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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 July 30, 2023

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 July 30, 2023, 288,000,577 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 and Nine Months Ended July 30, 2023 and July 31, 2022

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

Three Months Ended

Nine Months Ended

  

2023

    

2022

    

2023

    

2022

 

Net Sales and Revenues

Net sales

 

$

14,284

$

13,000

 

$

41,765

$

33,565

Finance and interest income

1,253

 

846

3,326

 

2,441

Other income

264

 

256

748

 

1,035

Total

15,801

 

14,102

45,839

 

37,041

Costs and Expenses

Cost of sales

9,624

 

9,511

28,288

 

25,124

Research and development expenses

528

 

481

1,571

 

1,336

Selling, administrative and general expenses

1,110

 

959

3,392

 

2,672

Interest expense

623

 

296

1,671

 

713

Other operating expenses

310

 

316

971

 

954

Total

12,195

 

11,563

35,893

 

30,799

Income of Consolidated Group before Income Taxes

3,606

 

2,539

9,946

 

6,242

Provision for income taxes

636

 

654

2,164

 

1,364

Income of Consolidated Group

2,970

 

1,885

7,782

 

4,878

Equity in income of unconsolidated affiliates

2

 

5

 

8

Net Income

2,972

 

1,885

7,787

 

4,886

Less: Net income (loss) attributable to noncontrolling interests

(6)

 

1

(10)

 

1

Net Income Attributable to Deere & Company

 

$

2,978

$

1,884

 

$

7,797

$

4,885

Per Share Data

Basic

 

$

10.24

$

6.20

 

$

26.48

$

15.97

Diluted

 

10.20

6.16

 

26.35

15.88

Dividends declared

1.25

1.13

3.70

3.23

Dividends paid

1.25

1.05

3.58

3.15

Average Shares Outstanding

Basic

290.8

 

304.1

294.4

 

305.8

Diluted

292.1

 

305.7

295.9

 

307.7

See Condensed Notes to Interim Consolidated Financial Statements.

2

DEERE & COMPANY

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

For the Three and Nine Months Ended July 30, 2023 and July 31, 2022

(In millions of dollars) Unaudited

Three Months Ended

Nine Months Ended

  

2023

    

2022

    

2023

    

2022

 

 

Net Income

 

$

2,972

$

1,885

 

$

7,787

$

4,886

Other Comprehensive Income (Loss), Net of Income Taxes

Retirement benefits adjustment

(9)

 

79

(267)

 

(137)

Cumulative translation adjustment

144

 

(269)

925

 

(784)

Unrealized gain (loss) on derivatives

5

 

(1)

(26)

 

41

Unrealized gain (loss) on debt securities

(13)

 

6

13

 

(57)

Other Comprehensive Income (Loss), Net of Income Taxes

127

 

(185)

645

 

(937)

Comprehensive Income of Consolidated Group

3,099

 

1,700

8,432

 

3,949

Less: Comprehensive income (loss) attributable to noncontrolling interests

(5)

 

(3)

2

 

(8)

Comprehensive Income Attributable to Deere & Company

 

$

3,104

$

1,703

 

$

8,430

$

3,957

See Condensed Notes to Interim Consolidated Financial Statements.

3

DEERE & COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions of dollars) Unaudited

    

July 30

    

October 30

    

July 31

 

2023

2022

2022

 

Assets

Cash and cash equivalents

 

$

6,576

$

4,774

$

4,359

Marketable securities

841

 

734

 

719

Trade accounts and notes receivable – net

9,297

 

6,410

 

6,696

Financing receivables – net

41,302

 

36,634

 

35,056

Financing receivables securitized – net

7,001

 

5,936

 

5,141

Other receivables

3,118

 

2,492

 

1,999

Equipment on operating leases – net

6,709

 

6,623

 

6,554

Inventories

9,350

 

8,495

 

9,121

Property and equipment – net

6,418

 

6,056

 

5,666

Goodwill

3,994

 

3,687

 

3,754

Other intangible assets – net

1,199

 

1,218

 

1,281

Retirement benefits

3,573

 

3,730

 

3,125

Deferred income taxes

1,360

 

824

 

1,110

Other assets

2,659

 

2,417

 

2,236

Total Assets

 

$

103,397

$

90,030

$

86,817

Liabilities and Stockholders’ Equity

Liabilities

Short-term borrowings

$

17,143

$

12,592

$

14,176

Short-term securitization borrowings

6,608

 

5,711

 

4,920

Accounts payable and accrued expenses

15,340

 

14,822

 

12,986

Deferred income taxes

506

 

495

 

561

Long-term borrowings

38,112

 

33,596

 

32,132

Retirement benefits and other liabilities

2,536

 

2,457

 

2,911

Total liabilities

80,245

 

69,673

 

67,686

Commitments and contingencies (Note 16)

Redeemable noncontrolling interest

101

92

95

Stockholders’ Equity

Common stock, $1 par value (issued shares at July 30, 2023 – 536,431,204)

5,272

 

5,165

 

5,139

Common stock in treasury

(28,760)

 

(24,094)

 

(22,976)

Retained earnings

48,947

 

42,247

 

40,346

Accumulated other comprehensive income (loss)

(2,411)

 

(3,056)

 

(3,476)

Total Deere & Company stockholders’ equity

23,048

 

20,262

 

19,033

Noncontrolling interests

3

 

3

 

3

Total stockholders’ equity

23,051

 

20,265

 

19,036

Total Liabilities and Stockholders’ Equity

$

103,397

$

90,030

$

86,817

See Condensed Notes to Interim Consolidated Financial Statements.

4

DEERE & COMPANY

STATEMENTS OF CONSOLIDATED CASH FLOWS

For the Nine Months Ended July 30, 2023 and July 31, 2022

(In millions of dollars) Unaudited

    

2023

    

2022

 

Cash Flows from Operating Activities

              

              

Net income

 

$

7,787

$

4,886

Adjustments to reconcile net income to net cash provided by operating activities:

Provision (credit) for credit losses

(64)

 

62

Provision for depreciation and amortization

1,527

 

1,443

Impairments and other adjustments

173

 

81

Share-based compensation expense

112

 

64

Gain on remeasurement of previously held equity investment

 

(326)

Credit for deferred income taxes

(429)

 

(6)

Changes in assets and liabilities:

Receivables related to sales

(5,059)

 

(2,357)

Inventories

(663)

 

(2,526)

Accounts payable and accrued expenses

47

 

(15)

Accrued income taxes payable/receivable

(595)

 

82

Retirement benefits

(116)

 

(1,014)

Other

176

 

44

Net cash provided by operating activities

2,896

 

418

Cash Flows from Investing Activities

Collections of receivables (excluding receivables related to sales)

17,592

 

15,774

Proceeds from sales of equipment on operating leases

1,445

 

1,501

Cost of receivables acquired (excluding receivables related to sales)

(20,714)

 

(18,578)

Acquisitions of businesses, net of cash acquired

(82)

 

(488)

Purchases of property and equipment

(887)

 

(596)

Cost of equipment on operating leases acquired

(1,968)

 

(1,717)

Collateral on derivatives - net

240

(193)

Other

(189)

 

(133)

Net cash used for investing activities

(4,563)

 

(4,430)

Cash Flows from Financing Activities

Increase in total short-term borrowings

5,040

 

4,267

Proceeds from long-term borrowings

9,972

 

6,281

Payments of long-term borrowings

(5,862)

 

(6,578)

Repurchases of common stock

(4,663)

 

(2,477)

Dividends paid

(1,065)

 

(971)

Other

(43)

 

(7)

Net cash provided by financing activities

3,379

 

515

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

125

 

(143)

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

1,837

(3,640)

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

4,941

 

8,125

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

$

6,778

$

4,485

Components of Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents

$

6,576

$

4,359

Restricted cash (Other assets)

202

126

Total Cash, Cash Equivalents, and Restricted Cash

$

6,778

$

4,485

See Condensed Notes to Interim Consolidated Financial Statements.

5

DEERE & COMPANY

STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Three and Nine Months Ended July 30, 2023 and July 31, 2022

(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 July 31, 2022

Balance May 1, 2022

    

$

18,907

$

5,117

$

(21,727)

$

38,805

$

(3,291)

$

3

$

99

Net income

 

1,884

1,884

1

Other comprehensive loss

 

(185)

(185)

(4)

Repurchases of common stock

 

(1,251)

(1,251)

Treasury shares reissued

 

2

2

Dividends declared

 

(343)

(343)

Share based awards and other

 

22

22

(1)

Balance July 31, 2022

$

19,036

$

5,139

$

(22,976)

$

40,346

$

(3,476)

$

3

$

95

Nine Months Ended July 31, 2022

 

 

Balance October 31, 2021

    

$

18,434

$

5,054

$

(20,533)

$

36,449

$

(2,539)

$

3

 

Acquisitions

$

105

Net income (loss)

 

4,887

4,885

2

(1)

Other comprehensive loss

 

(937)

(937)

(9)

Repurchases of common stock

 

(2,477)

(2,477)

Treasury shares reissued

 

34

34

Dividends declared

 

(990)

(988)

(2)

Share based awards and other

 

85

85

Balance July 31, 2022

$

19,036

$

5,139

$

(22,976)

$

40,346

$

(3,476)

$

3

$

95

Three Months Ended July 30, 2023

Balance April 30, 2023

$

22,399

$

5,227

$

(26,630)

$

46,336

$

(2,538)

$

4

$

102

Net income (loss)

2,978

2,978

(6)

Other comprehensive income

127

127

1

Repurchases of common stock

(2,139)

(2,139)

Treasury shares reissued

9

9

Dividends declared

(364)

(362)

(2)

Share based awards and other

41

45

(5)

1

4

Balance July 30, 2023

$

23,051

$

5,272

$

(28,760)

$

48,947

$

(2,411)

$

3

$

101

Nine Months Ended July 30, 2023

Balance October 30, 2022

$

20,265

$

5,165

$

(24,094)

$

42,247

$

(3,056)

$

3

$

92

Net income (loss)

7,799

7,797

2

(12)

Other comprehensive income

645

645

12

Repurchases of common stock

(4,696)

(4,696)

Treasury shares reissued

30

30

Dividends declared

(1,091)

(1,088)

(3)

Share based awards and other

99

107

(9)

1

9

Balance July 30, 2023

$

23,051

$

5,272

$

(28,760)

$

48,947

$

(2,411)

$

3

$

101

See Condensed Notes to Interim Consolidated Financial Statements.

6

Condensed Notes to Interim Consolidated Financial Statements (Unaudited)

(1) Organization and Consolidation

Deere & Company has been developing innovative solutions to help its customers become more profitable for more than 185 years. References to Deere & Company, John Deere, Deere, or the Company include its consolidated subsidiaries and consolidated variable interest entities (VIEs). The Company is managed through the following operating segments: production and precision agriculture (PPA), small agriculture and turf (SAT), construction and forestry (CF), and financial services (FS). References to “equipment operations” include production and precision agriculture, small agriculture and turf, and construction and forestry, while references to “agriculture and turf” include both production and precision agriculture and small agriculture and turf.

The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The third quarter ends for fiscal year 2023 and 2022 were July 30, 2023 and July 31, 2022, respectively. Both third quarters contained 13 weeks, while both year-to-date periods contained 39 weeks. Unless otherwise stated, references to particular years, quarters, or months refer to the Company’s fiscal years generally ending in October and the associated periods in those fiscal years.

(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 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.

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 2023 did not have a material impact on the Company’s financial statements. 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.

