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 continues to create volatility in the global economy, including employment disruptions and supply chain constraints and delays. These disruptions can negatively affect production, particularly where they cause delays in our receipts of parts and components. During the first four months of 2021, we temporarily suspended production in a number of our facilities as a result of these issues and expect further challenges during the remainder of 2021. We will continue to work to mitigate the impact of these issues in order to meet end-market demand.

RESULTS OF OPERATIONS

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

Net sales during the three months ended March 31, 2021 were approximately $2,378.7 million, which were approximately 23.4% higher than the same period in 2020. This increase was primarily the result of improved market demand during the three months ended March 31, 2021 compared to the same period in 2020. Regionally, net sales were higher in all regions for the three months ended March 31, 2021 compared to 2020.

Income from operations for the three months ended March 31, 2021 was approximately $195.2 million compared to approximately $100.4 million for the same period in 2020. This increase was primarily the result of higher net sales and production volumes along with cost control initiatives. Price increases implemented during the three months ended March 31, 2021 helped to offset material cost inflation compared to the same period in 2020.

Regionally, income from operations in our Europe/Middle East ("EME") region increased for the three months ended March 31, 2021 compared to the same period in 2020, primarily due to higher net sales, partially offset by higher warranty and engineering expenses. In our North American region, income from operations increased for the three months ended March 31, 2021 compared to the same period in 2020. The increase was primarily due to higher net sales, as well as favorable pricing and cost control initiatives. In our South American region, income from operations increased in the three months ended March 31, 2021 compared to the same period in 2020. The increase reflects higher net sales and production volumes, a richer product mix and improved pricing offsetting material cost inflation. In our Asia/Pacific/African ("APA") region, income from operations increased for the three months ended March 31, 2021 compared to the same period in 2020, primarily due to higher net sales and production levels.

Industry Market Conditions

The COVID-19 pandemic has had a minimal impact on global crop production in 2021. The gradual recovery from the COVID-19 pandemic and reopening of economies have increased the demand for grain, putting pressure on global grain inventories which are well below 2020 levels. Agricultural commodity prices have risen resulting in more favorable farm economics as well as increased demand for machinery. These improved conditions are expected to generate industry growth across all the major equipment markets in 2021. Future demand for agricultural equipment will be influenced by farm income, which is a function of commodity and protein prices, crop yields and government support.

In North America, industry unit retail sales of utility and high horsepower tractors for the first three months of 2021 increased approximately 31% compared to the same period in 2020. Industry unit retail sales of combines for the first three months of 2021 increased approximately 17% compared to the first three months of 2020. Retail sales of low horsepower tractors increased significantly in the first three months of 2021 compared to the prior year period, while retail sales of high


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horsepower tractors improved as well. An extended fleet age of equipment in North America is helping to boost industry demand.

In Western Europe, industry unit retail sales of tractors increased approximately 23% compared to the same period in 2020. Industry unit retail sales of combines for the first three months of 2021 increased approximately 16% compared to the first three months of 2020. During the first three months of 2021, industry sales increased across nearly all major markets compared to the same period in 2020.

In South America, industry unit retail sales of tractors for the first three months of 2021 increased approximately 33% compared to the same period in 2020. Industry unit retail sales of combines for the first three months of 2021 increased approximately 26% compared to the first three months of 2020. Industry retail sales increased in Brazil and Argentina compared to the prior year, as well as in most other South American markets. A robust first crop production in Brazil and Argentina, as well as favorable exchange rates, are both supporting positive economics for farmers.

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