AGCO CORP /DE 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL 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 farm income, farm land values and debt levels, financing costs, acreage planted, crop yields, weather conditions, the demand for agricultural commodities, commodity and protein prices, agricultural product demand and general economic conditions and government policies and subsidies. We sell our equipment, precision agriculture technology and replacement parts to our independent dealers, distributors and other customers. A large majority of our sales are to independent dealers and distributors that sell our products to end users. To the extent practicable, we attempt to sell products to our dealers and distributors on a level basis throughout the year to reduce the effect of seasonal demands on our manufacturing operations and to minimize our investment in inventories. However, retail sales by dealers to farmers are highly seasonal and are a function of the timing of the planting and harvesting seasons. In certain markets, particularly in North America, there is often a time lag, which varies based on the timing and level of retail demand, between our sale of the equipment to the dealer and the dealer’s sale to a retail customer. On April 1, 2024, pursuant to the terms of an Amended and Restated Sale and Contribution Agreement among AGCO, Trimble and PTx Trimble (the “Joint Venture”), AGCO and Trimble completed (i) the contribution by Trimble to the Joint Venture of Trimble’s OneAg business, which is Trimble’s agricultural business, excluding certain Global Navigation Satellite System and guidance technologies, and $8.1 million of cash, (ii) the contribution by AGCO to the Joint Venture of its interest in JCA Industries, LLC d/b/a JCA Technologies and $46.0 million of cash, and (iii) the purchase by AGCO from Trimble of membership interests in the Joint Venture in exchange for the payment by AGCO to Trimble of $1.954 billion in cash, subject to customary working capital and other adjustments. Immediately following the closing and as a result of the transaction, AGCO directly and indirectly owns an 85% interest in the Joint Venture and Trimble owns a 15% interest in the Joint Venture. AGCO began consolidating PTx Trimble within its consolidated financial statements on April 1, 2024. We believe PTx Trimble creates a global-leading mixed-fleet precision agriculture platform. We are the exclusive provider of Trimble’s comprehensive technology offering, supporting the future development and distribution of next-generation agriculture technologies, allowing us to offer a wide variety of user-friendly technologies compatible across brands, equipment models and farm types. The acquired hardware, software and cloud-based applications span all aspects of the crop cycle, from land preparation to planting and seeding to harvest. Refer to Note 2 of our Condensed Consolidated Financial Statements for further information. On July 25, 2024, the Company entered into a Stock and Asset Purchase Agreement to sell the majority of its Grain & Protein (“G&P”) business, which includes the GSI®, Automated Production® (AP), Cumberland®, Cimbria® and Tecno® brands for a purchase price of $700.0 million, subject to customary working capital and other adjustments. The divestiture of the G&P business aligns with AGCO's strategic transformation and allows for AGCO to better streamline and focus on its portfolio of agricultural machinery and precision ag technology products. As of June 30, 2024, the business met the criteria to be classified as held for sale. The Company recognizes assets and liabilities held for sale at the lower of carrying value or fair market value less costs to sell. The Company determined the intended sale of the G&P business does not represent a strategic shift that will have a major effect on the consolidated results of operations, and therefore results of this business were not classified as discontinued operations. The closing of the transaction is subject to customary conditions, including compliance with antitrust and similar laws. The transaction is expected to be completed in the second half of 2024. Refer to Note 3 of our Condensed Consolidated Financial Statements for further information. 42 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) RESULTS OF OPERATIONS Financial Highlights The following tables sets forth the percentage relationship to net sales of certain items included in our Condensed Consolidated Statements of Operations: Three Months Ended June 30, 2024 2023 $ % of Net Sales (1) $ % of Net Sales (1) Net sales $ 3,246.6 100.0 % $ 3,822.7 100.0 % Cost of goods sold 2,409.1 74.2 2,817.0 73.7 Gross profit 837.5 25.8 1,005.7 26.3 Selling, general and administrative expenses 379.8 11.7 350.3 9.2 Engineering expenses 137.8 4.2 138.8 3.6 Amortization of intangibles 31.7 1.0 14.1 0.4 Impairment charges 5.1 0.2 — — Restructuring expenses 30.2 0.9 6.1 0.2 Loss on business held for sale 494.6 15.2 — — Income (loss) from operations (241.7) (7.4) 496.4 13.0 Interest expense, net 29.9 0.9 5.8 0.2 Other expense, net 65.3 2.0 78.0 2.0 Income (loss) before income taxes and equity in net earnings of affiliates (336.9) (10.4) 412.6 10.8 Income tax provision 41.6 1.3 111.0 2.9 Income (loss) before equity in net earnings of affiliates (378.5) (11.7) 301.6 7.9 Equity in net earnings of affiliates 9.6 0.3 17.6 0.5 Net income (loss) (368.9) (11.4) 319.2 8.4 Net loss attributable to noncontrolling interests 1.8 0.1 — — Net income (loss) attributable to AGCO Corporation and subsidiaries $ (367.1) (11.3) % $ 319.2 8.4 % ___________________________________ (1) Rounding may impact summation of amounts. 