   

7

(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 July 30, 2023

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

             

             

United States

$

3,394

$

2,098

$

2,346

$

860

$

8,698

Canada

397

179

288

 

165

 

1,029

Western Europe

833

802

421

 

35

 

2,091

Central Europe and CIS

302

85

98

 

6

 

491

Latin America

1,326

220

371

 

117

 

2,034

Asia, Africa, Oceania, and Middle East

720

422

271

45

1,458

Total

$

6,972

$

3,806

$

3,795

$

1,228

$

15,801

Major product lines:

             

             

Production agriculture

$

6,721

$

6,721

Small agriculture

$

2,688

 

 

2,688

Turf

964

 

 

964

Construction

$

1,745

 

 

1,745

Compact construction

614

614

Roadbuilding

987

 

 

987

Forestry

334

 

 

334

Financial products

89

28

15

$

1,228

 

1,360

Other

162

126

100

 

 

388

Total

$

6,972

$

3,806

$

3,795

$

1,228

$

15,801

Revenue recognized:

             

             

At a point in time

$

6,857

$

3,769

$

3,767

$

30

$

14,423

Over time

115

37

28

1,198

1,378

Total

$

6,972

$

3,806

$

3,795

$

1,228

$

15,801

    

Nine Months Ended July 30, 2023

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

United States

$

10,079

$

6,005

$

6,807

$

2,339

$

25,230

Canada

1,303

514

865

 

468

 

3,150

Western Europe

2,092

2,254

1,278

 

95

 

5,719

Central Europe and CIS

897

420

263

 

26

 

1,606

Latin America

4,106

577

1,098

 

318

 

6,099

Asia, Africa, Oceania, and Middle East

1,709

1,291

906

129

4,035

Total

$

20,186

$

11,061

$

11,217

$

3,375

$

45,839

Major product lines:

             

             

Production agriculture

$

19,565

$

19,565

Small agriculture

$

7,835

 

 

7,835

Turf

2,782

 

 

2,782

Construction

$

5,040

 

 

5,040

Compact construction

1,750

1,750

Roadbuilding

2,939

 

 

2,939

Forestry

1,119

 

1,119

Financial products

149

66

40

$

3,375

 

3,630

Other

472

378

329

 

 

1,179

Total

$

20,186

$

11,061

$

11,217

$

3,375

$

45,839

Revenue recognized:

             

             

At a point in time

$

19,965

$

10,970

$

11,142

$

80

$

42,157

Over time

221

91

75

3,295

3,682

Total

$

20,186

$

11,061

$

11,217

$

3,375

$

45,839

8

Three Months Ended July 31, 2022

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

             

             

United States

$

2,904

$

2,177

$

1,789

$

602

$

7,472

Canada

451

185

288

 

149

 

1,073

Western Europe

645

646

380

25

 

1,696

Central Europe and CIS

348

109

111

14

 

582

Latin America

1,327

155

459

77

 

2,018

Asia, Africa, Oceania, and Middle East

510

419

296

36

1,261

Total

$

6,185

$

3,691

$

3,323

$

903

$

14,102

Major product lines:

             

             

Production agriculture

$

6,019

$

6,019

Small agriculture

$

2,705

 

 

2,705

Turf

842

 

 

842

Construction

$

1,506

 

 

1,506

Compact construction

460

460

Roadbuilding

910

 

 

910

Forestry

316

 

 

316

Financial products

17

15

6

$

903

 

941

Other

149

129

125

 

 

403

Total

$

6,185

$

3,691

$

3,323

$

903

$

14,102

Revenue recognized:

             

             

At a point in time

$

6,154

$

3,672

$

3,303

$

27

$

13,156

Over time

31

19

20

876

946

Total

$

6,185

$

3,691

$

3,323

$

903

$

14,102

Nine Months Ended July 31, 2022

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

United States

$

6,946

$

5,718

$

5,157

$

1,744

$

19,565

Canada

899

468

975

450

 

2,792

Western Europe

1,648

1,836

1,202

76

 

4,762

Central Europe and CIS

954

386

452

36

 

1,828

Latin America

3,229

393

1,020

218

 

4,860

Asia, Africa, Oceania, and Middle East

1,118

1,170

833

113

3,234

Total

$

14,794

$

9,971

$

9,639

$

2,637

$

37,041

Major product lines:

             

             

Production agriculture

$

14,333

$

14,333

Small agriculture

$

7,305

 

7,305

Turf

2,286

 

2,286

Construction

$

4,198

 

4,198

Compact construction

1,208

1,208

Roadbuilding

2,619

 

2,619

Forestry

946

 

946

Financial products

39

35

17

$

2,637

 

2,728

Other

422

345

651

 

1,418

Total

$

14,794

$

9,971

$

9,639

$

2,637

$

37,041

Revenue recognized:

             

             

At a point in time

$

14,694

$

9,919

$

9,580

$

77

$

34,270

Over time

100

52

59

2,560

2,771

Total

$

14,794

$

9,971

$

9,639

$

2,637

$

37,041

9

The Company invoices in advance of recognizing the sale of certain products and the revenue for certain services. These relate to extended warranty premiums, 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 16, was $1,753 million, $1,423 million, and $1,424 million at July 30, 2023, October 30, 2022, and July 31, 2022, respectively. The contract liability is reduced as the revenue is recognized. During the three months ended July 30, 2023 and July 31, 2022, $96 million and $93 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 nine months ended July 30, 2023 and July 31, 2022, $440 million and $488 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 was $1,437 million at July 30, 2023. The estimated revenue to be recognized by fiscal year follows in millions of dollars: remainder of 2023 - $139, 2024 - $403, 2025 - $337, 2026 - $228, 2027 - $136, 2028 - $86 and later years - $108. 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 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:

July 30

October 30

July 31

2023

2022

2022

Retirement benefits adjustment

$

(656)

$

(389)

$

(1,171)

Cumulative translation adjustment

(1,669)

(2,594)

(2,262)

Unrealized gain (loss) on derivatives

(5)

21

(1)

Unrealized gain (loss) on debt securities

(81)

(94)

(42)

Total accumulated other comprehensive income (loss)

$

(2,411)

$

(3,056)

$

(3,476)

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 July 30, 2023

Amount

Credit

Amount

 

Cumulative translation adjustment

$

143

$

1

$

144

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

24

(5)

19

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

(18)

4

(14)

Net unrealized gain (loss) on derivatives

6

(1)

5

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

(16)

3

(13)

Net unrealized gain (loss) on debt securities

(16)

3

(13)

Retirement benefits adjustment:

Net actuarial gain (loss)

(1)

(1)

Reclassification of amortized amounts:

Actuarial (gain) loss – Other operating expenses

(20)

5

(15)

Prior service (credit) cost – Other operating expenses

9

(2)

7

Net unrealized gain (loss) on retirement benefits adjustment

(12)

3

(9)

Total other comprehensive income (loss)

 

$

121

$

6

$

127

10

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Nine Months Ended July 30, 2023

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

914

$

11

$

925

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

19

(4)

15

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

(52)

11

(41)

Net unrealized gain (loss) on derivatives

(33)

7

(26)

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

17

(4)

13

Net unrealized gain (loss) on debt securities

17

(4)

13

Retirement benefits adjustment:

Net actuarial gain (loss)

(351)

83

(268)

Reclassification of amortized amounts:

Actuarial (gain) loss – Other operating expenses

(61)

15

(46)

Prior service (credit) cost – Other operating expenses

28

(7)

21

Settlements – Other operating expenses

36

(10)

26

Net unrealized gain (loss) on retirement benefits adjustment

(348)

81

(267)

Total other comprehensive income (loss)

 

$

550

$

95

$

645

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Three Months Ended July 31, 2022

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

(267)

$

(2)

$

(269)

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

1

1

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

(3)

1

(2)

Net unrealized gain (loss) on derivatives

(2)

1

(1)

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

6

(1)

5

Reclassification of realized (gain) loss – Other income

1

1

Net unrealized gain (loss) on debt securities

7

(1)

6

Retirement benefits adjustment:

Net actuarial gain (loss)

34

(9)

25

Reclassification of amortized amounts:

Actuarial (gain) loss – Other operating expenses

27

(7)

20

Prior service (credit) cost – Other operating expenses

8

(2)

6

Settlements/curtailment – Other operating expenses

36

(8)

28

Net unrealized gain (loss) on retirement benefits adjustment

105

(26)

79

Total other comprehensive income (loss)

 

$

(157)

$

(28)

$

(185)

11

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Nine Months Ended July 31, 2022

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

(774)

$

(10)

$

(784)

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

52

(11)

41

Net unrealized gain (loss) on derivatives

52

(11)

41

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

(74)

16

(58)

Reclassification of realized (gain) loss – Other income

1

1

Net unrealized gain (loss) on debt securities

(73)

16

(57)

Retirement benefits adjustment:

Net actuarial gain (loss) and prior service credit (cost)

(338)

81

(257)

Reclassification of amortized amounts:

Actuarial (gain) loss – Other operating expenses

94

(24)

70

Prior service (credit) cost – Other operating expenses

22

(6)

16

Settlements/curtailment – Other operating expenses

44

(10)

34

Net unrealized gain (loss) on retirement benefits adjustment

(178)

41

(137)

Total other comprehensive income (loss)

 

$

(973)

$

36

$

(937)

   

(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 

Nine Months Ended

 

July 30

July 31

July 30

July 31

 

2023

2022

2023

2022

 

Net income attributable to Deere & Company

    

$

2,978

    

$

1,884

    

$

7,797

    

$

4,885

Average shares outstanding

290.8

 

304.1

294.4

 

305.8

Basic per share

$

10.24

$

6.20

$

26.48

$

15.97

Average shares outstanding

290.8

 

304.1

294.4

 

305.8

Effect of dilutive share-based compensation

1.3

 

1.6

1.5

 

1.9

Total potential shares outstanding

292.1

 

305.7

295.9

 

307.7

Diluted per share

$

10.20

$

6.16

$

26.35

$

15.88

Shares excluded from EPS calculation, as antidilutive

.2

.2

.1

.2

12

(6)Pension and Other Postretirement Employee Benefits

The Company has several defined benefit pension plans and other postretirement employee 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 and OPEB (benefit) cost consisted of the following in millions of dollars:

 

Three Months Ended

Nine Months Ended

 

July 30

July 31

July 30

July 31

 

2023

2022

2023

2022

 

Pension

Service cost

    

$

62

    

$

86

    

$

186

    

$

265

Interest cost

133

 

85

400

 

242

Expected return on plan assets

(223)

 

(182)

(655)

 

(544)

Amortization of actuarial (gain) loss

(5)

 

31

(16)

 

107

Amortization of prior service cost

10

 

9

30

 

25

Settlements/curtailment

 

36

36

 

44

Net (benefit) cost

$

(23)

$

65

$

(19)

$

139

OPEB

Service cost

    

$

7

    

$

11

    

$

20

    

$

34

Interest cost

44

 

25

132

 

74

Expected return on plan assets

(29)

 

(28)

(87)

 

(83)

Amortization of actuarial gain

(15)

 

(4)

(45)

 

(13)

Amortization of prior service credit

(1)

 

(1)

(2)

 

(3)

Net cost

$

6

$

3

$

18

$

9

The reduction in the 2023 pension net cost is due to increases in the expected long-term return rates on plan assets and increases in discount rates. The components of net periodic pension and OPEB (benefit) cost excluding the service cost component are included in the line item “Other operating expenses” in the statements of consolidated income.

