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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 9/01/22 Deere & Co. 10-Q 7/31/22 103:24M Toppan Merrill Bridge/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 6.22M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 34K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 34K
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11: R2 Statements of Consolidated Income HTML 131K
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14: R5 Condensed Consolidated Balance Sheets HTML 31K
(Parenthetical)
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16: R7 Statements of Changes in Consolidated HTML 98K
Stockholders' Equity
17: R8 Organization and Consolidation HTML 32K
18: R9 Summary of Significant Accounting Policies and New HTML 33K
Accounting Standards
19: R10 Revenue Recognition HTML 443K
20: R11 Other Comprehensive Income Items HTML 259K
21: R12 Earnings Per Share HTML 64K
22: R13 Pension and Other Postretirement Benefits HTML 96K
23: R14 Segment Reporting HTML 156K
24: R15 Financing Receivables HTML 657K
25: R16 Securitization of Financing Receivables HTML 63K
26: R17 Inventories HTML 50K
27: R18 Goodwill and Other Intangible Assets-Net HTML 104K
28: R19 Short-Term Borrowings HTML 48K
29: R20 Long-Term Borrowings HTML 89K
30: R21 Leases - Lessor HTML 51K
31: R22 Commitments and Contingencies HTML 64K
32: R23 Fair Value Measurements HTML 190K
33: R24 Derivative Instruments HTML 246K
34: R25 Stock Option and Restricted Stock Awards HTML 31K
35: R26 Acquisitions HTML 103K
36: R27 Special Items HTML 203K
37: R28 Summary of Significant Accounting Policies and New HTML 66K
Accounting Standards (Policies)
38: R29 Revenue Recognition (Tables) HTML 437K
39: R30 Other Comprehensive Income Items (Tables) HTML 260K
40: R31 Earnings Per Share (Tables) HTML 63K
41: R32 Pension and Other Postretirement Benefits (Tables) HTML 90K
42: R33 Segment Reporting (Tables) HTML 153K
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45: R36 Inventories (Tables) HTML 50K
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Accounting Standards (Details)
57: R48 REVENUE RECOGNITION - Primary Geographic Market, HTML 150K
Major Product Line, and Timing (Details)
58: R49 REVENUE RECOGNITION - Advanced Customer Payments HTML 32K
(Details)
59: R50 REVENUE RECOGNITION - Unsatisfied Performance HTML 50K
Obligations (Details)
60: R51 OTHER COMPREHENSIVE INCOME ITEMS - After-Tax HTML 43K
Components (Details)
61: R52 OTHER COMPREHENSIVE INCOME ITEMS - Amounts HTML 104K
Recorded in and Reclassifications out of (Details)
62: R53 Earnings Per Share (Details) HTML 65K
63: R54 PENSION AND OTHER POSTRETIREMENT BENEFITS - HTML 110K
Components of Net Periodic Cost (Details)
64: R55 Segment Reporting (Details) HTML 132K
65: R56 FINANCING RECEIVABLES - Financing Receivables Past HTML 35K
Due (Details)
66: R57 FINANCING RECEIVABLES - Retail Notes, Financing HTML 91K
Leases, and Revolving Charge Accounts Credit
Quality Analysis (Details)
67: R58 FINANCING RECEIVABLES - Wholesale Receivables HTML 63K
Credit Quality Analysis (Details)
68: R59 FINANCING RECEIVABLES - Allowance for Credit HTML 67K
Losses (Details)
69: R60 FINANCING RECEIVABLES - Troubled Debt HTML 35K
Restructuring (Details)
70: R61 Securitization of Financing Receivables (Details) HTML 57K
71: R62 Inventories (Details) HTML 41K
72: R63 GOODWILL AND OTHER INTANGIBLE ASSETS-NET - HTML 47K
Goodwill (Details)
73: R64 GOODWILL AND OTHER INTANGIBLE ASSETS-NET - HTML 47K
Intangible Assets (Details)
74: R65 GOODWILL AND OTHER INTANGIBLE ASSETS-NET - HTML 44K
Amortization Expense (Details)
75: R66 Short-Term Borrowings (Details) HTML 37K
76: R67 Long-Term Borrowings (Details) HTML 100K
77: R68 LEASES - LESSOR - Lease Revenues (Details) HTML 40K
78: R69 COMMITMENTS AND CONTINGENCIES - Warranty (Details) HTML 45K
79: R70 COMMITMENTS AND CONTINGENCIES - Other (Details) HTML 42K
80: R71 FAIR VALUE MEASUREMENTS - Financial Instruments HTML 56K
(Details)
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- Recurring (Details)
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84: R75 DERIVATIVE INSTRUMENTS - Cash Flow Hedges HTML 43K
(Details)
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(Details)
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89: R80 DERIVATIVE INSTRUMENTS - Counterparty Risk and HTML 63K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM i 10-Q
(Mark One)
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i July 31, i 2022 /
or
i ☐ 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: i 1-4121
DEERE & COMPANY
(Exact name of registrant as specified in its charter)
| | |
i Delaware | | i 36-2382580 |
i One John Deere Place
i Moline, i Illinois i 61265
(Address of principal executive offices)
Telephone Number: ( i 309) i 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 |
i Common stock, $1 par value | | i DE | | i New York Stock Exchange |
i 6.55% Debentures Due 2028 | | i DE28 | | i 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.
