GENERAL

Our operations are subject to the cyclical 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. We record sales when we sell equipment and replacement parts to our independent dealers, distributors and other customers. To the extent possible, 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 manufacturing operations and to minimize our investment in inventories. However, retail sales by dealers to farmers are highly seasonal and largely are a function of the timing of the planting and harvesting seasons. As a result, our net sales historically have been the lowest in the first quarter and have increased in subsequent quarters.

The COVID-19 pandemic and other economic and geopolitical factors, including inflation and the conflict in Ukraine, continue to create volatility in the global economy, including employment disruptions, supply chain constraints and delays in deliveries, as well as logistics interruptions. These factors, along with increasing industrial demand, are negatively affecting 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.

On May 5, 2022, we discovered that we had been subject to a ransomware cyberattack. The attack resulted in the temporary closure of most of our production sites and parts operations. A majority of the affected locations resumed operations within approximately two weeks after the attack was discovered. As a result of the temporary closures, our production, sales and income from operations were negatively impacted during the second quarter of 2022. Please see further discussion below.

RESULTS OF OPERATIONS

For the three months ended June 30, 2022, we generated net income of approximately $177.7 million, or $2.37 per share, compared to approximately $282.8 million, or $3.73 per share, for the same period in 2021. For the six months ended June 30, 2022, we generated net income of approximately $329.5 million, or $4.40 per share, compared to approximately $433.6 million, or $5.71 per share, for the same period in 2021.

Net sales during the three and six months ended June 30, 2022 were approximately $2,945.2 million and $5,630.9 million, respectively, which were approximately 2.3% and 7.1% higher than the same periods in 2021. These increases were primarily the result of robust end-market demand and favorable pricing during the three and six months ended June 30, 2022 compared to the same periods in 2021, which helped to offset the negative impacts of currency translation, supply chain constraints and the second quarter cyberattack. Regionally, net sales were higher in all regions for the three and six months ended June 30, 2022 compared to 2021 excluding currency translation, as presented below.

Income from operations for the three months ended June 30, 2022 was approximately $263.5 million compared to approximately $290.3 million for the same period in 2021. Income from operations for the six months ended June 30, 2022 was approximately $467.5 million compared to approximately $485.5 million for the same period in 2021. These decreases were primarily the result of negative currency impacts, lower production volumes as a result of the second quarter cyberattack, as well as higher production costs associated with supply chain disruptions and the cyberattack. Income from operations for the six months ended June 30, 2022 were also impacted by impairment charges recorded during the first quarter related to our joint ventures in Russia of approximately $36.0 million, as discussed below.

During the three and six months ended June 30, 2022, income from operations in all regions was negatively impacted by supply chain disruptions and the second quarter cyberattack which affected sales and production levels as well as production costs. In addition, income from operations in our Europe/Middle East region decreased for the three and six months ended June 30, 2022 compared to the same periods in 2021 due to negative currency impacts. In our North American region, income from operations decreased for the three and six months ended June 30, 2022 compared to the same periods in 2021. These decreases were also the result of a weaker sales mix. In our South American region, income from operations increased in the three and six months ended June 30, 2022 compared to the same periods in 2021. These increases reflect significant increases in end-market demand, positive pricing and a favorable sales mix. In our Asia/Pacific/Africa ("APA") region, income from


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Management's Discussion and Analysis of Financial Condition and Results of


                                   Operations
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operations increased for the three and six months ended June 30, 2022 compared to the same periods in 2021, primarily due to a favorable sales mix and higher net sales during the six months ended June 30, 2022.

Industry Market Conditions

Agricultural commodity prices continue to support favorable farm fundamentals resulting in strong demand for machinery. Despite favorable demand, supply chain constraints and limited global industry production have negatively impacted the level of retail sales in the first six months of 2022. Future demand for agricultural equipment will be influenced by farm income, which is a function of commodity and protein prices, crop yields and government support.

In North America, industry unit retail sales of utility and high horsepower tractors for the first six months of 2022 decreased approximately 7% compared to the same period in 2021. Industry unit retail sales of combines for the first six months of 2022 decreased approximately 8% compared to the same period in 2021. Lower sales of smaller tractors, which declined from record levels in 2021, were partially offset by increased sales of higher horsepower units.

In Western Europe, industry unit retail sales of tractors decreased approximately 10% for the first six months of 2022 compared to the same period in 2021. Industry unit retail sales of combines for the first six months of 2022 decreased approximately 16% compared to the first six months of 2021. Industry retail tractor sales were restricted by supply chain challenges during the first six months of 2022 compared to the same period in 2021.

In South America, industry unit retail sales of tractors increased approximately 7% for the first six months of 2022 compared to the same period in 2021. Industry unit retail sales of combines for the first six months of 2022 decreased approximately 5% compared to the first six months of 2021. The improved demand in tractors was primarily in Brazil and Argentina. Healthy crop production levels as well as elevated commodity prices are supporting positive economic conditions for farmers who continue to replace aged fleets.

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