43 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Six Months Ended June 30, 2024 2023 $ % of Net Sales (1) $ % of Net Sales (1) Net sales $ 6,175.3 100.0 % $ 7,156.2 100.0 % Cost of goods sold 4,568.0 74.0 5,295.6 74.0 Gross profit 1,607.3 26.0 1,860.6 26.0 Selling, general and administrative expenses 730.2 11.8 682.1 9.5 Engineering expenses 268.7 4.4 258.4 3.6 Amortization of intangibles 45.6 0.7 28.9 0.4 Impairment charges 5.1 0.1 — — Restructuring expenses 31.2 0.5 7.5 0.1 Loss on business held for sale 494.6 8.0 — — Income from operations 31.9 0.5 883.7 12.3 Interest expense, net 31.8 0.5 6.3 0.1 Other expense, net 116.1 1.9 128.4 1.8 Income (loss) before income taxes and equity in net earnings of affiliates (116.0) (1.9) 749.0 10.5 Income tax provision 110.7 1.8 231.2 3.2 Income (loss) before equity in net earnings of affiliates (226.7) (3.7) 517.8 7.2 Equity in net earnings of affiliates 25.8 0.4 34.0 0.5 Net income (loss) (200.9) (3.3) 551.8 7.7 Net loss attributable to noncontrolling interests 1.8 — — — Net income (loss) attributable to AGCO Corporation and subsidiaries $ (199.1) (3.2) % $ 551.8 7.7 % ___________________________________ (1) Rounding may impact summation of amounts. Net income (loss) attributable to AGCO Corporation and subsidiaries for the three months ended June 30, 2024, was $(367.1) million, or $(4.92) per diluted share, compared to $319.2 million or $4.26 per diluted share, for the three months ended June 30, 2023. Net income (loss) attributable to AGCO Corporation and subsidiaries for the six months ended June 30, 2024, was $(199.1) million, or $(2.67) per diluted share, compared to $551.8 million or $7.36 per diluted share, for the six months ended June 30, 2023. Net sales during the three months ended June 30, 2024 were approximately $3,246.6 million, or 15.1% lower than the three months ended June 30, 2023, primarily due to lower sales volumes resulting from softer industry sales reflecting lower end market demand and unfavorable currency impacts. Income (loss) from operations was $(241.7) million for the three months ended June 30, 2024 compared to $496.4 million in the three months ended June 30, 2023. The decrease in income from operations during 2024 was primarily the result of lower sales and production volumes, the recognition of the estimated loss on the G&P business held for sale as well as restructuring expenses associated with the Company's Program and higher selling, general and administrative expenses ("SG&A expenses"), primarily related to transaction costs related to the close of the PTx Trimble joint venture transaction and the announced G&P divestiture transaction. Net sales during the six months ended June 30, 2024 were approximately $6,175.3 million, or 13.7% lower than the six months ended June 30, 2023, primarily due to lower sales volumes resulting from softer industry sales reflecting lower end market demand. Income from operations was $31.9 million for the six months ended June 30, 2024 compared to $883.7 million in the six months ended June 30, 2023. The decrease in income from operations during 2024 was primarily the result of lower sales and production volumes, the recognition of the estimated loss on the G&P business held for sale as well as restructuring expenses associated with the Company's Program and higher SG&A expenses, primarily related to transaction costs related to 44 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) the close of the PTx Trimble joint venture transaction and the announced G&P divestiture transaction and higher compensation costs. We estimate that worldwide average price increases (decreases) were approximately (1.9)% and 14.1% for the three months ended June 30, 2024 and 2023, respectively, and (0.6)% and 13.0% for the six months ended June 30, 2024 and 2023, respectively. Consolidated net sales of tractors and combines, which comprised approximately 61.6% and 62.7% of our net sales for the three and six months ended June 30, 2024, decreased approximately 17.6% and 13.8% compared to the same periods in 2023. Unit sales of tractors and combines decreased approximately 22.3% and 21.1% during the three and six months ended June 30, 2024 compared to the same periods in 2023. The primary driver of the decrease in unit sales was lower sales of compact and mid-range tractors and combines. The difference between the unit sales change and the change in net sales was primarily the result of sales mix changes and foreign currency translation. Overall, global production hours decreased approximately 23.3% and 19.8% during the three and six months ended June 30, 2024 compared to the same period in 2023, reflecting our response to lower end market demand. Results of Operations Gross profit as a percentage of net sales decreased during the three months ended June 30, 2024 compared to the same period in 2023, primarily due to lower production volumes and unfavorable net pricing impacts. Gross profit as a percentage of net sales were consistent during the six months ended June 30, 2024 compared to the same period in 2023. SG&A expenses as a percentage of net sales were higher during the three and six months ended June 30, 2024 compared to the same periods in 2023. The absolute level of SG&A expenses increased during the three and six months ended June 30, 2024 primarily due to PTx Trimble joint venture transaction-related costs, higher compensation costs and transaction costs related to the announced divestiture of the Company's G&P business. These increases were partially offset by decreases in stock compensation expense. We recorded $7.4 million and $15.4 million of stock compensation expense within SG&A expenses during the three and six months ended June 30, 2024, respectively, compared to $12.8 million and $26.3 million during the same periods in 2023. Engineering expenses as a percentage of net sales were higher during the three and six months ended June 30, 2024 compared to the same periods in 2023, primarily driven by increased engineering expenses related to the PTx Trimble joint venture. We recorded impairment charges of $5.1 million during the three and six months ended June 30, 2024 related to the impairment of certain amortizing intangible assets and an investment in affiliate. There were no impairment charges recorded during the three and six months ended June 30, 2023. We recorded restructuring expenses of $30.2 million and $31.2 million during the three and six months ended June 30, 2024, respectively, compared to $6.1 million and $7.5 million, respectively, during the same periods in 2023. On June 24, 2024, the Company announced a restructuring program (the “Program”) in response to increased weakening demand in the agriculture industry. The initial phase of the Program is focused on further reducing structural costs, streamlining the