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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 1, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

 

Commission file no: 1-4121

 

DEERE  &  COMPANY

(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation)

36-2382580
(IRS employer identification no.)

One John Deere Place

Moline, Illinois 61265

(Address of principal executive offices)

Telephone Number: (309) 765-8000

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock, $1 par value

DE

New York Stock Exchange

6.55% Debentures Due 2028

DE28

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  No 

 

At May 1, 2022, 305,635,672 shares of common stock, $1 par value, of the registrant were outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

DEERE & COMPANY

STATEMENTS OF CONSOLIDATED INCOME

For the Three Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars and shares except per share amounts) Unaudited

    

2022

    

2021

 

Net Sales and Revenues

Net sales

 

$

12,034

$

10,998

Finance and interest income

796

 

809

Other income

540

 

251

Total

13,370

 

12,058

Costs and Expenses

Cost of sales

8,918

 

7,928

Research and development expenses

453

 

377

Selling, administrative and general expenses

932

 

838

Interest expense

187

 

268

Other operating expenses

328

 

335

Total

10,818

 

9,746

Income of Consolidated Group before Income Taxes

2,552

 

2,312

Provision for income taxes

461

 

530

Income of Consolidated Group

2,091

 

1,782

Equity in income of unconsolidated affiliates

6

 

8

Net Income

2,097

 

1,790

Less: Net loss attributable to noncontrolling interests

(1)

 

Net Income Attributable to Deere & Company

 

$

2,098

$

1,790

Per Share Data

Basic

 

$

6.85

$

5.72

Diluted

 

$

6.81

$

5.68

Dividends declared

$

1.05

$

.90

Dividends paid

$

1.05

$

.76

Average Shares Outstanding

Basic

306.2

 

312.8

Diluted

308.1

 

315.2

See Condensed Notes to Interim Consolidated Financial Statements.

2

DEERE & COMPANY

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

For the Three Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars) Unaudited

    

2022

    

2021

 

 

Net Income

 

$

2,097

$

1,790

Other Comprehensive Income (Loss), Net of Income Taxes

Retirement benefits adjustment

129

 

91

Cumulative translation adjustment

(248)

 

37

Unrealized gain on derivatives

28

 

3

Unrealized loss on debt securities

(48)

 

(13)

Other Comprehensive Income (Loss), Net of Income Taxes

(139)

 

118

Comprehensive Income of Consolidated Group

1,958

 

1,908

Less: Comprehensive loss attributable to noncontrolling interests

(5)

 

Comprehensive Income Attributable to Deere & Company

 

$

1,963

$

1,908

See Condensed Notes to Interim Consolidated Financial Statements.

3

DEERE & COMPANY

STATEMENTS OF CONSOLIDATED INCOME

For the Six Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars and shares except per share amounts) Unaudited

    

2022

    

2021

 

Net Sales and Revenues

Net sales

 

$

20,565

$

19,049

Finance and interest income

1,595

 

1,644

Other income

779

 

477

Total

22,939

 

21,170

Costs and Expenses

Cost of sales

15,613

 

13,734

Research and development expenses

855

 

743

Selling, administrative and general expenses

1,713

 

1,607

Interest expense

417

 

538

Other operating expenses

638

 

708

Total

19,236

 

17,330

Income of Consolidated Group before Income Taxes

3,703

 

3,840

Provision for income taxes

710

 

838

Income of Consolidated Group

2,993

 

3,002

Equity in income of unconsolidated affiliates

8

 

12

Net Income

3,001

 

3,014

Less: Net income attributable to noncontrolling interests

 

1

Net Income Attributable to Deere & Company

 

$

3,001

$

3,013

Per Share Data

Basic

 

$

9.78

$

9.62

Diluted

 

$

9.72

$

9.55

Dividends declared

$

2.10

$

1.66

Dividends paid

$

2.10

$

1.52

Average Shares Outstanding

Basic

306.8

 

313.1

Diluted

308.8

 

315.6

See Condensed Notes to Interim Consolidated Financial Statements.

4

DEERE & COMPANY

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

For the Six Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars) Unaudited

    

2022

    

2021

 

 

Net Income

 

$

3,001

$

3,014

Other Comprehensive Income (Loss), Net of Income Taxes

Retirement benefits adjustment

(216)

 

154

Cumulative translation adjustment

(515)

 

433

Unrealized gain on derivatives

42

 

7

Unrealized loss on debt securities

(63)

 

(15)

Other Comprehensive Income (Loss), Net of Income Taxes

(752)

 

579

Comprehensive Income of Consolidated Group

2,249

 

3,593

Less: Comprehensive income (loss) attributable to noncontrolling interests

(4)

 

1

Comprehensive Income Attributable to Deere & Company

 

$

2,253

$

3,592

See Condensed Notes to Interim Consolidated Financial Statements.

5

DEERE & COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions of dollars) Unaudited

    

May 1

    

October 31

    

May 2 

 

2022

2021

2021

 

Assets

Cash and cash equivalents

 

$

3,878

$

8,017

$

7,182

Marketable securities

682

 

728

 

668

Trade accounts and notes receivable – net

6,258

 

4,208

 

6,158

Financing receivables – net

34,085

 

33,799

 

30,994

Financing receivables securitized – net

4,073

 

4,659

 

4,107

Other receivables

2,306

 

1,765

 

1,504

Equipment on operating leases – net

6,465

 

6,988

 

7,108

Inventories

9,030

 

6,781

 

6,042

Property and equipment – net

5,715

 

5,820

 

5,704

Goodwill

3,812

 

3,291

 

3,190

Other intangible assets – net

1,352

 

1,275

 

1,310

Retirement benefits

3,059

 

3,601

 

951

Deferred income taxes

1,104

 

1,037

 

1,724

Other assets

2,280

 

2,145

 

2,337

Total Assets

 

$

84,099

$

84,114

$

78,979

Liabilities and Stockholders’ Equity

Liabilities

Short-term borrowings

$

12,413

$

10,919

$

9,911

Short-term securitization borrowings

4,006

 

4,605

 

4,106

Accounts payable and accrued expenses

12,679

 

12,348

 

10,682

Deferred income taxes

584

 

576

 

533

Long-term borrowings

32,447

 

32,888

 

33,346

Retirement benefits and other liabilities

2,964

 

4,344

 

5,305

Total liabilities

65,093

 

65,680

 

63,883

Commitments and contingencies (Note 15)

Redeemable noncontrolling interest (Note 19)

99

Stockholders’ Equity

Common stock, $1 par value (issued shares at
May 1, 2022 – 536,431,204)

5,117

 

5,054

 

4,999

Common stock in treasury

(21,727)

 

(20,533)

 

(19,052)

Retained earnings

38,805

 

36,449

 

34,105

Accumulated other comprehensive income (loss)

(3,291)

 

(2,539)

 

(4,960)

Total Deere & Company stockholders’ equity

18,904

 

18,431

 

15,092

Noncontrolling interests

3

 

3

 

4

Total stockholders’ equity

18,907

 

18,434

 

15,096

Total Liabilities and Stockholders’ Equity

$

84,099

$

84,114

$

78,979

See Condensed Notes to Interim Consolidated Financial Statements.

6

DEERE & COMPANY

STATEMENTS OF CONSOLIDATED CASH FLOWS

For the Six Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars) Unaudited

    

2022

    

2021

 

Cash Flows from Operating Activities

              

              

Net income

 

$

3,001

$

3,014

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Provision (credit) for credit losses

45

 

(24)

Provision for depreciation and amortization

933

 

1,054

Impairment charges

77

 

50

Share-based compensation expense

44

 

45

Gain on remeasurement of previously held equity investment

(326)

 

Undistributed earnings of unconsolidated affiliates

(2)

 

11

Provision (credit) for deferred income taxes

37

 

(213)

Changes in assets and liabilities:

Trade, notes, and financing receivables related to sales

(1,535)

 

(1,124)

Inventories

(2,265)

 

(1,193)

Accounts payable and accrued expenses

(443)

 

318

Accrued income taxes payable/receivable

(139)

 

54

Retirement benefits

(1,020)

 

(5)

Other

(169)

 

(201)

Net cash provided by (used for) operating activities

(1,762)

 

1,786

Cash Flows from Investing Activities

Collections of receivables (excluding receivables related to sales)

11,190

 

10,367

Proceeds from sales of equipment on operating leases

1,035

 

1,011

Cost of receivables acquired (excluding receivables related to sales)

(11,971)

 

(11,359)

Acquisitions of businesses, net of cash acquired

(473)

 

(19)

Purchases of property and equipment

(346)

 

(320)

Cost of equipment on operating leases acquired

(1,004)

 

(764)

Collateral on derivatives – net

(248)

(255)

Other

(71)

 

(48)

Net cash used for investing activities

(1,888)

 

(1,387)

Cash Flows from Financing Activities

Increase in total short-term borrowings

812

 

212

Proceeds from long-term borrowings

4,298

 

3,967

Payments of long-term borrowings

(3,625)

 

(3,157)

Proceeds from issuance of common stock

50

 

116

Repurchases of common stock

(1,226)

 

(1,044)

Dividends paid

(649)

 

(480)

Other

(46)

 

(55)

Net cash used for financing activities

(386)

 

(441)

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash

(110)

 

151

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash

(4,146)

109

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period

8,125

 

7,172

Cash, Cash Equivalents, and Restricted Cash at End of Period

$

3,979

$

7,281

Components of cash, cash equivalents, and restricted cash

Cash and cash equivalents

$

3,878

$

7,182

Restricted cash (Other assets)

101

99

Total cash, cash equivalents, and restricted cash

$

3,979

$

7,281

See Condensed Notes to Interim Consolidated Financial Statements.

7

DEERE & COMPANY

STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Three and Six Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars) Unaudited

Total Stockholders’ Equity

Deere & Company Stockholders

 

Accumulated

Total

Other

Redeemable

Stockholders’

Common

Treasury

Retained

Comprehensive

Noncontrolling

Noncontrolling

  

Equity

  

Stock

  

Stock

  

Earnings

  

Income (Loss)

  

Interests

  

  

Interest

 

 

Three Months Ended May 2, 2021

Balance January 31, 2021

    

$

14,086

$

4,942

$

(18,377)

$

32,596

$

(5,078)

$

3

Net income

 

1,790

1,790

Other comprehensive income

 

118

118

Repurchases of common stock

 

(692)

(692)

Treasury shares reissued

 

17

17

Dividends declared

 

(282)

(282)

Stock options and other

 

59

57

1

1

Balance May 2, 2021

$

15,096

$

4,999

$

(19,052)

$

34,105

$

(4,960)

$

4

Six Months Ended May 2, 2021

 

 

Balance November 1, 2020

    

$

12,944

$

4,895

$

(18,065)

$

31,646

$

(5,539)

$

7

 

ASU No. 2016-13 adoption

(35)

(35)

Net income

 

3,014

3,013

1

Other comprehensive income

 

579

579

Repurchases of common stock

 

(1,044)

(1,044)

Treasury shares reissued

 

57

57

Dividends declared

 

(520)

(520)

Stock options and other

 

101

104

1

(4)

Balance May 2, 2021

$

15,096

$

4,999

$

(19,052)

$

34,105

$

(4,960)

$

4

Three Months Ended May 1, 2022

Balance January 30, 2022

$

17,808

$

5,066

$

(21,139)

$

37,029

$

(3,152)

$

4

Acquisitions (see Note 19)

$

105

Net income (loss)

2,098

2,098

(1)

Other comprehensive loss

(139)

(139)

(4)

Repurchases of common stock

(603)

(603)

Treasury shares reissued

15

15

Dividends declared

(323)

(322)

(1)

Stock options and other

51

51

(1)

Balance May 1, 2022

$

18,907

$

5,117

$

(21,727)

$

38,805

$

(3,291)

$

3

$

99

Six Months Ended May 1, 2022

Balance October 31, 2021

$

18,434

$

5,054

$

(20,533)

$

36,449

$

(2,539)

$

3

Acquisitions (see Note 19)

$

105

Net income (loss)

3,002

3,001

1

(1)

Other comprehensive loss

(752)

(752)

(4)

Repurchases of common stock

(1,226)

(1,226)

Treasury shares reissued

32

32

Dividends declared

(646)

(645)

(1)

Stock options and other

63

63

(1)

Balance May 1, 2022

$

18,907

$

5,117

$

(21,727)

$

38,805

$

(3,291)

$

3

$

99

See Condensed Notes to Interim Consolidated Financial Statements.

8

Condensed Notes to Interim Consolidated Financial Statements (Unaudited)

(1) Organization and Consolidation

The information in the notes and related commentary are presented in a format which includes data grouped as follows:

Consolidated – Represents the consolidation of the equipment operations and financial services. References to “Deere & Company” or “the Company” refer to the entire enterprise.

Equipment Operations – Represents the enterprise without financial services (FS), while including the Company’s production and precision agriculture operations (PPA), small agriculture and turf operations (SAT), construction and forestry operations (CF), and other corporate assets, liabilities, revenues, and expenses not reflected within financial services.

Financial Services – Represents the Company’s financing operations. Assets managed by financial services, including most financing receivables and equipment on operating leases, continue to be evaluated by market (agriculture and turf or construction and forestry).

The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The second quarter ends for fiscal year 2022 and 2021 were May 1, 2022 and May 2, 2021, respectively. Both second quarters contained 13 weeks, while both year-to-date periods contained 26 weeks. Unless otherwise stated, references to particular years or quarters refer to the Company’s fiscal years generally ending in October and the associated periods in those fiscal years.

Prior to fiscal year 2021, the operating results of the Wirtgen Group (Wirtgen) were incorporated into the Company’s consolidated financial statements using a one-month lag period. The reporting lag was eliminated resulting in one additional month of Wirtgen activity in both the first quarter and the year-to-date period of 2021. The effect was an increase to Net sales of $270 million, which the Company considers immaterial to construction and forestry’s annual net sales.

As a result of recent acquisitions (see Note 19), the Company updated the presentation on the consolidated balance sheet to remove the following lines: Receivables from unconsolidated affiliates, Investments in unconsolidated affiliates, and Payables to unconsolidated affiliates. These balances are now immaterial to the Company’s consolidated balance sheet and have been reclassified into Other receivables, Other assets, and Accounts payable and accrued expenses, respectively.

The Company consolidates certain variable interest entities (VIEs) related to retail note securitizations (see Note 9).

(2)  Summary of Significant Accounting Policies and New Accounting Standards

Quarterly Financial Statements

The interim consolidated financial statements of Deere & Company have been prepared by the Company, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes the disclosures are adequate to present fairly the financial position, results of operations, and cash flows at the dates and for the periods presented. It is suggested these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest Annual Report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.

Use of Estimates in Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.

Revenue Recognition

Prior to fiscal year 2022, certain goods were shipped to Canadian dealers on a consignment basis under which the risk and rewards of ownership were not transferred to the dealer at the time the goods were delivered. Accordingly, sales were not recorded until a retail customer purchased the goods. The dealer contract in Canada was changed for goods delivered after November 1, 2021, resulting in transfer of control and revenue recognition upon delivery. For certain goods delivered to Canadian dealers prior to November 1, 2021, the dealer consignment terms already in place remain in effect. As of May 1, 2022 and October 31, 2021, the remaining consigned inventory was $46 million and $150 million, respectively.

