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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 April 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 April 30, 2023, 293,192,141 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 Six Months Ended April 30, 2023 and May 1, 2022

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

Three Months Ended

Six Months Ended

  

2023

    

2022

    

2023

    

2022

 

Net Sales and Revenues

Net sales

 

$

16,079

$

12,034

 

$

27,481

$

20,565

Finance and interest income

1,079

 

796

2,073

 

1,595

Other income

229

 

540

484

 

779

Total

17,387

 

13,370

30,038

 

22,939

Costs and Expenses

Cost of sales

10,730

 

8,918

18,663

 

15,613

Research and development expenses

547

 

453

1,043

 

855

Selling, administrative and general expenses

1,330

 

932

2,283

 

1,713

Interest expense

569

 

187

1,049

 

417

Other operating expenses

363

 

328

660

 

638

Total

13,539

 

10,818

23,698

 

19,236

Income of Consolidated Group before Income Taxes

3,848

 

2,552

6,340

 

3,703

Provision for income taxes

991

 

461

1,528

 

710

Income of Consolidated Group

2,857

 

2,091

4,812

 

2,993

Equity in income of unconsolidated affiliates

2

 

6

3

 

8

Net Income

2,859

 

2,097

4,815

 

3,001

Less: Net loss attributable to noncontrolling interests

(1)

 

(1)

(4)

 

Net Income Attributable to Deere & Company

 

$

2,860

$

2,098

 

$

4,819

$

3,001

Per Share Data

Basic

 

$

9.69

$

6.85

 

$

16.26

$

9.78

Diluted

 

9.65

6.81

 

16.18

9.72

Dividends declared

1.25

1.05

2.45

2.10

Dividends paid

1.20

1.05

2.33

2.10

Average Shares Outstanding

Basic

295.1

 

306.2

296.3

 

306.8

Diluted

296.5

 

308.1

297.8

 

308.8

See Condensed Notes to Interim Consolidated Financial Statements.

2

DEERE & COMPANY

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

For the Three and Six Months Ended April 30, 2023 and May 1, 2022

(In millions of dollars) Unaudited

Three Months Ended

Six Months Ended

  

2023

    

2022

    

2023

    

2022

 

 

Net Income

 

$

2,859

$

2,097

 

$

4,815

$

3,001

Other Comprehensive Income (Loss), Net of Income Taxes

Retirement benefits adjustment

(247)

 

129

(258)

 

(216)

Cumulative translation adjustment

100

 

(248)

781

 

(515)

Unrealized gain (loss) on derivatives

(18)

 

28

(31)

 

42

Unrealized gain (loss) on debt securities

(1)

 

(48)

26

 

(63)

Other Comprehensive Income (Loss), Net of Income Taxes

(166)

 

(139)

518

 

(752)

Comprehensive Income of Consolidated Group

2,693

 

1,958

5,333

 

2,249

Less: Comprehensive income (loss) attributable to noncontrolling interests

1

 

(5)

6

 

(4)

Comprehensive Income Attributable to Deere & Company

 

$

2,692

$

1,963

 

$

5,327

$

2,253

See Condensed Notes to Interim Consolidated Financial Statements.

3

DEERE & COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions of dollars) Unaudited

    

April 30

    

October 30

    

May 1

 

2023

2022

2022

 

Assets

Cash and cash equivalents

 

$

5,267

$

4,774

$

3,878

Marketable securities

856

 

734

 

682

Trade accounts and notes receivable – net

9,971

 

6,410

 

6,258

Financing receivables – net

38,954

 

36,634

 

34,085

Financing receivables securitized – net

5,659

 

5,936

 

4,073

Other receivables

2,593

 

2,492

 

2,306

Equipment on operating leases – net

6,524

 

6,623

 

6,465

Inventories

9,713

 

8,495

 

9,030

Property and equipment – net

6,288

 

6,056

 

5,715

Goodwill

3,963

 

3,687

 

3,812

Other intangible assets – net

1,222

 

1,218

 

1,352

Retirement benefits

3,519

 

3,730

 

3,059

Deferred income taxes

1,308

 

824

 

1,104

Other assets

2,510

 

2,417

 

2,280

Total Assets

 

$

98,347

$

90,030

$

84,099

Liabilities and Stockholders’ Equity

Liabilities

Short-term borrowings

$

17,109

$

12,592

$

12,413

Short-term securitization borrowings

5,379

 

5,711

 

4,006

Accounts payable and accrued expenses

14,716

 

14,822

 

12,679

Deferred income taxes

511

 

495

 

584

Long-term borrowings

35,611

 

33,596

 

32,447

Retirement benefits and other liabilities

2,520

 

2,457

 

2,964

Total liabilities

75,846

 

69,673

 

65,093

Commitments and contingencies (Note 16)

Redeemable noncontrolling interest

102

92

99

Stockholders’ Equity

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

5,227

 

5,165

 

5,117

Common stock in treasury

(26,630)

 

(24,094)

 

(21,727)

Retained earnings

46,336

 

42,247

 

38,805

Accumulated other comprehensive income (loss)

(2,538)

 

(3,056)

 

(3,291)

Total Deere & Company stockholders’ equity

22,395

 

20,262

 

18,904

Noncontrolling interests

4

 

3

 

3

Total stockholders’ equity

22,399

 

20,265

 

18,907

Total Liabilities and Stockholders’ Equity

$

98,347

$

90,030

$

84,099

See Condensed Notes to Interim Consolidated Financial Statements.

4

DEERE & COMPANY

STATEMENTS OF CONSOLIDATED CASH FLOWS

For the Six Months Ended April 30, 2023 and May 1, 2022

(In millions of dollars) Unaudited

    

2023

    

2022

 

Cash Flows from Operating Activities

              

              

Net income

 

$

4,815

$

3,001

Adjustments to reconcile net income to net cash used for operating activities:

Provision (credit) for credit losses

(89)

 

45

Provision for depreciation and amortization

995

 

933

Impairments and other adjustments

173

 

77

Share-based compensation expense

54

 

44

Gain on remeasurement of previously held equity investment

 

(326)

Provision (credit) for deferred income taxes

(377)

 

37

Changes in assets and liabilities:

Receivables related to sales

(4,407)

 

(1,535)

Inventories

(982)

 

(2,265)

Accounts payable and accrued expenses

(313)

 

(443)

Accrued income taxes payable/receivable

(96)

 

(139)

Retirement benefits

(68)

 

(1,020)

Other

148

 

(171)

Net cash used for operating activities

(147)

 

(1,762)

Cash Flows from Investing Activities

Collections of receivables (excluding receivables related to sales)

12,593

 

11,190

Proceeds from sales of equipment on operating leases

993

 

1,035

Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold

36

 

Cost of receivables acquired (excluding receivables related to sales)

(13,451)

 

(11,971)

Acquisitions of businesses, net of cash acquired

(41)

 

(473)

Purchases of property and equipment

(584)

 

(346)

Cost of equipment on operating leases acquired

(1,229)

 

(1,004)

Collateral on derivatives - net

367

(248)

Other

(178)

 

(71)

Net cash used for investing activities

(1,494)

 

(1,888)

Cash Flows from Financing Activities

Increase in total short-term borrowings

3,992

 

812

Proceeds from long-term borrowings

4,868

 

4,298

Payments of long-term borrowings

(3,567)

 

(3,625)

Proceeds from issuance of common stock

30

 

50

Repurchases of common stock

(2,546)

 

(1,226)

Dividends paid

(697)

 

(649)

Other

(63)

 

(46)

Net cash provided by (used for) financing activities

2,017

 

(386)

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

70

 

(110)

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

446

(4,146)

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

4,941

 

8,125

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

$

5,387

$

3,979

Components of Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents

$

5,267

$

3,878

Restricted cash (Other assets)

120

101

Total Cash, Cash Equivalents, and Restricted Cash

$

5,387

$

3,979

See Condensed Notes to Interim Consolidated Financial Statements.