During the second quarter of 2023, the Canada pension plan paid a premium to an insurance company to irrevocably transfer the benefit obligations and administration for the majority of its retired participants. The transaction did not impact the benefits to be received by the retired participants. In connection with the transaction, the Company recognized a one-time, non-cash, pre-tax pension settlement charge of $36 million in the second quarter of 2023 related to the accelerated recognition of actuarial losses included within “Accumulated other comprehensive income (loss)” in the statements of changes in consolidated stockholders’ equity.

13

(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 

Nine Months Ended 

 

 

July 30

July 31

%

July 30

July 31

%

 

  2023   

  2022   

Change

   2023   

   2022   

Change

 

Net sales and revenues:

 

 

  

    

  

    

  

  

    

  

    

Production & precision ag net sales

 

$

6,806

$

6,096

+12

 

$

19,826

$

14,568

+36

Small ag & turf net sales

3,739

3,635

+3

10,886

9,836

+11

Construction & forestry net sales

3,739

 

3,269

+14

11,053

 

9,161

+21

Financial services revenues

1,228

 

903

+36

3,375

 

2,637

+28

Other revenues

289

 

199

+45

699

 

839

-17

Total net sales and revenues

 

$

15,801

$

14,102

+12

 

$

45,839

$

37,041

+24

Operating profit:

Production & precision ag

 

$

1,782

$

1,293

+38

 

$

5,160

$

2,646

+95

Small ag & turf

732

552

+33

2,028

1,443

+41

Construction & forestry

716

 

514

+39

2,179

 

1,599

+36

Financial services

286

 

287

565

 

864

-35

Total operating profit

3,516

 

2,646

+33

9,932

 

6,552

+52

Reconciling items

98

 

(108)

29

 

(303)

Income taxes

(636)

 

(654)

-3

(2,164)

 

(1,364)

+59

Net income attributable to Deere & Company

 

$

2,978

$

1,884

+58

 

$

7,797

$

4,885

+60

Intersegment sales and revenues:

Production & precision ag net sales

 

$

9

$

5

+80

 

$

21

$

15

+40

Small ag & turf net sales

2

2

10

8

+25

Construction & forestry net sales

 

Financial services revenues

217

 

81

+168

612

 

214

+186

Operating profit for production and precision ag, small ag and turf, and construction and forestry is income from continuing operations before reconciling items and income taxes. Operating profit for financial services includes the effect of interest expense and foreign exchange gains and losses. Reconciling items to net income are primarily corporate expenses, certain interest income and expenses, certain foreign exchange gains and losses, pension and OPEB benefit amounts excluding the service cost component, equity in income of unconsolidated affiliates, and net income attributable to noncontrolling interests.

 

Identifiable assets were as follows in millions of dollars:

    

    

 

    

July 30

    

October 30

July 31

 

2023

2022

2022

 

Production & precision ag

 

$

9,523

$

8,414

$

8,728

Small ag & turf

4,482

4,451

4,361

Construction & forestry

7,415

 

6,754

 

6,824

Financial services

68,850

 

58,864

 

56,008

Corporate

13,127

 

11,547

 

10,896

Total assets

 

$

103,397

$

90,030

$

86,817

  

(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 collection is reasonably assured.

14

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:

July 30, 2023

2023

2022

2021

2020

2019

Prior

Years

Revolving Charge Accounts

Total

Retail customer receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

 

    

Agriculture and turf

Current

$

10,554

$

9,701

$

5,792

$

2,779

$

1,080

$

402

$

4,388

$

34,696

30-59 days past due

59

85

53

26

13

4

21

261

60-89 days past due

19

30

17

10

5

1

7

89

90+ days past due

1

1

Non-performing

19

80

71

36

24

27

8

265

Construction and forestry

Current

2,167

2,200

1,284

449

124

39

114

6,377

30-59 days past due

39

46

38

13

5

2

4

147

60-89 days past due

12

23

16

8

2

1

1

63

90+ days past due

2

1

1

4

Non-performing

20

83

61

26

11

5

1

207

Total

$

12,889

$

12,251

$

7,333

$

3,348

$

1,264

$

481

$

4,544

$

42,110

October 30, 2022

2022

2021

2020

2019

2018

Prior
Years

Revolving Charge Accounts

Total

Retail customer receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

 

    

Agriculture and turf

Current

$

13,500

$

7,984

$

4,091

$

1,875

$

785

$

200

$

4,111

$

32,546

30-59 days past due

46

63

36

17

7

3

19

191

60-89 days past due

14

25

13

6

2

1

5

66

90+ days past due

1

1

Non-performing

27

60

44

28

18

19

8

204

Construction and forestry

Current

2,964

1,974

842

292

73

12

108

6,265

30-59 days past due

53

52

23

9

2

1

3

143

60-89 days past due

19

16

7

3

1

1

47

90+ days past due

1

4

1

3

1

10

Non-performing

25

61

34

19

7

3

149

Total

$

16,650

$

10,239

$

5,091

$

2,252

$

895

$

240

$

4,255

$

39,622

July 31, 2022

2022

2021

2020

2019

2018

Prior
Years

Revolving Charge Accounts

Total

Retail customer receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

 

    

Agriculture and turf

Current

$

9,161

$

9,169

$

4,713

$

2,234

$

935

$

378

$

3,962

$

30,552

30-59 days past due

40

70

38

23

8

4

18

201

60-89 days past due

15

24

15

7

3

1

5

70

90+ days past due

Non-performing

17

62

48

37

19

27

7

217

Construction and forestry

Current

2,336

2,249

1,004

382

106

20

102

6,199

30-59 days past due

47

54

26

12

4

1

3

147

60-89 days past due

14

14

12

4

1

1

46

90+ days past due

11

3

1

3

18

Non-performing

13

63

49

25

9

4

1

164

Total

$

11,643

$

11,716

$

5,908

$

2,725

$

1,085

$

438

$

4,099

$

37,614

15

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

July 30, 2023

2023

2022

2021

2020

2019

Prior
Years

Revolving

Total

Wholesale receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

Agriculture and turf

Current

$

449

$

139

$

28

$

7

$

1

$

1

$

4,940

$

5,565

30+ days past due

Non-performing

1

1

Construction and forestry

Current

20

6

23

1

1

752

803

30+ days past due

Non-performing

Total

$

469

$

145

$

51

$

8

$

2

$

2

$

5,692

$

6,369

October 30, 2022

2022

2021

2020

2019

2018

Prior
Years

Revolving

Total

Wholesale receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

 

    

Agriculture and turf

Current

$

387

$

64

$

27

$

4

$

2

$

2,371

$

2,855

30+ days past due

Non-performing

1

1

Construction and forestry

Current

7

29

2

1

1

377

417

30+ days past due

Non-performing

Total

$

394

$

93

$

29

$

6

$

3

$

2,748

$

3,273

July 31, 2022

2022

2021

2020

2019

2018

Prior
Years

Revolving

Total

Wholesale receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

 

    

Agriculture and turf

Current

$

289

$

99

$

34

$

6

$

1

$

1

$

2,022

$

2,452

30+ days past due

Non-performing

1

1

Construction and forestry

Current

11

32

3

1

1

283

331

30+ days past due

1

1

Non-performing

Total

$

300

$

131

$

37

$

8

$

1

$

3

$

2,305

$

2,785

16

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 July 30, 2023

Allowance:

    

 

    

    

 

    

    

 

    

    

 

Beginning of period balance

 

$

157

 

$

19

$

4

$

180

Provision

14

11

25

Write-offs

(23)

(18)

(41)

Recoveries

5

6

11

Translation adjustments

1

1

End of period balance

 

$

154

 

$

18

$

4

$

176

Nine Months Ended July 30, 2023

Allowance:

    

Beginning of period balance

 

$

299

 

$

22

$

4

$

325

Provision

59

15

1

75

Provision transferred to held for sale

(142)

(142)

Provision (credit) subtotal

(83)

15

1

(67)

Write-offs

(60)

(36)

(96)

Recoveries

15

17

32

Translation adjustments

(17)

(1)

(18)

End of period balance

 

$

154

 

$

18

$

4

$

176

Financing receivables:

End of period balance

 

$

37,566

 

$

4,544

$

6,369

$

48,479

   

Retail Notes

Revolving

 

& Financing

Charge

Wholesale

 

Leases

Accounts

Receivables

Total

Three Months Ended July 31, 2022

Allowance:

    

    

    

    

    

    

    

    

Beginning of period balance

$

168

 

$

17

$

5

$

190

Provision (credit)

 

14

3

(1)

 

16

Write-offs

 

(12)

(10)

 

(22)

Recoveries

 

8

7

 

15

Translation adjustments

 

3

 

3

End of period balance

$

181

$

17

$

4

$

202

Nine Months Ended July 31, 2022

Allowance:

    

 

    

    

 

    

    

 

        

    

Beginning of period balance

$

138

 

$

21

$

7

$

166

Provision (credit)

 

66

(4)

(3)

59

Write-offs

 

(47)

(22)

(69)

Recoveries

 

17

22

39

Translation adjustments

7

 

7

End of period balance

$

181

$

17

$

4

$

202

Financing receivables:

End of period balance

$

33,515

 

$

4,099

$

2,785

$

40,399

In the first quarter of 2023, the Company determined that the financial services business in Russia met the held for sale criteria. The financing receivables in Russia were reclassified to “Other assets” and the associated allowance for credit losses was reversed in the first quarter of 2023. These operations were sold in the second quarter of 2023 (see Note 20).

17

The allowance for credit losses decreased slightly in the third quarter of 2023 as strong fundamentals within the agriculture market continued to benefit the portfolio. Excluding the portfolio in Russia, the allowance for the first nine months of 2023 increased slightly as higher portfolio balances and higher expected losses on turf and construction customer accounts offset the favorable benefits in the agricultural customer accounts. The Company continues to monitor the economy as part of the allowance setting process, including potential impacts of inflation and interest rates, among other factors, and qualitative adjustments to the allowance are incorporated as necessary.

  

(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:

 

    

July 30

    

October 30

    

July 31

 

2023

2022

2022

 

Financing receivables securitized (retail notes)

 

$

7,019

$

5,952

$

5,156

Allowance for credit losses

(18)

 

(16)

 

(15)

Other assets (primarily restricted cash)

153

 

155

 

136

Total restricted securitized assets

 

$

7,154

$

6,091

$

5,277

Short-term securitization borrowings

$

6,608

$

5,711

$

4,920

Accrued interest on borrowings

15

6

 

4

Total liabilities related to restricted securitized assets

$

6,623

$

5,717

$

4,924

     

(10)  Inventories

A majority of inventory 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:

    

July 30

    

October 30

    

July 31

 

2023

2022

2022

 

Raw materials and supplies

 

$

4,492

$

4,442

$

4,508

Work-in-process

1,307

 

1,190

 

1,621

Finished goods and parts

6,164

 

5,363

 

5,434

Total FIFO value

11,963

 

10,995

 

11,563

Less adjustment to LIFO value

2,613

 

2,500

 

2,442

Inventories

 

$

9,350

$

8,495

$

9,121

18

(11)  Goodwill and Other Intangible Assets

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 October 31, 2021

$

542

$

265

$

2,484

$

3,291

Acquisitions

 

132

69

597

798

Translation adjustments

 

(23)

(11)

(301)

(335)

Goodwill at July 31, 2022

$

651

$

323

$

2,780

$

3,754

Goodwill at October 30, 2022

$

646

$

318

$

2,723

$

3,687

Acquisitions

41

39

80

Translation adjustments

23

8

196

227

Goodwill at July 30, 2023

$

710

$

365

$

2,919

$

3,994

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

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

 

    

July 30

    

October 30

    

July 31

 

2023

2022

2022

 

Amortized intangible assets:

Customer lists and relationships

$

524

$

493

$

507

Technology, patents, trademarks, and other

1,415

 

1,301

 

1,320

Total at cost

1,939

 

1,794

 

1,827

Less accumulated amortization:

 

 

Customer lists and relationships

201

166

162

Technology, patents, trademarks, and other

539

410

384

Total accumulated amortization

740

576

546

Other intangible assets – net

$

1,199

$

1,218

$

1,281

The amortization of other intangible assets in the third quarter and the first nine months of 2023 was $42 million and $126 million, and for the third quarter and the first nine months of 2022 was $42 million and $104 million, respectively. The estimated amortization expense for the next five years is as follows in millions of dollars: remainder of 2023 – $57, 2024 – $179, 2025 – $147, 2026 – $122, 2027 – $120, and 2028 – $88.

