements for further discussion of this matter.

Global industry demand for farm equipment, driven by continued strong commodity prices and healthy farm economics, is expected to be flat to moderately higher during 2023 in most major markets.

Our net sales are expected to increase in 2023 compared to 2022, resulting from improved net sales volumes and pricing.

Gross and operating margins are expected to improve from 2022 levels, reflecting the impact of higher net sales and production volumes, expected improvements in factory productivity, as well as pricing initiatives to offset material cost inflation.

Global industry demand for farm equipment, driven by continued strong commodity prices and healthy farm economics, is expected to be relatively flat during 2023 in most major markets.

Our net sales are expected to increase in 2023 compared to 2022, resulting from improved net sales and production volumes as well as pricing.

Gross and operating margins are expected to improve from 2022 levels, reflecting the impact of higher net sales and production volumes, expected improvements in factory productivity, a favorable sales mix, as well as pricing initiatives to offset material cost inflation.

Engineering expenses and other technology investments are expected to increase during 2023 compared to 2022 to support our product development plans as well as our precision agriculture and digital initiatives.

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The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S.

generally accepted accounting principles.

generally accepted accounting

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

The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.

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• farm income, land values, debt levels and access to credit;

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

• pervasive livestock diseases;

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• our expansion plans in emerging markets;

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

• supply constraints, including energy shortages;

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• technological difficulties;

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

• the impact of the COVID-19, or other future pandemics, on product demand and production;

• the occurrence of future cyberattacks, including ransomware attacks;

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Recently suppliers of several key parts and components have not been able to meet our demand and we have had to decrease our production levels.

In addition, the potential of natural gas shortages in Europe, as well as predicted overall shortages in other energy sources, could also negatively impact our production and that of our supply chain in the future.

In addition, the potential of future natural gas shortages in Europe, as well as predicted overall shortages in other energy sources, could also negatively impact our production and that of our supply chain in the future.

It is unclear when these supply chain disruptions will be restored or what the ultimate impact on production, and consequently sales, will be.

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Should events in that region or between governments in that region and the countries in which we manufacture products deteriorate, it could significantly adversely impact the availability of parts and components to us, and, correspondingly, our ability to produce products at targeted levels.

We have a wholly-owned subsidiary in Turkey that distributes agricultural equipment and replacement parts within Turkey.

The Turkish economy is highly inflationary.

For the six months ended and as of June 30, 2023, our wholly-owned subsidiary in Turkey had net sales of approximately $221.7 million and total assets of approximately 3.7 billion Turkish lira (or approximately $141.4 million).

The monetary assets and liabilities denominated in the Turkish lira were approximately 3.0 billion Turkish lira (or approximately $117.0 million) and approximately 2.6 billion Turkish lira (or approximately $98.5 million), respectively, as of June 30, 2023.

The Turkish lira significantly depreciated during the month of June 2023, and as a result, we experienced and recorded foreign exchange losses during the second quarter of 2023 associated with the devaluation.

We are subject to the risk of the imposition of limitations by governments on international transfers of funds.

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We have a wholly-owned subsidiary in Argentina that assembles and distributes agricultural equipment and replacement parts within Argentina.

The net monetary assets of our operations in Argentina denominated in pesos at the official government rate were approximately 3.9 billion pesos (or approximately $18.5 million) as of March 31, 2023, inclusive of approximately 6.7 billion pesos (or approximately $32.0 million) in cash and cash equivalents.

We determined that the Argentina economy was highly inflationary during the third quarter of 2018.

For the six months ended and as of June 30, 2023, our wholly-owned subsidiary in Argentina had net sales of approximately $93.6 million and total assets of approximately 44.4 billion pesos (or approximately $173.2 million).

The monetary assets of our operations in Argentina denominated in pesos at the official government rate were approximately 14.9 billion pesos (or approximately $58.0 million), inclusive of approximately 7.5 billion pesos (or approximately $29.2 million) in cash and cash equivalents, as of June 30, 2023.

The monetary liabilities of our operations in Argentina denominated in pesos at the official government rate were approximately 6.7 billion pesos (or approximately $28.4 million) as of June 30, 2023.

In addition, we have an obligation to reimburse AGCO Capital Argentina S.A., one of our finance joint ventures with Rabobank, up to $10 million under a guarantee related to the ability of AGCO Capital Argentina S.A.

to transfer funds out of Argentina.

The finance joint venture in Argentina has net monetary assets denominated in pesos at the official government rate of approximately 5.2 billion (or approximately $24.8 million) as of March 31, 2023, of which a majority is cash and cash equivalents.

The finance joint venture in Argentina has net monetary assets denominated in pesos at the official government rate of approximately 24.0 billion pesos (or approximately $6.2 million), of which a majority is cash and cash equivalents, as of June 30, 2023.

Future impairments and charges are possible in connection with these exposures.

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A majority of the affected locations resumed operations

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

within approximately two weeks after the attack was discovered.

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We do not have significant retail operations, and we do not believe that the exfiltrated data included privacy protected consumer data or that the exfiltration was consequential.

We have invested heavily in maturing our information technology and cybersecurity operations and continue to review and improve our safeguards to minimize our exposure to future

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

We have invested heavily in maturing our information technology and cybersecurity operations and continue to review and improve our safeguards to minimize our exposure to future attacks.

We do not believe the cost of remediation to the impacted systems will be material.

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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