5

DEERE & COMPANY

STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Three and Six Months Ended April 30, 2023 and May 1, 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 May 1, 2022

Balance January 30, 2022

    

$

17,808

$

5,066

$

(21,139)

$

37,029

$

(3,152)

$

4

Acquisitions

$

105

Net income (loss)

 

2,098

2,098

(1)

Other comprehensive loss

 

(139)

(139)

(4)

Repurchases of common stock

 

(603)

(603)

Treasury shares reissued

 

15

15

Dividends declared

 

(323)

(322)

(1)

Share based awards and other

 

51

51

(1)

Balance May 1, 2022

$

18,907

$

5,117

$

(21,727)

$

38,805

$

(3,291)

$

3

$

99

Six Months Ended May 1, 2022

 

 

Balance October 31, 2021

    

$

18,434

$

5,054

$

(20,533)

$

36,449

$

(2,539)

$

3

 

Acquisitions

$

105

Net income (loss)

 

3,002

3,001

1

(1)

Other comprehensive loss

 

(752)

(752)

(4)

Repurchases of common stock

 

(1,226)

(1,226)

Treasury shares reissued

 

32

32

Dividends declared

 

(646)

(645)

(1)

Share based awards and other

 

63

63

(1)

Balance May 1, 2022

$

18,907

$

5,117

$

(21,727)

$

38,805

$

(3,291)

$

3

$

99

Three Months Ended April 30, 2023

Balance January 29, 2023

$

21,336

$

5,191

$

(25,333)

$

43,846

$

(2,372)

$

4

$

100

Net income (loss)

2,861

2,860

1

(2)

Other comprehensive income (loss)

(166)

(166)

2

Repurchases of common stock

(1,301)

(1,301)

Treasury shares reissued

4

4

Dividends declared

(370)

(369)

(1)

Share based awards and other

35

36

(1)

2

Balance April 30, 2023

$

22,399

$

5,227

$

(26,630)

$

46,336

$

(2,538)

$

4

$

102

Six Months Ended April 30, 2023

Balance October 30, 2022

$

20,265

$

5,165

$

(24,094)

$

42,247

$

(3,056)

$

3

$

92

Net income (loss)

4,820

4,819

1

(5)

Other comprehensive income

518

518

10

Repurchases of common stock

(2,558)

(2,558)

Treasury shares reissued

22

22

Dividends declared

(726)

(725)

(1)

Share based awards and other

58

62

(5)

1

5

Balance April 30, 2023

$

22,399

$

5,227

$

(26,630)

$

46,336

$

(2,538)

$

4

$

102

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 second quarter ends for fiscal year 2023 and 2022 were April 30, 2023 and May 1, 2022, respectively. Both second quarters contained 13 weeks, while both year-to-date periods contained 26 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 April 30, 2023

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

             

             

United States

$

4,058

$

2,241

$

2,561

$

766

$

9,626

Canada

546

189

302

 

153

 

1,190

Western Europe

758

888

492

 

31

 

2,169

Central Europe and CIS

393

212

90

 

8

 

703

Latin America

1,543

201

388

 

106

 

2,238

Asia, Africa, Oceania, and Middle East

614

469

335

43

1,461

Total

$

7,912

$

4,200

$

4,168

$

1,107

$

17,387

Major product lines:

             

             

Production agriculture

$

7,733

$

7,733

Small agriculture

$

2,952

 

 

2,952

Turf

1,099

 

 

1,099

Construction

$

1,813

 

 

1,813

Compact construction

663

663

Roadbuilding

1,134

 

 

1,134

Forestry

429

 

 

429

Financial products

29

20

12

$

1,107

 

1,168

Other

150

129

117

 

 

396

Total

$

7,912

$

4,200

$

4,168

$

1,107

$

17,387

Revenue recognized:

             

             

At a point in time

$

7,861

$

4,171

$

4,146

$

27

$

16,205

Over time

51

29

22

1,080

1,182

Total

$

7,912

$

4,200

$

4,168

$

1,107

$

17,387

    

Six Months Ended April 30, 2023

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

United States

$

6,686

$

3,906

$

4,461

$

1,479

$

16,532

Canada

906

335

577

 

303

 

2,121

Western Europe

1,259

1,452

857

 

60

 

3,628

Central Europe and CIS

595

335

165

 

20

 

1,115

Latin America

2,780

357

727

 

201

 

4,065

Asia, Africa, Oceania, and Middle East

989

869

635

84

2,577

Total

$

13,215

$

7,254

$

7,422

$

2,147

$

30,038

Major product lines:

             

             

Production agriculture

$

12,845

$

12,845

Small agriculture

$

5,146

 

 

5,146

Turf

1,818

 

 

1,818

Construction

$

3,295

 

 

3,295

Compact construction

1,136

1,136

Roadbuilding

1,952

 

 

1,952

Forestry

785

 

785

Financial products

60

38

25

$

2,147

 

2,270

Other

310

252

229

 

 

791

Total

$

13,215

$

7,254

$

7,422

$

2,147

$

30,038

Revenue recognized:

             

             

At a point in time

$

13,109

$

7,200

$

7,375

$

50

$

27,734

Over time

106

54

47

2,097

2,304

Total

$

13,215

$

7,254

$

7,422

$

2,147

$

30,038

8

Three Months Ended May 1, 2022

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

             

             

United States

$

2,434

$

2,103

$

2,108

$

569

$

7,214

Canada

309

161

355

 

149

 

974

Western Europe

536

658

464

25

 

1,683

Central Europe and CIS

404

151

146

11

 

712

Latin America

1,126

134

333

73

 

1,666

Asia, Africa, Oceania, and Middle East

367

399

318

37

1,121

Total

$

5,176

$

3,606

$

3,724

$

864

$

13,370

Major product lines:

             

             

Production agriculture

$

5,032

$

5,032

Small agriculture

$

2,668

 

 

2,668

Turf

817

 

 

817

Construction

$

1,516

 

 

1,516

Compact construction

427

427

Roadbuilding

1,017

 

 

1,017

Forestry

325

 

 

325

Financial products

10

9

6

$

864

 

889

Other

134

112

433

 

 

679

Total

$

5,176

$

3,606

$

3,724

$

864

$

13,370

Revenue recognized:

             

             

At a point in time

$

5,144

$

3,593

$

3,707

$

26

$

12,470

Over time

32

13

17

838

900

Total

$

5,176

$

3,606

$

3,724

$

864

$

13,370

Six Months Ended May 1, 2022

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographic markets:

United States

$

4,042

$

3,541

$

3,368

$

1,142

$

12,093

Canada

448

283

687

301

 

1,719

Western Europe

1,003

1,190

822

51

 

3,066

Central Europe and CIS

606

277

341

22

 

1,246

Latin America

1,902

238

561

141

 

2,842

Asia, Africa, Oceania, and Middle East

608

751

537

77

1,973

Total

$

8,609

$

6,280

$

6,316

$

1,734

$

22,939

Major product lines:

             

             

Production agriculture

$

8,315

$

8,315

Small agriculture

$

4,600

 

4,600

Turf

1,444

 

1,444

Construction

$

2,691

 

2,691

Compact construction

748

748

Roadbuilding

1,709

 

1,709

Forestry

630

 

630

Financial products

22

20

11

$

1,734

 

1,787

Other

272

216

527

 

1,015

Total

$

8,609

$

6,280

$

6,316

$

1,734

$

22,939

Revenue recognized:

             

             

At a point in time

$

8,540

$

6,247

$

6,277

$

50

$

21,114

Over time

69

33

39

1,684

1,825

Total

$

8,609

$

6,280

$

6,316

$

1,734

$

22,939

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 $1,622 million, $1,423 million, and $1,423 million at April 30, 2023, October 30, 2022, and May 1, 2022, respectively. The contract liability is reduced as the revenue is recognized. During the three months ended April 30, 2023 and May 1, 2022, $129 million and $130 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year. During the six months ended April 30, 2023 and May 1, 2022, $343 million and $395 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 $1,378 million at April 30, 2023. The estimated revenue to be recognized by fiscal year follows in millions of dollars: remainder of 2023 - $238, 2024 - $376, 2025 - $294, 2026 - $191, 2027 - $111, 2028 - $68 and later years - $100. 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:

April 30

October 30

May 1

2023

2022

2022

Retirement benefits adjustment

$

(647)

$

(389)

$

(1,250)

Cumulative translation adjustment

(1,813)

(2,594)

(1,993)

Unrealized gain (loss) on derivatives

(10)

21

Unrealized gain (loss) on debt securities

(68)

(94)

(48)

Total accumulated other comprehensive income (loss)

$

(2,538)

$

(3,056)

$

(3,291)

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 April 30, 2023

Amount

Credit

Amount

 

Cumulative translation adjustment

$

100

$

100

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

(4)

$

1

(3)

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

(19)

4

(15)

Net unrealized gain (loss) on derivatives

(23)

5

(18)

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

(2)

1

(1)

Net unrealized gain (loss) on debt securities

(2)

1

(1)

Retirement benefits adjustment:

Net actuarial gain (loss)

(349)

83

(266)

Reclassification of amortized amounts:

Actuarial (gain) loss – Other operating expenses

(20)

5

(15)

Prior service (credit) cost – Other operating expenses

10

(2)

8

Settlements – Other operating expenses

36

(10)

26

Net unrealized gain (loss) on retirement benefits adjustment

(323)

76

(247)

Total other comprehensive income (loss)

 

$

(248)

$

82

$

(166)

10

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Six Months Ended April 30, 2023

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

771

$

10

$

781

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

(5)

1

(4)

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

(34)

7

(27)

Net unrealized gain (loss) on derivatives

(39)

8

(31)

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

33

(7)

26

Net unrealized gain (loss) on debt securities

33

(7)

26

Retirement benefits adjustment:

Net actuarial gain (loss)

(350)

83

(267)

Reclassification of amortized amounts:

Actuarial (gain) loss – Other operating expenses

(41)

10

(31)

Prior service (credit) cost – Other operating expenses

19

(5)

14

Settlements – Other operating expenses

36

(10)

26

Net unrealized gain (loss) on retirement benefits adjustment

(336)

78

(258)

Total other comprehensive income (loss)

 

$

429

$

89

$

518

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Three Months Ended May 1, 2022

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

(243)

$

(5)