Company’s workforce and enhancing global efficiencies related to changing the Company’s operating model for certain corporate and back-office functions and better leveraging technology and global centers of excellence. The Company estimates that it will incur charges for one-time termination benefits of approximately $150.0 million to $200.0 million in connection with this phase of the Program, primarily consisting of cash charges related to severance payments, employees benefits and related costs. The Company expects the majority of these cash charges will be incurred in 2024 and the first half of 2025. Once fully implemented, the Company expects this phase of the Program to yield annual run-rate benefits and cost savings of approximately $100.0 million to $125.0 million. The restructuring expenses recorded during the three and six months ended June 30, 2024 primarily related to severance and other related costs associated with the Company's Program and rationalization of certain manufacturing facilities and administrative offices. Refer to Note 10 to our Condensed Consolidated Financial Statements for further information. We recorded a loss on business held for sale of $494.6 million during the three and six months ended June 30, 2024. There was no loss recorded during the three and six months ended June 30, 2023. On July 25, 2024, the Company announced it had entered into a definitive agreement to sell its G&P business, and as of June 30, 2024, the Company determined that the G&P business met the criteria to be classified as held for sale. Upon the Company's classification as held for sale, the Company 45 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) recognized a loss on business held for sale of $494.6 million, which represents the estimated loss on the business held for sale. Refer to Note 3 to our Condensed Consolidated Financial Statements for further information. Interest expense, net was $29.9 million and $31.8 million for the three and six months ended June 30, 2024, respectively, compared to $5.8 million and $6.3 million for the comparable periods in 2023. The increase related primarily to an increase in interest expense resulting from the amortization of bridge facility commitment fees and increased debt levels related to financing the PTx Trimble joint venture transaction partially offset by higher interest income for the three and six months ended June 30, 2024 as compared to the same periods in 2023. See “Liquidity and Capital Resources” for further information on our available funding. Other expense, net was $65.3 million and $116.1 million for the three and six months ended June 30, 2024, respectively, compared to $78.0 million and $128.4 million for the comparable periods in 2023. The decrease was primarily driven by decreases in foreign currency exchanges losses which were approximately $26.7 million and $49.6 million, respectively, for the three and six months ended June 30, 2024, compared to $41.9 million and $60.2 million, respectively, for the comparable periods in 2023. During the six months ended June 30, 2024, the Company recorded the final insurance recovery of $5.0 million related to the 2022 cyber incident. 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 $35.9 million and $63.8 million, respectively, for the three and six months ended June 30, 2024, compared to $30.3 million and $58.8 million, respectively, for the comparable periods in 2023. We recorded an income tax provision of $41.6 million and $110.7 million for the three and six months ended June 30, 2024 compared to $111.0 million and $231.2 million for the three and six months ended June 30, 2023. 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. Based on a favorable tax ruling in Brazil regarding the taxability of certain state value added tax incentive benefits, the Company recorded a $31.7 million reduction in the provision for income taxes during the three months ended June 30, 2024. During the six months ended June 30, 2023, we recorded approximately $26.4 million associated with our enrollment in a Brazilian tax amnesty program that is more fully described in Note 14 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 $9.6 million and $25.8 million for the three and six months ended June 30, 2024 compared to $17.6 million and $34.0 million for the three and six months ended June 30, 2023. The Company recorded a net loss attributable to noncontrolling interests of $1.8 million during the three and six months ended June 30, 2024. The net loss primarily relates to the noncontrolling interests of the PTx Trimble joint venture held by Trimble, which owns a 15% interest in the joint venture. The Company had no net loss attributable to noncontrolling interests recorded for the three and six months ended June 30, 2023. Results of Operations - Segment Information The Company has four operating segments that are also its reportable segments, which consist of the Europe/Middle East (“EME”), North America, South America and Asia/Pacific/Africa (“APA”) regions. The Company’s reportable segments are geography based and distribute a full range of agricultural machinery and precision agriculture technology. The Company evaluates segment performance primarily based on income from operations. Sales for each segment are based on the location of the third-party customer. The Company’s selling, general and administrative expenses and engineering expenses are charged to each segment based on the region and division where the expenses are incurred. As a result, the components of income from operations for one segment may not be comparable to another segmen t. 46 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) The following table sets forth, for the three and six months ended June 30, 2024, the impact to net sales of currency translation by geographical segment (in millions, except percentages): Three Months Ended June 30, Change Change Due to Currency Translation 2024 2023 $ % $ % Europe/Middle East $ 1,902.9 $ 1,990.8 $ (87.9) (4.4) % $ (14.6) (0.7) % North America 837.8 996.8 (159.0) (16.0) % (1.6) (0.2) % South America 348.9 598.6 (249.7) (41.7) % (15.2) (2.5) % Asia/Pacific/Africa 157.0 236.5 (79.5) (33.6) % (2.4) (1.0) % $ 3,246.6 $ 3,822.7 $ (576.1) (15.1) % $ (33.8) (0.9) % Six