  

(12)  Short-Term Borrowings

Short-term borrowings were as follows in millions of dollars:

July 30

October 30

July 31

    

2023

    

2022

    

2022

Commercial paper

$

9,003

$

4,703

$

6,035

Notes payable to banks

352

402

427

Finance lease obligations due within one year

23

21

21

Long-term borrowings due within one year

 

7,765

 

7,466

 

7,693

Short-term borrowings

$

17,143

$

12,592

$

14,176

   

19

(13)  Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses were as follows in millions of dollars:

    

July 30

  

October 30

  

July 31

 

  

2023

  

2022

2022

Accounts payable:

Trade payables

  

$

3,308

  

$

3,894

$

3,577

Payables to unconsolidated affiliates

4

11

5

Dividends payable

 

365

 

343

 

347

Operating lease liabilities

308

302

251

Deposits withheld from dealers and merchants

158

163

154

Other

 

173

 

214

 

162

Accrued expenses:

Dealer sales discounts

 

902

 

1,044

 

586

Product warranties

 

1,619

 

1,427

 

1,398

Employee benefits

 

1,808

 

1,528

 

1,280

Accrued taxes

1,595

1,255

1,171

Unearned operating lease revenue

428

399

378

Unearned revenue (contractual liability)

 

754

 

557

 

586

Extended warranty premium

999

866

839

Accrued interest

402

288

260

Derivative liabilities

948

1,231

667

Other

 

1,569

 

1,300

 

1,325

Total accounts payable and accrued expenses

 

$

15,340

 

$

14,822

$

12,986

Amounts are presented net of eliminations, which primarily consist of dealer sales incentives with a right of set-off against trade receivables of $2,240 million at July 30, 2023, $1,280 million at October 30, 2022, and $1,370 million at July 31, 2022. Other eliminations were made for accrued taxes and other accrued expenses.

(14)  Long-Term Borrowings

Long-term borrowings were as follows in millions of dollars:

July 30

October 30

July 31

  

2023

  

2022

  

2022

Underwritten term debt

               

               

               

U.S. dollar notes and debentures:

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)

510

1.375% notes due 2024 (€800 principal)

797

816

1.85% notes due 2028 (€600 principal)

659

598

612

2.20% notes due 2032 (€600 principal)

659

598

612

1.65% notes due 2039 (€650 principal)

713

648

663

Serial issuances

Medium-term notes: (principal as of: July 30, 2023 - $30,348, October 30, 2022 - $25,629, July 31, 2022 - $22,983)

 

29,355

24,604

22,593

Other notes and finance lease obligations

 

1,605

 

1,223

 

1,191

Less debt issuance costs and debt discounts

(129)

(122)

(115)

Long-term borrowings

 

$

38,112

$

33,596

$

32,132

 

Medium-term notes serially due through 2032 are primarily offered by prospectus and issued at fixed and variable rates. These notes are presented in the table above with fair value adjustments related to interest rate swaps. All outstanding notes and debentures are senior unsecured borrowings and rank equally with each other.

   

20

(15)  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

Nine Months Ended

July 30

July 31

July 30

July 31

2023

2022

2023

2022

Sales-type and direct finance lease revenues

$

41

$

39

$

120

$

113

Operating lease revenues

332

326

974

991

Variable lease revenues

6

11

20

Total lease revenues

$

373

$

371

$

1,105

$

1,124

(16)  Commitments and Contingencies

The Company 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 determined by a review of five-year claims costs and current quality developments.

The premiums for extended warranties are recognized in other income in the statements of consolidated income in proportion to the costs expected to be incurred over the contract period. The unamortized extended warranty premiums (deferred revenue) included in the following table totaled $999 million and $839 million at July 30, 2023 and July 31, 2022, respectively.

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

 

Three Months Ended

Nine Months Ended

 

July 30

July 31

July 30

July 31

 

2023

2022

2023

2022

 

Beginning of period balance

    

$

2,511

    

$

2,095

    

$

2,293

    

$

2,086

Payments

(314)

 

(240)

(851)

 

(657)

Amortization of premiums received

(75)

 

(70)

(221)

 

(200)

Accruals for warranties

363

 

358

1,010

 

762

Premiums received

123

 

103

338

 

277

Foreign exchange

10

 

(10)

49

 

(32)

End of period balance

$

2,618

$

2,236

$

2,618

$

2,236

At July 30, 2023, the Company had $201 million of guarantees issued 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 July 30, 2023, the accrued losses under these agreements were not material.

At July 30, 2023, the Company had commitments of $649 million for the construction and acquisition of property and equipment. Also, at July 30, 2023, the Company had restricted assets of $270 million, classified as Other assets.

The Company also had other miscellaneous contingent liabilities and guarantees totaling approximately $115 million at July 30, 2023. The accrued liability for these contingencies was not material at July 30, 2023.

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, trademark, and antitrust 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.

21

(17)  Fair Value Measurements

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.

 

July 30, 2023

October 30, 2022

July 31, 2022

 

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

 

Financing receivables – net

$

41,302

$

40,675

$

36,634

$

35,526

$

35,056

$

34,158

Financing receivables securitized – net

7,001

6,818

5,936

5,698

5,141

4,990

Short-term securitization borrowings

6,608

6,538

5,711

5,577

4,920

4,862

Long-term borrowings due within one year

7,765

7,568

7,466

7,322

7,693

7,608

Long-term borrowings

38,064

37,121

33,566

31,852

32,101

31,741

Fair value measurements above were Level 3 for all financing receivables and Level 2 for all 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.

Assets and liabilities measured at fair value on a recurring basis in millions of dollars follow. The Company’s cash equivalents, which consisted of money market funds and time deposits, are excluded as these assets were carried at cost that approximates fair value.

 

    

July 30

    

October 30

    

July 31

 

2023

2022

2022

 

Level 1:

Marketable securities

International equity securities

$

3

$

3

$

2

U.S. equity fund

101

70

75

U.S. fixed income fund

85

 

 

U.S. government debt securities

63

 

62

 

63

Total Level 1 marketable securities

252

135

140

Level 2:

Marketable securities

U.S. government debt securities

134

121

134

Municipal debt securities

69

 

63

 

70

Corporate debt securities

221

 

200

 

213

International debt securities

2

60

1

Mortgage-backed securities

163

 

155

 

161

Total Level 2 marketable securities

589

 

599

 

579

Other assets - Derivatives

 

324

373

280

Accounts payable and accrued expenses - Derivatives

 

948

1,231

667

Level 3:

Accounts payable and accrued expenses - Deferred consideration

202

236

252

22

The contractual maturities of debt securities at July 30, 2023 in millions of dollars are shown below. Actual maturities may differ from contractual maturities because some securities may be called or prepaid. Unrealized losses were not recognized in income due to the ability and intent to hold to maturity. Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity.

 

Amortized

Fair

Cost

Value

Due in one year or less

 

$

25

$

24

Due after one through five years

130

121

Due after five through 10 years

193

170

Due after 10 years

211

174

Mortgage-backed securities

194

163

Debt securities

 

$

753

 

$

652

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. Inventories and property and equipment – net fair values for October 30, 2022 represent the fair value assessment at July 31, 2022.

Fair Value

Losses

Three Months Ended 

Nine Months Ended 

July 30

October 30

July 31

July 30

July 31

July 30

July 31

  

2023

  

2022

  

2022

  

2023

  

2022

  

2023

  

2022

 

Inventories

$

19

$

13

$

4

$

12

Property and equipment – net

15

41

Other intangible assets – net

28

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

Marketable securitiesThe portfolio of investments is 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 valued using closing prices in the active market in which the investment trades.

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).

Inventories – The impairment was based on net realizable value.

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.

23

(18)  Derivative Instruments

The fair value of the Company’s derivative instruments and the associated notional amounts were as follows in millions of dollars. Assets are recorded in “Other assets” on the consolidated balance sheets, while liabilities are recorded in “Accounts payable and accrued expenses.”

July 30, 2023

October 30, 2022

July 31, 2022

 

Fair Value

Fair Value

Fair Value

 

Notional

Assets

Liabilities

Notional

Assets

Liabilities

Notional

Assets

Liabilities

 

Cash flow hedges:

  

 

    

  

  

  

 

    

  

  

  

 

    

  

  

 

Interest rate contracts

 

$

1,500

$

48

$

3

 

$

1,950

$

87

 

$

2,350

$

59

$

1

 

Fair value hedges:

Interest rate contracts

12,160

4

729

10,112

$

1,004

8,303

23

433

 

Not designated as hedging instruments:

Interest rate contracts

13,233

221

109

10,568

212

107

9,880

163

79

Foreign exchange contracts

8,630

51

82

8,185

 

66

 

118

7,457

 

30

 

149

Cross-currency interest rate contracts

155

25

260

 

8

 

2

276

 

5

 

5

The amounts recorded in the consolidated balance sheet related to borrowings designated in fair value hedging relationships were as follows in millions of dollars. Fair value hedging adjustments are included in the carrying amount of the hedged item.

Active Hedging Relationships

Discontinued Hedging Relationships

Carrying Amount

Cumulative Fair Value

Carrying Amount of

Cumulative Fair Value

of Hedged Item

Hedging Amount

Formerly Hedged Item

Hedging Amount

July 30, 2023

Short-term borrowings

$

2,324

$

25

Long-term borrowings

$

11,379

$

(728)

6,319

(265)

October 30, 2022

Short-term borrowings

$

2,515

$

15

Long-term borrowings

$

9,060

$

(1,006)

5,520

(19)

July 31, 2022

Short-term borrowings

$

2,605

$

5

Long-term borrowings

$

7,835

$

(430)

5,728

39

 

24

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

Three Months Ended

Nine Months Ended

 

July 30

July 31

July 30

July 31

 

2023

2022

2023

2022

 

Fair Value Hedges:

 

 

    

  

 

 

    

  

 

Interest rate contracts - Interest expense

 

$

(375)

$

149

 

$

(146)

$

(507)

 

Cash Flow Hedges:

Recognized in OCI

Interest rate contracts - OCI (pretax)

$

24

$

1

$

19

$

52

Reclassified from OCI

Interest rate contracts - Interest expense

18

 

3

52

 

 

Not Designated as Hedges:

Interest rate contracts - Net sales

$

6

$

44

Interest rate contracts - Interest expense *

 

48

$

(18)

 

$

45

41

Foreign exchange contracts - Net sales

3

(1)

2

(2)

Foreign exchange contracts - Cost of sales

(78)

 

(29)

(14)

(109)

Foreign exchange contracts - Other operating expenses *

(142)

 

(20)

(157)

 

153

Total not designated

 

$

(163)

$

(68)

 

$

(124)

$

127

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

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 July 30, 2023, October 30, 2022, and July 31, 2022, was $865 million, $1,113 million, and $518 million, respectively. In accordance with the limits established in these agreements, the Company posted $435 million, $701 million, and $238 million of cash collateral at July 30, 2023, October 30, 2022, and July 31, 2022, respectively.