$

(248)

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

35

(7)

28

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

1

(1)

Net unrealized gain (loss) on derivatives

36

(8)

28

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

(61)

13

(48)

Net unrealized gain (loss) on debt securities

(61)

13

(48)

Retirement benefits adjustment:

Net actuarial gain (loss)

128

(30)

98

Reclassification of amortized amounts:

Actuarial (gain) loss – Other operating expenses

27

(7)

20

Prior service (credit) cost – Other operating expenses

8

(2)

6

Settlements – Other operating expenses

7

(2)

5

Net unrealized gain (loss) on retirement benefits adjustment

170

(41)

129

Total other comprehensive income (loss)

 

$

(98)

$

(41)

$

(139)

11

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Six Months Ended May 1, 2022

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

(507)

 

$

(8)

$

(515)

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

50

(10)

40

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

3

(1)

2

Net unrealized gain (loss) on derivatives

53

(11)

42

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

(80)

17

(63)

Net unrealized gain (loss) on debt securities

(80)

17

(63)

Retirement benefits adjustment:

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

(372)

90

(282)

Reclassification of amortized amounts:

Actuarial (gain) loss – Other operating expenses

67

(17)

50

Prior service (credit) cost – Other operating expenses

14

(4)

10

Settlements – Other operating expenses

8

(2)

6

Net unrealized gain (loss) on retirement benefits adjustment

(283)

67

(216)

Total other comprehensive income (loss)

 

$

(817)

$

65

$

(752)

   

(5)Earnings Per Share

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

  

Three Months Ended 

Six Months Ended

 

April 30

May 1

April 30

May 1

 

2023

2022

2023

2022

 

Net income attributable to Deere & Company

    

$

2,860

    

$

2,098

    

$

4,819

    

$

3,001

Average shares outstanding

295.1

 

306.2

296.3

 

306.8

Basic per share

$

9.69

$

6.85

$

16.26

$

9.78

Average shares outstanding

295.1

 

306.2

296.3

 

306.8

Effect of dilutive share-based compensation

1.4

 

1.9

1.5

 

2.0

Total potential shares outstanding

296.5

 

308.1

297.8

 

308.8

Diluted per share

$

9.65

$

6.81

$

16.18

$

9.72

Shares excluded from EPS calculation, as antidilutive

.2

.2

.1

.1

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

Six Months Ended

 

April 30

May 1

April 30

May 1

 

2023

2022

2023

2022

 

Pension

Service cost

    

$

64

    

$

94

    

$

124

    

$

179

Interest cost

134

 

80

267

 

157

Expected return on plan assets

(220)

 

(180)

(432)

 

(362)

Amortization of actuarial (gain) loss

(6)

 

37

(11)

 

76

Amortization of prior service cost

10

 

9

20

 

16

Settlements

36

 

7

36

 

8

Net cost

$

18

$

47

$

4

$

74

OPEB

Service cost

    

$

6

    

$

11

    

$

13

    

$

23

Interest cost

45

 

23

88

 

49

Expected return on plan assets

(29)

 

(27)

(58)

 

(55)

Amortization of actuarial gain

(14)

 

(10)

(30)

 

(9)

Amortization of prior service credit

 

(1)

(1)

 

(2)

Net (benefit) cost

$

8

$

(4)

$

12

$

6

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, an international 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 

Six Months Ended 

 

 

April 30

May 1

%

April 30

May 1

%

 

  2023   

  2022   

Change

   2023   

   2022   

Change

 

Net sales and revenues:

 

 

  

    

  

    

  

  

    

  

    

Production & precision ag net sales

 

$

7,822

$

5,117

+53

 

$

13,021

$

8,473

+54

Small ag & turf net sales

4,145

3,570

+16

7,146

6,201

+15

Construction & forestry net sales

4,112

 

3,347

+23

7,314

 

5,891

+24

Financial services revenues

1,107

 

864

+28

2,147

 

1,734

+24

Other revenues

201

 

472

-57

410

 

640

-36

Total net sales and revenues

 

$

17,387

$

13,370

+30

 

$

30,038

$

22,939

+31

Operating profit:

Production & precision ag

 

$

2,170

$

1,057

+105

 

$

3,378

$

1,353

+150

Small ag & turf

849

520

+63

1,296

891

+45

Construction & forestry

838

 

814

+3

1,463

 

1,085

+35

Financial services

41

 

279

-85

279

 

577

-52

Total operating profit

3,898

 

2,670

+46

6,416

 

3,906

+64

Reconciling items

(47)

 

(111)

-58

(69)

 

(195)

-65

Income taxes

(991)

 

(461)

+115

(1,528)

 

(710)

+115

Net income attributable to Deere & Company

 

$

2,860

$

2,098

+36

 

$

4,819

$

3,001

+61

Intersegment sales and revenues:

Production & precision ag net sales

 

$

8

$

6

+33

 

$

12

$

10

+20

Small ag & turf net sales

4

4

7

6

+17

Construction & forestry net sales

 

Financial services revenues

190

 

87

+118

395

 

133

+197

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 of the financial services segment includes the effect of interest expense and foreign exchange gains and losses. Reconciling items to net income are primarily corporate expenses, certain external interest 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.

 

    

April 30

    

October 30

May 1

 

2023

2022

2022

 

Identifiable assets:

Production & precision ag

 

$

9,504

$

8,414

$

8,680

Small ag & turf

4,743

4,451

4,431

Construction & forestry

7,299

 

6,754

 

6,984

Financial services

65,233

 

58,864

 

53,110

Corporate

11,568

 

11,547

 

10,894

Total assets

 

$

98,347

$

90,030

$

84,099

  

(8)Financing Receivables

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

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:

April 30, 2023

2023

2022

2021

2020

2019

Prior

Years

Revolving Charge Accounts

Total

Retail customer receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

 

    

Agriculture and turf

Current

$

6,718

$

10,947

$

6,435

$

3,155

$

1,305

$

619

$

3,621

$

32,800

30-59 days past due

10

55

55

31

18

9

16

194

60-89 days past due

2

15

24

19

4

2

8

74

90+ days past due

1

1

2

Non-performing

5

51

51

36

25

29

25

222

Construction and forestry

Current

1,442

2,434

1,490

557

169

56

106

6,254

30-59 days past due

7

35

29

25

21

10

4

131

60-89 days past due

1

8

16

12

14

12

2

65

90+ days past due

7

1

1

2

11

Non-performing

5

71

61

33

12

6

1

189

Total

$

8,190

$

13,624

$

8,163

$

3,869

$

1,570

$

743

$

3,783

$

39,942

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

May 1, 2022

2022

2021

2020

2019

2018

Prior
Years

Revolving Charge Accounts

Total

Retail customer receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

 

    

Agriculture and turf

Current

$

5,540

$

10,141

$

5,318

$

2,684

$

1,286

$

723

$

3,381

$

29,073

30-59 days past due

20

75

36

20

9

5

12

177

60-89 days past due

4

29

14

9

5

2

4

67

90+ days past due

1

1

Non-performing

3

40

44

41

25

31

14

198

Construction and forestry

Current

1,506

2,404

1,211

577

234

105

91

6,128

30-59 days past due

20

52

33

17

6

2

3

133

60-89 days past due

7

25

15

6

1

1

1

56

90+ days past due

1

1

1

1

5

9

Non-performing

3

46

50

29

12

5

1

146

Total

$

7,103

$

12,813

$

6,723

$

3,384

$

1,579

$

879

$

3,507

$

35,988

15

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

April 30, 2023

2023

2022

2021

2020

2019

Prior
Years

Revolving

Total

Wholesale receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

Agriculture and turf

Current

$

265

$

198

$

36

$

15

$

2

$

1

$

3,653

$

4,170

30+ days past due

Non-performing

1

1

Construction and forestry

Current

10

6

24

1

1

638

680

30+ days past due

Non-performing

Total

$

275

$

204

$

60

$

16

$

3

$

2

$

4,291

$

4,851

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

May 1, 2022

2022

2021

2020

2019

2018

Prior
Years

Revolving

Total

Wholesale receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

 

    

Agriculture and turf

Current

$

224

$

155

$

43

$

8

$

1

$

2

$

1,605

$

2,038

30+ days past due

Non-performing

5

5

Construction and forestry

Current

6

35

4

2

1

268

316

30+ days past due

1

1

Non-performing

Total

$

230

$

190

$

47

$

15

$

1

$

4

$

1,873

$

2,360

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 April 30, 2023

Allowance:

    

 

    

    

 

    

    

 

    

    

 

Beginning of period balance

 

$

140

 

$

16

$

4

$

160

Provision

30

8

38

Write-offs

(19)

(11)

(30)

Recoveries

6

6

12

End of period balance

 

$

157

 

$

19

$

4

$

180

Six Months Ended April 30, 2023

Allowance:

    

Beginning of period balance

 

$

299

 

$

22

$

4

$

325

Provision

45

4

49

Provision transferred to held for sale

(142)

(142)

Provision (credit) subtotal

(97)

4

(93)

Write-offs

(37)

(18)

(55)

Recoveries

10

11

21

Translation adjustments

(18)

(18)

End of period balance

 

$

157

 

$

19

$

4

$

180

Financing receivables:

End of period balance

 

$

36,159

 

$

3,783

$

4,851

$

44,793

   

Retail Notes

Revolving

 

& Financing

Charge

Wholesale

 

Leases

Accounts

Receivables

Total

Three Months Ended May 1, 2022

Allowance:

    

    

    

    

    

    

    

    

Beginning of period balance

$

138

 

$

15

$

5

$

158

Provision

 

39

3

 

42

Write-offs

 

(18)

(8)

 

(26)

Recoveries

 

5

7

 

12

Translation adjustments

 

4

 

4

End of period balance

$

168

$

17

$

5

$

190

Six Months Ended May 1, 2022

Allowance:

    

 

    

    

 

    

    

 

        

    

Beginning of period balance

$

138

 

$

21

$

7

$

166

Provision (credit)

 

52

(7)

(2)

43

Write-offs

 

(35)

(12)

(47)

Recoveries

 

9

15

24

Translation adjustments

4

 

4

End of period balance

$

168

$

17

$

5

$

190

Financing receivables:

End of period balance

$

32,481

 

$

3,507

$

2,360

$

38,348

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).