Months Ended June 30, Change Change Due to Currency Translation 2024 2023 $ % $ % Europe/Middle East $ 3,631.9 $ 3,694.6 $ (62.7) (1.7) % $ 9.2 0.2 % North America 1,567.4 1,919.9 (352.5) (18.4) % 1.5 0.1 % South America 652.3 1,102.4 (450.1) (40.8) % (3.8) (0.3) % Asia/Pacific/Africa 323.7 439.3 (115.6) (26.3) % (7.0) (1.6) % $ 6,175.3 $ 7,156.2 $ (980.9) (13.7) % $ (0.1) — % EME Three Months Ended June 30, Change Six Months Ended June 30, Change 2024 2023 $ 2024 2023 $ Net Sales $ 1,902.9 $ 1,990.8 $ (87.9) $ 3,631.9 $ 3,694.6 $ (62.7) Income from Operations 288.5 295.2 (6.7) 571.4 534.6 36.8 Net sales in EME decreased in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to sales volumes declines, most significantly in compact and mid-range tractors, and hay tools, and unfavorable foreign currency translation, partially offset by increased sales of Fendt high-horsepower tractors and a favorable impact from the PTx Trimble joint venture transaction. Income from operations decreased by $6.7 million in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Income from operations remained relatively consistent due to the favorable product mix related to high-horsepower tractors. Net sales in EME decreased in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to sales volumes declines, most significantly in compact and mid-range tractors, and combines, and lower sales of grain and protein products, partially offset by increased sales of Fendt high-horsepower tractors. Income from operations increased by $36.8 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, driven primarily by favorable product mix related to high-horsepower tractors. 47 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) North America Three Months Ended June 30, Change Six Months Ended June 30, Change 2024 2023 $ 2024 2023 $ Net Sales $ 837.8 $ 996.8 $ (159.0) $ 1,567.4 $ 1,919.9 $ (352.5) Income from Operations 76.7 136.9 (60.2) 119.1 239.0 (119.9) Net sales in North America decreased in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to sales volume declines, most significantly in mid-range and high-horsepower tractors, partially offset by a favorable impact from the PTx Trimble joint venture transaction. Net sales in North America were also negatively impacted by the announced exit of two dealers in the three months ended June 30, 2024. Income from operations decreased by $60.2 million in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 as a result of lower sales and production volumes and higher warranty costs. These decreases were partially offset by margin improvements related to grain and protein products. Net sales in North America decreased in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to sales volume declines, most significantly in mid-range and high-horsepower tractors and hay tools. Income from operations decreased by $119.9 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 as a result of lower sales and production volumes and higher warranty costs. These decreases were partially offset by margin improvements related to grain and protein products. South America Three Months Ended June 30, Change Six Months Ended June 30, Change 2024 2023 $ 2024 2023 $ Net Sales $ 348.9 $ 598.6 $ (249.7) $ 652.3 $ 1,102.4 $ (450.1) Income from Operations 12.6 121.4 (108.8) 28.8 220.9 (192.1) Net sales decreased in South America in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, as a result of sales volume declines, most significantly in tractors and combines, and unfavorable foreign currency translation. Income from operations decreased $108.8 million in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, as a result of lower sales and production volumes and negative pricing impacts. Net sales decreased in South America in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, as a result of sales volume declines, most significantly in tractors and combines. Income from operations decreased $192.1 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, as a result of lower sales and production volumes and negative pricing impacts, partially offset by lower SG&A expenses resulting from a benefit recorded from the sale of a dealership in the first quarter of 2024 which was previously terminated in the fourth quarter of 2023. APA Three Months Ended June 30, Change Six Months Ended June 30, Change 2024 2023 $ 2024 2023 $ Net Sales $ 157.0 $ 236.5 $ (79.5) $ 323.7 $ 439.3 $ (115.6) Income from Operations 12.4 20.9 (8.5) 20.4 39.0 (18.6) Net sales decreased in APA in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to lower sales volumes of high horse power tractors and lower sales of grain and protein products. Income from operations decreased $8.5 million in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to lower sales and production volumes. 48 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Net sales decreased in APA in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to lower sales volumes of high horse power tractors and hay tools, lower sales of grain and protein products and unfavorable foreign currency translation. Income from operations decreased $18.6 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to lower sales and production volumes. LIQUIDITY AND CAPITAL RESOURCES Our financing requirements generally are subject to variations due to seasonal changes in inventory and receivable levels. Internally generated funds are supplemented when necessary from external sources, primarily our credit facilities and accounts receivable sales agreement facilities, subject to the discussion below with respect to the financing of the PTx Trimble joint venture transaction. Additional information regarding our indebtedness is contained in Note 9 to the Condensed Consolidated Financial Statements. We believe that the following facilities listed below, together with available cash and internally generated funds, and assuming customary renewals and replacements, will be sufficient to support our working capital, capital expenditures and debt service requirements for the foreseeable future (in millions): June 30, 2024 (1) Credit facility, expires 2027 $ 760.0 Term Loan Facility borrowings 500.0 5.450% Senior notes due 2027 400.0 5.800% Senior notes due 2034 700.0 0.800% Senior