9

New Accounting Standards

The Company closely monitors all Accounting Standard Updates (ASUs) issued by the Financial Accounting Standards Board and other authoritative guidance. ASUs adopted in 2022 did not have a material impact on the Company’s financial statements, and ASUs to be adopted in future periods are being evaluated and at this point are not expected to have a material impact on the Company’s financial statements.

   

(3)  Revenue Recognition

The Company’s net sales and revenues by primary geographic market, major product line, and timing of revenue recognition in millions of dollars follow:

Three Months Ended May 1, 2022

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

             

             

United States

$

2,434

$

2,103

$

2,108

$

569

$

7,214

Canada

309

161

355

 

149

 

974

Western Europe

536

658

464

 

25

 

1,683

Central Europe and CIS

404

151

146

 

11

 

712

Latin America

1,126

134

333

 

73

 

1,666

Asia, Africa, Australia, New Zealand, and Middle East

367

399

318

37

1,121

Total

$

5,176

$

3,606

$

3,724

$

864

$

13,370

Major product lines:

             

             

Production agriculture

$

5,032

$

5,032

Small agriculture

$

2,668

 

 

2,668

Turf

817

 

 

817

Construction

$

1,516

 

 

1,516

Compact construction

427

427

Roadbuilding

1,017

 

 

1,017

Forestry

325

 

 

325

Financial products

10

9

6

$

864

 

889

Other

134

112

433

 

 

679

Total

$

5,176

$

3,606

$

3,724

$

864

$

13,370

Revenue recognized:

             

             

At a point in time

$

5,144

$

3,593

$

3,707

$

26

$

12,470

Over time

32

13

17

838

900

Total

$

5,176

$

3,606

$

3,724

$

864

$

13,370

10

    

Six Months Ended May 1, 2022

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

United States

$

4,042

$

3,541

$

3,368

$

1,142

$

12,093

Canada

448

283

687

 

301

 

1,719

Western Europe

1,003

1,190

822

 

51

 

3,066

Central Europe and CIS

606

277

341

 

22

 

1,246

Latin America

1,902

238

561

 

141

 

2,842

Asia, Africa, Australia, New Zealand, and Middle East

608

751

537

77

1,973

Total

$

8,609

$

6,280

$

6,316

$

1,734

$

22,939

Major product lines:

             

             

Production agriculture

$

8,315

$

8,315

Small agriculture

$

4,600

 

 

4,600

Turf

1,444

 

 

1,444

Construction

$

2,691

 

 

2,691

Compact construction

748

748

Roadbuilding

1,709

 

 

1,709

Forestry

630

 

630

Financial products

22

20

11

$

1,734

 

1,787

Other

272

216

527

 

 

1,015

Total

$

8,609

$

6,280

$

6,316

$

1,734

$

22,939

Revenue recognized:

             

             

At a point in time

$

8,540

$

6,247

$

6,277

$

50

$

21,114

Over time

69

33

39

1,684

1,825

Total

$

8,609

$

6,280

$

6,316

$

1,734

$

22,939

Three Months Ended May 2, 2021

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

             

             

United States

$

2,211

$

1,838

$

1,481

$

608

$

6,138

Canada

252

144

320

 

153

 

869

Western Europe

589

738

514

26

 

1,867

Central Europe and CIS

531

160

209

9

 

909

Latin America

700

103

220

60

 

1,083

Asia, Africa, Australia, New Zealand, and Middle East

319

444

393

36

1,192

Total

$

4,602

$

3,427

$

3,137

$

892

$

12,058

Major product lines:

             

             

Production agriculture

$

4,466

$

4,466

Small agriculture

$

2,417

 

 

2,417

Turf

898

 

 

898

Construction

$

1,232

 

 

1,232

Compact construction

396

396

Roadbuilding

1,066

 

 

1,066

Forestry

343

 

 

343

Financial products

12

10

5

$

892

 

919

Other

124

102

95

 

 

321

Total

$

4,602

$

3,427

$

3,137

$

892

$

12,058

Revenue recognized:

             

             

At a point in time

$

4,562

$

3,412

$

3,114

$

26

$

11,114

Over time

40

15

23

866

944

Total

$

4,602

$

3,427

$

3,137

$

892

$

12,058

11

Six Months Ended May 2, 2021

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

United States

$

3,820

$

3,261

$

2,683

$

1,206

$

10,970

Canada

364

223

508

307

 

1,402

Western Europe

1,038

1,224

953

50

 

3,265

Central Europe and CIS

692

244

387

18

 

1,341

Latin America

1,213

180

390

119

 

1,902

Asia, Africa, Australia, New Zealand, and Middle East

623

845

746

76

2,290

Total

$

7,750

$

5,977

$

5,667

$

1,776

$

21,170

Major product lines:

             

             

Production agriculture

$

7,478

$

7,478

Small agriculture

$

4,228

 

4,228

Turf

1,549

 

1,549

Construction

$

2,119

 

2,119

Compact construction

742

742

Roadbuilding

1,976

 

1,976

Forestry

633

 

633

Financial products

28

20

12

$

1,776

 

1,836

Other

244

180

185

 

609

Total

$

7,750

$

5,977

$

5,667

$

1,776

$

21,170

Revenue recognized:

             

             

At a point in time

$

7,668

$

5,946

$

5,614

$

50

$

19,278

Over time

82

31

53

1,726

1,892

Total

$

7,750

$

5,977

$

5,667

$

1,776

$

21,170

The Company invoices in advance of recognizing the sale of certain products and the revenue for certain services. These items are primarily for premiums for extended warranties, advance payments for future equipment sales, and subscription and service revenue related to precision guidance and telematic services. These advanced customer payments are presented as deferred revenue, a contract liability, in Accounts payable and accrued expenses in the consolidated balance sheets. The deferred revenue received, but not recognized in revenue, including extended warranty premiums also shown in Note 15, was $1,423 million, $1,344 million, and $1,249 million at May 1, 2022, October 31, 2021, and May 2, 2021, respectively. The contract liability is reduced as the revenue is recognized. During the three months ended May 1, 2022 and May 2, 2021, $130 million and $111 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year. During the six months ended May 1, 2022 and May 2, 2021, $395 million and $335 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year.

The amount of unsatisfied performance obligations for contracts with an original duration greater than one year is $1,116 million at May 1, 2022. The estimated revenue to be recognized by fiscal year follows in millions of dollars: remainder of 2022 - $173, 2023 - $311, 2024 - $260, 2025 - $168, 2026 - $87, 2027 - $52 and later years - $65. As permitted, the Company elected only to disclose remaining performance obligations with an original contract duration greater than one year. The contracts with an expected duration of one year or less are generally for sales of equipment, service parts, repair services, and certain telematics services.

(4)Other Comprehensive Income Items

The after-tax components of accumulated other comprehensive income (loss) in millions of dollars follow:

May 1

October 31

May 2 

2022

2021

2021

Retirement benefits adjustment

$

(1,250)

$

(1,034)

$

(3,764)

Cumulative translation adjustment

(1,993)

(1,478)

(1,163)

Unrealized loss on derivatives

(42)

(51)

Unrealized gain (loss) on debt securities

(48)

15

18

Total accumulated other comprehensive income (loss)

$

(3,291)

$

(2,539)

$

(4,960)

12

Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, in millions of dollars. Retirement benefits adjustment reclassifications for actuarial gain (loss), prior service (credit) cost, and settlements are included in net periodic pension and other postretirement benefit costs (see Note 6).

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Three Months Ended May 1, 2022

Amount

Credit

Amount

 

Cumulative translation adjustment

$

(243)

$

(5)

$

(248)

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

35

(7)

28

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

1

(1)

Net unrealized gain (loss) on derivatives

36

(8)

28

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

(61)

13

(48)

Net unrealized gain (loss) on debt securities

(61)

13

(48)

Retirement benefits adjustment:

Net actuarial gain (loss)

128

(30)

98

Reclassification to Other operating expenses through amortization of:

Actuarial (gain) loss

27

(7)

20

Prior service (credit) cost

8

(2)

6

Settlements

7

(2)

5

Net unrealized gain (loss) on retirement benefits adjustment

170

(41)

129

Total other comprehensive income (loss)

 

$

(98)

$

(41)

$

(139)

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Six Months Ended May 1, 2022

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

(507)

$

(8)

$

(515)

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

50

(10)

40

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

3

(1)

2

Net unrealized gain (loss) on derivatives

53

(11)

42

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

(80)

17

(63)

Net unrealized gain (loss) on debt securities

(80)

17

(63)

Retirement benefits adjustment:

Net actuarial gain (loss)

(372)

90

(282)

Reclassification to Other operating expenses through amortization of:

Actuarial (gain) loss

67

(17)

50

Prior service (credit) cost

14

(4)

10

Settlements

8

(2)

6

Net unrealized gain (loss) on retirement benefits adjustment

(283)

67

(216)

Total other comprehensive income (loss)

 

$

(817)

$

65

$

(752)

13

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Three Months Ended May 2, 2021

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

37

$

37

Unrealized gain (loss) on derivatives:

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

4

$

(1)

3

Net unrealized gain (loss) on derivatives

4

(1)

3

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

(14)

1

(13)

Net unrealized gain (loss) on debt securities

(14)

1

(13)

Retirement benefits adjustment:

Net actuarial gain (loss)

41

(9)

32

Reclassification to Other operating expenses through amortization of:

Actuarial (gain) loss

72

(19)

53

Prior service (credit) cost

2

2

Settlements

5

(1)

4

Net unrealized gain (loss) on retirement benefits adjustment

120

(29)

91

Total other comprehensive income (loss)

 

$

147

$

(29)

$

118

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Six Months Ended May 2, 2021

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

431

 

$

2

$

433

Unrealized gain (loss) on derivatives:

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

9

(2)

7

Net unrealized gain (loss) on derivatives

9

(2)

7

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

(17)

2

(15)

Net unrealized gain (loss) on debt securities

(17)

2

(15)

Retirement benefits adjustment:

Net actuarial gain (loss)

40

(9)

31

Reclassification to Other operating expenses through amortization of:

Actuarial (gain) loss

142

(36)

106

Prior service (credit) cost

4

(1)

3

Settlements

18

(4)

14

Net unrealized gain (loss) on retirement benefits adjustment

204

(50)

154

Total other comprehensive income (loss)

 

$

627

$

(48)

$

579

   

(5)Earnings Per Share

A reconciliation of basic and diluted net income per share attributable to Deere & Company follows in millions, except per share amounts:

  

Three Months Ended 

Six Months Ended

 

May 1

May 2 

May 1

May 2 

 

2022

2021

2022

2021

 

Net income attributable to Deere & Company

    

$

2,098

    

$

1,790

    

$

3,001

    

$

3,013

Average shares outstanding

306.2

 

312.8

306.8

 

313.1

Basic per share

$

6.85

$

5.72

$

9.78

$

9.62

Average shares outstanding

306.2

 

312.8

306.8

 

313.1

Effect of dilutive share-based compensation

1.9

 

2.4

2.0

 

2.5

Total potential shares outstanding

308.1

 

315.2

308.8

 

315.6

Diluted per share

$

6.81

$

5.68

$

9.72

$

9.55

During the second quarter and first six months of 2022, .2 million shares and .1 million shares, respectively, were excluded from the computation because the incremental shares would have been antidilutive. During the second quarter and first six months of 2021, no shares were antidilutive.

14

(6)Pension and Other Postretirement Benefits

The Company has several defined benefit pension plans and postretirement benefit (OPEB) plans, primarily health care and life insurance plans, covering its U.S. employees and employees in certain foreign countries.

The components of net periodic pension cost consisted of the following in millions of dollars:

 

Three Months Ended

Six Months Ended

 

May 1

May 2 

May 1

May 2 

 

2022

2021

2022

2021

 

Service cost

    

$

94

    

$

83

    

$

179

    

$

168

Interest cost

80

 

69

157

 

138

Expected return on plan assets

(180)

 

(200)

(362)

 

(400)

Amortization of actuarial loss

37

 

65

76

 

128

Amortization of prior service cost

9

 

3

16

 

6

Settlements

7

 

5

8

 

18

Net cost

$

47

$

25

$

74

$

58

The components of net periodic OPEB (benefit) cost consisted of the following in millions of dollars:

 

Three Months Ended

Six Months Ended

 

May 1

May 2 

May 1

May 2 

 

2022

2021

2022

2021

 

Service cost

    

$

11

    

$

12

    

$

23

    

$

24

Interest cost

23

 

25

49

 

51

Expected return on plan assets

(27)

 

(20)

(55)

 

(39)

Amortization of actuarial (gain) loss

(10)

 

7

(9)

 

14

Amortization of prior service credit

(1)

 

(1)

(2)

 

(2)

Net (benefit) cost

$

(4)

$

23

$

6

$

48

The components of net periodic pension and OPEB costs excluding the service cost component are included in the line item Other operating expenses in the statements of consolidated income.

On November 17, 2021, employees represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) approved a new collective bargaining agreement. In the first quarter of 2022, the Company remeasured the U.S. hourly pension plan due to the new collective bargaining agreement, which decreased the plan’s funded status by approximately $495 million and will increase pension expense in 2022 by nearly $80 million with $35 million negatively impacting operating profit in 2022.

During the first six months of 2022, the Company contributed $47 million to its pension plans and $1,085 million to its OPEB plans. The OPEB contributions include a voluntary contribution of $1,000 million to a U.S. plan on November 30, 2021. The Company presently anticipates contributing an additional $43 million to its pension plans and $50 million to its OPEB plans during the remainder of fiscal year 2022. The remaining pension and OPEB contributions are primarily direct benefit payments from Company funds.

15

(7)Segment Reporting

Worldwide net sales and revenues, operating profit, and identifiable assets by segment were as follows in millions of dollars:

 

Three Months Ended 

Six Months Ended 

 

 

May 1

May 2 

%

May 1

May 2 

%

 

  2022   

  2021   

Change

   2022   

   2021   

Change

 

Net sales and revenues:

 

 

  

    

  

    

  

  

    

  

    

Production & precision ag net sales

 

$

5,117

$

4,529

+13

 

$

8,473

$

7,599

+12

Small ag & turf net sales

3,570

3,390

+5

6,201

5,904

+5

Construction & forestry net sales

3,347

 

3,079

+9

5,891

 

5,546

+6

Financial services revenues

864

 

892

-3

1,734

 

1,776

-2

Other revenues

472

 

168

+181

640

 

345

+86

Total net sales and revenues

 

$

13,370

$

12,058

+11

 

$

22,939

$

21,170

+8

Operating profit:

Production & precision ag

 

$

1,057

$

1,007

+5

 

$

1,353

$

1,651

-18

Small ag & turf

520

648

-20

891

1,117

-20

Construction & forestry

814

 

489

+66

1,085

 

756

+44

Financial services

279

 

295

-5

577

 

553

+4

Total operating profit

2,670

 

2,439

+9

3,906

 

4,077

-4

Reconciling items

(111)

 

(119)

-7

(195)

 

(226)

-14

Income taxes

(461)

 

(530)

-13

(710)

 

(838)

-15

Net income attributable to Deere & Company

 

$

2,098

$

1,790

+17

 

$

3,001

$

3,013

Intersegment sales and revenues:

Production & precision ag net sales

 

$

6

$

7

-14

 

$

10

$

13

-23

Small ag & turf net sales

4

4

6

8

-25

Construction & forestry net sales

 

Financial services revenues

87

 

62

+40

133

 

112

+19

Operating profit is income from continuing operations before reconciling items and income taxes. Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains and losses. Reconciling items to net income are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, pension and OPEB benefit costs excluding the service cost component, and net income attributable to noncontrolling interests.