Excluding the portfolio in Russia, the allowance for credit losses increased in the second quarter and the first six months of 2023 mainly due to higher portfolio balances and higher expected losses on turf and construction financing receivables. As part of the allowance setting process, the Company continues to monitor the economy, including potential impacts of inflation and interest rates, among other factors, on portfolio performance and adjustments to the allowance are incorporated, as necessary.

17

(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:

 

    

April 30

    

October 30

    

May 1

 

2023

2022

2022

 

Financing receivables securitized (retail notes)

 

$

5,674

$

5,952

$

4,085

Allowance for credit losses

(15)

 

(16)

 

(12)

Other assets (primarily restricted cash)

115

 

155

 

124

Total restricted securitized assets

 

$

5,774

$

6,091

$

4,197

Short-term securitization borrowings

$

5,379

$

5,711

$

4,006

Accrued interest on borrowings

8

6

 

2

Total liabilities related to restricted securitized assets

$

5,387

$

5,717

$

4,008

     

(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:

    

April 30

    

October 30

    

May 1

 

2023

2022

2022

 

Raw materials and supplies

 

$

4,647

$

4,442

$

4,384

Work-in-process

1,262

 

1,190

 

1,640

Finished goods and parts

6,435

 

5,363

 

5,434

Total FIFO value

12,344

 

10,995

 

11,458

Less adjustment to LIFO value

2,631

 

2,500

 

2,428

Inventories

 

$

9,713

$

8,495

$

9,030

(11)  Goodwill and Other Intangible AssetsNet

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

 

    

Production &

    

Small Ag

    

Construction

    

 

Precision Ag

& Turf

& Forestry

Total

 

Goodwill at October 31, 2021

$

542

$

265

$

2,484

$

3,291

Acquisitions

 

122

69

600

791

Translation adjustments

 

(11)

(7)

(252)

(270)

Goodwill at May 1, 2022

$

653

$

327

$

2,832

$

3,812

Goodwill at October 30, 2022

$

646

$

318

$

2,723

$

3,687

Acquisition

41

41

Translation adjustments

18

8

209

235

Goodwill at April 30, 2023

$

705

$

326

$

2,932

$

3,963

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

18

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

 

    

April 30

    

October 30

    

May 1

 

2023

2022

2022

 

Amortized intangible assets:

Customer lists and relationships

$

525

$

493

$

520

Technology, patents, trademarks, and other

1,397

 

1,301

 

1,350

Total at cost

1,922

 

1,794

 

1,870

Less accumulated amortization:

 

 

Customer lists and relationships

193

166

158

Technology, patents, trademarks, and other

507

410

360

Total accumulated amortization

700

576

518

Other intangible assets – net

$

1,222

$

1,218

$

1,352

The amortization of other intangible assets in the second quarter and the first six months of 2023 was $45 million and $84 million, and for the second quarter and the first six months of 2022 was $34 million and $62 million, respectively. The estimated amortization expense for the next five years is as follows in millions of dollars: remainder of 2023 – $88, 2024 – $168, 2025 – $139, 2026 – $120, 2027 – $119, and 2028 –$86.

  

(12)  Short-Term Borrowings

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

April 30

October 30

May 1

    

2023

    

2022

    

2022

Commercial paper

$

9,184

$

4,703

$

3,403

Notes payable to banks

284

402

555

Finance lease obligations due within one year

23

21

21

Long-term borrowings due within one year

 

7,618

 

7,466

 

8,434

Short-term borrowings

$

17,109

$

12,592

$

12,413

   

(13)  Accounts Payable and Accrued Expenses

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

    

April 30

  

October 30

  

May 1

 

  

2023

  

2022

2022

Accounts payable:

Trade payables

  

$

3,680

  

$

3,894

$

3,631

Payables to unconsolidated affiliates

9

11

7

Dividends payable

 

371

 

343

 

325

Operating lease liabilities

294

302

260

Deposits withheld from dealers and merchants

157

163

150

Other

 

131

 

214

 

163

Accrued expenses:

Dealer sales discounts

 

605

 

1,044

 

400

Product warranties

 

1,562

 

1,427

 

1,286

Employee benefits

 

1,475

 

1,528

 

1,069

Accrued taxes

1,691

1,255

1,150

Unearned operating lease revenue

441

399

391

Unearned revenue (contractual liability)

 

673

 

557

 

614

Extended warranty premium

949

866

809

Accrued interest

354

288

256

Derivative liabilities

758

1,231

780

Other

 

1,566

 

1,300

 

1,388

Total accounts payable and accrued expenses

 

$

14,716

 

$

14,822

$

12,679

Amounts are presented net of eliminations, which primarily consist of dealer sales incentives with a right of set-off against trade receivables of $1,979 million at April 30, 2023, $1,280 million at October 30, 2022, and $1,173 million at May 1, 2022. Other eliminations were made for accrued taxes and other accrued expenses.

19

(14)  Long-Term Borrowings

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

April 30

October 30

May 1

  

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)

525

1.375% notes due 2024 (€800 principal)

797

840

1.85% notes due 2028 (€600 principal)

662

598

630

2.20% notes due 2032 (€600 principal)

662

598

630

1.65% notes due 2039 (€650 principal)

717

648

682

Serial issuances

Medium-term notes: (principal as of: April 30, 2023 - $27,428, October 30, 2022 - $25,629, May 1, 2022 - $23,247)

 

26,734

24,604

22,740

Other notes and finance lease obligations

 

1,707

 

1,223

 

1,266

Less debt issuance costs and debt discounts

(121)

(122)

(116)

Long-term borrowings

 

$

35,611

$

33,596

$

32,447

 

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.

   

(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

Six Months Ended

  

April 30, 2023

   

May 1, 2022

   

April 30, 2023

   

May 1, 2022

Sales-type and direct finance lease revenues

$

37

$

35

$

79

$

74

Operating lease revenues

321

330

642

665

Variable lease revenues

5

7

11

14

Total lease revenues

$

363

$

372

$

732

$

753

(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 $949 million and $809 million at April 30, 2023 and May 1, 2022, respectively.

20

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

 

Three Months Ended

Six Months Ended

 

April 30

May 1

April 30

May 1

 

2023

2022

2023

2022

 

Beginning of period balance

    

$

2,345

    

$

2,064

    

$

2,293

    

$

2,086

Payments

(274)

 

(224)

(537)

 

(417)

Amortization of premiums received

(63)

 

(64)

(146)

 

(130)

Accruals for warranties

392

 

223

647

 

404

Premiums received

108

 

91

215

 

174

Foreign exchange

3

 

5

39

 

(22)

End of period balance

$

2,511

$

2,095

$

2,511

$

2,095

At April 30, 2023, the Company had $207 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 April 30, 2023, the accrued losses under these agreements were not material.

At April 30, 2023, the Company had commitments of $524 million for the construction and acquisition of property and equipment. Also, at April 30, 2023, the Company had restricted assets of $189 million, classified as Other assets.

The Company also had other miscellaneous contingent liabilities and guarantees totaling approximately $65 million at April 30, 2023. The accrued liability for these contingencies was not material at April 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.

(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.

 

April 30, 2023

October 30, 2022

May 1, 2022

 

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

 

Financing receivables – net

$

38,954

$

38,337

$

36,634

$

35,526

$

34,085

$

33,540

Financing receivables securitized – net

5,659

5,494

5,936

5,698

4,073

4,016

Short-term securitization borrowings

5,379

5,271

5,711

5,577

4,006

3,944

Long-term borrowings due within one year

7,618

7,461

7,466

7,322

8,434

8,398

Long-term borrowings

35,571

34,802

33,566

31,852

32,410

31,975

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.