notes due 2028 642.0 1.002% EIB Senior term loan due 2025 267.5 EIB Senior term loan due 2029 267.5 EIB Senior term loan due 2030 181.9 Senior term loans due between 2025 and 2028 156.8 Other long-term debt 1.0 ____________________________________ (1) The amounts above are gross of debt issuance costs of an aggregate amount of approximately $13.0 million. The Company has a credit facility providing for a $1.25 billion multi-currency unsecured revolving credit facility (“Credit Facility”) that matures on December 19, 2027. As of June 30, 2024, the Company had $760.0 million in outstanding borrowings under the revolving credit facility and had the ability to borrow $489.9 million. In addition, the Company has an uncommitted revolving credit facility that allows the Company to borrow up to €100.0 million (or approximately $107.0 million as of June 30, 2024). The credit facility expires on December 31, 2026. As of June 30, 2024, the Company had no outstanding borrowings under the revolving credit facility. On September 29, 2023, the Company entered into a multi-currency Finance Contract with the EIB permitting the Company to borrow up to €250.0 million, to fund up to 50% of certain investments in research, development and innovation primarily in Germany, France and Finland during the period from 2023 through 2026. On October 26, 2023, the Company borrowed €250.0 million under the arrangement. The loan matures on October 26, 2029. As of June 30, 2024, there was €250.0 million (approximately $267.5 million) outstanding under the EIB Senior Term Loan due 2029. On January 25, 2024, the Company entered into an additional multi-currency Finance Contract with the EIB permitting the Company to borrow up to €170.0 million, for which the proceeds will be used in a similar manner as described for the EIB Senior Term Loan due 2029 above. On February 15, 2024, the Company borrowed €170.0 million under the arrangement. The loan matures on February 15, 2030. As of June 30, 2024, there was €170.0 million (approximately $181.9 million) outstanding under the EIB Senior Term Loan due 2030. On March 21, 2024, the Company issued (i) $400.0 million aggregate principal amount of the 2027 Notes and (ii) $700.0 million aggregate principal amount of the 2034 Notes. The Notes are unsecured and unsubordinated indebtedness of the Company and are guaranteed on a senior unsecured basis, jointly and severally, by certain direct and indirect subsidiaries of the Company. As of June 30, 2024, the Company had $400.0 million and $700.0 million outstanding under the 2027 Notes and 2034 Notes, respectively. 49 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) In December 2023 and March 2024, the Company amended the Credit Facility to allow for incremental borrowings in the form of the Term Loan Facility in an aggregate principal amount of $500.0 million. The Company drew down the Term Loan Facility on March 28, 2024. Borrowings under the Term Loan Facility bear interest at the same rate and margin as the Credit Facility. The Term Loan Facility matures on December 19, 2027. As of June 30, 2024, the Company had $500.0 million outstanding under the Term Loan Facility. On September 28, 2023, the Company entered into a bridge facility commitment letter with Morgan Stanley pursuant to which Morgan Stanley committed to provide, subject to the terms and conditions set forth therein, a $2.0 billion senior unsecured 364-day bridge facility. The amount available under the Bridge Facility was reduced to zero by certain permanent financing transactions including the net proceeds from the issuance of the Notes, the Company's entry into the Term Loan Facility and by amounts based on the Company's cash flow. The Company terminated the Bridge Facility on March 25, 2024. The PTx Trimble joint venture transaction closed on April 1, 2024. The Company financed the joint venture transaction through a combination of the Senior Notes due 2027 and 2034, the Term Loan Facility and the remainder through other borrowings and cash on hand. The Company had redeemable noncontrolling interests of $504.7 million as of June 30, 2024 resulting from the PTx Trimble joint venture transaction, which may require the use of cash in certain instances, beginning in 2027. Refer to Note 2 of our Condensed Consolidated Financial Statements for further information. On July 25, 2024, the Company announced it had entered into a definitive agreement to sell the majority of its Grain & Protein business. The Company expects to receive proceeds of approximately $700.0 million from the sale, subject to customary working capital and other adjustments. The transaction is expected to be completed in the second half of 2024. The Company intends to use the net proceeds from the transaction consistent with its stated capital allocation priorities, including debt repayment, disciplined investment in technology and organic growth initiatives, and return of capital to shareholders. The Company is in compliance with the financial covenants contained in these facilities and expects to continue to maintain such compliance. Should we ever encounter difficulties, our historical relationship with our lenders has been strong, and we anticipate their continued long-term support of our business. Refer to Note 9 to the Condensed Consolidated Financial Statements for additional information regarding our current facilities, including the financial covenants contained in each debt instrument. Our debt to capitalization ratio, which is total indebtedness divided by the sum of total indebtedness, excluding short-term borrowings due within one year, and stockholders’ equity, was 48.8% and 23.0% at June 30, 2024 and December 31, 2023, respectively. The increase largely reflects the indebtedness incurred to pay the purchase price attendant to the PTx Trimble joint venture transaction. Supplemental Guarantor Financial Information The 2027 Notes and the 2034 Notes are unsecured and unsubordinated indebtedness of the Company and are guaranteed on a senior unsecured basis, jointly and severally, by AGCO International Holdings B.V., AGCO International GmbH, Massey Ferguson Corp. and The GSI Group, LLC, direct and indirect subsidiaries of the Company (collectively, the “Guarantors”). Refer to Note 9 of our Condensed Consolidated Financial Statements for further discussion of these debt obligations. The following tables present summarized financial information of AGCO Corporation, as the issuer of the 2027 Notes and the 2034 Notes, and the Guarantors on a combined basis after elimination of intercompany transactions and balances within the Guarantors and equity in the earnings from and investments in any non-guarantor subsidiary. As used herein, “obligor group” means AGCO Corporation, as the issuer of the debt securities, and the Guarantors on a combined basis. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the obligor group and is not intended to present the financial position or results of operations of the obligor group in accordance with generally accepted accounting principles as such principles are in effect in the United States. 50 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Balance Sheet Information (in millions) As of June 30, 2024 As of December 31, 2023 Current assets (a) $ 4,959.6 $ 5,710.3 Noncurrent assets (b) 2,488.2 2,036.4 Current liabilities (c) 4,502.6 5,597.4 Noncurrent liabilities (d) 5,668.5 2,824.2 ____________________________________ (a) Includes amounts due from non-guarantor subsidiaries of $2,529.1 million and $3,391.1 million as of June 30, 2024 and December 31, 2023, respectively. (b) Includes amounts due from non-guarantor subsidiaries of $785.3 million and $404.1 million as of June 30, 2024 and December 31, 2023, respectively. (c) Includes amounts due to non-guarantor subsidiaries of $2,438.5 million and $3,813.4 million as of June 30, 2024 and December 31, 2023, respectively. (d) Includes amounts due to non-guarantor subsidiaries of $1,796.4 million and $1,193.3 million as of June 30, 2024 and December 31, 2023, respectively. Statement of Operations Information (in millions) Six months ended June 30, 2024 Revenues (a) $ 4,893.8 Income from Operations 433.8 Net income 57.8 Net income attributable to obligor group 57.8 ____________________________________ (a) Includes intercompany revenues generated from non-guarantor subsidiaries of $3,174.9 million. The following tables present summarized financial information of AGCO International GmbH, after elimination of intercompany transactions and balances within the Guarantors and equity in the earnings from and investments in any non-guarantor subsidiary. Balance Sheet Information (in millions) As of June 30, 2024 As of December 31, 2023 Current assets (a) $ 3,278.2 $ 4,108.0 Noncurrent assets (b) 1,024.6 648.3 Current liabilities (c) 2,956.8 4,422.5 Noncurrent liabilities (d) 1,974.5 1,376.5 ____________________________________ (a) Includes amounts due from non-guarantor subsidiaries of $1,906.6 million and $2,760.2 million as of June 30, 2024 and December 31, 2023, respectively. (b) Includes amounts due from non-guarantor subsidiaries of $751.7 million and $379.0 million as of June 30, 2024 and December 31, 2023, respectively. (c) Includes amounts due to non-guarantor subsidiaries of $2,120.0 million and $3,540.1 million as of June 30, 2024 and December 31, 2023, respectively. (d) Includes amounts due to non-guarantor subsidiaries of $1,796.4 million and $1,193.3 million as of June 30, 2024 and December 31, 2023, respectively. Statement of Operations Information (in millions) Six months ended June 30, 2024 Revenues (a) $ 3,558.4 Income from Operations 533.4 Net income 201.5 Net income attributable to obligor group 201.5 ____________________________________ (a) Includes intercompany revenues generated from non-guarantor subsidiaries of $2,938.1 million. 51 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Our accounts receivable sales agreements in North America, Europe and Brazil permit the sale, on an ongoing basis, of a majority of our receivables to our U.S., Canadian, European and Brazilian finance joint ventures. The sales of all receivables are without recourse to us. We do not service the receivables after the sales occur, and we do not maintain any direct retained interest in the receivables. These agreements are accounted for as off-balance sheet transactions. The cash received from receivables sold under the U.S., Canadian, European and Brazilian accounts receivable sales agreements that remain outstanding as of June 30, 2024 and December 31, 2023 was approximately $2.4 billion and $2.5 billion, respectively. In addition, we sell certain trade receivables under factoring arrangements to other financial institutions around the world. The cash received from trade receivables sold under factoring arrangements that remain outstanding as of June 30, 2024 and December 31, 2023 was approximately $221.4 million and $254.1 million, respectively. Our finance joint ventures in Europe, Brazil and Australia also provide wholesale financing directly to our dealers. As of June 30, 2024 and December 31, 2023, these finance joint ventures had approximately $187.7 million and $211.3 million, respectively, of outstanding accounts receivable associated with these arrangements. The total finance portfolio in our finance joint ventures was approximately $14.2 billion and $14.1 billion as of June 30, 2024 and December 31, 2023, respectively. The total finance portfolio as of June 30, 2024 and December 31, 2023 included approximately $11.2 billion and $10.8 billion, respectively, of retail receivables and $3.0 billion and $3.3 billion, respectively, of wholesale receivables from AGCO dealers. In order to efficiently manage our liquidity, we generally pay vendors in accordance with negotiated terms. To enable vendors to obtain payment in advance of our payment due dates to them, we have established programs in certain markets with financial institutions under which the vendors have the option to be paid by the financial institutions earlier than the payment due dates. 