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 in millions of dollars follows:

Gross Amounts

Netting

 

July 30, 2023

    

Recognized

    

Arrangements

    

Collateral

    

Net Amount

 

Assets

 

$

324

 

$

(160)

 

$

(28)

 

$

136

Liabilities

948

(160)

(435)

353

Gross Amounts

Netting

 

October 30, 2022

    

Recognized

    

Arrangements

    

Collateral

    

Net Amount

 

Assets

$

373

 

$

(179)

$

(54)

 

$

140

Liabilities

1,231

(179)

(701)

351

    

Gross Amounts

    

Netting

    

    

 

July 31, 2022

Recognized

Arrangements

Collateral

Net Amount

 

Assets

$

280

$

(125)

$

(40)

$

115

Liabilities

 

667

 

(125)

(238)

 

304

(19)  Stock Option and Restricted Stock Unit Awards

In December 2022, the Company granted stock options to employees for the purchase of 161 thousand shares of common stock at an exercise price of $438.44 per share and a binomial lattice model fair value of $136.46 per share at the grant date. At July 30, 2023, options for 1.8 million shares were outstanding with a weighted-average exercise price of $187.53 per share. The Company also granted 125 thousand of service-based restricted stock units and 41 thousand of performance/service-based restricted stock units to employees in the first nine months of 2023. The weighted-average fair value of the service-based restricted stock units at the grant date was $428.49 per unit based on the market price of a share of underlying common stock. The fair value of the performance/service-based restricted stock units at the grant date was $424.93 per unit based on the market price of a share of underlying common stock excluding dividends. At July 30, 2023, the Company was authorized to grant awards for an additional 16.6 million shares under the equity incentive plans.

25

(20)  Disposition

On March 7, 2023, the Company sold its financial services business in Russia (registered in Russia as a leasing company) to Insight Investment Group. The total proceeds, net of restricted cash sold, were $36 million. The operations were included in the Company’s financial services operating segment through the date of sale. At the disposal date, the total assets were $31 million, consisting primarily of financing receivables, the total liabilities were $5 million, and the cumulative translation loss was $10 million. The Company did not incur additional gains or losses upon disposition. At January 29, 2023, the assets and liabilities were classified as “Other assets” and “Accounts payable and accrued expenses”, respectively, which included $100 million of restricted cash. In the first quarter of 2023, the Company reversed the allowance for credit losses and recorded a valuation allowance on the assets held for sale in “Selling, administrative and general expenses.”

(21)  Special Items

2023

Brazil Tax Ruling

In the third quarter of 2023, the Brazil Superior Court of Justice published a favorable tax ruling regarding taxability of local incentives, which allowed the Company to record a $243 million reduction in the provision for income taxes and $47 million of interest income.

Financial Services Financing Incentives Correction

In the second quarter of 2023, the Company corrected the accounting treatment for financing incentives offered to John Deere dealers, which impacted the timing of expense recognition and the presentation of incentive costs in the consolidated financial statements. The cumulative effect of this correction, $173 million pretax ($135 million after-tax), was recorded in the second quarter of 2023. Prior period results for Deere & Company were not restated, as the adjustment is considered immaterial to the Company’s financial statements.

2022

Impact of Events in Russia / Ukraine

In the second quarter of 2022, the Company suspended shipments of machines and service parts to Russia. The suspension of shipments to Russia reduced actual and forecasted revenue for the region, which made it probable future cash flows will not cover the carrying value of certain assets. The accounting consequences in 2022 were impairments of most long-lived assets, an increase in reserves of certain financial assets, and an accrual for various contractual uncertainties. In addition, the Company initiated a voluntary separation program for employees in Russia in the third quarter of 2022.

Gain on Previously Held Equity Investment

In the second quarter of 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 Co., Ltd. The fair value of the previous equity investment resulted in a non-cash gain of $326 million (pretax and after-tax).

UAW Collective Bargaining Agreement

In the first quarter of 2022, employees represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) approved a new collective bargaining agreement. The labor agreement included 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.

26

The following table summarizes the operating profit impact, in millions of dollars, of the special items recorded for the three months and nine months ended July 30, 2023 and July 31, 2022:

Three Months

Nine Months

PPA

 

SAT

 

CF

 

FS

 

Total

PPA

SAT

 

CF

 

FS

 

Total

2023 Expense:

Financing incentive – SA&G expense

$

173

$

173

2022 Expense (benefit):

Gain on remeasurement of equity investment – Other income

$

(326)

(326)

Total Russia/Ukraine events expense (benefit)

$

(1)

$

1

$

7

$

7

$

45

$

1

48

33

127

UAW ratification bonus – Cost of sales

53

9

28

90

Total 2022 expense (benefit)

(1)

1

7

7

98

10

(250)

33

(109)

Period over period change

$

1

$

(1)

$

(7)

$

(7)

$

(98)

$

(10)

$

250

$

140

$

282

(22)  Subsequent Event

On August 30, 2023, the Company’s Board of Directors declared a quarterly dividend of $1.35 per share payable on November 8, 2023, to stockholders of record on September 29, 2023.

27

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

RESULTS OF OPERATIONS

Overview

Organization

The Company generates net sales from the sale of equipment to John Deere dealers and distributors. The Company manufactures and distributes a full line of agricultural equipment; a variety of commercial and consumer equipment; and a broad range of equipment for construction, roadbuilding, and forestry. These operations (collectively known as the “equipment operations”) are managed through the production and precision agriculture, small agriculture and turf, and construction and forestry operating segments. The Company’s financial services segment provides credit services, which finance sales and leases of equipment by John Deere dealers. In addition, the financial services segment provides wholesale financing to dealers of the foregoing equipment, finances retail revolving charge accounts, and offers extended equipment warranties.

Smart Industrial Operating Model and Leap Ambitions

The Company’s Smart Industrial operating model is focused on making significant investments, strengthening the Company’s capabilities in digitalization, automation, autonomy, and alternative propulsion technologies. These technologies are intended to increase worksite efficiency, improve yields, lower input costs, and ease labor constraints. The Company’s Leap Ambitions are goals designed to boost economic value and sustainability for the Company’s customers. The Company anticipates opportunities in this area, as the Company and its customers have a vested interest in sustainable practices.

Trends and Economic Conditions

Industry Trends for Fiscal Year 2023 – Industry sales of large agricultural machinery in the U.S. and Canada for 2023 are forecasted to increase approximately 10 percent compared to 2022. Industry sales of small agricultural and turf equipment in the U.S. and Canada are expected to be down 5 to 10 percent in 2023. Industry sales of agricultural machinery in Europe are forecasted to be flat to up 5 percent, while South American industry sales of tractors and combines are expected to be flat to down 5 percent in 2023. Asia industry sales of agricultural machinery are forecasted to be down moderately in 2023 as volumes in India remain subdued. On an industry basis, U.S. and Canada construction, U.S. and Canada compact construction, and global roadbuilding equipment sales are expected to be flat to up 5 percent in 2023. Global forestry industry sales are expected to be flat to down 5 percent.

Company Trends – Customers’ demand for integration of technology into equipment is a market trend underlying the Company’s Smart Industrial operating model and Leap Ambitions. Customers have sought to improve profitability, productivity, and sustainability through technology. The Company’s approach to technology involves hardware and software; guidance, connectivity and digital solutions; automation and machine intelligence; machine autonomy; and alternative propulsion technologies. This technology is incorporated into products within each of the Company’s operating segments.

Customers continue to adopt technology integrated in the John Deere portfolio of “smart” machines, systems, and solutions. The Company expects this trend to persist for the foreseeable future.

Demand for the Company’s equipment remains strong, as order books are full throughout 2023. Agricultural fundamentals are expected to remain solid through 2023 with farm net income in the U.S. and Canada expected to be near historical highs. Crop prices remain favorable to our customers in part due to weather conditions putting downward pressure on yields. The Company expects sales volume of large agricultural equipment to be greater in 2023 than 2022 in North America. Sales volume for small agriculture and turf equipment is expected to be lower compared to 2022 due to less demand for consumer-oriented products, partially offset by stronger demand for mid-sized equipment. Construction equipment markets are forecasted to be steady. Strong U.S. infrastructure spending, industrial construction, rental inventory restocking, and housing stabilization are expected to more than offset moderation in office and commercial real estate construction. Roadbuilding demand remains strongest in the U.S. and emerging markets in South America and India, largely offsetting flat fundamentals in Europe. Net income for the Company’s financial services operations is expected to be lower than fiscal year 2022 due to less-favorable financing spreads, a correction of the accounting treatment for financing incentives offered to John Deere dealers recorded in the second quarter of 2023, a higher provision for credit losses, higher selling, administrative and

28

general expenses, and lower gains on operating lease dispositions. These factors are expected to be partially offset by income earned on a higher average portfolio.

Additional Trends – The Company has experienced supply chain improvements over 2022 beginning in the second quarter of 2023. The reduction in supply chain disruptions contributed to higher levels of production compared to 2022. As a result, the production schedules in 2023 are more aligned with the customers’ seasonal use of the Company’s products, marking a return to historical seasonal production patterns. Additionally, supply chain improvements have contributed to meaningful reductions in production costs including premium freight and material costs. Supply chain disruptions impacted many aspects of the business in 2022, including receiving past due deliveries from suppliers, parts availability, increased production costs, and higher inventory levels.

Central bank policy interest rates increased in the first nine months of 2023. Most retail receivables are fixed rate, while wholesale financing receivables are variable rate. The Company has both fixed and variable rate borrowings. The Company manages the risk of interest rate fluctuations by balancing the types and amounts of its funding sources to its financing receivable and equipment on operating lease portfolios. Accordingly, the Company enters into interest rate swap agreements to manage its interest rate exposure. Historically, rising interest rates impact the Company’s borrowings sooner than the benefit is realized from the financing receivable and equipment on operating lease portfolios. As a result, the Company’s financial services operations experienced $133 million (after-tax) of less favorable financing spreads in the first nine months of 2023 compared to 2022. The Company expects spread compression to persist for the remainder of 2023.

Remaining supply chain disruptions and rising interest rates are driven by factors outside of the Company’s control, and as a result, the Company cannot reasonably foresee when these conditions will subside.

Other Items of Concern and Uncertainties – Other items of concern include global and regional political conditions, economic and trade policies, imposition of new or retaliatory tariffs against certain countries or covering certain products, capital market disruptions, changes in demand and pricing for new and used equipment, significant fluctuations in foreign currency exchange rates, and volatility in the prices of many commodities. These items could impact the Company’s results. The Company is making investments in technology and in strengthening its capabilities in digitalization, automation, autonomy, and alternative propulsion technologies. As with most technology investments, marketplace adoption, monetization, and regulation of these features holds an elevated level of uncertainty.

29

2023 Compared with 2022

Three Months Ended

Nine Months Ended

Deere & Company

July 30

July 31

%

July 30

July 31

%

(In millions of dollars, except per share amounts)

2023

2022

Change

2023

2022

Change

Net sales and revenues

$

15,801

$

14,102

+12

$

45,839

$

37,041

+24

Net income attributable to Deere & Company

2,978

1,884

+58

7,797

4,885

+60

Diluted earnings per share

10.20

6.16

26.35

15.88

Net sales and revenues increased for both the quarter and year-to-date periods primarily due to price realization. See the Business Segment Results for additional details. Net income in each of the periods presented were impacted by special items. See Note 21 for additional details on special items.