21

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

 

    

April 30

    

October 30

    

May 1

 

2023

2022

2022

 

Level 1:

Marketable securities

International equity securities

$

2

$

3

$

2

International mutual funds

11

U.S. equity fund

92

70

65

U.S. fixed income fund

97

 

 

U.S. government debt securities

64

 

62

 

59

Total Level 1 marketable securities

266

135

126

Level 2:

Marketable securities

U.S. government debt securities

138

121

130

Municipal debt securities

70

 

63

 

67

Corporate debt securities

213

 

200

 

206

International debt securities

1

60

2

Mortgage-backed securities

168

 

155

 

151

Total Level 2 marketable securities

590

 

599

 

556

Other assets - Derivatives

 

367

373

407

Accounts payable and accrued expenses - Derivatives

 

758

1,231

780

Level 3:

Accounts payable and accrued expenses - Deferred consideration

214

236

262

The contractual maturities of debt securities at April 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

$

25

Due after one through five years

123

116

Due after five through 10 years

192

171

Due after 10 years

206

174

Mortgage-backed securities

193

168

Debt securities

 

$

739

 

$

654

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 May 1, 2022.

Fair Value

Losses

Three Months Ended 

Six Months Ended 

April 30

October 30

May 1

April 30

May 1

April 30

May 1

  

2023

  

2022

  

2022

  

2023

  

2022

  

2023

  

2022

 

Inventories

$

19

$

19

$

8

$

8

Property and equipment – net

15

15

41

41

Other intangible assets – net

28

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.

22

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.

(18)  Derivative Instruments

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

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

Cash Flow Hedges

Certain interest rate contracts (swaps) were designated as hedges of future cash flows from borrowings. The total notional amounts of the receive-variable/pay-fixed interest rate contracts at April 30, 2023, October 30, 2022, and May 1, 2022 were $2,250 million, $1,950 million, and $2,450 million, respectively. Fair value gains or losses on cash flow hedges were recorded in other comprehensive income (OCI) and are subsequently reclassified into interest expense in the same periods during which the hedged transactions impact earnings. These amounts offset the effects of interest rate changes on the related borrowings.

The amount of gain recorded in OCI at April 30, 2023 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is approximately $30 million after-tax. No gains or losses were reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur.

Fair Value Hedges

Certain interest rate contracts (swaps) were designated as fair value hedges of borrowings. The total notional amounts of the receive-fixed/pay-variable interest rate contracts at April 30, 2023, October 30, 2022, and May 1, 2022 were $10,943 million, $10,112 million, and $8,655 million, respectively. The fair value gains or losses on these contracts were generally offset by fair value gains or losses on the hedged items (fixed-rate borrowings) with both items recorded in interest expense.

23

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

April 30, 2023

Short-term borrowings

$

1,213

$

14

Long-term borrowings

$

10,334

$

(562)

5,657

(132)

October 30, 2022

Short-term borrowings

$

2,515

$

15

Long-term borrowings

$

9,060

$

(1,006)

5,520

(19)

May 1, 2022

Short-term borrowings

$

178

$

1

$

2,607

$

7

Long-term borrowings

7,827

(613)

5,120

106

 

Derivatives Not Designated as Hedging Instruments

The Company has certain interest rate contracts (swaps), foreign currency exchange contracts (futures, forwards, and swaps), and cross-currency interest rate contracts (swaps), which were not formally designated as hedges. These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures for certain borrowings, purchases or sales of inventory, and sales incentive programs. The total notional amounts of these interest rate swaps at April 30, 2023, October 30, 2022, and May 1, 2022 were $11,956 million, $10,568 million, and $9,912 million, the foreign exchange contracts were $9,163 million, $8,185 million, and $7,640 million, and the cross-currency interest rate contracts were $163 million, $260 million, and $264 million, respectively. The fair value gains or losses from derivatives not designated as hedging instruments were recorded in the statements of consolidated income, generally offsetting over time the exposure on the hedged item.

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

 

    

April 30

    

October 30

    

May 1

 

Other Assets

2023

2022

2022

 

Designated as hedging instruments:

Interest rate contracts

 

$

104

$

87

$

63

 

Not designated as hedging instruments:

Interest rate contracts

171

 

212

 

180

Foreign exchange contracts

91

 

66

 

125

Cross-currency interest rate contracts

1

 

8

 

39

Total not designated

263

 

286

 

344

 

Total derivative assets

 

$

367

$

373

$

407

 

Accounts Payable and Accrued Expenses

Designated as hedging instruments:

Interest rate contracts

 

$

611

$

1,004

$

591

 

Not designated as hedging instruments:

Interest rate contracts

91

107

75

Foreign exchange contracts

42

 

118

 

114

Cross-currency interest rate contracts

14

 

2

 

Total not designated

147

 

227

 

189

 

Total derivative liabilities

 

$

758

$

1,231

$

780

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

Six Months Ended

 

April 30

May 1

April 30

May 1

 

2023

2022

2023

2022

 

Fair Value Hedges:

 

 

    

  

 

 

    

  

 

Interest rate contracts - Interest expense

 

$

(10)

$

(514)

 

$

229

$

(656)

 

Cash Flow Hedges:

Recognized in OCI

Interest rate contracts - OCI (pretax)

$

(4)

$

35

$

(5)

$

50

Reclassified from OCI

Interest rate contracts - Interest expense

19

 

(1)

34

 

(3)

 

Not Designated as Hedges:

Interest rate contracts - Net sales

$

1

$

31

$

(6)

$

44

Interest rate contracts - Interest expense *

 

5

61

 

(3)

59

Foreign exchange contracts - Net sales

(2)

(1)

(1)

(1)

Foreign exchange contracts - Cost of sales

59

 

(79)

64

(80)

Foreign exchange contracts - Other operating expenses *

127

 

26

(15)

 

173

Total not designated

 

$

190

$

38

 

$

39

$

195

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

Counterparty Risk and Collateral

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

Certain of the Company’s derivative agreements contain credit support provisions that may require the Company to post collateral based on the size of the net liability positions and credit ratings. The aggregate fair value of all derivatives with credit-risk-related contingent features that were in a net liability position at April 30, 2023, October 30, 2022, and May 1, 2022, was $716 million, $1,113 million, and $673 million, respectively. In accordance with the limits established in these agreements, the Company posted $308 million, $701 million, and $254 million of cash collateral at April 30, 2023, October 30, 2022, and May 1, 2022, respectively. In addition, the Company paid $8 million of collateral that was outstanding at April 30, 2023, October 30, 2022, and May 1, 2022 to participate in an international futures market to hedge currency exposure, not included in the table below.

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

Gross Amounts

Netting

 

April 30, 2023

    

Recognized

    

Arrangements

    

Collateral

    

Net Amount

 

Assets

 

$

367

 

$

(168)

 

$

(29)

 

$

170

Liabilities

758

(168)

(308)

282

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

    

    

 

May 1, 2022

Recognized

Arrangements

Collateral

Net Amount

 

Assets

$

407

$

(110)

$

297

Liabilities

 

780

 

(110)

$

(254)

 

416

25

(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 April 30, 2023, options for 1.9 million shares were outstanding with a weighted-average exercise price of $181.91 per share. The Company also granted 117 thousand of service-based restricted stock units and 41 thousand of performance/service-based restricted stock units to employees in the first six months of 2023. The weighted-average fair value of the service-based restricted stock units at the grant date was $433.30 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 April 30, 2023, the Company was authorized to grant awards for an additional 16.6 million shares under the equity incentive plans.

(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

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 during the second quarter of 2022 were impairments of most long-lived assets, an increase in reserves of certain financial assets, and an accrual for various contractual uncertainties.

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 six months ended April 30, 2023 and May 1, 2022:

Three Months

Six Months

PPA

 

SAT

 

CF

 

FS

 

Total

PPA

SAT

 

CF

 

FS

 

Total

2023 Expense:

Financing incentive – SA&G expense

$

173

$

173

$

173

$

173

2022 Expense (benefit):

Gain on remeasurement of equity investment – Other income

$

(326)

(326)

$

(326)

(326)

Total Russia/Ukraine events expense

$

46

$

1

47

26

120

$

46

$

1

47

26

120

UAW ratification bonus – Cost of sales

53

9

28

90

Total 2022 expense (benefit)

46

1

(279)

26

(206)

99

10

(251)

26

(116)

Period over period change

$

(46)

$

(1)

$

279

$

147

$

379

$

(99)

$

(10)

$

251

$

147

$

289

(22)  Subsequent Events

On May 22, 2023, the Company entered into a retail note securitization using its revolving warehouse facility that resulted in securitization borrowings of $589 million.

On May 31, 2023, the Company’s Board of Directors declared a quarterly dividend of $1.25 per share payable on August 8, 2023, to stockholders of record on June 30, 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 digital, 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 about 5 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 in 2023. Asia industry sales are forecasted to be down moderately in 2023. On an industry basis, the U.S. and Canada construction equipment and compact construction equipment sales are both expected to be flat to up 5 percent in 2023. Global forestry and global roadbuilding industry sales are each expected to be flat.