i 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).
i 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.
i Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | i ☐ |
| Emerging growth company | i ☐ |
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 i ☐ No ☒
At July 31, 2022, i 301,819,630 shares of common stock, $1 par value, of the registrant were outstanding.
PART I. FINANCIAL INFORMATION
| | | | | | | | | | | | | |
ITEM 1. FINANCIAL STATEMENTS | | ||||||||||||
DEERE & COMPANY | | ||||||||||||
STATEMENTS OF CONSOLIDATED INCOME | | ||||||||||||
For the Three and Nine Months Ended July 31, 2022 and August 1, 2021 | | ||||||||||||
(In millions of dollars and shares except per share amounts) Unaudited | | ||||||||||||
| | Three Months Ended | | Nine Months Ended | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Net Sales and Revenues | | | | | | | | | | | | | |
Net sales |
| $ | i 13,000 | | $ | i 10,413 |
| $ | i 33,565 | | $ | i 29,461 | |
Finance and interest income | | | i 846 | |
| i 825 | | | i 2,441 | |
| i 2,468 | |
Other income | | | i 256 | |
| i 289 | | | i 1,035 | |
| i 768 | |
Total | | | i 14,102 | |
| i 11,527 | | | i 37,041 | |
| i 32,697 | |
| | | | | | | | | | | | | |
Costs and Expenses | | | | | | | | | | | | | |
Cost of sales | | | i 9,511 | |
| i 7,574 | | | i 25,124 | |
| i 21,307 | |
Research and development expenses | | | i 481 | |
| i 394 | | | i 1,336 | |
| i 1,137 | |
Selling, administrative and general expenses | | | i 959 | |
| i 841 | | | i 2,672 | |
| i 2,448 | |
Interest expense | | | i 296 | |
| i 244 | | | i 713 | |
| i 783 | |
Other operating expenses | | | i 316 | |
| i 324 | | | i 954 | |
| i 1,033 | |
Total | | | i 11,563 | |
| i 9,377 | | | i 30,799 | |
| i 26,708 | |
| | | | | | | | | | | | | |
Income of Consolidated Group before Income Taxes | | | i 2,539 | |
| i 2,150 | | | i 6,242 | |
| i 5,989 | |
Provision for income taxes | | | i 654 | |
| i 491 | | | i 1,364 | |
| i 1,328 | |
| | | | | | | | | | | | | |
Income of Consolidated Group | | | i 1,885 | |
| i 1,659 | | | i 4,878 | |
| i 4,661 | |
Equity in income of unconsolidated affiliates | | | | |
| i 8 | | | i 8 | |
| i 21 | |
| | | | | | | | | | | | | |
Net Income | | | i 1,885 | |
| i 1,667 | | | i 4,886 | |
| i 4,682 | |
Less: Net income attributable to noncontrolling interests | | | i 1 | |
| | | | i 1 | |
| i 2 | |
Net Income Attributable to Deere & Company |
| $ | i 1,884 | | $ | i 1,667 |
| $ | i 4,885 | | $ | i 4,680 | |
| | | | | | | | | | | | | |
Per Share Data | | | | | | | | | | | | | |
Basic |
| $ | i 6.20 | | $ | i 5.36 |
| $ | i 15.97 | | $ | i 14.98 | |
Diluted |
| $ | i 6.16 | | $ | i 5.32 |
| $ | i 15.88 | | $ | i 14.86 | |
Dividends declared | | $ | i 1.13 | | $ | i .90 | | $ | i 3.23 | | $ | i 2.56 | |
Dividends paid | | $ | i 1.05 | | $ | i .90 | | $ | i 3.15 | | $ | i 2.42 | |
| | | | | | | | | | | | | |
Average Shares Outstanding | | | | | | | | | | | | | |
Basic | | | i 304.1 | |
| i 311.0 | | | i 305.8 | |
| i 312.4 | |
Diluted | | | i 305.7 | |
| i 313.4 | | | i 307.7 | |
| i 314.9 | |
| | | | | | | | | | | | | |
See Condensed Notes to Interim Consolidated Financial Statements.