 

    

May 1

    

October 31

May 2 

 

2022

2021

2021

 

Identifiable assets:

Production & precision ag

 

$

8,680

$

7,021

$

6,602

Small ag & turf

4,431

3,959

3,605

Construction & forestry

6,984

 

6,457

 

6,500

Financial services

53,110

 

51,624

 

50,849

Corporate

10,894

 

15,053

 

11,423

Total assets

 

$

84,099

$

84,114

$

78,979

 

(8)Financing Receivables

The Company monitors the credit quality of financing receivables based on delinquency status. Past due balances of financing receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date. Non-performing financing receivables represent receivables for which the Company has ceased accruing finance income. The Company ceases accruing finance income when these receivables are generally 90 days delinquent. Generally, when receivables are 120 days delinquent the estimated uncollectible amount from the customer is written off to the allowance for credit losses. Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.

16

The credit quality analysis of retail notes, financing leases, and revolving charge accounts (collectively, retail customer receivables) by year of origination was as follows in millions of dollars:

May 1, 2022

2022

2021

2020

2019

2018

Prior

Years

Revolving Charge Accounts

Total

Retail customer receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

Agriculture and turf

Current

$

5,540

$

10,141

$

5,318

$

2,684

$

1,286

$

723

$

3,381

$

29,073

30-59 days past due

20

75

36

20

9

5

12

177

60-89 days past due

4

29

14

9

5

2

4

67

90+ days past due

1

1

Non-performing

3

40

44

41

25

31

14

198

Construction and forestry

Current

1,506

2,404

1,211

577

234

105

91

6,128

30-59 days past due

20

52

33

17

6

2

3

133

60-89 days past due

7

25

15

6

1

1

1

56

90+ days past due

1

1

1

1

5

9

Non-performing

3

46

50

29

12

5

1

146

Total retail customer receivables

$

7,103

$

12,813

$

6,723

$

3,384

$

1,579

$

879

$

3,507

$

35,988

October 31, 2021

2021

2020

2019

2018

2017

Prior
Years

Revolving Charge Accounts

Total

Retail customer receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

Agriculture and turf

Current

$

12,877

$

6,676

$

3,463

$

1,738

$

728

$

211

$

3,704

$

29,397

30-59 days past due

43

53

29

16

7

3

14

165

60-89 days past due

16

23

12

6

3

1

4

65

90+ days past due

1

1

Non-performing

23

57

53

32

17

23

7

212

Construction and forestry

Current

3,122

1,575

754

273

57

7

92

5,880

30-59 days past due

50

40

27

7

4

1

3

132

60-89 days past due

15

11

9

6

1

1

43

90+ days past due

1

2

3

3

4

2

15

Non-performing

26

56

39

17

7

3

148

Total retail customer receivables

$

16,173

$

8,494

$

4,389

$

2,098

$

828

$

251

$

3,825

$

36,058

May 2, 2021

2021

2020

2019

2018

2017

Prior
Years

Revolving Charge Accounts

Total

Retail customer receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

Agriculture and turf

Current

$

6,017

$

8,375

$

4,436

$

2,402

$

1,136

$

494

$

3,221

$

26,081

30-59 days past due

20

64

41

19

10

5

20

179

60-89 days past due

5

34

18

9

4

2

5

77

90+ days past due

1

1

2

Non-performing

2

51

69

54

29

33

16

254

Construction and forestry

Current

1,568

2,077

1,106

454

118

22

81

5,426

30-59 days past due

21

43

35

14

5

1

3

122

60-89 days past due

6

13

12

7

3

1

1

43

90+ days past due

2

10

5

6

3

26

Non-performing

1

38

37

22

11

7

1

117

Total retail customer receivables

$

7,640

$

10,697

$

5,765

$

2,987

$

1,322

$

568

$

3,348

$

32,327

17

The credit quality analysis of wholesale receivables by year of origination was as follows in millions of dollars:

May 1, 2022

2022

2021

2020

2019

2018

Prior
Years

Revolving

Total

Wholesale receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

Agriculture and turf

Current

$

224

$

155

$

43

$

8

$

1

$

2

$

1,605

$

2,038

30+ days past due

Non-performing

5

5

Construction and forestry

Current

6

35

4

2

1

268

316

30+ days past due

1

1

Non-performing

Total wholesale receivables

$

230

$

190

$

47

$

15

$

1

$

4

$

1,873

$

2,360

October 31, 2021

2021

2020

2019

2018

2017

Prior
Years

Revolving

Total

Wholesale receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

Agriculture and turf

Current

$

346

$

80

$

22

$

9

$

3

$

1,696

$

2,156

30+ days past due

Non-performing

12

12

Construction and forestry

Current

41

7

7

1

$

1

340

397

30+ days past due

1

1

Non-performing

Total wholesale receivables

$

387

$

87

$

41

$

9

$

4

$

2

$

2,036

$

2,566

May 2, 2021

2021

2020

2019

2018

2017

Prior
Years

Revolving

Total

Wholesale receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

Agriculture and turf

Current

$

191

$

144

$

55

$

13

$

4

$

1

$

2,146

$

2,554

30+ days past due

Non-performing

22

22

Construction and forestry

Current

5

10

15

1

1

3

341

376

30+ days past due

Non-performing

Total wholesale receivables

$

196

$

154

$

92

$

14

$

5

$

4

$

2,487

$

2,952

18

An analysis of the allowance for credit losses and investment in financing receivables in millions of dollars during the periods follows:

 

Retail Notes

Revolving

& Financing

Charge

Wholesale

Leases

Accounts

Receivables

Total

Three Months Ended May 1, 2022

Allowance:

    

 

    

    

 

    

    

 

    

    

 

Beginning of period balance

 

$

138

 

$

15

$

5

$

158

Provision

39

3

42

Write-offs

(18)

(8)

(26)

Recoveries

5

7

12

Translation adjustments

4

4

End of period balance

 

$

168

 

$

17

$

5

$

190

Six Months Ended May 1, 2022

Allowance:

    

Beginning of period balance

 

$

138

 

$

21

$

7

$

166

Provision (credit)

52

(7)

(2)

43

Write-offs

(35)

(12)

(47)

Recoveries

9

15

24

Translation adjustments

4

4

End of period balance

 

$

168

 

$

17

$

5

$

190

Financing receivables:

End of period balance

 

$

32,481

 

$

3,507

$

2,360

$

38,348

   

Retail Notes

Revolving

 

& Financing

Charge

Wholesale

 

Leases

Accounts

Receivables

Total

Three Months Ended May 2, 2021

Allowance:

    

    

    

    

    

    

    

    

Beginning of period balance

$

180

 

$

24

$

7

$

211

Provision (credit)

 

(17)

(6)

 

(23)

Write-offs

 

(15)

(9)

 

(24)

Recoveries

 

4

10

 

14

End of period balance

$

152

$

19

$

7

$

178

Six Months Ended May 2, 2021

Allowance:

    

 

    

    

 

    

    

 

        

    

Beginning of period balance

$

133

 

$

43

$

8

$

184

ASU No. 2016-13 adoption

44

(13)

31

Provision (credit)

 

(13)

(16)

(1)

 

(30)

Write-offs

 

(23)

(14)

 

(37)

Recoveries

 

10

19

 

29

Translation adjustments

1

 

1

End of period balance

$

152

$

19

$

7

$

178

Financing receivables:

End of period balance

$

28,979

 

$

3,348

$

2,952

$

35,279

The allowance for credit losses increased in the second quarter and the first six months of 2022 mainly due to higher reserves related to the events in Russia / Ukraine and higher portfolio balances.

A troubled debt restructuring is the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity date, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During the first six months of 2022, the Company identified 184 receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $8 million pre-modification and $7 million post-modification. During the first six months of 2021, the Company identified 199 receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $8 million pre-modification and $7 million post-modification. During these same

19

periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At May 1, 2022, the Company had no commitments to lend to borrowers whose accounts were modified in troubled debt restructurings.

(9)Securitization of Financing Receivables

As a part of its overall funding strategy, the Company periodically transfers certain financing receivables (retail notes) into VIEs that are special purpose entities (SPEs), or non-VIE banking operations, as part of its asset-backed securities programs (securitizations). The structure of these transactions is such that the transfer of the retail notes does not meet the accounting criteria for sales of receivables, and is, therefore, accounted for as a secured borrowing. SPEs utilized in securitizations of retail notes differ from other entities included in the Company’s consolidated statements because the assets they hold are legally isolated. Use of the assets held by the SPEs or the non-VIEs is restricted by terms of the documents governing the securitization transactions.

The components of consolidated restricted assets, secured borrowings, and other liabilities related to secured borrowings in securitization transactions were as follows in millions of dollars:

 

    

May 1

    

October 31

    

May 2 

 

2022

2021

2021

 

Financing receivables securitized (retail notes)

 

$

4,085

$

4,673

$

4,122

Allowance for credit losses

(12)

 

(14)

 

(15)

Other assets (primarily restricted cash)

124

 

107

 

91

Total restricted securitized assets

 

$

4,197

$

4,766

$

4,198

Short-term securitization borrowings

$

4,006

$

4,605

$

4,106

Accrued interest on borrowings

2

2

 

3

Total liabilities related to restricted securitized assets

$

4,008

$

4,607

$

4,109

     

(10)  Inventories

Most inventories owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost on the last-in, first-out (LIFO) basis. If all of the Company’s inventories had been valued on a first-in, first-out (FIFO) basis, estimated inventories by major classification in millions of dollars would have been as follows:

    

May 1

    

October 31

    

May 2 

 

2022

2021

2021

 

Raw materials and supplies

 

$

4,384

$

3,524

$

2,469

Work-in-process

1,640

 

994

 

967

Finished goods and parts

5,434

 

4,373

 

4,334

Total FIFO value

11,458

 

8,891

 

7,770

Less adjustment to LIFO value

2,428

 

2,110

 

1,728

Inventories

 

$

9,030

$

6,781

$

6,042

(11)  Goodwill and Other Intangible AssetsNet

The changes in amounts of goodwill by operating segments were as follows in millions of dollars:

 

    

Production &

    

Small Ag

    

Construction

    

 

Precision Ag

& Turf

& Forestry

Total

 

Goodwill at November 1, 2020

$

333

$

268

$

2,480

$

3,081

Acquisition

 

12

12

Translation adjustments

 

10

(2)

89

97

Goodwill at May 2, 2021

$

355

$

266

$

2,569

$

3,190

Goodwill at October 31, 2021

$

542

$

265

$

2,484

$

3,291

Acquisitions

122

69

600

791

Translation adjustments

(11)

(7)

(252)

(270)

Goodwill at May 1, 2022

$

653

$

327

$

2,832

$

3,812

There were no accumulated goodwill impairment losses in the reported periods.

20

The components of other intangible assets were as follows in millions of dollars:

 

    

May 1

    

October 31

    

May 2 

 

2022

2021

2021

 

Amortized intangible assets:

Customer lists and relationships

$

520

$

542

$

549

Technology, patents, trademarks, and other

1,350

 

1,104

 

1,097

Total at cost

1,870

 

1,646

 

1,646

Less accumulated amortization:

 

 

Customer lists and relationships

158

151

136

Technology, patents, trademarks, and other

360

343

323

Total accumulated amortization

518

494

459

Amortized intangible assets, net

1,352

1,152

1,187

Unamortized intangible assets:

In-process research and development

123

123

Other intangible assets – net

$

1,352

$

1,275

$

1,310

In September 2017, the Company acquired Blue River Technology’s in-process research and development related to machine learning technology to optimize the use of farm inputs. Those research and development activities were completed, and the Company started amortizing the acquired technology in the second quarter of 2022.

The amortization of other intangible assets in the second quarter and the first six months of 2022 was $34 million and $62 million, and for 2021 was $27 million and $62 million, respectively. The estimated amortization expense for the next five years is as follows in millions of dollars: remainder of 2022 – $107, 2023 – $167, 2024 – $163, 2025 – $135, 2026 – $116, and 2027 – $114.

  

(12)  Total Short-Term Borrowings

Total short-term borrowings were as follows in millions of dollars:

May 1

October 31

May 2 

    

2022

    

2021

    

2021

Equipment Operations

              

              

              

Notes payable to banks

$

407

$

273

$

122

Finance lease obligations due within one year

21

23

24

Long-term borrowings due within one year

 

1,126

 

1,213

 

206

Total

 

1,554

 

1,509

 

352

Financial Services

Commercial paper

 

3,403

 

2,230

 

2,259

Notes payable to banks

 

148

 

63

 

89

Long-term borrowings due within one year

 

7,308

 

7,117

 

7,211

Total

 

10,859

 

9,410

 

9,559

Short-term borrowings

 

12,413

 

10,919

 

9,911

Short-term securitization borrowings

              

              

              

Equipment Operations

5

10

14

Financial Services

4,001

4,595

4,092

Total

4,006

4,605

4,106

Total short-term borrowings

 

$

16,419

 

$

15,524

 

$

14,017

   

   

21

(13)  Long-Term Borrowings

Long-term borrowings were as follows in millions of dollars. The financial services medium-term notes include fair value adjustments related to interest rate swaps.

May 1

October 31

May 2 

  

2022

  

2021

  

2021

Equipment Operations

               

               

               

U.S. dollar notes and debentures:

2.60% notes due 2022

 

$

1,000

2.75% notes due 2025

$

700

$

700

700

6.55% debentures due 2028

 

200

 

200

 

200

5.375% notes due 2029

 

500

 

500

 

500

3.10% notes due 2030

700

700

700

8.10% debentures due 2030

 

250

 

250

 

250

7.125% notes due 2031

 

300

 

300

 

300

3.90% notes due 2042

 

1,250

 

1,250

 

1,250

2.875% notes due 2049

500

500

500

3.75% notes due 2050

850

850

850

Euro notes:

.5% notes due 2023 (€500 principal)

525

584

606

1.375% notes due 2024 (€800 principal)

840

934

969

1.85% notes due 2028 (€600 principal)

630

701

727

2.20% notes due 2032 (€600 principal)

630

701

727

1.65% notes due 2039 (€650 principal)

682

759

788

Finance lease obligations and other notes

 

50

 

40

 

115

Less debt issuance costs and debt discounts

(51)

(54)

(58)

Total

 

8,556

 

8,915

 

10,124

Financial Services

  

  

  

Notes and debentures:

Medium-term notes (principal as of: May 1, 2022 - $23,247, October 31, 2021 - $22,647, May 2, 2021 - $21,800)

 

22,740

22,899

22,161

Other notes

 

1,216

 

1,138

 

1,121

Less debt issuance costs and debt discounts

(65)

(64)

(60)

Total

 

23,891

 

23,973

 

23,222

Long-term borrowings

 

$

32,447

$

32,888

$

33,346

 

In April 2022, the Company’s financial services operations issued $600 million of sustainability-linked medium-term notes with an initial interest rate of 3.35 percent, which are due in 2029. This transaction supports the Company’s commitment to environmental sustainability. Failure to meet the stated sustainability performance target will result in a 25-basis point increase to the interest rate payable on the 2029 notes from and including April 2026.