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 framework. 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, and retail demand will comprise most of 2023 sales. The North American retail customer fleet age of combines and large tractors is historically high, and dealer inventories are low due to the manufacturing and supply chain constraints over the past few years. The Company expects elevated demand to continue for the second half of the year as evidenced by retail customer orders that extend into 2024. Crop prices remain favorable to our customers in part due to a stock-to-use ratio below the 10-year average for key grains. The Company expects sales volume of large agricultural equipment to be greater in 2023 than 2022 in North America and Europe. Sales volume for small agriculture and turf equipment is expected to be lower than 2022 due to lower 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, and rental inventory restocking are expected to more than offset moderation in residential home and commercial real estate construction. Importantly, construction equipment dealer inventory remains below historical averages. Roadbuilding demand remains strongest in the U.S., largely offset by softening demand in Europe and parts of Asia. Net income for the Company’s financial services operations is expected to be lower than

28

fiscal year 2022 due to less-favorable financing spreads, the correction of the accounting treatment for financing incentives offered to John Deere dealers, unfavorable derivative market valuation adjustments, a higher provision for credit losses, higher selling, administrative and general expenses, and lower gains on operating-lease dispositions. These factors are expected to be partially offset by income earned on higher average portfolio balances.

Additional Trends – Supply chain conditions have improved over 2022; however, the Company continues to experience disruptions above historical norms. Supply chain disruptions impacted many aspects of the business starting in 2022, including parts availability, increased production costs, and higher inventory levels. Past due deliveries from suppliers were at elevated levels during 2022. The Company implemented the following mitigation efforts to minimize the impact of supply chain disruptions on its ability to meet customer demand:

Worked with the supply base to obtain allocations and improve on-time deliveries of parts.

Multi-sourced some parts and materials.

Provided resources to suppliers to address constraints.

Entered into long-term contracts for some critical components.

Utilized alternative freight carriers to expedite delivery.

The Company has experienced supply chain improvements in the second quarter of 2023. The reduction in supply chain disruptions contributed to higher levels of production in the second quarter of 2023. However, remaining constraints in the supply base will limit higher levels of production in the second half of the year. As a result, the production schedules in 2023 will be more aligned with the customers’ seasonal use of the Company’s products, marking a return to historical seasonal production patterns.

Central bank policy interest rates increased in the first six 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 $84 million (after-tax) of less favorable financing spreads in the first six months of 2023 compared to 2022. The Company expects spread compression to persist during 2023.

Recent banking sector events have resulted in increased liquidity considerations. The Company’s deposits are well diversified, and as a result, the Company was not materially exposed to banks that have entered receivership or encountered liquidity issues. These events have not changed the Company’s access to capital markets. The Company continues to monitor counterparty exposure through regular reviews of various risk metrics and adjusting exposure limits as needed.

Supply chain disruptions, rising interest rates, and recent banking sector events 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, failure to raise the U.S. debt ceiling, economic and trade policies, imposition of new or retaliatory tariffs against certain countries or covering certain products, post-pandemic effects, 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 digital, 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

Six Months Ended

Deere & Company

April 30

May 1

%

April 30

May 1

%

(In millions of dollars, except per share amounts)

2023

2022

Change

2023

2022

Change

Net sales and revenues

$

17,387

$

13,370

+30

$

30,038

$

22,939

+31

Net income attributable to Deere & Company

2,860

2,098

+36

4,819

3,001

+61

Diluted earnings per share

9.65

6.81

16.18

9.72

Net sales and revenues increased for both the quarter and year-to-date periods due to higher shipment volumes and 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.

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

Three Months Ended

Six Months Ended

Deere & Company

April 30

May 1

%

April 30

May 1

%

(In millions of dollars)

2023

2022

Change

2023

2022

Change

Cost of sales to net sales

66.7%

74.1%

67.9%

75.9%

Other income

$

229

$

540

-58

$

484

$

779

-38

Research and development expenses

547

453

+21

1,043

855

+22

Selling, administrative and general expenses

1,330

932

+43

2,283

1,713

+33

Other operating expenses

363

328

+11

660

638

+3

Provision for income taxes

991

461

+115

1,528

710

+115

The cost of sales ratio improved in the second quarter and the first six months of fiscal 2023 due to price realization, partially offset by higher production costs. The six months ended May 1, 2022 were also impacted by inefficiencies due to the delayed ratification of the UAW labor agreement and contract-ratification bonus costs (see Note 21). Other income decreased compared to both prior periods 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, profit-sharing incentives, commissions paid to dealers, as well as the cumulative correction of the accounting treatment for financing incentives offered to John Deere dealers. The provision for income taxes was higher as a result of higher pretax income as well as the prior period exclusion of the Deere-Hitachi joint-venture remeasurement gain from tax-effected income.

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

Six Months Ended

Production and Precision Agriculture

April 30

May 1

%

April 30

May 1

%

(In millions of dollars)

2023

2022

Change

2023

2022

Change

Net sales

$

7,822

$

5,117

+53

$

13,021

$

8,473

+54

Operating profit

2,170

1,057

+105

3,378

1,353

+150

Operating margin

27.7%

20.7%

25.9%

16.0%

Price realization

+20

+21

Currency translation impact on Net sales

-3

-2

Production and precision agriculture sales increased for the quarter as a result of higher shipment volumes (primarily in the U.S., Brazil, Europe, and Canada) and price realization in most end markets. Operating profit improved 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 effects of foreign currency exchange mostly due to a stronger U.S. dollar.

Graphic

Sales for the first six months increased as a result of higher shipment volumes (primarily in the U.S., Canada, Brazil, and Europe) and price realization. Operating profit for the first six 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

Six Months Ended

Small Agriculture and Turf

April 30

May 1

%

April 30

May 1

%

(In millions of dollars)

2023

2022

Change

2023

2022

Change

Net sales

$

4,145

$

3,570

+16

$

7,146

$

6,201

+15

Operating profit

849

520

+63

1,296

891

+45

Operating margin

20.5%

14.6%

18.1%

14.4%

Price realization

+12

+12

Currency translation impact on Net sales

-2

-3

Small agriculture and turf sales increased for the quarter due to price realization in most end markets and higher shipment volumes (primarily in Europe, Mexico, and China), partially offset by the negative effects of foreign currency translation. Operating profit improved primarily as a result of price realization and improved sales volumes / 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 mostly due to a stronger U.S. dollar.

Graphic

Sales for the first six 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 six 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

Six Months Ended

Construction and Forestry

April 30

May 1

%

April 30

May 1

%

(In millions of dollars)

2023

2022

Change

2023

2022

Change

Net sales

$

4,112

$

3,347

+23

$

7,314

$

5,891

+24

Operating profit

838

814

+3

1,463

1,085

+35

Operating margin

20.4%

24.3%

20.0%

18.4%

Price realization

+13

+13

Currency translation impact on Net sales

-1

-2

Construction and forestry sales moved higher for the quarter primarily due to price realization and higher shipment volumes. Operating profit improved due to price realization and improved sales volumes / mix, partially offset by higher production costs, higher selling, administrative, and general expenses and research and development expenses. Prior period results benefited from the non-cash gain on the remeasurement of previously held equity investment in the Deere-Hitachi joint venture.

Graphic

The segment’s six-month sales increased due to higher shipment volumes and price realization partially offset by the unfavorable impact of currency translation. The first six-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

Six Months Ended

Financial Services

April 30

May 1

%

April 30

May 1

%

(In millions of dollars)

2023

2022

Change

2023

2022

Change

Revenue (including intercompany)

$

1,297

$

951

+36

$

2,542

$

1,867

+36

Interest expense

540

112

+382

983

270

+264

Net income

28

208

-87

212

439

-52

The average balance of receivables and leases financed was 18 percent higher in the second quarter of 2023, and 17 percent higher in the first six 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 for both periods decreased primarily due to less-favorable financing spreads and a higher provision for credit losses, partially offset by income earned on a higher average portfolio. Net income for the first six months of the year was also impacted by unfavorable derivative market valuation adjustments. Additionally impacting the results for both periods was a $135 million after-tax correction of the accounting treatment for financing incentives offered to John Deere dealers, which affected the timing of expense recognition and the presentation of incentive costs in the consolidated financial statements. 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 .40 percent of financing receivables as of April 30, 2023, compared with .42 percent as of May 1, 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. However, the patterns of seasonality in inventory have been affected by increases in production rates and supply chain disruptions experienced during fiscal year 2022. Supply chain conditions have begun trending towards more normalized levels in 2023, though disruptions remain above historical performance. 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:

April 30

October 30

May 1

2023

2022

2022

Cash, cash equivalents, and marketable securities

$

6,123

$

5,508

$

4,560

Trade accounts and notes receivable – net

9,971

6,410

6,258

Ratio to prior 12 month’s net sales

18%

13%

15%

Inventories

9,713

8,495

9,030

Ratio to prior 12 month’s cost of sales

25%

24%

29%

Unused credit lines

785

3,284

4,608

Financial Services:

Ratio of interest-bearing debt to stockholder’s equity

8.0 to 1

8.5 to 1

7.8 to 1

34

The reduction in unused credit lines in 2023 compared to both prior periods relates to an increase in commercial paper outstanding due to changes in 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.