2
| | | | | | | | | | | | | |
DEERE & COMPANY | | ||||||||||||
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME | | ||||||||||||
For the Three and Nine Months Ended July 31, 2022 and August 1, 2021 | | ||||||||||||
(In millions of dollars) Unaudited | | ||||||||||||
| | Three Months Ended | | Nine Months Ended | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
| | | | | | | | | | | | |
|
Net Income |
| $ | i 1,885 | | $ | i 1,667 |
| $ | i 4,886 | | $ | i 4,682 | |
| | | | | | | | | | | | | |
Other Comprehensive Income (Loss), Net of Income Taxes | | | | | | | | | | | | | |
Retirement benefits adjustment | | | i 79 | |
| i 54 | | | ( i 137) | |
| i 208 | |
Cumulative translation adjustment | | | ( i 269) | |
| ( i 114) | | | ( i 784) | |
| i 319 | |
Unrealized gain (loss) on derivatives | | | ( i 1) | |
| i 1 | | | i 41 | |
| i 8 | |
Unrealized gain (loss) on debt securities | | | i 6 | |
| i 8 | | | ( i 57) | |
| ( i 7) | |
Other Comprehensive Income (Loss), Net of Income Taxes | | | ( i 185) | |
| ( i 51) | | | ( i 937) | |
| i 528 | |
| | | | | | | | | | | | | |
Comprehensive Income of Consolidated Group | | | i 1,700 | |
| i 1,616 | | | i 3,949 | |
| i 5,210 | |
Less: Comprehensive income (loss) attributable to noncontrolling interests | | | ( i 3) | |
| | | | ( i 8) | |
| i 2 | |
Comprehensive Income Attributable to Deere & Company |
| $ | i 1,703 | | $ | i 1,616 |
| $ | i 3,957 | | $ | i 5,208 | |
| | | | | | | | | | | | | |
See Condensed Notes to Interim Consolidated Financial Statements.
3
| | | | | | | | | | |
DEERE & COMPANY | | | | | | | | | | |
CONDENSED CONSOLIDATED BALANCE SHEETS | | | | | | | | | | |
(In millions of dollars) Unaudited | | | | | | | | | | |
|
| July 31 |
| October 31 |
| August 1 |
| |||
| | 2022 | | 2021 | | 2021 |
| |||
Assets | | | | | | | | | | |
Cash and cash equivalents |
| $ | i 4,359 | | $ | i 8,017 | | $ | i 7,519 | |
Marketable securities | | | i 719 | |
| i 728 | |
| i 688 | |
Trade accounts and notes receivable – net | | | i 6,696 | |
| i 4,208 | |
| i 5,268 | |
Financing receivables – net | | | i 35,056 | |
| i 33,799 | |
| i 31,449 | |
Financing receivables securitized – net | | | i 5,141 | |
| i 4,659 | |
| i 5,401 | |
Other receivables | | | i 1,999 | |
| i 1,765 | |
| i 1,702 | |
Equipment on operating leases – net | | | i 6,554 | |
| i 6,988 | |
| i 6,982 | |
Inventories | | | i 9,121 | |
| i 6,781 | |
| i 6,410 | |
Property and equipment – net | | | i 5,666 | |
| i 5,820 | |
| i 5,649 | |
Goodwill | | | i 3,754 | |
| i 3,291 | |
| i 3,148 | |
Other intangible assets – net | | | i 1,281 | |
| i 1,275 | |
| i 1,267 | |
Retirement benefits | | | i 3,125 | |
| i 3,601 | |
| i 990 | |
Deferred income taxes | | | i 1,110 | |
| i 1,037 | |
| i 1,767 | |
Other assets | | | i 2,236 | |
| i 2,145 | |
| i 2,448 | |
Total Assets |
| $ | i 86,817 | | $ | i 84,114 | | $ | i 80,688 | |
| | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Short-term borrowings | | $ | i 14,176 | | $ | i 10,919 | | $ | i 10,404 | |
Short-term securitization borrowings | | | i 4,920 | |
| i 4,605 | |
| i 5,277 | |
Accounts payable and accrued expenses | | | i 12,986 | |
| i 12,348 | |
| i 11,207 | |
Deferred income taxes | | | i 561 | |
| i 576 | |
| i 515 | |
Long-term borrowings | | | i 32,132 | |
| i 32,888 | |
| i 32,280 | |
Retirement benefits and other liabilities | | | i 2,911 | |
| i 4,344 | |
| i 5,272 | |
Total liabilities | | | i 67,686 | |
| i 65,680 | |
| i 64,955 | |
| | | | | | | | | | |
Commitments and contingencies (Note 15) | | | | | | | | | | |
Redeemable noncontrolling interest (Note 19) | | | i 95 | | | | | | | |
| | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | | |
Common stock, $ i 1
par value (issued shares at | | | i 5,139 | |
| i 5,054 | |
| i 5,031 | |
Common stock in treasury | | | ( i 22,976) | |
| ( i 20,533) | |
| ( i 19,780) | |
Retained earnings | | | i 40,346 | |
| i 36,449 | |
| i 35,491 | |
Accumulated other comprehensive income (loss) | | | ( i 3,476) | |
| ( i 2,539) | |
| ( i 5,011) | |
Total Deere & Company stockholders’ equity | | | i 19,033 | |
| i 18,431 | |
| i 15,731 | |
Noncontrolling interests | | | i 3 | |
| i 3 | |
| i 2 | |
Total stockholders’ equity | | | i 19,036 | |
| i 18,434 | |
| i 15,733 | |
Total Liabilities and Stockholders’ Equity | | $ | i 86,817 | | $ | i 84,114 | | $ | i 80,688 | |
| | | | | | | | | | |
See Condensed Notes to Interim Consolidated Financial Statements.