An explanation of the cost of sales to net sales ratio and other significant statement of consolidated income changes follows:

Three Months Ended

Nine Months Ended

Deere & Company

July 30

July 31

%

July 30

July 31

%

(In millions of dollars)

2023

2022

Change

2023

2022

Change

Cost of sales to net sales

67.4%

73.2%

67.7%

74.9%

Other income

$

264

$

256

+3

$

748

$

1,035

-28

Research and development expenses

528

481

+10

1,571

1,336

+18

Selling, administrative and general expenses

1,110

959

+16

3,392

2,672

+27

Other operating expenses

310

316

-2

971

954

+2

Provision for income taxes

636

654

-3

2,164

1,364

+59

The cost of sales ratio improved in the third quarter and the first nine months of fiscal 2023 due to price realization, partially offset by higher production costs. Other income decreased year-to-date due to a non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture recorded in 2022. Research and development expenses were higher due to continued focus on developing and incorporating technology solutions. Selling, administrative and general expenses increased mostly due to higher employee pay driven by inflationary conditions and profit-sharing incentives. Additionally, the nine-month period was impacted by a cumulative correction of the accounting treatment for financing incentives offered to John Deere dealers and higher commissions paid to dealers. The provision for income taxes was lower in the third quarter of 2023 due to a favorable income tax ruling in Brazil, partially offset by the effect of higher pretax income. The provision for income taxes was higher in the first nine months as a result of higher pretax income and the prior period’s exclusion of the Deere-Hitachi joint-venture remeasurement gain from tax-effected income, which were partially offset by the favorable income tax ruling in Brazil.

Business Segment Results

For the equipment operations, higher production costs were mostly due to elevated cost of purchased components, energy, salaries, and wages.

30

Three Months Ended

Nine Months Ended

Production and Precision Agriculture

July 30

July 31

%

July 30

July 31

%

(In millions of dollars)

2023

2022

Change

2023

2022

Change

Net sales

$

6,806

$

6,096

+12

$

19,826

$

14,568

+36

Operating profit

1,782

1,293

+38

5,160

2,646

+95

Operating margin

26.2%

21.2%

26.0%

18.2%

Price realization

+12

+17

Currency translation impact on Net sales

+1

-1

Production and precision agriculture sales increased for the quarter as a result of price realization in most end markets. Operating profit rose due to price realization and improved shipment volumes / sales mix. These items were partially offset by higher production costs, increased selling, administrative and general expenses and research and development expenses, and the unfavorable effects of foreign currency exchange.

Graphic

Sales for the first nine months increased as a result of higher shipment volumes (primarily in the U.S., Canada, Europe, and Brazil) and price realization. Operating profit for the first nine months increased primarily from price realization and higher sales volume. Partially offsetting these factors were higher production costs, higher selling, administrative, and general expenses and research and development expenses, and the unfavorable effects of foreign currency exchange mostly due to a stronger U.S. dollar.

Graphic

31

Three Months Ended

Nine Months Ended

Small Agriculture and Turf

July 30

July 31

%

July 30

July 31

%

(In millions of dollars)

2023

2022

Change

2023

2022

Change

Net sales

$

3,739

$

3,635

+3

$

10,886

$

9,836

+11

Operating profit

732

552

+33

2,028

1,443

+41

Operating margin

19.6%

15.2%

18.6%

14.7%

Price realization

+9

+11

Currency translation impact on Net sales

-2

Small agriculture and turf sales increased for the quarter due to price realization in most end markets, partially offset by lower shipment volumes (primarily in the U.S.). Operating profit improved due to price realization, partially offset by higher production costs, lower shipment volumes, and increased selling, administrative and general expenses and research and development expenses.

Graphic

Sales for the first nine months increased mainly as a result of price realization and higher shipment volumes (primarily in Europe and Mexico), partially offset by the unfavorable impact of currency translation. Operating profit for the first nine months improved primarily as a result of price realization and improved sales volumes / mix. These items were partially offset by higher production costs, higher selling, administrative, and general expenses and research and development expenses, and the unfavorable effects of foreign currency exchange mostly due to a stronger U.S. dollar.

Graphic

32

Three Months Ended

Nine Months Ended

Construction and Forestry

July 30

July 31

%

July 30

July 31

%

(In millions of dollars)

2023

2022

Change

2023

2022

Change

Net sales

$

3,739

$

3,269

+14

$

11,053

$

9,161

+21

Operating profit

716

514

+39

2,179

1,599

+36

Operating margin

19.1%

15.7%

19.7%

17.5%

Price realization

+10

+12

Currency translation impact on Net sales

-1

Construction and forestry sales moved higher for the quarter primarily due to price realization and higher shipment volumes (primarily in the U.S.). Operating profit rose primarily due to price realization and improved sales volumes. These items were partially offset by increased selling, administrative, and general expenses and research and development expenses, higher production costs, and the unfavorable impact of foreign currency exchange.

Graphic

The segment’s nine-month sales increased due to price realization and higher shipment volumes (primarily in the U.S.) partially offset by the unfavorable impact of currency translation. The first nine-month’s operating profit moved higher due to price realization and higher sales volumes, partially offset by higher production costs. Prior period results benefitted from the non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture.

Graphic

33

Three Months Ended

Nine Months Ended

Financial Services

July 30

July 31

%

July 30

July 31

%

(In millions of dollars)

2023

2022

Change

2023

2022

Change

Revenue (including intercompany)

$

1,445

$

984

+47

$

3,987

$

2,851

+40

Interest expense

622

223

+179

1,604

493

+225

Net income

216

209

+3

429

649

-34

The average balance of receivables and leases financed was 22 percent higher in the third quarter of 2023, and 18 percent higher in the first nine months of 2023 compared with the same periods last year. Revenue also increased due to higher average financing rates in both periods. Interest expense increased compared to both prior periods as a result of higher average borrowing rates and higher average borrowings. Financial services net income in the third quarter of 2023 increased as a result of income earned on a higher average portfolio, partially offset by less-favorable financing spreads. Net income for the first nine months of 2023 decreased primarily due to a cumulative correction of the accounting treatment for financing incentives offered to John Deere dealers recorded in the second quarter, less-favorable financing spreads, and a higher provision for credit losses. These items were partially offset by income earned on a higher average portfolio. The accounting correction is unrelated to current market conditions or the credit quality of the financial services portfolio, which remains strong. The allowance for credit losses, excluding the portfolio in Russia, was .36 percent of financing receivables as of July 30, 2023, compared with .40 percent as of July 31, 2022.

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 policies.

CAPITAL RESOURCES AND LIQUIDITY

Sources of Liquidity, Key Metrics and Balance Sheet Data

The Company has access to most global capital markets at a reasonable cost. 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 bank lines of credit. The Company closely monitors its liquidity sources against the cash requirements and expects to have sufficient sources of global funding and liquidity to meet its funding needs in the short term (next 12 months) and long term (beyond 12 months). The Company operates in multiple industries, which have different funding requirements. The production and precision agriculture, small agriculture and turf, and construction and forestry segments are capital intensive and are typically subject to seasonal variations in financing requirements for inventories and certain receivables from dealers. The financial services operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios.

Key metrics are provided in the following table, in millions of dollars:

July 30

October 30

July 31

2023

2022

2022

Cash, cash equivalents, and marketable securities

$

7,417

$

5,508

$

5,078

Trade accounts and notes receivable – net

9,297

6,410

6,696

Ratio to prior 12 month’s net sales

17%

13%

15%

Inventories

9,350

8,495

9,121

Ratio to prior 12 month’s cost of sales

24%

24%

28%

Unused credit lines

950

3,284

1,957

Financial Services:

Ratio of interest-bearing debt to stockholder’s equity

8.1 to 1

8.5 to 1

8.2 to 1

The reduction in unused credit lines in 2023 compared to both prior periods relates to an increase in commercial paper outstanding due to growth in financing receivables and funding mix. The Company forecasts higher operating cash flows in 2023 driven by an increase in net income adjusted for non-cash provisions and a favorable change in working capital.

34

There have been no material changes to the contractual and other cash requirements identified in the Company’s most recently issued Annual Report on Form 10-K.

Cash Flows (in millions of dollars)

Nine Months Ended

July 30, 2023

July 31, 2022

Net cash provided by operating activities

$

2,896

$

418

Net cash used for investing activities

(4,563)

(4,430)

Net cash provided by financing activities

3,379

515

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

125

(143)

Net increase (decrease) in cash, cash equivalents, and restricted cash

$

1,837

$

(3,640)

Cash inflows from operating activities in the first nine months of 2023 were $2,896 million. This resulted mainly from net income adjusted for non-cash provisions, partially offset by a working capital change and change in accrued income taxes payable. Cash outflows from investing activities were $4,563 million in the first nine months of 2023. The primary drivers were growth in the retail customer receivable portfolio and purchases of property and equipment. Cash inflows from financing activities were $3,379 million in the first nine months of 2023, as higher external borrowings to support working capital requirements and financing receivable growth were offset by repurchases of common stock and dividends paid. Cash, cash equivalents, and restricted cash increased $1,837 million during the first nine months of 2023.

Trade Accounts and Notes Receivable. Trade accounts and notes receivable arise from sales of goods to customers. Trade receivables increased $2,887 million during the first nine months of 2023, primarily due to a seasonal increase and higher sales volumes, as well as the effect of foreign currency translation. These receivables increased $2,601 million, compared to a year ago, primarily due to higher sales volumes. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent at each of July 30, 2023, October 30, 2022, and July 31, 2022.

Financing Receivables and Equipment on Operating Leases. Financing receivables and equipment on operating leases consist of retail notes originated in connection with financing of new and used equipment, operating leases, revolving charge accounts, sales-type and direct financing leases, and wholesale notes. Financing receivables and equipment on operating leases increased $5,819 million during the first nine months of 2023 and increased $8,261 million in the past 12 months due to strong retail sales. Total acquisition volumes of financing receivables and equipment on operating leases were 32 percent higher in the first nine months of 2023, compared with the same period last year, as volumes of wholesale notes, retail notes, revolving charge accounts, operating leases, and finance leases were higher compared to July 31, 2022.

Inventories. Inventories increased by $855 million during the first nine months of 2023 and increased by $229 million compared to a year ago. The increases were due to higher forecasted sales volumes. The effect of foreign currency translation also increased inventories during the first nine months of 2023. A majority of these inventories are valued on the last-in, first out (LIFO) method.

Property and Equipment. Property and equipment cash expenditures in the first nine months of 2023 were $887 million, compared with $596 million in the same period last year. Capital expenditures in 2023 are estimated to be approximately $1,650 million.

Accounts Payable and Accrued Expenses. Accounts payable and accrued expenses increased by $518 million in the first nine months of 2023. Accounts payable and accrued expenses increased $2,354 million compared to a year ago due to an increase in accrued expenses associated with employee benefits, accrued taxes, dealer sales discounts, and derivative liabilities.

Borrowings. Total external borrowings have changed generally corresponding with the level of the receivable and the lease portfolio, as well as other working capital requirements.

John Deere Capital Corporation (Capital Corporation), a U.S. financial services subsidiary, has a revolving warehouse facility to utilize bank conduit facilities to securitize retail notes (see Note 9). The facility was renewed in November 2022 with an expiration in November 2023 and increased the total capacity or “financing limit” from $1,000 million to $1,500 million. At July 30, 2023, $1,415 million of securitization borrowings were 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.