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)

Six Months Ended

April 30, 2023

May 1, 2022

Net cash used for operating activities

$

(147)

$

(1,762)

Net cash used for investing activities

(1,494)

(1,888)

Net cash provided by (used for) financing activities

2,017

(386)

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

70

(110)

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

$

446

$

(4,146)

Cash outflows from operating activities in the first six months of 2023 were $147 million. This resulted mainly from a working capital change, partially offset by net income adjusted for non-cash provisions. Cash outflows from investing activities were $1,494 million in the first six 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 $2,017 million in the first six months of 2023, as higher external borrowings of $5,293 million to support working capital requirements were offset by repurchases of common stock and dividends paid. Cash, cash equivalents, and restricted cash increased $446 million during the first six months of 2023.

Trade Accounts and Notes Receivable. Trade accounts and notes receivable arise from sales of goods to customers. Trade receivables increased $3,561 million during the first six 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 $3,713 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 April 30, 2023, October 30, 2022, and May 1, 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 $1,944 million during the first six months of 2023 and increased $6,514 million in the past 12 months due to strong retail sales. Total acquisition volumes of financing receivables and equipment on operating leases were 31 percent higher in the first six 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 May 1, 2022.

Inventories. Inventories increased by $1,218 million during the first six months of 2023 and increased by $683 million compared to a year ago. The increases were due to higher forecasted sales volumes and supply chain disruptions. The effect of foreign currency translation also increased inventories during the first six 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 six months of 2023 were $584 million, compared with $346 million in the same period last year. Capital expenditures in 2023 are estimated to be approximately $1,500 million.

Accounts Payable and Accrued Expenses. Accounts payable and accrued expenses decreased by $106 million in the first six months of 2023. Accounts payable and accrued expenses increased $2,037 million compared to a year ago due to an increase in accrued expenses associated with accrued taxes, employee benefits, product warranties, and dealer sales discounts.

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 April 30, 2023, $948 million of securitization borrowings was outstanding

35

under the facility. At the end of the contractual revolving period, unless the banks and Capital Corporation agree to renew, Capital Corporation would liquidate the secured borrowings over time as payments on the retail notes are collected.

In the first six months of 2023, the financial services operations issued $1,289 million and retired $1,622 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 $10,309 million at April 30, 2023, $785 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 April 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 of the 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, and reduced access to debt capital markets. 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:

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 current conflict 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;

36

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;
stress in the banking sector may have adverse impacts on vendors or customers as well as on the Company’s ability to access cash deposits;
uncertainty related to prolonged negotiations regarding the U.S. federal debt ceiling or the U.S. government’s failure to raise the debt ceiling;
changes in the Company’s credit ratings, and failure to comply with financial covenants in credit agreements could impact access to funding;
availability and price of raw materials, components, and whole goods;
delays or disruptions in the Company’s supply chain;
labor relations and contracts, including work stoppages and other disruptions;
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;
compliance with evolving U.S. and foreign laws, including economic sanctions, data privacy, and environmental laws and regulations;
legislation introduced or enacted that could affect the Company’s business model and intellectual property, such as so-called right to repair or right to modify legislation;
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 April 30, 2023 and May 1, 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

$

16,079

$

12,034

$

16,079

$

12,034

Finance and interest income

121

 

36

$

1,206

$

847

$

(248)

$

(87)

1,079

796

1

Other income

185

 

584

91

 

104

(47)

 

(148)

229

 

540

2, 3

Total

16,385

 

12,654

1,297

 

951

(295)

 

(235)

17,387

 

13,370

Costs and Expenses

Cost of sales

10,737

 

8,919

(7)

 

(1)

10,730

8,918

4

Research and development expenses

547

 

453

547

453

Selling, administrative and general expenses

935

 

753

397

 

181

(2)

 

(2)

1,330

 

932

4

Interest expense

103

 

97

540

 

112

(74)

 

(22)

569

 

187

5

Interest compensation to Financial Services

174

 

62

(174)

 

(62)

5

Other operating expenses

85

 

99

316

 

377

(38)

 

(148)

363

 

328

6, 7

Total

12,581

 

10,383

1,253

 

670

(295)

 

(235)

13,539

 

10,818

Income before Income Taxes

3,804

 

2,271

44

 

281

 

3,848

 

2,552

Provision for income taxes

974

 

387

17

 

74

 

991

 

461

Income after Income Taxes

2,830

 

1,884

27

 

207

 

2,857

 

2,091

Equity in income of unconsolidated affiliates

1

 

5

1

 

1

2

6

Net Income

2,831

 

1,889

28

 

208

 

2,859

 

2,097

Less: Net loss attributable to noncontrolling interests

(1)

 

(1)

(1)

(1)

Net Income Attributable to Deere & Company

$

2,832

$

1,890

$

28

$

208

$

2,860

$

2,098

 

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 Six Months Ended April 30, 2023 and May 1, 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

$

27,481

$

20,565

$

27,481

$

20,565

Finance and interest income

234

 

70

$

2,274

$

1,675

$

(435)

$

(150)

2,073

1,595

1

Other income

417

 

801

268

 

192

(201)

 

(214)

484

 

779

2, 3

Total

28,132

 

21,436

2,542

 

1,867

(636)

 

(364)

30,038

 

22,939

Costs and Expenses

Cost of sales

18,675

 

15,614

(12)

 

(1)

18,663

15,613

4

Research and development expenses

1,043

 

855

1,043

855

Selling, administrative and general expenses

1,719

 

1,410

569

 

307

(5)

 

(4)

2,283

 

1,713

4

Interest expense

204

 

188

983

 

270

(138)

 

(41)

1,049

 

417

5

Interest compensation to Financial Services

297

 

106

(297)

 

(106)

5

Other operating expenses

137

 

138

707

 

712

(184)

 

(212)

660

 

638

6, 7

Total

22,075

 

18,311

2,259

 

1,289

(636)

 

(364)

23,698

 

19,236

Income before Income Taxes

6,057

 

3,125

283

 

578

 

6,340

 

3,703

Provision for income taxes

1,455

 

568

73

 

142

 

1,528

 

710

Income after Income Taxes

4,602

 

2,557

210

 

436

 

4,812

 

2,993

Equity in income of unconsolidated affiliates

1

 

5

2

 

3

3

8

Net Income

4,603

 

2,562

212

 

439

 

4,815

 

3,001

Less: Net loss attributable to noncontrolling interests

(4)

 

 

(4)

Net Income Attributable to Deere & Company

$

4,607

$

2,562

$

212

$

439

$

4,819

$

3,001

 

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

Apr 30

Oct 30

May 1

Apr 30

Oct 30

May 1

Apr 30

Oct 30

May 1

Apr 30

Oct 30

May 1

2023

2022

2022

2023

2022

2022

2023

2022

2022

2023

2022

2022

Assets

 

 

             

 

 

    

 

  

             

 

  

              

 

  

    

 

  

              

 

  

              

 

  

    

 

  

             

 

  

              

 

  

    

 

  

              

Cash and cash equivalents

$

3,587

$

3,767

$

3,167

$

1,680

$

1,007

$

711

$

5,267

$

4,774

$

3,878

Marketable securities

14

 

61

 

2

842

 

673

 

680

 

 

856

 

734

 

682

Receivables from Financial Services

5,899

 

6,569

 

5,669

$

(5,899)

$

(6,569)

$

(5,669)

8

Trade accounts and notes receivable – net

1,562

 

1,273

 

1,358

10,422

 

6,434

 

6,079

(2,013)

 

(1,297)

 

(1,179)

9,971

 

6,410

 

6,258

9

Financing receivables – net

54

 

47

 

49

38,900

 

36,587

 

34,036

 

 

38,954

 

36,634

 

34,085

Financing receivables securitized – net

1

6

5,658

 

5,936

 

4,067

 

 

5,659

 

5,936

 

4,073

Other receivables

2,201

 

1,670

 

1,944

481

 

832

 

405

(89)

 

(10)

 

(43)

2,593

 

2,492

 

2,306

9

Equipment on operating leases – net

6,524

 

6,623

 

6,465

 

 

6,524

 

6,623

 

6,465

Inventories

9,713

 

8,495

 

9,030

9,713

8,495

9,030

Property and equipment – net

6,254

 

6,021

 

5,678

34

 

35

 

37

 

 

6,288

 

6,056

 

5,715

Goodwill

3,963

 

3,687

 

3,812

3,963

3,687

3,812

Other intangible assets – net

1,222

 

1,218

 

1,352

 

 

 

 

1,222

 

1,218

 

1,352

Retirement benefits

3,450

 

3,666

 

2,996

69

 

66

 

65

 

(2)

 

(2)

3,519

 

3,730

 

3,059

10

Deferred income taxes

1,355

 

940

 

1,247

59

 

45

 

49

(106)

 

(161)

 

(192)

1,308

 

824

 

1,104

11

Other assets

1,961

 

1,794

 

1,767

564

 

626

 

516

(15)

 

(3)

 

(3)

2,510

 

2,417

 

2,280

9

Total Assets

$

41,236

$

39,208

$

38,077

$

65,233

$

58,864

$

53,110

$

(8,122)

$

(8,042)

$

(7,088)