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, 2024 and December 31, 2023, the amount outstanding that remains unpaid to the banks or other intermediaries associated with these programs totaled $92.9 million and $82.7 million, respectively. Refer to Note 8 of our Condensed Consolidated Financial Statements for further discussion. Cash Flows Cash flows used in operating activities were approximately $134.5 million for the first six months of 2024 compared to cash used in operating activities of approximately $365.0 million for the same period in 2023. The decrease of cash used in operating activities during the six months ended June 30, 2024 was primarily driven by changes in working capital, partially offset by a decrease in net income in the first six months of 2024 compared to the same period in 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 $2,275.2 million in working capital at June 30, 2024 as compared to $1,997.2 million at December 31, 2023. Inventories as of June 30, 2024 were approximately $3,499.4 million as compared to $3,440.7 million at December 31, 2023. Accounts and notes receivable, net, as of June 30, 2024 were approximately $139.4 million lower than at December 31, 2023 primarily due to timing of sales of accounts receivable under our factoring arrangements. Capital expenditures for the first six months of 2024 were approximately $193.0 million compared to $237.0 million for the same period in 2023. 52 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Share Repurchase and Dividends In November 2023, the Company entered into an ASR agreement with a financial institution to repurchase $53.0 million of shares of its common stock. We received approximately 371,669 shares associated with this transaction as of December 31, 2023. In January 2024, the Company received an additional 82,883 shares upon final settlement of our November 2023 ASR agreement. All shares received under the ASR agreement were retired upon receipt, and the excess of the purchase price over par value per share was recorded to a combination of “Additional paid-in capital” and “Retained earnings” within the Company’s Condensed Consolidated Balance Sheets. We did not purchase any shares directly or enter into any accelerated share repurchase agreements during the three and six months ended June 30, 2024. As of June 30, 2024, the remaining amount authorized to be repurchased under board-approved share repurchase authorizations was approximately $57.0 million, which has no expiration date. On April 25, 2024, the Company's Board of Directors declared a special variable dividend of $2.50 per common share that was paid during the second quarter of 2024. During the three months ended June 30, 2024 and 2023, the Company declared and paid cash dividends of $2.79 and $5.28 per common share, respectively. During the six months ended June 30, 2024 and 2023, the Company declared and paid cash dividends of $3.08 and $5.52 per common share, respectively. On July 11, 2024, the Company's Board of Directors declared a regular quarterly dividend of $0.29 per common share to be paid on September 16, 2024, to all stockholders of record as of the close of business on August 15, 2024. 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 June 30, 2024, we had outstanding guarantees issued to our Argentine finance joint venture, AGCO Capital, of approximately $54.1 million. In addition, we had accrued approximately $12.6 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. The maximum potential amount of future payments under the guarantee is approximately $185.1 million. 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 June 30, 2024, we had outstanding designated and non-designated foreign currency contracts with a gross notional amount of approximately $3,032.1 million. Refer to “Liquidity and Capital Resources” and “Item 3. Quantitative and Qualitative Disclosures about Market Risk-Foreign Currency Risk Management,” as well as to Notes 4, 11 and 17 of our Condensed Consolidated Financial Statements for further discussion of these matters. Contingencies During 2017, the Company purchased Precision Planting, which provides precision agricultural technology solutions. In 2018, Deere & Company (“Deere”) filed separate complaints in the U.S. District Court of Delaware against the Company and Precision Planting alleging that certain products of those entities infringed certain patents of Deere. The two complaints subsequently were consolidated into a single case, Case No. 1:18-cv-00827-CFC. In July 2022, the case was tried before a jury, which determined that the Company and Precision Planting had not infringed the Deere patents. Following customary post-trial procedures, the Court entered a judgment in the Company’s favor, and Deere appealed the judgment to the U.S. Court of Appeals for the Federal Circuit. The appeal is fully briefed and is awaiting oral arguments before the court. The Company has an indemnity right under the purchase agreement related to the acquisition of Precision Planting from its previous owner. Pursuant to that right, the previous owner of Precision Planting currently is responsible for the litigation costs associated with the complaint and is obligated to reimburse AGCO for some or all of the damages in the event of an adverse outcome in the litigation. We are party to various claims and lawsuits arising in the normal course of business. We closely monitor these claims and lawsuits and frequently consult with our legal counsel to determine whether they may, when resolved, have a material adverse effect on our financial position or results of operations and accrue and/or disclose loss contingencies as appropriate. See Note 17 of our Condensed Consolidated Financial Statements for further information. OUTLOOK On April 1, 2024, AGCO acquired an 85% ownership interest in PTx Trimble, and Trimble holds a 15% interest. AGCO began consolidating the PTx Trimble joint venture into its consolidated financial statements on April 1, 2024. In addition, on July 25, 2024, AGCO announced the entry into a definitive agreement to sell its Grain & Protein business which is expected to be completed in the second half of 2024. 