35

In the first nine months of 2023, the financial services operations issued $3,207 million and retired $2,309 million of retail note securitization borrowings, which are presented in “Increase (decrease) in total short-term borrowings.”

Lines of Credit. The Company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled $10,352 million at July 30, 2023, $950 million of which were unused. For the 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 considered to constitute utilization. Included in the total credit lines at July 30, 2023 was a 364-day credit facility agreement of $5,000 million expiring in the second quarter of 2024. In addition, total credit lines included long-term credit facility agreements of $2,500 million expiring in the second quarter of 2027 and $2,500 million expiring in the second quarter of 2028. These credit agreements require Capital Corporation and other parts of the Company to maintain certain performance metrics and liquidity targets. All requirements in the credit agreements 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 debt 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 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, reduced access to debt capital markets, and may adversely impact the Company’s liquidity. The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company 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

 

Positive

Standard & Poor’s

 

A

 

A-1

 

Stable

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. 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 and should not be relied upon. Except as required by law, the Company expressly disclaims any obligation to update or revise its forward-looking statements. Many factors, risks, and uncertainties could cause actual results to differ materially from these forward-looking statements. Among these factors are risks related to:

compliance with and changes in U.S. and international laws, regulations, and policies relating to trade, spending, taxing, banking, monetary, environmental (including climate change and engine emission), and farming policies;
political, economic, and social instability of the geographies in which the Company operates;
wars and other conflicts, including the war between Russia and Ukraine;
adverse macroeconomic conditions, including unemployment, inflation, rising interest rates, changes in consumer practices due to slower economic growth or possible recession, and regional or global liquidity constraints;
growth and sustainability of non-food uses for crops (including ethanol and biodiesel production);
the ability to execute business strategies, including the Company’s Smart Industrial operating model, Leap Ambitions, and mergers and acquisitions;
the ability to understand and meet customers’ changing expectations and demand for John Deere products and solutions;
accurately forecasting customer demand for products and services and adequately managing inventory;
changes to governmental communications channels (radio frequency technology);
gaps or limitations in rural broadband coverage, capacity, and speed needed to support technology solutions;
the Company’s ability to adapt in highly competitive markets;
dealer practices and their ability to manage distribution of John Deere products and support and service precision technology solutions;
changes in climate patterns, unfavorable weather events, and natural disasters;
higher interest rates and currency fluctuations which could adversely affect the U.S. dollar, customer confidence, access to capital, and demand for our products and solutions;

36

changes in the Company’s credit ratings and any failure to comply with financial covenants in credit agreements could impact access to funding;
availability and price of raw materials, components, whole goods, and used equipment;
delays or disruptions in the Company’s supply chain;
the ability to attract, develop, engage, and retain qualified personnel;
security breaches, cybersecurity attacks, technology failures, and other disruptions to the information technology infrastructure of the Company and its products;
loss of or challenges to intellectual property rights;
investigations, claims, lawsuits, or other legal proceedings;
events that damage the Company’s reputation or brand;
world grain stocks, available farm acres, soil conditions, harvest yields, prices for commodities and livestock, input costs, and availability of transport for crops; and
housing starts and supply, real estate and housing prices, levels of public and non-residential construction, and infrastructure investment.

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 our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q). There also may be other factors that we cannot anticipate or that are not described herein because we do not currently perceive them to be material.

Supplemental Consolidating Information

The supplemental consolidating data presented on the subsequent pages is presented for informational purposes. The equipment operations represents the enterprise without financial services. The equipment operations includes 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 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. The two businesses are capitalized differently and have separate performance metrics. The supplemental consolidating data is also used by management due to these differences.

 

37

 

DEERE & COMPANY

SUPPLEMENTAL CONSOLIDATING DATA

STATEMENTS OF INCOME

For the Three Months Ended July 30, 2023 and July 31, 2022

(In millions of dollars) Unaudited

EQUIPMENT

FINANCIAL

OPERATIONS

SERVICES

ELIMINATIONS

CONSOLIDATED

 

2023

2022

2023

2022

2023

2022

2023

2022

 

Net Sales and Revenues

 

 

  

  

 

  

  

 

  

  

 

  

Net sales

$

14,284

$

13,000

$

14,284

$

13,000

Finance and interest income

210

 

60

$

1,335

$

905

$

(292)

$

(119)

1,253

846

1

Other income

222

 

228

110

 

79

(68)

 

(51)

264

 

256

2, 3

Total

14,716

 

13,288

1,445

 

984

(360)

 

(170)

15,801

 

14,102

Costs and Expenses

Cost of sales

9,630

 

9,512

(6)

 

(1)

9,624

9,511

4

Research and development expenses

528

 

481

528

481

Selling, administrative and general expenses

913

 

805

199

 

156

(2)

 

(2)

1,110

 

959

4

Interest expense

94

 

109

622

 

223

(93)

 

(36)

623

 

296

5

Interest compensation to Financial Services

199

 

83

(199)

 

(83)

5

Other operating expenses

34

 

47

336

 

317

(60)

 

(48)

310

 

316

6, 7

Total

11,398

 

11,037

1,157

 

696

(360)

 

(170)

12,195

 

11,563

Income before Income Taxes

3,318

 

2,251

288

 

288

 

3,606

 

2,539

Provision for income taxes

564

 

574

72

 

80

 

636

 

654

Income after Income Taxes

2,754

 

1,677

216

 

208

 

2,970

 

1,885

Equity in income (loss) of unconsolidated affiliates

2

 

(1)

 

1

2

Net Income

2,756

 

1,676

216

 

209

 

2,972

 

1,885

Less: Net income (loss) attributable to noncontrolling interests

(6)

 

1

(6)

1

Net Income Attributable to Deere & Company

$

2,762

$

1,675

$

216

$

209

$

2,978

$

1,884

 

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 financial services’ income related to intercompany guarantees of investments in certain international markets and intercompany service revenue.

4 Elimination of intercompany service fees.

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

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

7 Elimination of equipment operations’ expense related to intercompany guarantees of investments in certain international markets and intercompany service expenses.

38

 

DEERE & COMPANY

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

STATEMENTS OF INCOME

For the Nine Months Ended July 30, 2023 and July 31, 2022

(In millions of dollars) Unaudited

EQUIPMENT

FINANCIAL

OPERATIONS

SERVICES

ELIMINATIONS

CONSOLIDATED

 

2023

2022

2023

2022

2023

2022

2023

2022

 

Net Sales and Revenues

 

  

  

  

  

  

  

  

  

Net sales

$

41,765

$

33,565

$

41,765

$

33,565

Finance and interest income

444

 

131

$

3,609

$

2,580

$

(727)

$

(270)

3,326

2,441

1

Other income

639

 

1,028

378

 

271

(269)

 

(264)

748

 

1,035

2, 3

Total

42,848

 

34,724

3,987

 

2,851

(996)

 

(534)

45,839

 

37,041

Costs and Expenses

Cost of sales

28,306

 

25,126

(18)

 

(2)

28,288

25,124

4

Research and development expenses

1,571

 

1,336

1,571

1,336

Selling, administrative and general expenses

2,630

 

2,215

769

 

463

(7)

 

(6)

3,392

 

2,672

4

Interest expense

298

 

297

1,604

 

493

(231)

 

(77)

1,671

 

713

5

Interest compensation to Financial Services

496

 

189

(496)

 

(189)

5

Other operating expenses

172

 

186

1,043

 

1,028

(244)

 

(260)

971

 

954

6, 7

Total

33,473

 

29,349

3,416

 

1,984

(996)

 

(534)

35,893

 

30,799

Income before Income Taxes

9,375

 

5,375

571

 

867

 

9,946

 

6,242

Provision for income taxes

2,020

 

1,142

144

 

222

 

2,164

 

1,364

Income after Income Taxes

7,355

 

4,233

427

 

645

 

7,782

 

4,878

Equity in income of unconsolidated affiliates

3

 

4

2

 

4

5

8

Net Income

7,358

 

4,237

429

 

649

 

7,787

 

4,886

Less: Net income (loss) attributable to noncontrolling interests

(10)

 

1

 

(10)

1

Net Income Attributable to Deere & Company

$

7,368

$

4,236

$

429

$

649

$

7,797

$

4,885

 

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 financial services’ income related to intercompany guarantees of investments in certain international markets and intercompany service revenue.

4 Elimination of intercompany service fees.

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

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

7 Elimination of equipment operations’ expense related to intercompany guarantees of investments in certain international markets and intercompany service expenses.

39

 

DEERE & COMPANY

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

CONDENSED BALANCE SHEETS

(In millions of dollars) Unaudited

EQUIPMENT

FINANCIAL

OPERATIONS

SERVICES

ELIMINATIONS

CONSOLIDATED

Jul 30

Oct 30

Jul 31

Jul 30

Oct 30

Jul 31

Jul 30

Oct 30

Jul 31

Jul 30

Oct 30

Jul 31

2023

2022

2022

2023

2022

2022

2023

2022

2022

2023

2022

2022

Assets

 

 

             

 

 

    

 

  

             

 

  

              

 

  

    

 

  

              

 

  

              

 

  

    

 

  

             

 

  

              

 

  

    

 

  

              

Cash and cash equivalents

$

4,858

$

3,767

$

3,540

$

1,718

$

1,007

$

819

$

6,576

$

4,774

$

4,359

Marketable securities

3

 

61

 

2

838

 

673

 

717

 

 

841

 

734

 

719

Receivables from Financial Services

5,312

 

6,569

 

5,055

$

(5,312)

$

(6,569)

$

(5,055)

8

Trade accounts and notes receivable – net

1,589

 

1,273

 

1,342

9,991

 

6,434

 

6,738

(2,283)

 

(1,297)

 

(1,384)

9,297

 

6,410

 

6,696

9

Financing receivables – net

60

 

47

 

45

41,242

 

36,587

 

35,011

 

 

41,302

 

36,634

 

35,056

Financing receivables securitized – net

2

7,001

 

5,936

 

5,139

 

 

7,001

 

5,936

 

5,141

Other receivables

2,599

 

1,670

 

1,676

599

 

832

 

371

(80)

 

(10)

 

(48)

3,118

 

2,492

 

1,999

9

Equipment on operating leases – net

6,709

 

6,623

 

6,554

 

 

6,709

 

6,623

 

6,554

Inventories

9,350

 

8,495

 

9,121

9,350

8,495

9,121

Property and equipment – net

6,385

 

6,021

 

5,630

33

 

35

 

36

 

 

6,418

 

6,056

 

5,666

Goodwill

3,994

 

3,687

 

3,754

3,994

3,687

3,754

Other intangible assets – net

1,199

 

1,218

 

1,281

 

 

 

 

1,199

 

1,218

 

1,281

Retirement benefits

3,503

 

3,666

 

3,062

71

 

66

 

65

(1)

 

(2)

 

(2)

3,573

 

3,730

 

3,125

10

Deferred income taxes

1,393

 

940

 

1,248

65

 

45

 

48

(98)

 

(161)

 

(186)

1,360

 

824

 

1,110

11

Other assets

2,083

 

1,794

 

1,727

583

 

626

 

510

(7)

 

(3)

 

(1)

2,659

 

2,417

 

2,236

9

Total Assets

$

42,328

$

39,208

$

37,485

$

68,850

$

58,864

$

56,008

$

(7,781)

$

(8,042)

$

(6,676)

$

103,397

$

90,030

$

86,817

Liabilities and Stockholders’ Equity

Liabilities

Short-term borrowings

$

1,773

$

1,040

$

471

$

15,370

$

11,552

$

13,705

$

17,143

$

12,592

$

14,176

Short-term securitization borrowings

2

6,608

 