   

(14)  Leases - Lessor

The Company leases equipment manufactured or sold by the Company and a limited amount of non-John Deere equipment to retail customers through sales-type, direct financing, and operating leases. Sales-type and direct financing leases are reported in Financing receivables - net on the consolidated balance sheets, while operating leases are reported in Equipment on operating leases - net.

Lease revenues earned by the Company were as follows in millions of dollars:

Three Months Ended

Six Months Ended

   

May 1, 2022

   

May 2, 2021

   

May 1, 2022

   

May 2, 2021

Sales-type and direct finance lease revenues

$

35

$

34

$

74

$

70

Operating lease revenues

330

358

665

721

Variable lease revenues

7

6

14

12

Total lease revenues

$

372

$

398

$

753

$

803

22

(15)  Commitments and Contingencies

The Company generally determines its total warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs and current quality developments.

The premiums for extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. These unamortized extended warranty premiums (deferred revenue) included in the following table totaled $809 million and $681 million at May 1, 2022 and May 2, 2021, respectively.

A reconciliation of the changes in the warranty liability and unearned premiums was as follows in millions of dollars:

 

Three Months Ended

Six Months Ended

 

May 1

May 2 

May 1

May 2 

 

2022

2021

2022

2021

 

Beginning of period balance

    

$

2,064

    

$

1,803

    

$

2,086

    

$

1,743

Payments

(224)

 

(202)

(417)

 

(417)

Amortization of premiums received

(64)

 

(65)

(130)

 

(128)

Accruals for warranties

223

 

248

404

 

495

Premiums received

91

 

90

174

 

163

Foreign exchange

5

 

2

(22)

 

20

End of period balance

$

2,095

$

1,876

$

2,095

$

1,876

At May 1, 2022, the Company had approximately $352 million of guarantees issued primarily to banks outside the U.S. and Canada related to third-party receivables for the retail financing of John Deere equipment. The Company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At May 1, 2022, the Company had accrued losses of $4 million under these agreements. The maximum remaining term of the receivables guaranteed at May 1, 2022 was approximately six years.

At May 1, 2022, the Company had commitments of $392 million for the construction and acquisition of property and equipment. Also, at May 1, 2022, the Company had restricted assets of $69 million, classified as Other assets. See Note 9 for additional restricted assets associated with borrowings related to securitizations.

The Company also had other miscellaneous contingent liabilities totaling approximately $75 million at May 1, 2022. The accrued liability for these contingencies was not material at May 1, 2022.

The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, and trademark matters. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements.

(16)  Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine fair value, the Company uses various methods including market and income approaches. The Company utilizes valuation models and techniques that maximize the use of observable inputs. The models are industry-standard models that consider various assumptions including time values and yield curves as well as other economic measures. These valuation techniques are consistently applied.

Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs. Level 3 measurements include significant unobservable inputs.

23

The fair values of financial instruments that do not approximate the carrying values were as follows in millions of dollars. Long-term borrowings exclude finance lease liabilities.

 

May 1, 2022

October 31, 2021

May 2, 2021

 

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

 

Financing receivables – net

$

34,085

$

33,540

$

33,799

$

33,718

$

30,994

$

31,165

Financing receivables securitized – net

$

4,073

$

4,016

$

4,659

$

4,704

$

4,107

$

4,188

Short-term securitization borrowings:

 

Equipment operations

$

5

$

6

$

10

$

10

$

14

$

15

Financial services

4,001

3,938

4,595

4,600

4,092

4,117

Total

$

4,006

$

3,944

$

4,605

$

4,610

$

4,106

$

4,132

Long-term borrowings due within one year:

Equipment operations

$

1,126

$

1,128

$

1,213

 

$

1,222

$

206

$

211

Financial services

7,308

7,270

 

7,117

 

7,142

 

7,211

7,293

Total

$

8,434

$

8,398

$

8,330

$

8,364

$

7,417

$

7,504

Long-term borrowings:

Equipment operations

$

8,519

$

8,546

$

8,877

 

$

10,244

$

10,079

$

11,391

Financial services

23,891

23,429

 

23,973

 

24,262

 

23,222

23,701

Total

$

32,410

$

31,975

$

32,850

$

34,506

$

33,301

$

35,092

Fair value measurements above were Level 3 for all financing receivables, Level 3 for equipment operations short-term securitization borrowings, and Level 2 for all other borrowings.

Fair values of the financing receivables that were issued long-term were based on the discounted values of their related cash flows at interest rates currently being offered by the Company for similar financing receivables. The fair values of the remaining financing receivables approximated the carrying amounts.

Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or on the discounted values of their related cash flows at current market interest rates. Certain long-term borrowings have been swapped to current variable interest rates. The carrying values of these long-term borrowings included adjustments related to fair value hedges.

24

Assets and liabilities measured at fair value on a recurring basis in millions of dollars follow, excluding the Company’s cash equivalents, which were carried at cost that approximates fair value and consisted primarily of money market funds and time deposits.

 

    

May 1

    

October 31

    

May 2 

 

2022

2021

2021

 

Level 1:

Marketable securities

International equity securities

$

2

$

2

$

2

U.S. equity fund

65

75

71

U.S. government debt securities

59

 

59

 

59

Total Level 1 marketable securities

126

136

132

Level 2:

Marketable securities

U.S. government debt securities

130

139

121

Municipal debt securities

67

 

73

 

69

Corporate debt securities

206

 

224

 

202

International debt securities

2

2

4

Mortgage-backed securities

151

 

154

 

140

Total Level 2 marketable securities

556

 

592

 

536

Other assets

Derivatives

407

275

402

Accounts payable and accrued expenses

Derivatives

780

228

223

Level 3:

Accounts payable and accrued expenses – Deferred consideration

262

The contractual maturities of debt securities at May 1, 2022 in millions of dollars are shown below. Actual maturities may differ from contractual maturities because some securities may be called or prepaid. Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity. Mortgage-backed securities were primarily issued by U.S. government sponsored enterprises. Unrealized losses of debt securities at May 1, 2022 were not recognized in income due to the ability and intent to hold to maturity.

 

Amortized

Fair

Cost

Value

Due in one year or less

 

$

27

$

27

Due after one through five years

92

90

Due after five through 10 years

171

155

Due after 10 years

221

192

Mortgage-backed securities

167

151

Debt securities

 

$

678

 

$

615

Fair value, nonrecurring Level 3 measurements from impairments, excluding financing receivables with specific allowances which were not significant, were as follows in millions of dollars. Property and equipment – net and Other assets fair value for October 31, 2021 represents the fair value assessment at January 31, 2021.

Fair Value

Losses

Three Months Ended 

Six Months Ended 

May 1

October 31

May 2 

May 1

May 2 

May 1

May 2 

  

2022

  

2021

  

2021

  

2022

  

2021

  

2022

  

2021

 

Inventories

$

19

$

8

$

8

Property and equipment – net

$

15

$

41

$

41

$

41

$

44

Other intangible assets – net

$

28

$

28

Other assets

$

1

$

6

25

The following is a description of the valuation methodologies the Company uses to measure certain balance sheet items at fair value:

Marketable securitiesThe portfolio of investments is primarily valued on a market approach (matrix pricing model) in which all significant inputs are observable or can be derived from or corroborated by observable market data such as interest rates, yield curves, volatilities, credit risk, and prepayment speeds. Funds are primarily valued using the fund’s net asset value, based on the fair value of the underlying securities.

DerivativesThe Company’s derivative financial instruments consist of interest rate contracts (swaps), foreign currency exchange contracts (futures, forwards, and swaps), and cross-currency interest rate contracts (swaps). The portfolio is valued based on an income approach (discounted cash flow) using market observable inputs, including swap curves and both forward and spot exchange rates for currencies.

Financing receivables – Specific reserve impairments are based on the fair value of the collateral, which is measured using a market approach (appraisal values or realizable values). Inputs include a selection of realizable values.

Inventories – The service parts inventory impairment was based on net realizable value, less reasonably predictable selling and disposal costs.

Property and equipment – net – The valuations were based on cost and market approaches. The inputs include replacement cost estimates adjusted for physical deterioration and economic obsolescence.

Other intangible assets – net – The Company considered external valuations based on the Company’s probability weighted cash flow analysis.

Other assets – The impairments were measured at the fair value of the right of use operating lease asset.

       

(17)  Derivative Instruments

It is the Company’s policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. The Company’s financial services operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. The Company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling, and financing in currencies other than the functional currencies. In addition, the Company has interest rate and foreign currency exposures at certain equipment operations units for sales incentive programs.

All derivatives are recorded at fair value on the balance sheet. Cash collateral received or paid is not offset against the derivative fair values on the balance sheet. The cash flows from these contracts were recorded in operating activities in the statements of consolidated cash flows. Each derivative is designated as a cash flow hedge, a fair value hedge, or remains undesignated. All designated hedges are formally documented as to the relationship with the hedged item as well as the risk-management strategy. Both at inception and on an ongoing basis the hedging instrument is assessed as to its effectiveness. If and when a derivative is determined not to be highly effective as a hedge, the underlying hedged transaction is no longer likely to occur, the hedge designation is removed, or the derivative is terminated, hedge accounting is discontinued.

Cash Flow Hedges

Certain interest rate contracts (swaps) were designated as hedges of future cash flows from borrowings. The total notional amounts of the receive-variable/pay-fixed interest rate contracts at May 1, 2022, October 31, 2021, and May 2, 2021 were $2,450 million, $2,700 million, and $1,850 million, respectively. Fair value gains or losses on cash flow hedges were recorded in other comprehensive income (OCI) and are subsequently reclassified into interest expense in the same periods during which the hedged transactions affected earnings. These amounts offset the effects of interest rate changes on the related borrowings.

The amount of gain recorded in OCI at May 1, 2022 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is approximately $23 million after-tax. No gains or losses were reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur.

Fair Value Hedges

Certain interest rate contracts (swaps) were designated as fair value hedges of borrowings. The total notional amounts of the receive-fixed/pay-variable interest rate contracts at May 1, 2022, October 31, 2021, and May 2, 2021 were $8,655 million, $8,043 million, and $8,340 million, respectively. The fair value gains or losses on these contracts were generally offset by fair value gains or losses on the hedged items (fixed-rate borrowings) with both items recorded in interest expense.

26

The amounts recorded in the consolidated balance sheet related to borrowings designated in fair value hedging relationships were as follows in millions of dollars:

 

Cumulative Increase (Decrease) of Fair

 

Value Hedging Adjustments Included in

the Carrying Amount

Carrying

Active

 

Amount of

Hedging

Discontinued

Hedged Item

Relationships

Relationships

Total

 

May 1, 2022

Long-term borrowings due within one year

    

$

185

    

$

1

    

$

7

    

$

8

Long-term borrowings

7,933

(613)

106

(507)

October 31, 2021

Long-term borrowings due within one year

$

189

$

3

$

(2)

$

1

Long-term borrowings

8,070

29

223

252

May 2, 2021

Long-term borrowings due within one year

$

163

$

1

$

(1)

Long-term borrowings

8,502

190

171

$

361

Long-term borrowings due within one year are presented in short-term borrowings.

Derivatives not designated as hedging instruments

The Company has certain interest rate contracts (swaps), foreign currency exchange contracts (futures, forwards, and swaps), and cross-currency interest rate contracts (swaps), which were not formally designated as hedges. These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures, primarily for certain borrowings, purchases or sales of inventory, and sales incentive programs. The total notional amounts of these interest rate swaps at May 1, 2022, October 31, 2021, and May 2, 2021 were $9,912 million, $10,848 million, and $8,694 million, the foreign exchange contracts were $7,640 million, $7,584 million, and $6,239 million, and the cross-currency interest rate contracts were $264 million, $238 million, and $151 million, respectively. The fair value gains or losses from derivatives not designated as hedging instruments were recorded in the statements of consolidated income, generally offsetting over time the exposure on the hedged item.

Fair values of derivative instruments in the condensed consolidated balance sheets were as follows in millions of dollars:

 

    

May 1

    

October 31

    

May 2 

 

Other Assets

2022

2021

2021

 

Designated as hedging instruments:

Interest rate contracts

 

$

63

$

166

$

301

 

Not designated as hedging instruments:

Interest rate contracts

180

 

73

 

67

Foreign exchange contracts

125

 

31

 

30

Cross-currency interest rate contracts

39

 

5

 

4

Total not designated

344

 

109

 

101

 

Total derivative assets

 

$

407

$

275

$

402

 

Accounts Payable and Accrued Expenses

Designated as hedging instruments:

Interest rate contracts

 

$

591

$

99

$

80

 

Not designated as hedging instruments:

Interest rate contracts

75

33

52

Foreign exchange contracts

114

 

94

 

89

Cross-currency interest rate contracts

 

2

 

2

Total not designated

189

 

129

 

143

 

Total derivative liabilities

 

$

780

$

228

$

223

27

The classification and gains (losses) including accrued interest expense related to derivative instruments consisted of the following in millions of dollars:

Three Months Ended

Six Months Ended

 

May 1

May 2 

May 1

May 2 

 

2022

2021

2022

2021

 

Fair Value Hedges:

 

 

    

  

 

 

    

  

 

Interest rate contracts - Interest expense

 

$

(514)

$

(170)

 

$

(656)

$

(225)

 

Cash Flow Hedges:

Recognized in OCI

Interest rate contracts - OCI (pretax)

35

 

50

 

Reclassified from OCI

Interest rate contracts - Interest expense

(1)

 

(4)

(3)

 

(9)

 

Not Designated as Hedges:

Interest rate contracts - Net sales

$

31

$

5

$

44

$

5

Interest rate contracts - Interest expense *

 

61

 

59

(4)

Foreign exchange contracts - Net sales

(1)

(1)

Foreign exchange contracts - Cost of sales

(79)

 

(48)

(80)

(100)

Foreign exchange contracts - Other operating expenses *

26

 

(78)

173

 

(204)

Total not designated

 

$

38

$

(121)

 

$

195

$

(303)

*Includes interest and foreign exchange gains (losses) from cross-currency interest rate contracts.

Counterparty Risk and Collateral

Derivative instruments are subject to significant concentrations of credit risk to the banking sector. The Company manages individual counterparty exposure by setting limits that consider the credit rating of the counterparty, the credit default swap spread of the counterparty, and other financial commitments and exposures between the Company and the counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Some of these agreements include credit support provisions. Each master agreement permits the net settlement of amounts owed in the event of default or termination.