$

98,347

$

90,030

$

84,099

Liabilities and Stockholders’ Equity

Liabilities

Short-term borrowings

$

1,755

$

1,040

$

1,554

$

15,354

$

11,552

$

10,859

$

17,109

$

12,592

$

12,413

Short-term securitization borrowings

5

5,379

 

5,711

 

4,001

 

 

5,379

 

5,711

 

4,006

Payables to Equipment Operations

 

 

5,899

 

6,569

 

5,669

$

(5,899)

$

(6,569)

$

(5,669)

 

 

8

Accounts payable and accrued expenses

13,759

 

12,962

 

11,370

3,074

 

3,170

 

2,534

(2,117)

 

(1,310)

 

(1,225)

14,716

 

14,822

 

12,679

9

Deferred income taxes

402

 

380

 

454

215

 

276

 

322

(106)

 

(161)

 

(192)

511

 

495

 

584

11

Long-term borrowings

7,310

 

7,917

 

8,556

28,301

 

25,679

 

23,891

 

 

35,611

 

33,596

 

32,447

Retirement benefits and other liabilities

2,410

 

2,351

 

2,855

110

 

108

 

111

 

(2)

 

(2)

2,520

 

2,457

 

2,964

10

Total liabilities

25,636

24,650

24,794

58,332

53,065

47,387

(8,122)

(8,042)

(7,088)

75,846

69,673

65,093

Commitments and contingencies (Note 16)

Redeemable noncontrolling interest

102

92

99

102

92

99

Stockholders’ Equity

Total Deere & Company stockholders’ equity

22,395

 

20,262

 

18,904

6,901

5,799

5,723

(6,901)

(5,799)

(5,723)

22,395

20,262

18,904

12

Noncontrolling interests

4

 

3

 

3

4

3

3

Financial Services’ equity

(6,901)

 

(5,799)

 

(5,723)

6,901

5,799

5,723

12

Adjusted total stockholders’ equity

15,498

 

14,466

 

13,184

6,901

 

5,799

 

5,723

 

 

22,399

 

20,265

 

18,907

Total Liabilities and Stockholders’ Equity

$

41,236

$

39,208

$

38,077

$

65,233

$

58,864

$

53,110

$

(8,122)

$

(8,042)

$

(7,088)

$

98,347

$

90,030

$

84,099

 

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 Six Months Ended April 30, 2023 and May 1, 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

$

4,603

$

2,562

$

212

$

439

$

4,815

$

3,001

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

Provision (credit) for credit losses

 

4

 

1

 

(93)

 

44

 

 

 

(89)

 

45

Provision for depreciation and amortization

 

565

 

518

 

500

 

530

$

(70)

$

(115)

 

995

 

933

13

Impairments and other adjustments

 

77

 

173

 

 

 

 

173

 

77

Share-based compensation expense

54

44

54

44

14

Gain on remeasurement of previously held equity investment

 

(326)

 

 

 

 

 

 

(326)

Distributed earnings of Financial Services

 

12

 

232

 

 

 

(12)

 

(232)

 

 

15

Provision (credit) for deferred income taxes

 

(304)

 

75

 

(73)

 

(38)

 

 

 

(377)

 

37

Changes in assets and liabilities:

Receivables related to sales

 

(255)

 

(215)

(4,152)

(1,320)

(4,407)

(1,535)

16, 18, 19

Inventories

 

(910)

 

(2,201)

(72)

(64)

(982)

(2,265)

17

Accounts payable and accrued expenses

 

161

 

(99)

 

243

 

(7)

 

(717)

 

(337)

 

(313)

 

(443)

18

Accrued income taxes payable/receivable

 

(97)

 

(144)

 

1

 

5

 

 

 

(96)

 

(139)

Retirement benefits

 

(67)

 

(1,024)

 

(1)

 

4

 

 

 

(68)

 

(1,020)

Other

 

54

 

(102)

 

103

 

(117)

 

(9)

 

48

 

148

 

(171)

13, 14, 17

Net cash provided by (used for) operating activities

 

3,766

 

(646)

 

1,065

 

860

 

(4,978)

 

(1,976)

 

(147)

 

(1,762)

Cash Flows from Investing Activities

Collections of receivables (excluding receivables related to sales)

 

13,169

 

12,004

 

(576)

 

(814)

 

12,593

 

11,190

16

Proceeds from sales of equipment on operating leases

 

993

 

1,035

 

 

 

993

 

1,035

Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold

36

36

Cost of receivables acquired (excluding receivables related to sales)

 

(13,584)

 

(12,260)

 

133

 

289

 

(13,451)

 

(11,971)

16

Acquisitions of businesses, net of cash acquired

(41)

(473)

 

 

 

 

 

(41)

 

(473)

Purchases of property and equipment

 

(583)

 

(345)

 

(1)

 

(1)

 

 

 

(584)

 

(346)

Cost of equipment on operating leases acquired

 

(1,327)

 

(1,090)

 

98

 

86

 

(1,229)

 

(1,004)

17

Increase in investment in Financial Services

(799)

 

 

 

799

 

 

 

20

Increase in trade and wholesale receivables

 

(5,310)

 

(2,159)

 

5,310

 

2,159

 

 

16

Collateral on derivatives – net

6

367

(254)

367

(248)

Other

 

(37)

 

(46)

 

(142)

 

(49)

 

1

 

24

 

(178)

 

(71)

19

Net cash used for investing activities

 

(1,460)

 

(858)

 

(5,799)

 

(2,774)

 

5,765

 

1,744

 

(1,494)

 

(1,888)

Cash Flows from Financing Activities

Increase (decrease) in total short-term borrowings

 

(225)

 

128

 

4,217

 

684

 

 

 

3,992

 

812

Change in intercompany receivables/payables

 

932

 

(424)

 

(932)

 

424

 

 

 

 

Proceeds from long-term borrowings

 

41

 

55

 

4,827

 

4,243

 

 

 

4,868

 

4,298

Payments of long-term borrowings

 

(47)

 

(308)

 

(3,520)

 

(3,317)

 

 

 

(3,567)

 

(3,625)

Proceeds from issuance of common stock

 

30

 

50

30

50

Repurchases of common stock

 

(2,546)

 

(1,226)

(2,546)

(1,226)

Capital investment from Equipment Operations

 

799

(799)

20

Dividends paid

 

(697)

 

(649)

 

(12)

(232)

 

12

232

 

(697)

(649)

15

Other

 

(35)

 

(27)

 

(28)

 

(19)

 

 

 

(63)

 

(46)

Net cash provided by (used for) financing activities

 

(2,547)

 

(2,401)

 

5,351

 

1,783

 

(787)

 

232

 

2,017

 

(386)

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

 

62

 

(113)

 

8

 

3

 

 

 

70

 

(110)

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

 

(179)

 

(4,018)

 

625

 

(128)

 

 

 

446

 

(4,146)

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

$

3,602

$

3,182

$

1,785

$

797

$

5,387

$

3,979

Components of Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents

$

3,587

$

3,167

$

1,680

$

711

$

5,267

$

3,878

Restricted cash (Other assets)

15

15

105

86

120

101

Total Cash, Cash Equivalents, and Restricted Cash

$

3,602

$

3,182

$

1,785

$

797

$

5,387

$

3,979

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 April 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 second 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 second 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)

 

 

Jan 30 to Feb 26

434

 

$

418.32

434

49.8

Feb 27 to Mar 26

1,075

413.41

1,075

48.6

Mar 27 to Apr 30

1,716

393.04

1,716

46.8

Total

3,225

3,225

(1)The Company had a share repurchase plan that was announced in December 2019 to purchase up to $8,000 million of shares of the Company’s common stock. The share repurchases under the December 2019 plan were completed in April 2023. 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 46.8 million shares based on the end of the second quarter 2023 closing share price of $378.02 per share. At the end of the second quarter of 2023, $17,694 million of common stock remains to be repurchased under this plan.

Sales of Unregistered Securities

During the second quarter of 2023, the Company issued 3,930 deferred stock units under the Deere & Company Nonemployee Director Stock Ownership Plan (“NEDSOP”) to the Company’s non-employee directors for their service on the Board of Directors of the Company. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service as described in the plan. Deferred stock units issued under the NEDSOP are exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of the SEC’s Regulation D thereunder.

42

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Not applicable.

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

10.1

364-Day Credit Agreement, dated March 27, 2023, among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, and J.P. Morgan Securities LLC, as Sustainability Structuring Agent

10.2

2027 Credit Agreement, dated March 27, 2023, among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, and J.P. Morgan Securities LLC, as Sustainability Structuring Agent

10.3

2028 Credit Agreement, dated March 27, 2023, among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, and J.P. Morgan Securities LLC, as Sustainability Structuring Agent

10.4

Second Amended Agreement, dated March 27, 2023, between the registrant and John Deere Capital Corporation relating to fixed charges ratio, ownership, and minimum net worth of John Deere Capital Corporation

31.1

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

31.2

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

32

Section 1350 Certifications (furnished herewith)

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

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

*Incorporated by reference.

43

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:

June 1, 2023

By:

/s/ Joshua A. Jepsen

Joshua A. Jepsen
Senior Vice President and Chief Financial Officer

(Principal Financial Officer and

Principal Accounting Officer)

44