5,711

 

4,918

 

 

6,608

 

5,711

 

4,920

Payables to Equipment Operations

 

 

5,312

 

6,569

 

5,055

$

(5,312)

$

(6,569)

$

(5,055)

 

 

8

Accounts payable and accrued expenses

14,403

 

12,962

 

11,925

3,307

 

3,170

 

2,494

(2,370)

 

(1,310)

 

(1,433)

15,340

 

14,822

 

12,986

9

Deferred income taxes

420

 

380

 

436

184

 

276

 

311

(98)

 

(161)

 

(186)

506

 

495

 

561

11

Long-term borrowings

7,299

 

7,917

 

8,481

30,813

 

25,679

 

23,651

 

 

38,112

 

33,596

 

32,132

Retirement benefits and other liabilities

2,423

 

2,351

 

2,799

114

 

108

 

114

(1)

 

(2)

 

(2)

2,536

 

2,457

 

2,911

10

Total liabilities

26,318

24,650

24,114

61,708

53,065

50,248

(7,781)

(8,042)

(6,676)

80,245

69,673

67,686

Commitments and contingencies (Note 16)

Redeemable noncontrolling interest

101

92

95

101

92

95

Stockholders’ Equity

Total Deere & Company stockholders’ equity

23,048

 

20,262

 

19,033

7,142

5,799

5,760

(7,142)

(5,799)

(5,760)

23,048

20,262

19,033

12

Noncontrolling interests

3

 

3

 

3

3

3

3

Financial Services’ equity

(7,142)

 

(5,799)

 

(5,760)

7,142

5,799

5,760

12

Adjusted total stockholders’ equity

15,909

 

14,466

 

13,276

7,142

 

5,799

 

5,760

 

 

23,051

 

20,265

 

19,036

Total Liabilities and Stockholders’ Equity

$

42,328

$

39,208

$

37,485

$

68,850

$

58,864

$

56,008

$

(7,781)

$

(8,042)

$

(6,676)

$

103,397

$

90,030

$

86,817

 

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

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

10 Reclassification of net pension assets / liabilities.

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

12 Elimination of financial services’ equity.

40

 

DEERE & COMPANY

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

STATEMENTS OF CASH FLOWS

For the Nine Months Ended July 30, 2023 and July 31, 2022

(In millions of dollars) Unaudited

EQUIPMENT

FINANCIAL

OPERATIONS

SERVICES

ELIMINATIONS

CONSOLIDATED

2023

2022

2023

2022

2023

2022

2023

2022

Cash Flows from Operating Activities

  

    

 

    

   

    

 

    

   

    

 

    

   

    

 

    

   

Net income

$

7,358

$

4,237

$

429

$

649

$

7,787

$

4,886

Adjustments to reconcile net income to net cash provided by operating activities:

Provision (credit) for credit losses

 

3

 

 

(67)

 

62

 

 

 

(64)

 

62

Provision for depreciation and amortization

 

872

 

806

 

757

 

790

$

(102)

$

(153)

 

1,527

 

1,443

13

Impairments and other adjustments

 

81

 

173

 

 

 

 

173

 

81

Share-based compensation expense

112

64

112

64

14

Gain on remeasurement of previously held equity investment

 

(326)

 

 

 

 

 

 

(326)

Distributed earnings of Financial Services

 

31

 

368

 

 

 

(31)

 

(368)

 

 

15

Provision (credit) for deferred income taxes

 

(322)

 

44

 

(107)

 

(50)

 

 

 

(429)

 

(6)

Changes in assets and liabilities:

Receivables related to sales

 

(293)

 

(215)

(4,766)

(2,142)

(5,059)

(2,357)

16, 18, 19

Inventories

 

(534)

 

(2,415)

(129)

(111)

(663)

(2,526)

17

Accounts payable and accrued expenses

 

730

 

491

 

303

 

36

 

(986)

 

(542)

 

47

 

(15)

18

Accrued income taxes payable/receivable

 

(619)

 

52

 

24

 

30

 

 

 

(595)

 

82

Retirement benefits

 

(115)

 

(1,020)

 

(1)

 

6

 

 

 

(116)

 

(1,014)

Other

 

247

 

103

 

(15)

 

(108)

 

(56)

 

49

 

176

 

44

13, 14, 17

Net cash provided by operating activities

 

7,358

 

2,206

 

1,496

 

1,415

 

(5,958)

 

(3,203)

 

2,896

 

418

Cash Flows from Investing Activities

Collections of receivables (excluding receivables related to sales)

 

18,440

 

16,927

 

(848)

 

(1,153)

 

17,592

 

15,774

16

Proceeds from sales of equipment on operating leases

 

1,445

 

1,501

 

 

 

1,445

 

1,501

Cost of receivables acquired (excluding receivables related to sales)

 

(21,043)

 

(19,069)

 

329

 

491

 

(20,714)

 

(18,578)

16

Acquisitions of businesses, net of cash acquired

(82)

(488)

 

 

 

 

 

(82)

 

(488)

Purchases of property and equipment

 

(885)

 

(595)

 

(2)

 

(1)

 

 

 

(887)

 

(596)

Cost of equipment on operating leases acquired

 

(2,143)

 

(1,868)

 

175

 

151

 

(1,968)

 

(1,717)

17

Increase in investment in Financial Services

(811)

 

 

 

811

 

 

 

20

Increase in trade and wholesale receivables

 

(6,270)

 

(3,318)

 

6,270

 

3,318

 

 

16

Collateral on derivatives – net

5

240

(198)

240

(193)

Other

 

(79)

 

(87)

 

(111)

 

(74)

 

1

 

28

 

(189)

 

(133)

19

Net cash used for investing activities

 

(1,857)

 

(1,165)

 

(9,444)

 

(6,100)

 

6,738

 

2,835

 

(4,563)

 

(4,430)

Cash Flows from Financing Activities

Increase (decrease) in total short-term borrowings

 

(152)

 

58

 

5,192

 

4,209

 

 

 

5,040

 

4,267

Change in intercompany receivables/payables

 

1,476

 

70

 

(1,476)

 

(70)

 

 

 

 

Proceeds from long-term borrowings

 

60

 

137

 

9,912

 

6,144

 

 

 

9,972

 

6,281

Payments of long-term borrowings

 

(116)

 

(1,372)

 

(5,746)

 

(5,206)

 

 

 

(5,862)

 

(6,578)

Repurchases of common stock

 

(4,663)

 

(2,477)

(4,663)

(2,477)

Capital investment from Equipment Operations

 

811

(811)

20

Dividends paid

 

(1,065)

 

(971)

 

(31)

(368)

 

31

368

 

(1,065)

(971)

15

Other

 

4

 

16

 

(47)

 

(23)

 

 

 

(43)

 

(7)

Net cash provided by (used for) financing activities

 

(4,456)

 

(4,539)

 

8,615

 

4,686

 

(780)

 

368

 

3,379

 

515

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

 

108

 

(148)

 

17

 

5

 

 

 

125

 

(143)

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

 

1,153

 

(3,646)

 

684

 

6

 

 

 

1,837

 

(3,640)

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

 

3,781

 

7,200

 

1,160

 

925

 

 

 

4,941

 

8,125

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

$

4,934

$

3,554

$

1,844

$

931

$

6,778

$

4,485

Components of Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents

$

4,858

$

3,540

$

1,718

$

819

$

6,576

$

4,359

Restricted cash (Other assets)

76

14

126

112

202

126

Total Cash, Cash Equivalents, and Restricted Cash

$

4,934

$

3,554

$

1,844

$

931

$

6,778

$

4,485

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

14 Reclassification of share-based compensation expense.

15 Elimination of dividends from financial services to the equipment operations, which are included in the equipment operations’ operating activities.

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

17 Reclassification of direct lease agreements with retail customers.

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

19 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.

20 Elimination of investment from equipment operations to financial services.

41

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 July 30, 2023, 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 third quarter of 2023, 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, trademark, and antitrust 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 third quarter of 2023 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)

Per Share

(thousands)

(millions)

 

 

May 1 to May 28

1,581

 

$

375.70

1,581

40.0

May 29 to Jun 25

1,525

385.90

1,525

38.6

Jun 26 to Jul 30

2,285

418.54

2,285

36.4

Total

5,391

5,391

(1)The Company has a share repurchase plan that was announced in December 2022 to repurchase up to $18,000 million of shares of the Company’s common stock. The maximum number of shares that may yet be repurchased under this plan was 36.4 million shares based on the end of the third quarter 2023 closing share price of $427.11 per share. At the end of the third quarter of 2023, $15,556 million of common stock remains to be repurchased under this plan.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

42

Item 5.  Other Information

Amendment to Bylaws

On August 30, 2023, the Board of Directors of the Company adopted amendments to the Company’s bylaws (as amended, the “Amended Bylaws”), effective as of such date. The amendments set forth in the Amended Bylaws, among other things, (1) revise the procedures and disclosure requirements for the nomination of directors and the submission of proposals for consideration at annual meetings of the stockholders of the Company, including, among other things, adding a requirement that a stockholder seeking to nominate director(s) at an annual meeting deliver to the Company reasonable evidence that it has complied with the requirements of Rule 14a-19 of the Exchange Act within eight business days of the meeting; (2) revise the majority voting provision to clarify when an election of directors will be deemed contested; (3) allow for the establishment of rules, regulations, or procedures of a meeting of the Company’s stockholders by the Board of Directors and/or the presiding person of a meeting and clarify the power of the chair of a stockholder meeting to adjourn any meeting of stockholders; (4) adopt gender-neutral terms when referring to particular positions, offices, or title holders; and (5) make certain administrative, modernizing, clarifying, and conforming changes, including making updates to reflect recent amendments to the General Corporation Law of the State of Delaware.

The foregoing description of the Amended Bylaws is qualified in its entirety by reference to the Bylaws, as amended, a copy of which is filed as Exhibit 3.2 hereto and is incorporated herein by reference.

Amended & Restated Change in Control Severance Program

On August 29, 2023, the Compensation Committee of the Board of Directors (the “Committee”) of the Company adopted amendments to the Company’s Amended and Restated Change in Control Severance Program (the “Program”). The amendments to the Program, among other things, reduced the multiplier applicable to cash severance payments in the event of a change in control and a qualifying termination for the Chief Executive Officer of the Company from 3.0x to 2.99x base salary. The multiplier for the Tier 1 and Tier 2 Participants, as those terms are defined in the Program, were unchanged and remain at 2.0x and 1.5x, respectively. The amendments to the Program result from the Committee’s periodic review of the Company’s executive compensation program, which includes consideration of shareholder feedback.

The foregoing description of the amendments to the Program is qualified in its entirety by reference to the Amended & Restated Change in Control Severance Program, a copy of which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.

Director and Executive Officer Trading Arrangements

On June 2, 2023, Ryan D. Campbell, President, Worldwide Construction & Forestry and Power Systems adopted a trading plan intended to satisfy the affirmative defense of Rule 10b5-1(c). The plan covers the exercise of 6,073 employee stock options and the related sale of such shares. The plan expires on May 31, 2024.

43

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 furnish copies of such instruments to the Commission 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 August 30, 2023

10.1

Amended & Restated Change in Control Severance Program of Deere & Company, effective August 29, 2023

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.INS

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

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.

44

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:

August 31, 2023

By:

/s/ Joshua A. Jepsen

Joshua A. Jepsen
Senior Vice President and Chief Financial Officer

(Principal Financial Officer and

Principal Accounting Officer)

45