Certain of the Company’s derivative agreements contain credit support provisions that may require the Company to post collateral based on the size of the net liability positions and credit ratings. The aggregate fair value of all derivatives with credit-risk-related contingent features that were in a net liability position at May 1, 2022, October 31, 2021, and May 2, 2021, was $673 million, $135 million, and $136 million, respectively. In accordance with the limits established in these agreements, the Company posted $254 million of cash collateral at May 1, 2022. The Company posted no cash collateral in accordance with the limits established in those agreements at either October 31, 2021 or May 2, 2021. In addition, the Company paid $8 million of cash collateral that was outstanding at May 1, 2022, October 31, 2021, and May 2, 2021 to participate in an international futures market to hedge currency exposure, not included in the table below.

Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities related to netting arrangements and any collateral received or paid was as follows in millions of dollars:

Gross Amounts

Netting

 

May 1, 2022

    

Recognized

    

Arrangements

    

Collateral

    

Net Amount

 

Assets

 

$

407

 

$

(110)

 

 

$

297

Liabilities

780

(110)

$

(254)

416

Gross Amounts

Netting

 

October 31, 2021

    

Recognized

    

Arrangements

    

Collateral

    

Net Amount

 

Assets

$

275

 

$

(105)

 

$

170

Liabilities

228

(105)

$

(5)

118

    

Gross Amounts

    

Netting

    

    

 

May 2, 2021

Recognized

Arrangements

Collateral

Net Amount

 

Assets

$

402

$

(125)

$

(21)

$

256

Liabilities

 

223

 

(125)

(1)

 

97

28

(18)  Stock Option and Restricted Stock Awards

In December 2021, the Company granted stock options to employees for the purchase of 197 thousand shares of common stock at an exercise price of $343.94 per share and a binomial lattice model fair value of $89.20 per share at the grant date. At May 1, 2022, options for 2.2 million shares were outstanding with a weighted-average exercise price of $152.99 per share. The Company also granted 160 thousand restricted stock units to employees and non-employee directors in the first six months of 2022, of which 123 thousand are subject to service based only conditions and 37 thousand are subject to performance/service based conditions. The weighted-average fair value of the service based only units at the grant date was $345.94 per unit based on the market price of a share of underlying common stock. The fair value of the performance/service based units at the grant date was $331.47 per unit based on the market price of a share of underlying common stock excluding dividends. At May 1, 2022, the Company was authorized to grant an additional 17.2 million shares under the equity incentive plan.

(19) Acquisitions

Kreisel Acquisition

On February 7, 2022, the Company acquired majority ownership in Kreisel Electric Inc. (Kreisel), a pioneer in the development of immersion-cooled battery technology. The Austrian company manufactures high-density, high-durability electric battery modules and packs for high-performance and off-highway applications and has created a battery-buffered, high-powered charging infrastructure platform.

The transaction includes a call option to purchase the remaining ownership interest in Kreisel in 2027. The minority interest holders also have a put option that would require the Company to purchase the holder’s ownership interest in 2027. The put and call options cannot be separated from the noncontrolling interest. Due to the redemption features, the minority interest is classified as redeemable noncontrolling interest in the Company’s consolidated balance sheets.

The total cash purchase price was $276 million, consisting of $253 million for the acquired equity interests, $21 million to reduce the option price, and customary working capital adjustments, net of cash acquired. The preliminary fair values assigned to the assets and liabilities of the acquired entity in millions of dollars, which is based on information as of the acquisition date and available at May 1, 2022 follows:

February 7

2022

Trade accounts and notes receivable

$

2

Other receivables

11

Inventories

11

Property and equipment

11

Goodwill

217

Other intangible assets

178

Other assets

6

Total assets

$

436

Accounts payable and accrued expenses

$

28

Deferred income taxes

36

Redeemable noncontrolling interest

$

96

The identifiable intangible assets were related to technology, trade name, and customer relationships with a weighted average amortization period of 12 years. The goodwill is not deductible for income tax purposes. Kreisel will be allocated amongst the Company’s production and precision agriculture, small agriculture and turf, and construction and forestry segments.

Acquisition of Excavator Factories

On February 28, 2022, the Company acquired full ownership of three former Deere-Hitachi joint venture factories and began new license and supply agreements with Hitachi Construction Machinery (Hitachi). The two companies also ended their joint venture manufacturing and marketing agreements. The former joint venture factories will continue to manufacture Deere-branded construction excavators and forestry equipment. Through a new supply agreement with Hitachi, Deere will continue to offer a full portfolio of excavators. Deere’s marketing arrangement for Hitachi-branded construction excavators and mining equipment in the Americas has ended with Hitachi assuming distribution and support of these products. John Deere dealers may continue to support their existing field population of Hitachi-branded excavators.

With the completion of this acquisition, the Company now has complete control over its excavator design, product, and feature updates, making it possible to more rapidly respond to customer requirements and integrate excavators with other construction products in the John Deere product portfolio. The Company can leverage technology developed for other product lines and

29

production systems across the enterprise and extend those advanced solutions to Deere-designed excavators, strengthening the entire product portfolio.

The total invested capital follows:

February 28

2022

Cash consideration for factories

$

205

Cash consideration for license agreement

70

Deferred consideration

271

Total purchase price consideration

546

Less: Cash obtained

(187)

Less: Settlement of intercompany balances

(113)

Net purchase price consideration

246

Fair value of previously held equity investment

444

Total invested capital

$

690

The total purchase price consideration includes deferred consideration that will be paid as the Company purchases John Deere-branded excavators, components, and service parts from Hitachi under the new supply agreement with a duration that ranges from 5 to 30 years. The deferred consideration represents the price increases under the new supply arrangement. Excluding inflation adjustments, the price increases for products to be acquired by the Company from Hitachi are as much as 27 percent higher than the prior supply arrangement. At May 1, 2022, the net present value of the deferred consideration was approximately $262 million, subject to changes in market conditions, developments in the Company’s product offerings, and sourcing changes. The Company financed the acquisition and associated transaction expenses from cash on hand. The fair value of the previously held equity investment created a non-cash gain of $326 million (pretax and after-tax), which was recorded in Other income and included in the construction and forestry segment’s operating profit.

Prior to the acquisition, the Company purchased John Deere and Hitachi-branded excavators, components, and parts from the Deere-Hitachi joint venture factories for sale to John Deere dealers. These purchases were included in Cost of sales, while the sale to John Deere dealers were included in Net sales. Cost of sales also included profit-sharing payments to Hitachi in accordance with the previous marketing agreements. Following the acquisition, Net sales will only include the sale of John Deere-branded excavators to John Deere dealers, while Cost of sales will reflect market pricing to purchase and manufacture excavators, as well as the related components and service parts.

The preliminary fair values assigned to the assets and liabilities of the acquired factories in millions of dollars, which is based on information as of the acquisition date and available at May 1, 2022 follows:

February 28

2022

Other receivables

$

29

Inventories

286

Property and equipment

182

Goodwill

534

Other intangible assets

70

Deferred income taxes

49

Total assets

$

1,150

Accounts payable and accrued expenses

$

297

Long-term borrowings

163

Total liabilities

$

460

The identifiable intangible assets were related to technology with a 10-year amortization period. The goodwill is not deductible for income tax purposes. The excavator factories will be reported in the Company’s construction and forestry segment.

30

Other Acquisitions

In the first six months of the year, the Company acquired AgriSync Inc., a technology service provider; an 80 percent stake in SureFire Ag Systems, Inc. and SureFire Electronics, LLC, which design and manufacture liquid fertilizer application and spray tendering systems; and a 40 percent equity method investment in GUSS Automation LLC, a pioneer in semi-autonomous orchard and vineyard sprayers. The combined cost of the acquisitions was $109 million, net of cash acquired of $3 million. The preliminary asset and liability fair values at the respective acquisition dates follow in millions of dollars:

May 1

2022

Trade accounts and notes receivable

$

7

Inventories

8

Property and equipment

4

Goodwill

40

Other intangible assets

20

Other assets

50

Total assets

$

129

Accounts payable and accrued expenses

$

6

Deferred income taxes

5

Total liabilities

$

11

Redeemable noncontrolling interest

$

9

The identifiable intangible assets related to trade name, technology, and customer relationships with a weighted average amortization period of 6 years. AgriSync will be allocated amongst the Company’s production and precision agriculture, small agriculture and turf, and construction and forestry segments, while SureFire will be allocated to the production and precision agriculture segment. GUSS Automation will be assigned to the small agriculture and turf segment.

For all acquisitions, the goodwill was the result of future cash flows and related fair value exceeding the fair value of the identified assets and liabilities. The pro forma results of operations as if these acquisitions had occurred at the beginning of the current or comparative fiscal year would not differ significantly from the reported results.

(20)  Special Items

2022 Special Items

Impact of events in Russia / Ukraine

The recent events in Russia / Ukraine have resulted in the Company suspending shipments of machines and service parts to Russia. The Company has equipment operations in Russia / Ukraine, and financial services operations in Russia. As of May 1, 2022, the Company's net exposure in Russia / Ukraine was approximately $454 million. Net sales from the Company’s Russian operations represented 2 percent of consolidated annual net sales from 2017 to 2021. The Ukraine operations were not material to the consolidated financial statements.

The suspension of shipments to Russia will reduce forecasted revenue for the region, which makes it probable future cash flows will not cover the carrying value of certain assets. The accounting consequences during the second quarter of 2022 were impairments of most long-lived assets, an increase in reserves of certain financial assets, and an accrual for various contractual uncertainties. No significant reserves were established on trade receivables or complete goods inventory, as the Company continues to experience strong payment performance and requires prepayment of existing inventories. However, the situation

31

is fluid, and the Company continues to closely monitor all financial and operational risks. A summary of the reserves and impairments recorded in the second quarter of 2022 follows in millions of dollars:

Three Months Ended May 1, 2022

PPA

 

SAT

 

CF

 

FS

 

Total

2022 Expense:

Inventory reserve – Cost of sales

$

6

$

2

$

8

Fixed asset impairment – Cost of sales

30

11

41

Intangible asset impairment – Cost of sales

28

28

Allowance for credit losses – Financing receivables – SA&G expenses

$

26

26

Contingent liabilities – Other operating expenses

10

$

1

6

17

Total Russia/Ukraine events pretax expense

$

46

$

1

$

47

$

26

$

120

Net tax impact

(14)

Total Russia/Ukraine events after-tax expense

$

106

Gain on Previously Held Equity Investment

On February 28, 2022, the Company acquired full ownership of three former Deere-Hitachi joint venture factories and began new license and supply agreements with Hitachi. The fair value of the previous equity investment resulted in a non-cash gain of $326 million (pretax and after-tax; see Note 19).

UAW Collective Bargaining Agreement

On November 17, 2021, employees represented by the UAW approved a new collective bargaining agreement. The agreement, which has a term of six years, covers the wages, hours, benefits, and other terms and conditions of employment for the Company’s UAW-represented employees at 14 U.S. facilities. The labor agreement includes a lump sum ratification bonus payment of $8,500 per eligible employee, totaling $90 million, and an immediate wage increase of 10 percent plus further wage increases over the term of the contract. The lump sum payment was expensed in the first quarter of 2022. The Company remeasured the U.S. hourly pension plan as of November 30, 2021 due to the new collective bargaining agreement. See Note 6 for more information on the U.S. hourly plan remeasurement.

2021 Special Items

During the first quarter of 2021, the fixed assets in an asphalt plant factory in Germany were impaired by $38 million, pretax and after-tax. The Company also continued to assess its manufacturing locations, resulting in additional long-lived asset impairments of $12 million pretax. The impairments were the result of a decline in forecasted financial performance that indicated it was probable future cash flows would not cover the carrying amount of the net assets. These impairments were offset by a favorable indirect tax ruling in Brazil of $58 million pretax. See Note 16 for fair value measurement information.

The following table summarizes the operating profit impact, in millions of dollars, of the special items recorded for the three months and six months ended May 1, 2022 and May 2, 2021:

Three Months

Six Months

PPA

 

SAT

 

CF

 

FS

 

Total

PPA

 

SAT

 

CF

 

FS

 

Total

2022 Expense (benefit):

Gain on remeasurement of equity investment – Other income (see Note 19)

$

(326)

$

(326)

$

(326)

$

(326)

Total Russia/Ukraine events pretax expense

$

46

$

1

47

$

26

120

$

46

$

1

47

$

26

120

UAW ratification bonus – Cost of sales

53

9

28

90

Total expense (benefit)

$

46

$

1

$

(279)

$

26

$

(206)

$

99

$

10

$

(251)

$

26

$

(116)

2021 Expense (benefit):

Long-lived asset impairments – Cost of sales

$

5

$

3

$

42

$

50

Brazil indirect tax – Cost of sales

(53)

(5)

(58)

Total expense (benefit)

$

(48)

$

3

$

37

$

(8)

Period over period change

$

46

$

1

$

(279)

$

26

$

(206)

$

147

$

7

$

(288)

$

26

$

(108)

32

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Overview

Organization

The Company’s equipment operations generate revenues and cash primarily from the sale of equipment to John Deere dealers and distributors. The equipment operations manufacture and distribute a full line of agricultural equipment; a variety of commercial and consumer equipment; and a broad range of equipment for construction, roadbuilding, and forestry. The Company’s financial services primarily provide credit services, which mainly finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the equipment operations. In addition, financial services offers extended equipment warranties. The information in the following discussion is presented in a format that includes information grouped as consolidated, equipment operations, and financial services. The Company’s operating segments consist of production and precision agriculture, small agriculture and turf, construction and forestry, and financial services.

Trends and Economic Conditions for Fiscal Year 2022

Industry sales of large agricultural machinery in the U.S. and Canada are expected to be up about 20 percent. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat. Industry sales of agricultural machinery in Europe are forecast to be up about 5 percent. In South America, industry sales of tractors and combines are projected to be up about 10 percent. Asia industry sales of agricultural machinery are forecast to be down moderately. Construction equipment industry sales in the U.S. and Canada for 2022 are expected to increase about 10 percent, while compact construction equipment industry sales in the U.S. and Canada are anticipated to be flat to up 5 percent. Forestry global industry equipment sales are expected to be flat to up 5 percent. Global industry roadbuilding equipment sales are forecasted to be flat to up 5 percent. Net income for the Company’s financial services operations is expected to be slightly lower than fiscal year 2021 due to a higher provision for credit losses and higher selling, administrative, and general expenses. These factors are expected to be partially offset by income earned on a higher average portfolio.

Items of concern include global and regional political conditions, economic and trade policies, inflationary pressures, the ongoing pandemic, capital market disruptions, changes in demand and pricing for new and used equipment, and the other items discussed in the “Forward-Looking Statements” below. Significant fluctuations in foreign currency exchange rates, volatility in the price of many commodities, and supply chain disruptions could also impact the Company’s results.

The Company’s second quarter results reflect strong demand while enduring supply chain pressures continue to impact production levels and delivery schedules. The Company’s employees, suppliers, and dealers are working to address these challenges. The demand for agricultural equipment is expected to benefit from positive fundamentals despite availability concerns and inflationary pressures affecting customers’ input costs. The Company’s smart industrial operating model and recently announced financial and sustainability goals (Leap Ambitions) are focused on helping customers manage higher costs and increasingly scarce inputs, while improving agricultural yields, through the use of the Company’s integrated technologies.