53 Table of Contents Global industry demand for farm equipment, driven by farm income, has declined during 2024 in most major markets compared to 2023. AGCO's net sales, including PTx Trimble, are expected to decrease in 2024 compared to 2023, resulting from lower sales volumes and adverse foreign currency translation. Operating margins, including PTx Trimble, are expected to decrease from 2023 levels, reflecting the impact of lower net sales and lower production volumes, partially offset by increased cost controls and modestly lower investments in engineering. Our outlook is based on current assumptions regarding a number of factors including demand, currency stability, pricing and market share gains. If our assumptions are incorrect, or other issues arise or return, such as a worsening of our supply chain, our results of operations will be adversely impacted. Refer to “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion. CRITICAL ACCOUNTING POLICIES AND ESTIMATES 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. 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. On an ongoing basis, management evaluates estimates, including those related to discount and sales incentive allowances, deferred income taxes and uncertain income tax positions, pensions, goodwill, other intangible and long-lived assets, and recoverable indirect taxes. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. A description of critical accounting policies and related judgments and estimates that affect the preparation of our Condensed Consolidated Financial Statements is set forth in our Annual Report on Form 10-K for the year ended December 31, 2023. FORWARD-LOOKING STATEMENTS Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q are forward-looking, including certain statements set forth under the headings “Liquidity and Capital Resources” and “Outlook.” Forward-looking statements reflect assumptions, expectations, projections, intentions or beliefs about future events. These statements, which may relate to such matters as earnings, net sales, margins, industry conditions, market demand, commodity prices, farm incomes, weather conditions, foreign currency translation impacts, general economic outlook, dividends, share repurchases, availability of financing, product development and enhancement, factory productivity, production and sales volumes, benefits from cost reduction initiatives, material costs, pricing impacts, tax rates, compliance with loan covenants, capital expenditures and working capital and debt service requirements are “forward-looking statements” within the meaning of the federal securities laws. These statements do not relate strictly to historical or current facts, and you can identify certain of these statements, but not necessarily all, by the use of the words “anticipate,” “assumed,” “indicate,” “estimate,” “believe,” “predict,” “forecast,” “rely,” “expect,” “continue,” “grow” and other words of similar meaning. Although we believe that the expectations and assumptions reflected in these statements are reasonable in view of the information currently available to us, there can be no assurance that these expectations will prove to be correct. These forward-looking statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in or implied by the forward-looking statements. Adverse changes in any of the following factors could cause actual results to differ materially from the forward-looking statements: • general economic and capital market conditions; • availability of credit to our retail customers; • the worldwide demand for agricultural products; • grain stock levels and the levels of new and used field inventories; • cost of steel and other raw materials; • energy costs; • performance and collectability of the accounts receivable originated or owned by AGCO or our finance joint ventures; • government policies and subsidies; 54 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) • uncertainty regarding changes in the international tariff regimes and product embargoes and their impact on the cost of the products that we sell; • weather conditions; • interest and foreign currency exchange rates; • limitations on ability to repatriate funds; • inflation, including in individual countries that have been designated as highly inflationary; • pricing and product actions taken by competitors; • commodity prices, acreage planted and crop yields; • farm income, land values, debt levels and access to credit; • pervasive livestock diseases; • production disruptions, including due to component and raw material availability; • production levels and capacity constraints at our facilities, including those resulting from plant expansions and systems upgrades; • integration of recent and future acquisitions, including the completed acquisition on April 1, 2024 of the Trimble ag assets and formation of the joint venture, PTx Trimble, and the ability to obtain the expected results; • our ability to complete the sale of the majority of the G&P business; • our expansion plans in emerging markets; • supply constraints, including energy shortages; • our cost reduction and control initiatives; • our research and development efforts; • dealer and distributor actions; • regulations affecting privacy and data protection; • technological difficulties; • the impact of the COVID-19, or other future pandemics, on product demand and production; • the occurrence of future cyberattacks, including ransomware attacks; and • the conflict in Ukraine. We depend on suppliers for components, parts and raw materials for our products, and any failure by our suppliers to provide products as needed, or by us to promptly address supplier issues, will adversely impact our ability to timely and efficiently manufacture and sell products. 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. There can be no assurance that there will not be future disruptions. We have a substantial amount of indebtedness, and, as a result, we are subject to certain restrictive covenants and payment obligations that may adversely affect our ability to operate and expand our business. Any forward-looking statement should be considered in light of such important factors. For additional factors and additional information regarding these factors, see “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2023. New factors that could cause actual results to differ materially from those described above emerge from time to time, and it is not possible for us to predict all of such factors or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and we disclaim any obligation to update the information contained in such statement to reflect subsequent developments or information except as required by law. 55 Table of Contents