Impact of Events in Russia / Ukraine

The recent events in Russia / Ukraine have impacted the safety, welfare, and well-being of the Company’s employees in the region. The Company’s top priority is to support and maintain close communication with its affected teams, providing necessary resources when possible. The Company has suspended shipments of machines and service parts to Russia. These events are impacting business continuity, liquidity, and asset values for the Company’s operations in Russia / Ukraine (see Note 20).

33

2022 Compared with 2021

Three Months Ended

Six Months Ended

Deere & Company

May 1

May 2 

%

May 1

May 2 

%

(In millions of dollars, except per share amounts)

2022

2021

Change

2022

2021

Change

Net sales and revenues

$

13,370

$

12,058

+11

$

22,939

$

21,170

+8

Net income attributable to Deere & Company

2,098

1,790

+17

3,001

3,013

Diluted earnings per share

6.81

5.68

9.72

9.55

Results for the second quarter of 2022 and year-to-date periods of 2022 and 2021 were impacted by special items. See Note 20 for more information on special items impacting the presented periods. The discussion on net sales and operating profit is included in the Business Segment Results below.

Three Months Ended

Six Months Ended

Deere & Company

May 1

May 2 

%

May 1

May 2 

%

(In millions of dollars)

2022

2021

Change

2022

2021

Change

Cost of sales to net sales

74.1%

72.1%

75.9%

72.1%

Other income

$

540

$

251

+115

$

779

$

477

+63

Research and development expenses

453

377

+20

855

743

+15

Selling, administrative and general expenses

932

838

+11

1,713

1,607

+7

Other operating expenses

328

335

-2

638

708

-10

Provision for income taxes

461

530

-13

710

838

-15

The cost of sales to net sales ratio increased in the second quarter and the first six months of fiscal 2022 primarily due to higher production costs partially offset by price realization. Other income increased in both periods due to a non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture. Research and development expenses were higher for both periods due to continued focus on developing and incorporating technology solutions. Selling, administrative, and general expenses increased in the second quarter and the first six months primarily due to a higher provision for credit losses, including higher reserves due to the events in Russia / Ukraine. Other operating expenses decreased in the first six months primarily due to lower depreciation of equipment on operating leases and lower retirement benefit costs. The provision for income taxes decreased in both periods due in part to a final U.S. tax regulation resulting in the release of a foreign tax credit valuation allowance.

34

Business Segment Results

Three Months Ended

Six Months Ended

Production and Precision Agriculture

May 1

May 2 

%

May 1

May 2 

%

(In millions of dollars)

2022

2021

Change

2022

2021

Change

Net sales

$

5,117

$

4,529

+13

$

8,473

$

7,599

+12

Operating profit

1,057

1,007

+5

1,353

1,651

-18

Operating margin

20.7%

22.2%

16.0%

21.7%

Price realization

+11

+10

Currency translation

-1

Production and precision agriculture sales increased for the quarter due to price realization and higher shipment volumes. Operating profit rose primarily due to price realization and higher shipment volumes / sales mix. These items were partially offset by higher production costs, higher research and development and selling, administrative, and general expenses, and impairments related to events in Russia / Ukraine.

Graphic

Sales for the first six months increased mainly as a result of price realization and higher shipment volumes. Operating profit for the first six months decreased primarily resulting from higher production costs, higher research and development and selling, administrative, and general expenses, the UAW contract ratification bonus, and the impact of impairments related to events in Russia / Ukraine. Partially offsetting these factors were price realization and higher shipment volumes / sales mix. The prior year was also impacted by a favorable indirect tax ruling in Brazil.

Graphic

35

Three Months Ended

Six Months Ended

Small Agriculture and Turf

May 1

May 2 

%

May 1

May 2 

%

(In millions of dollars)

2022

2021

Change

2022

2021

Change

Net sales

$

3,570

$

3,390

+5

$

6,201

$

5,904

+5

Operating profit

520

648

-20

891

1,117

-20

Operating margin

14.6%

19.1%

14.4%

18.9%

Price realization

+8

+7

Currency translation

-2

-2

Small agriculture and turf sales for the quarter increased due to price realization partially offset by the unfavorable impact of currency translation. Operating profit decreased primarily due to higher production costs, a less favorable sales mix, and higher selling, administrative, and general and research and development expenses. These items were partially offset by price realization.

Graphic

Sales for the first six months increased mainly as a result of price realization partially offset by the unfavorable impact of currency translation. Operating profit for the first six months decreased primarily resulting from higher production costs, a less favorable sales mix, and higher selling, administrative, and general and research and development expenses. Partially offsetting these factors was price realization.

Graphic

36

Three Months Ended

Six Months Ended

Construction and Forestry

May 1

May 2 

%

May 1

May 2 

%

(In millions of dollars)

2022

2021

Change

2022

2021

Change

Net sales

$

3,347

$

3,079

+9

$

5,891

$

5,546

+6

Operating profit

814

489

+66

1,085

756

+44

Operating margin

24.3%

15.9%

18.4%

13.6%

Price realization

+10

+9

Currency translation

-2

-2

Construction and forestry sales moved higher for the quarter primarily due to price realization and higher shipment volumes, partially offset by the unfavorable impact of currency translation. Operating profit increased due to a non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture and price realization. These items were partially offset by higher production costs, impairments related to the events in Russia / Ukraine, and a less favorable product mix.

Graphic

The segment’s six-month sales also increased due to price realization partially offset by the unfavorable impact of currency translation. The first six-month’s operating profit moved higher mainly due to price realization and a non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture, partially offset by higher production costs.

Graphic

37

Three Months Ended

Six Months Ended

Financial Services

May 1

May 2 

%

May 1

May 2 

%

(In millions of dollars)

2022

2021

Change

2022

2021

Change

Revenue (including intercompany)

$

951

$

954

$

1,867

$

1,888

-1

Interest expense

112

181

-38

270

369

-27

Net income

208

222

-6

439

427

+3

While the average balance of receivables and leases financed was 6 percent higher in the second quarter and the first six months of 2022 compared with the same periods last year, revenues decreased slightly due to lower financing rates. Gains on operating lease dispositions also benefited revenue in both periods. Interest expense decreased in the second quarter and first six months of 2022 primarily as a result of non-designated derivative gains and lower average borrowing rates. Net income decreased for the quarter mainly due to higher reserves for credit losses related to the events in Russia / Ukraine, partially offset by income earned on a higher average portfolio. Results for the first six months increased slightly due to income earned on higher average portfolio balances and an improvement on operating lease residual values, partially offset by higher reserves for credit losses related to the events in Russia / Ukraine. Both periods of the prior year also benefited from a favorable adjustment to the provision for credit losses.

Critical Accounting Estimates

See the Company’s critical accounting estimates discussed in the Management’s Discussion and Analysis of the most recently filed Annual Report on Form 10-K. There have been no material changes to these estimates.

CAPITAL RESOURCES AND LIQUIDITY

The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the Company’s consolidated totals, equipment operations, and financial services operations.

Consolidated

Cash outflows from consolidated operating activities in the first six months of 2022 were $1,762 million. This resulted mainly from a working capital change and a $1,000 million voluntary contribution to a U.S. OPEB plan. These were partially offset by net income adjusted for non-cash provisions. Cash outflows from investing activities were $1,888 million in the first six months of 2022. The primary driver was the cost of receivables and equipment on operating leases acquired exceeding collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases; acquisition of businesses, net of cash acquired; purchases of property and equipment; and a change in collateral on derivatives – net. Cash outflows from financing activities were $386 million in the first six months of 2022. Cash, cash equivalents, and restricted cash decreased $4,146 million during the first six months of this year.

Positive cash flows from consolidated operating activities in the first six months of 2021 were $1,786 million. This resulted primarily from net income adjusted for non-cash provisions and a change in net accrued income taxes payable/receivable, partially offset by changes in working capital. Cash outflows from investing activities were $1,387 million in the first six months of 2021, primarily due to the cost of receivables and equipment on operating leases acquired exceeding collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases, purchases of property and equipment, and a change in collateral on derivatives – net. Negative cash flows from financing activities were $441 million in the first six months of 2021. Cash, cash equivalents, and restricted cash increased $109 million during the first six months of 2021.

The Company has access to most global markets at a reasonable cost and expects to have sufficient sources of global funding and liquidity to meet its funding needs in the short term and long term. Sources of liquidity for the Company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets), and committed and uncommitted bank lines of credit. The Company’s commercial paper outstanding at May 1, 2022, October 31, 2021, and May 2, 2021 was $3,403 million, $2,230 million, and $2,259 million, respectively. The total cash, cash equivalents, and marketable securities position was $4,560 million, $8,745 million, and $7,850 million, respectively. The total cash and cash equivalents and marketable securities held by foreign subsidiaries was $2,606 million, $5,817 million, and $4,972 million at May 1, 2022, October 31, 2021, and May 2, 2021, respectively. During the first quarter of 2022, the Company’s foreign subsidiaries returned $3,500 million of cash and cash equivalents to the U.S. In May 2022, the Company’s foreign subsidiaries returned $848 million of cash and cash equivalents to the U.S.

Lines of Credit. The Company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled $8,568 million at May 1, 2022, $4,608 million of which were unused. For the

38

purpose of computing unused credit lines, commercial paper, and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, were primarily considered to constitute utilization. Included in the total credit lines at May 1, 2022 was a 364-day credit facility agreement of $3,000 million expiring in the second quarter of 2023. In addition, total credit lines included long-term credit facility agreements of $2,500 million expiring in the second quarter of 2026 and $2,500 million expiring in the second quarter of 2027. These credit agreements require John Deere Capital Corporation (Capital Corporation) to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholder’s equity excluding accumulated other comprehensive income (loss)) at not more than 11 to 1 at the end of any fiscal quarter. The credit agreements also require the equipment operations to maintain a ratio of total debt to total capital (total debt and stockholders’ equity excluding accumulated other comprehensive income (loss)) of 65 percent or less at the end of each fiscal quarter. Under this provision, the Company’s excess equity capacity and retained earnings balance free of restriction at May 1, 2022 was $16,783 million. Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $31,169 million at May 1, 2022. All of these credit agreement requirements have been met during the periods included in the financial statements.

Debt Ratings. To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company’s securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell, or hold Company securities. A credit rating agency may change or withdraw Company ratings based on its assessment of the Company’s current and future ability to meet interest and principal repayment obligations. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets. The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company debt securities by the rating agencies engaged by the Company are as follows:

    

Senior

    

    

 

Long-Term

Short-Term

Outlook

 

Fitch Ratings

A

F1

Stable

Moody’s Investors Service, Inc.

 

A2

 

Prime-1

 

Stable

Standard & Poor’s

 

A

 

A-1

 

Stable

Trade Accounts and Notes Receivable. Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Trade receivables increased $2,050 million during the first six months of 2022, primarily due to a seasonal increase and higher overall demand, partially offset by the effect of foreign currency translation. These receivables increased $100 million, compared to a year ago. The ratios of trade accounts and notes receivable to the last 12 months’ net sales were 15 percent at May 1, 2022, compared to 11 percent at October 31, 2021 and 17 percent at May 2, 2021. Production and precision agriculture trade receivables decreased $6 million, small agriculture and turf trade receivables decreased $83 million, and construction and forestry trade receivables increased $189 million, compared to a year ago. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent at May 1, 2022, 1 percent at October 31, 2021, and 2 percent at May 2, 2021.

Equipment Operations

The Company’s equipment businesses are capital intensive and are subject to seasonal variations in financing requirements for inventories and certain receivables from dealers. The equipment operations sell a significant portion of their trade receivables to financial services. Funds provided from operations are supplemented by external financing sources as needed.

Cash used for operating activities of the equipment operations, including intercompany cash flows, in the first six months of 2022 was $646 million. This resulted primarily from a working capital change and a $1,000 million voluntary contribution to a U.S. OPEB plan. Partially offsetting these operating cash outflows were cash inflows from net income adjusted for non-cash provisions. Cash used for financing activities was $2,401 million in the first six months of 2022 primarily due to repurchases of common stock of $1,226 million, dividends paid of $649 million, and a decrease in borrowings of $549 million. Cash, cash equivalents, and restricted cash decreased $4,018 million in the first six months of 2022.

Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first six months of 2021 was $2,507 million. This resulted primarily from cash inflows from net income adjusted for non-cash provisions, partially offset by a change in working capital. Cash used for financing activities was $2,118 million in the first six months of 2021 primarily due to repurchases of common stock of $1,044 million, a decrease

39

in borrowings of $676 million, and dividends paid of $480 million. Cash, cash equivalents, and restricted cash increased $138 million in the first six months of 2021.

Trade receivables held by the equipment operations increased $203 million during the first six months of 2022 and increased $133 million from a year ago. The equipment operations sell a significant portion of their trade receivables to financial services. See the previous consolidated discussion of trade receivables.

Inventories increased by $2,249 million during the first six months of 2022 and increased by $2,988 million compared to a year ago. The higher levels in both periods are due to increased overall demand and the impact of supply chain disruptions, partially offset by foreign currency translation. A majority of these inventories are valued on the last-in, first-out (LIFO) method.

Total interest-bearing debt, excluding finance lease liabilities, of the equipment operations was $10,057 million at May 1, 2022, compared with $10,373 million at October 31, 2021 and $10,421 million at May 2, 2021. The ratios of debt to total capital (total interest-bearing debt and Deere & Company’s stockholders’ equity) were 35 percent, 36 percent, and 41 percent at May 1, 2022, October 31, 2021, and May 2, 2021, respectively.

Property and equipment cash expenditures for the equipment operations in the first six months of 2022 were $345 million, compared with $319 million in the same period last year. Capital expenditures for the equipment operations in 2022 are estimated to be approximately $1,175 million.

Financial Services

The financial services operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios. Their primary sources of funds for this purpose are a combination of commercial paper, term debt, securitization of retail notes, equity capital, and borrowings from Deere & Company.

During the first six months of 2022 and 2021, the cash provided by operating and financing activities was used for investing activities. Cash, cash equivalents, and restricted cash decreased $128 million in the first six months of 2022 and decreased $29 million in the first six months of 2021.

Receivables and leases held by the financial services operations consist of retail notes originated in connection with financing of new and used equipment, operating leases, trade receivables, revolving charge accounts, sales-type and direct financing leases, and wholesale notes. Trade and financing receivables and equipment on operating leases increased $1,389 million during the first six months of 2022 and increased $2,330 million in the past 12 months primarily due to higher sales. Total acquisition volumes of receivables (excluding trade and wholesale) and leases were 1 percent higher in the first six months of 2022, compared with the same period last year, as volumes of revolving charge accounts were higher, while volumes of retail notes, financing leases, and operating leases were lower. The amount of total trade receivables and wholesale notes increased compared to October 31, 2021 and decreased compared to May 2, 2021.

Total external interest-bearing debt of the financial services operations was $38,751 million at May 1, 2022, compared with $37,978 million at October 31, 2021 and $36,873 million at May 2, 2021. Total external borrowings have changed generally corresponding with the level of receivable and lease portfolio, the level of cash and cash equivalents, the change in payables owed to Deere & Company, and the change in investment from Deere & Company. The financial services operations’ ratio of interest-bearing debt, including intercompany debt, to stockholder’s equity was 7.8 to 1 at May 1, 2022, compared with 7.8 to 1 at October 31, 2021 and 7.7 to 1 at May 2, 2021. The long-term portion of payables due to Deere & Company was $716 million at May 1, 2022 and $584 million at October 31, 2021.

Capital Corporation has a revolving warehouse facility to utilize bank conduit facilities to securitize retail notes (see Note 9). The facility was renewed in November 2021 with an expiration in November 2022 and a reduction of the total capacity or “financing limit” from $2,000 million to $1,000 million. As a result of the reduced capacity, Capital Corporation repurchased $511 million of outstanding short-term securitization borrowings in November 2021, in addition to the normal payments collected on the retail notes. At May 1, 2022, $760 million of securitization borrowings was outstanding under the facility. At the end of the contractual revolving period, unless the banks and Capital Corporation agree to renew, Capital Corporation would liquidate the secured borrowings over time as payments on the retail notes are collected.

In the first six months of 2022, the financial services operations issued $1,224 million and retired $1,818 million of retail note securitization borrowings, which are presented in Increase in total short-term borrowings on the statements of consolidated cash flows. In addition, during the first six months of 2022, the financial services operations issued $4,243 million and retired $3,317 million of long-term borrowings, which were primarily medium-

40

term notes. In April 2022, the Company’s financial services operations issued $600 million of sustainability-linked medium-term notes with an initial interest rate of 3.35 percent, which are due in 2029. This transaction supports the Company’s commitment to environmental sustainability by linking financing to the achievement of its ambitious and comprehensive environmental, social, and governance (ESG) targets. Failure to meet the stated sustainability performance target will result in a 25-basis point increase to the interest rate payable on the 2029 notes from and including April 2026.

Subsequent Event

On May 25, 2022, the Company’s Board of Directors declared a quarterly dividend of $1.13 per share payable August 8, 2022 to stockholders of record on June 30, 2022. The new quarterly rate represents an additional 8 cents per share over the previous level, an increase of approximately 8 percent.

Forward-Looking Statements

Certain statements contained herein, including in the section entitled “Overview” relating to future events, expectations, and trends constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 and involve factors that are subject to change, assumptions, risks, and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect all lines of the Company’s operations, generally, while others could more heavily affect a particular line of business.

Forward-looking statements are based on currently available information and current assumptions, expectations, and projections about future events. Except as required by law, the Company undertakes no obligation to update or revise its forward-looking statements. Further information concerning the Company and its businesses, including factors that could materially affect the Company’s financial results, is included in the Company’s other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. “Risk Factors” of the Company’s most recent Annual Report on Form 10-K and the Company’s subsequent Quarterly Reports on Form 10-Q).

Factors Affecting All Lines of Business

All of the Company’s businesses and their results are affected by general economic conditions in the global markets and industries in which the Company operates; customer confidence in general economic conditions; government spending and taxing; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; changing interest rates; inflation and deflation rates; changes in weather and climate patterns; the political and social stability of the global markets in which the Company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts, including the current military conflict between Russia and Ukraine; natural disasters; and the spread of major epidemics or pandemics (including the COVID-19 pandemic).

Significant changes in market liquidity conditions, changes in the Company’s credit ratings, and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the Company’s earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of the Company’s products and purchase decisions, financing and repayment practices, and the number and size of customer delinquencies and defaults. A debt crisis in Europe, Latin America, or elsewhere could negatively impact currencies, global financial markets, funding sources and costs, asset and obligation values, customers, suppliers, and demand for equipment. The Company’s investment management activities could be impaired by changes in the equity, bond, and other financial markets, which would negatively affect earnings.

Additional factors that could materially affect the Company’s operations, access to capital, expenses, and results include changes in, uncertainty surrounding, and the impact of governmental trade, banking, monetary, and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs, governmental programs, policies, and tariffs for the benefit of certain industries or sectors; retaliatory actions to such changes in trade, banking, monetary, and fiscal policies; actions by central banks; actions by financial and securities regulators; actions by environmental, health, and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, and the effects of climate change; changes to GPS radio frequency bands or their permitted uses; changes in labor and immigration regulations; changes to accounting standards; changes in tax rates, estimates, laws, and regulations and Company actions related thereto; changes to and compliance with privacy, banking, and other regulations; changes to and compliance with economic sanctions, or countersanctions, and export controls laws and regulations; and compliance with U.S. and foreign laws when expanding to new markets and otherwise.

41

Other factors that could materially affect the Company’s results and operations include security breaches, cybersecurity attacks, technology failures, and other disruptions to the information technology infrastructure of the Company and its suppliers and dealers; security breaches with respect to the Company’s products; production, design, and technological innovations and difficulties, including capacity and supply constraints and prices; the loss of or challenges to intellectual property rights, whether through theft, infringement, counterfeiting, or otherwise; the availability and prices of strategically sourced materials, components, and whole goods; delays or disruptions in the Company’s supply chain, including work stoppages or disputes by suppliers with their unionized labor; the failure of customers, dealers, suppliers, or the Company to comply with laws, regulations, and Company policy pertaining to employment, human rights, health, safety, the environment, sanctions, export controls, anti-corruption, privacy and data protection, and other ethical business practices; introduction of legislation that could affect the Company’s business model and intellectual property, such as right to repair or right to modify; events that damage the Company’s reputation or brand; significant investigations, claims, lawsuits, or other legal proceedings; start-up of new plants and products; the success of new product initiatives or business strategies; changes in customer product preferences and sales mix; gaps or limitations in rural broadband coverage, capacity, and speed needed to support technology solutions; oil and energy prices, supplies, and volatility; the availability and cost of freight; actions of competitors in the various industries in which the Company competes, particularly price discounting; dealer practices, especially as to levels of new and used field inventories; changes in demand and pricing for used equipment and resulting impacts on lease residual values; labor relations and contracts, including work stoppages and other disruptions; changes in the ability to attract, develop, engage, and retain qualified personnel; acquisitions and divestitures of businesses; greater-than-anticipated transaction costs; the integration of acquired businesses; the failure or delay in closing or realizing anticipated benefits of acquisitions, joint ventures, or divestitures; the inability to deliver precision technology and agricultural solutions to customers; and the failure to realize anticipated savings or benefits of cost reduction, productivity, or efficiency efforts.

COVID-19

Uncertainties related to the continued effects of the COVID-19 pandemic have adversely affected and may continue to affect the Company’s business and outlook. These uncertainties include, among other things: the duration and impact of any resurgence in COVID-19; disruptions in the supply chain, including those caused by industry capacity constraints, material availability, and global logistics delays and constraints arising from, among other things, the transportation capacity of ocean shipping containers, and continued disruptions in the operations of one or more key suppliers, or the failure of any key suppliers; and an increasingly competitive labor market due to a sustained labor shortage or increased turnover caused by the COVID-19 pandemic. The sustainability of the economic recovery from the pandemic remains unclear and significant volatility could continue for a prolonged period.

Agricultural Equipment Operations

The Company’s agricultural equipment operations are subject to a number of uncertainties, including certain factors that affect farmers’ confidence and financial condition. These factors include demand for agricultural products; world grain stocks; soil conditions; harvest yields; prices for commodities and livestock; crop and livestock production expenses; availability of fertilizer; availability of transport for crops; trade restrictions and tariffs; global trade agreements; the level of farm product exports; the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production); real estate values; available acreage for farming; changes in government farm programs and policies; international reaction to such programs; changes in and effects of crop insurance programs; changes in environmental regulations and their impact on farming practices; animal diseases and their effects on poultry, beef, and pork consumption and prices on livestock feed demand; and crop pests and diseases.

Production and Precision Agriculture Operations

The production and precision agriculture operations rely in part on hardware and software, guidance, connectivity and digital solutions, and automation and machine intelligence. Many factors contribute to the Company’s precision agriculture sales and results, including the impact to customers’ profitability and/or sustainability outcomes; the rate of adoption and use by customers; availability of technological innovations; speed of research and development; effectiveness of partnerships with third parties; and the dealer channel’s ability to support and service precision technology solutions.

Small Agriculture and Turf Equipment

Factors affecting the Company’s small agriculture and turf equipment operations include customer profitability; labor supply; consumer borrowing patterns; consumer purchasing preferences; housing starts and supply; infrastructure investment; spending by municipalities and golf courses; and consumable input costs.

42

Construction and Forestry

Factors affecting the Company’s construction and forestry equipment operations include consumer spending patterns; real estate and housing prices; the number of housing starts; interest rates; commodity prices such as oil and gas; the levels of public and non-residential construction; and investment in infrastructure. Prices for pulp, paper, lumber, and structural panels affect sales of forestry equipment.

John Deere Financial

The liquidity and ongoing profitability of John Deere Capital Corporation and the Company’s other financial services subsidiaries depend on timely access to capital in order to meet future cash flow requirements, and to fund operations, costs, and purchases of the Company’s products. If general economic conditions deteriorate or capital markets become more volatile, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses.

Supplemental Consolidating Information

The supplemental consolidating data presented on the subsequent pages is presented for informational purposes. The equipment operations represent the enterprise without financial services. The equipment operations include the Company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services. Transactions between the equipment operations and financial services have been eliminated to arrive at the consolidated financial statements.

The equipment operations and financial services participate in different industries. The equipment operations primarily generate earnings and cash flows by manufacturing and selling equipment, service parts, and technology solutions to dealers and retail customers. Financial services primarily finances sales and leases by dealers of new and used equipment that is largely manufactured by the Company. Those earnings and cash flows generally are the difference between the finance income received from customer payments less interest expense, and depreciation on equipment subject to an operating lease. These two businesses are capitalized differently and have separate performance metrics. The supplemental consolidating data is also used by management due to these differences.

 

43

 

DEERE & COMPANY

SUPPLEMENTAL CONSOLIDATING DATA

STATEMENTS OF INCOME

For the Three Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars) Unaudited

EQUIPMENT

FINANCIAL

OPERATIONS

SERVICES

ELIMINATIONS

CONSOLIDATED

 

2022

2021

2022

2021

2022

2021

2022

2021

 

Net Sales and Revenues

 

 

  

  

 

  

  

 

  

  

 

  

Net sales

$

12,034

$

10,998

$

12,034

$

10,998

Finance and interest income

36

 

29

$

847

$

853

$

(87)

$

(73)

796

809

1

Other income

584

 

228

104

 

101

(148)

 

(78)

540

 

251

2

Total

12,654

 

11,255

951

 

954

(235)

 

(151)

13,370

 

12,058

Costs and Expenses

Cost of sales

8,919

 

7,929

(1)

 

(1)

8,918

7,928

3

Research and development expenses

453

 

377

453

377

Selling, administrative and general expenses

753

 

734

181

 

107

(2)

 

(3)

932

 

838

3

Interest expense

97

 

100

112

 

181

(22)

 

(13)

187

 

268

4

Interest compensation to Financial Services

62

 

60

(62)

 

(60)

4

Other operating expenses

99

 

40

377

 

369

(148)

 

(74)

328

 

335

5

Total

10,383

 

9,240

670

 

657

(235)

 

(151)

10,818

 

9,746

Income before Income Taxes

2,271

 

2,015

281

 

297

 

2,552

 

2,312

Provision for income taxes

387

 

454

74

 

76

 

461

 

530

Income after Income Taxes

1,884

 

1,561

207

 

221

 

2,091

 

1,782

Equity in income of unconsolidated affiliates

5

 

7

1

 

1

6

8

Net Income

1,889

 

1,568

208

 

222

 

2,097

 

1,790

Less: Net loss attributable to noncontrolling interests

(1)

 

(1)

Net Income Attributable to Deere & Company

$

1,890

$

1,568

$

208

$

222

$

2,098

$

1,790

 

1 Elimination of financial services’ interest income earned from equipment operations.

2 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases.

3 Elimination of intercompany service fees.

4 Elimination of equipment operations’ interest expense to financial services.

5 Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.

44

 

DEERE & COMPANY

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

STATEMENTS OF INCOME

For the Six Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars) Unaudited

EQUIPMENT

FINANCIAL

OPERATIONS

SERVICES

ELIMINATIONS

CONSOLIDATED

 

2022

2021

2022

2021

2022

2021

2022

2021

 

Net Sales and Revenues

 

  

  

  

  

  

  

  

  

Net sales

$

20,565

$

19,049

$

20,565

$

19,049

Finance and interest income

70

 

62

$

1,675

$

1,716

$

(150)

$

(134)

1,595

1,644

1

Other income

801

 

447

192

 

172

(214)

 

(142)

779

 

477

2

Total

21,436

 

19,558

1,867

 

1,888

(364)

 

(276)

22,939

 

21,170

Costs and Expenses

Cost of sales

15,614

 

13,735

(1)

 

(1)

15,613

13,734

3

Research and development expenses

855

 

743

855

743

Selling, administrative and general expenses

1,410

 

1,387

307

 

224

(4)

 

(4)

1,713

 

1,607

3

Interest expense

188

 

195

270

 

369

(41)

 

(26)

417

 

538

4

Interest compensation to Financial Services

106

 

108

(106)

 

(108)

4

Other operating expenses

138

 

107

712

 

738

(212)

 

(137)

638

 

708

5

Total

18,311

 

16,275

1,289

 

1,331

(364)

 

(276)

19,236

 

17,330

Income before Income Taxes

3,125

 

3,283

578

 

557

 

3,703

 

3,840

Provision for income taxes

568

 

706

142

 

132

 

710

 

838

Income after Income Taxes

2,557

 

2,577

436

 

425

 

2,993

 

3,002

Equity in income of unconsolidated affiliates

5

 

10

3

 

2

8

12

Net Income

2,562

 

2,587

439

 

427

 

3,001

 

3,014

Less: Net income attributable to noncontrolling interests

 

1

 

1

Net Income Attributable to Deere & Company

$

2,562

$

2,586

$

439

$

427

$

3,001

$

3,013

 

1 Elimination of financial services’ interest income earned from equipment operations.

2 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases.

3 Elimination of intercompany service fees.

4 Elimination of equipment operations’ interest expense to financial services.

5 Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.

45

 

DEERE & COMPANY

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

CONDENSED BALANCE SHEETS

(In millions of dollars) Unaudited

EQUIPMENT

FINANCIAL

OPERATIONS

SERVICES

ELIMINATIONS

CONSOLIDATED

May 1

Oct 31

May 2 

May 1

Oct 31

May 2 

May 1

Oct 31

May 2 

May 1

Oct 31

May 2 

2022

2021

2021

2022

2021

2021

2022

2021

2021

2022

2021

2021

Assets

 

 

              

 

  

    

 

  

               

 

  

              

 

  

    

 

  

               

 

  

              

 

  

    

 

  

               

 

  

              

 

  

    

 

  

               

Cash and cash equivalents

$

3,167

$

7,188

$

6,282

$

711

$

829

$

900

$

3,878

$

8,017

$

7,182

Marketable securities

2

 

3

 

5

680

 

725

 

663

 

 

682

 

728

 

668

Receivables from Financial Services

5,669

 

5,564

 

5,955

$

(5,669)

$

(5,564)

$

(5,955)

6

Trade accounts and notes receivable – net

1,358

 

1,155

 

1,225

6,079

 

3,895

 

6,222

(1,179)

 

(842)

 

(1,289)

6,258

 

4,208

 

6,158

7

Financing receivables – net

49

 

73

 

99

34,036

 

33,726

 

30,895

 

 

34,085

 

33,799

 

30,994

Financing receivables securitized – net

6

10

15

4,067

 

4,649

 

4,092

 

 

4,073

 

4,659

 

4,107

Other receivables

1,944

 

1,629

 

1,369

405

 

159

 

162

(43)

 

(23)

 

(27)

2,306

 

1,765

 

1,504

7

Equipment on operating leases – net

6,465

 

6,988

 

7,108

 

 

6,465

 

6,988

 

7,108

Inventories

9,030

 

6,781

 

6,042

9,030

6,781

6,042

Property and equipment – net

5,678

 

5,783

 

5,667

37

 

37

 

37

 

 

5,715

 

5,820

 

5,704

Goodwill

3,812

 

3,291

 

3,190

3,812

3,291

3,190

Other intangible assets – net

1,352

 

1,275

 

1,310

 

 

 

 

1,352

 

1,275

 

1,310

Retirement benefits

2,996

 

3,539

 

947

65

 

64

 

61

(2)

 

(2)

 

(57)

3,059

 

3,601

 

951

8

Deferred income taxes

1,247

 

1,215

 

1,926

49

 

53

 

53

(192)

 

(231)

 

(255)

1,104

 

1,037

 

1,724

9

Other assets

1,767

 

1,646

 

1,683

516

 

499

 

656

(3)

 

 

(2)

2,280

 

2,145

 

2,337

Total Assets

$

38,077

$

39,152

$

35,715

$

53,110

$

51,624

$

50,849

$

(7,088)

$

(6,662)

$

(7,585)

$

84,099

$

84,114

$

78,979

Liabilities and Stockholders’ Equity

Liabilities

Short-term borrowings

$

1,554

$

1,509

$

352

$

10,859

$

9,410

$

9,559

$

12,413

$

10,919

$

9,911

Short-term securitization borrowings

5

10

14

4,001

 

4,595

 

4,092

 

 

4,006

 

4,605

 

4,106

Payables to Equipment Operations

 

 

5,669

 

5,564

 

5,955

$

(5,669)

$

(5,564)

$

(5,955)

 

 

6

Accounts payable and accrued expenses

11,370

 

11,198

 

10,074

2,534

 

2,015

 

1,926

(1,225)

 

(865)

 

(1,318)

12,679

 

12,348

 

10,682

7

Deferred income taxes

454

 

438

 

390

322

 

369

 

398

(192)

 

(231)

 

(255)

584

 

576

 

533

9

Long-term borrowings

8,556

 

8,915

 

10,124

23,891

 

23,973

 

23,222

 

 

32,447

 

32,888

 

33,346

Retirement benefits and other liabilities

2,855

 

4,239

 

5,253

111

 

107

 

109

(2)

 

(2)

 

(57)

2,964

 

4,344

 

5,305

8

Total liabilities

24,794

26,309

26,207

47,387

46,033

45,261

(7,088)

(6,662)

(7,585)

65,093

65,680

63,883

Commitments and contingencies (Note 15)

Redeemable noncontrolling interest (Note 19)

99

99

Stockholders’ Equity

Total Deere & Company stockholders’ equity

18,904

 

18,431

 

15,092

5,723

5,591

5,588

(5,723)

(5,591)

(5,588)

18,904

18,431

15,092

10

Noncontrolling interests

3

 

3

 

4

3

3

4

Financial Services’ equity

(5,723)

 

(5,591)

 

(5,588)

5,723

5,591

5,588

10

Adjusted total stockholders’ equity

13,184

 

12,843

 

9,508

5,723

 

5,591

 

5,588

 

 

18,907

 

18,434

 

15,096

Total Liabilities and Stockholders’ Equity

$

38,077

$

39,152

$

35,715

$

53,110

$

51,624

$

50,849

$

(7,088)

$

(6,662)

$

(7,585)

$

84,099

$

84,114

$

78,979

 

6 Elimination of receivables / payables between equipment operations and financial services.

7 Primarily reclassification of sales incentive accruals on receivables sold to financial services.

8 Reclassification of net pension assets / liabilities.

9 Reclassification of deferred tax assets / liabilities in the same taxing jurisdictions.

10 Elimination of financial services’ equity.

46

 

DEERE & COMPANY

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

STATEMENTS OF CASH FLOWS

For the Six Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars) Unaudited

EQUIPMENT

FINANCIAL

OPERATIONS

SERVICES

ELIMINATIONS

CONSOLIDATED

2022

2021

2022

2021

2022

2021

2022

2021

Cash Flows from Operating Activities

  

    

 

    

   

    

 

    

   

    

 

    

   

    

 

    

   

Net income

$

2,562

$

2,587

$

439

$

427

$

3,001

$

3,014

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Provision (credit) for credit losses

 

1

 

2

 

44

 

(26)

 

 

 

45

 

(24)

Provision for depreciation and amortization

 

518

 

543

 

530

 

581

$

(115)

$

(70)

 

933

 

1,054

11

Impairment charges

77

 

50

 

 

 

 

 

77

 

50

Share-based compensation expense

44

45

44

45

12

Gain on remeasurement of previously held equity investment

(326)

 

 

 

 

 

 

(326)

 

Undistributed earnings of unconsolidated affiliates

 

233

 

158

 

(3)

 

(2)

 

(232)

 

(145)

 

(2)

 

11

13

Provision (credit) for deferred income taxes

 

75

 

(170)

 

(38)

 

(43)

 

 

 

37

 

(213)

Changes in assets and liabilities:

Trade, notes, and financing receivables related to sales

 

(215)

 

(170)

(1,320)

(954)

(1,535)

(1,124)

14, 16, 17

Inventories

 

(2,201)

 

(926)

(64)

(267)

(2,265)

(1,193)

15

Accounts payable and accrued expenses

 

(99)

 

527

 

(7)

 

(1)

 

(337)

 

(208)

 

(443)

 

318

16

Accrued income taxes payable/receivable

 

(144)

 

77

 

5

 

(23)

 

 

 

(139)

 

54

Retirement benefits

 

(1,024)

 

(8)

 

4

 

3

 

 

 

(1,020)

 

(5)

Other

 

(103)

 

(163)

 

(114)

 

32

 

48

 

(70)

 

(169)

 

(201)

11, 12, 15

Net cash provided by (used for) operating activities

 

(646)

 

2,507

 

860

 

948

 

(1,976)

 

(1,669)

 

(1,762)

 

1,786

Cash Flows from Investing Activities

Collections of receivables (excluding receivables related to sales)

 

12,004

 

11,187

 

(814)

 

(820)

 

11,190

 

10,367

14

Proceeds from sales of equipment on operating leases

 

1,035

 

1,011

 

 

 

1,035

 

1,011

Cost of receivables acquired (excluding receivables related to sales)

 

(12,260)

 

(12,080)

 

289

 

721

 

(11,971)

 

(11,359)

14

Acquisitions of businesses, net of cash acquired

(473)

(19)

 

 

 

 

 

(473)

 

(19)

Purchases of property and equipment

 

(345)

 

(319)

 

(1)

 

(1)

 

 

 

(346)

 

(320)

Cost of equipment on operating leases acquired

 

(1,090)

 

(1,125)

 

86

 

361

 

(1,004)

 

(764)

15

Increase in trade and wholesale receivables

 

(2,159)

 

(1,246)

 

2,159

 

1,246

 

 

14

Collateral on derivatives – net

6

(1)

(254)

(254)

(248)

(255)

Other

 

(46)

 

(36)

 

(49)

 

(36)

 

24

 

24

 

(71)

 

(48)

13, 17

Net cash used for investing activities

 

(858)

 

(375)

 

(2,774)

 

(2,544)

 

1,744

 

1,532

 

(1,888)

 

(1,387)

Cash Flows from Financing Activities

Increase (decrease) in total short-term borrowings

 

128

 

(84)

 

684

 

296

 

 

 

812

 

212

Change in intercompany receivables/payables

 

(424)

 

(562)

 

424

 

562

 

 

 

 

Proceeds from long-term borrowings

 

55

 

 

4,243

 

3,967

 

 

 

4,298

 

3,967

Payments of long-term borrowings

 

(308)

 

(30)

 

(3,317)

 

(3,127)

 

 

 

(3,625)

 

(3,157)

Proceeds from issuance of common stock

 

50

 

116

50

116

Repurchases of common stock

 

(1,226)

 

(1,044)

(1,226)

(1,044)

Dividends paid

 

(649)

 

(480)

 

(232)

(145)

 

232

145

 

(649)

(480)

13

Other

 

(27)

 

(34)

 

(19)

 

(13)

 

 

(8)

 

(46)

 

(55)

13

Net cash provided by (used for) financing activities

 

(2,401)

 

(2,118)

 

1,783

 

1,540

 

232

 

137

 

(386)

 

(441)

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash

 

(113)

 

124

 

3

 

27

 

 

 

(110)

 

151

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash

 

(4,018)

 

138

 

(128)

 

(29)

 

 

 

(4,146)

 

109

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period

 

7,200

 

6,156

 

925

 

1,016

 

 

 

8,125

 

7,172

Cash, Cash Equivalents, and Restricted Cash at End of Period

$

3,182

$

6,294

$

797

$

987

$

3,979

$

7,281

Components of cash, cash equivalents, and restricted cash

Cash and cash equivalents

$

3,167

$

6,282

$

711

$

900

$

3,878

$

7,182

Restricted cash (Other assets)

15

12

86

87

101

99

Total cash, cash equivalents, and restricted cash

$

3,182

$

6,294

$

797

$

987

$

3,979

$

7,281

11 Elimination of depreciation on leases related to inventory transferred to equipment on operating leases.

12 Reclassification of share-based compensation expense.

13 Elimination of dividends from financial services to the equipment operations, which are included in the equipment operations’ operating activities, and capital investments in financial services from the equipment operations.

14 Primarily reclassification of receivables related to the sale of equipment.

15 Reclassification of direct lease agreements with retail customers.

16 Reclassification of sales incentive accruals on receivables sold to financial services.

17 Elimination and reclassification of the effects of financial services’ partial financing of the construction and forestry retail locations sales and subsequent collection of those amounts.

47

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the Company’s most recently filed Annual Report on Form 10-K (Part II, Item 7A). There has been no material change in this information.

Item 4.CONTROLS AND PROCEDURES

The Company’s principal executive officer and its principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) were effective as of May 1, 2022, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act. During the second quarter of 2022, there were no changes that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, and trademark matters. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements.

Item 1A.  Risk Factors

See the Company’s most recently filed Annual Report on Form 10-K (Part I, Item 1A). There has been no material change in this information. The risks described in the Annual Report on Form 10-K, and the “Forward-Looking Statements” in this report, are not the only risks faced by the Company. Additional risks and uncertainties may also materially affect the Company’s business, financial condition, or operating results. One should not consider the risk factors to be a complete discussion of risks, uncertainties, and assumptions.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The Company’s purchases of its common stock during the second quarter of 2022 were as follows:

    

    

    

Total Number of

    

 

Shares Purchased as

Maximum Number of

 

Total Number of

Part of Publicly

Shares that May Yet Be

 

Shares

Announced Plans or

Purchased under the

 

Purchased

Average Price

Programs (1)

Plans or Programs (1)

 

Period

(thousands)

Paid Per Share

(thousands)

(millions)

 

Jan 31 to Feb 27

549

 

$

371.73

549

13.2

Feb 28 to Mar 27

496

389.85

496

12.7

Mar 28 to May 1

495

415.09

495

12.2

Total

1,540

1,540

(1)The Company has a share repurchase plan that was announced in December 2019 to purchase up to $8,000 million of shares of the Company’s common stock. The maximum number of shares that may yet be purchased under this plan was based on the end of the second quarter closing share price of $377.55 per share. At the end of the second quarter of 2022, $4,599 million of common stock remained to be purchased under the plan.

Sales of Unregistered Securities

During the second quarter of 2022, the Company’s stockholders authorized 500,000 shares under a new Deere & Company Nonemployee Director Stock Ownership Plan pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule of 506 of the SEC’s Regulation D thereunder. Under this new plan, the Company issued 4,250 deferred stock units. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service as described in this plan. Also during the second quarter of 2022, the Company distributed 32,635 deferred stock units and deferred stock awards to participant accounts under the previous Deere & Company Nonemployee Director Stock Ownership Plan. The deferred stock units and deferred stock awards converted to shares of common stock on a one-for-one basis.

48

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Disclosure Pursuant to Section 13(r) of the Exchange Act.

Under Section 13(r) of the Exchange Act, the Company is required to disclose in its periodic reports if it or any of its affiliates knowingly conducted transactions or dealings with entities or individuals designated pursuant to certain executive orders issued by the U.S. government. On March 2, 2021, the U.S. Secretary of State designated the Russian Federal Security Service (FSB) as a blocked party under Executive Order 13382. On the same day, the U.S. Department of the Treasury’s Office of Foreign Assets Control updated General License No. 1B to authorize certain transactions and activities with the FSB related to the importation, distribution, or use of certain information technology products in the Russian Federation. In the ordinary course of business, during the six-month period ended May 1, 2022, certain of the Company’s subsidiaries requested and/or received legally required administrative notifications with the FSB in connection with the importation and/or use of certain of the Company’s products in the Russian Federation, as authorized by General License No. 1B. Neither the Company nor its subsidiaries made any payments, nor did they receive gross revenues or net profits, in connection with these activities. The Company expects that certain of its subsidiaries may continue to engage with the FSB in activities necessary to conduct business in the Russian Federation in accordance with applicable U.S. laws and regulations so long as it remains lawful to do so.

49

Item 6.  Exhibits

Certain instruments relating to long-term borrowings constituting less than 10 percent of the registrant’s total assets are not filed as exhibits herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant will file copies of such instruments upon request of the Commission.

3.1

Certificate of Incorporation (Exhibit 3.1 to Form 10-Q of registrant for the quarter ended July 28, 2019, Securities and Exchange Commission File Number 1-4121*)

3.2

Bylaws, as amended (Exhibit 3.1 to Form 8-K of registrant filed on December 3, 2020, Securities and Exchange Commission File Number 1-4121*)

10.1

2026 Credit Agreement, dated March 28, 2022, among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, and J.P. Morgan Securities LLC, as Sustainability Structuring Agent

10.2

2027 Credit Agreement, dated March 28, 2022, among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, and J.P. Morgan Securities LLC, as Sustainability Structuring Agent

10.3

364-Day Credit Agreement, dated March 28, 2022, among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, and J.P. Morgan Securities LLC, as Sustainability Structuring Agent

10.4

Deere & Company Nonemployee Director Stock Ownership Plan, February 23, 2022 (Appendix C to Proxy Statement of registrant filed on January 7, 2022, Securities and Exchange Commission File Number 1-4121*)

31.1

Rule 13a-14(a)/15d-14(a) Certification

31.2

Rule 13a-14(a)/15d-14(a) Certification

32

Section 1350 Certifications (furnished herewith)

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Incorporated by reference.

50

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DEERE & COMPANY

Date:

May 26, 2022

By:

/s/ Ryan D. Campbell

Ryan D. Campbell
Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

51