4
| | | | | | | |
DEERE & COMPANY | | | | | | | |
STATEMENTS OF CONSOLIDATED CASH FLOWS | | | | | | | |
For the Nine Months Ended July 31, 2022 and August 1, 2021 | | | | | | | |
(In millions of dollars) Unaudited | | | | | | | |
|
| 2022 |
| 2021 |
| ||
Cash Flows from Operating Activities | | |
| | |
| |
Net income |
| $ | i 4,886 | | $ | i 4,682 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Provision (credit) for credit losses | | | i 62 | |
| ( i 17) | |
Provision for depreciation and amortization | | | i 1,443 | |
| i 1,569 | |
Impairment charges | | | i 81 | |
| i 50 | |
Share-based compensation expense | | | i 64 | |
| i 64 | |
Gain on remeasurement of previously held equity investment | | | ( i 326) | |
| | |
Undistributed earnings of unconsolidated affiliates | | | ( i 1) | |
| i 4 | |
Credit for deferred income taxes | | | ( i 6) | |
| ( i 271) | |
Changes in assets and liabilities: | | | | | | | |
Trade, notes, and financing receivables related to sales | | | ( i 2,357) | |
| ( i 444) | |
Inventories | | | ( i 2,526) | |
| ( i 1,817) | |
Accounts payable and accrued expenses | | | ( i 15) | |
| i 742 | |
Accrued income taxes payable/receivable | | | i 82 | |
| i 34 | |
Retirement benefits | | | ( i 1,014) | |
| i 13 | |
Other | | | i 45 | |
| ( i 295) | |
Net cash provided by operating activities | | | i 418 | |
| i 4,314 | |
| | | | | | | |
Cash Flows from Investing Activities | | | | | | | |
Collections of receivables (excluding receivables related to sales) | | | i 15,774 | |
| i 14,480 | |
Proceeds from sales of equipment on operating leases | | | i 1,501 | |
| i 1,510 | |
Cost of receivables acquired (excluding receivables related to sales) | | | ( i 18,578) | |
| ( i 17,161) | |
Acquisitions of businesses, net of cash acquired | | | ( i 488) | |
| ( i 19) | |
Purchases of property and equipment | | | ( i 596) | |
| ( i 492) | |
Cost of equipment on operating leases acquired | | | ( i 1,717) | |
| ( i 1,210) | |
Collateral on derivatives – net | | | ( i 193) | | | ( i 189) | |
Other | | | ( i 133) | |
| ( i 21) | |
Net cash used for investing activities | | | ( i 4,430) | |
| ( i 3,102) | |
| | | | | | | |
Cash Flows from Financing Activities | | | | | | | |
Increase in total short-term borrowings | | | i 4,267 | |
| i 929 | |
Proceeds from long-term borrowings | | | i 6,281 | |
| i 5,877 | |
Payments of long-term borrowings | | | ( i 6,578) | |
| ( i 5,172) | |
Proceeds from issuance of common stock | | | i 55 | |
| i 136 | |
Repurchases of common stock | | | ( i 2,477) | |
| ( i 1,780) | |
Dividends paid | | | ( i 971) | |
| ( i 761) | |
Other | | | ( i 62) | |
| ( i 80) | |
Net cash provided by (used for) financing activities | | | i 515 | |
| ( i 851) | |
| | | | | | | |
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | | | ( i 143) | |
| i 106 | |
| | | | | | | |
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | | | ( i 3,640) | | | i 467 | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | | | i 8,125 | |
| i 7,172 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | | $ | i 4,485 | | $ | i 7,639 | |
| | | | | | | |
Components of cash, cash equivalents, and restricted cash | | | | | | | |
Cash and cash equivalents | | $ | i 4,359 | | $ | i 7,519 | |
Restricted cash (Other assets) | | | i 126 | | | i 120 | |
Total cash, cash equivalents, and restricted cash | | $ | i 4,485 | | $ | i 7,639 | |
| | | | | | | |
See Condensed Notes to Interim Consolidated Financial Statements.
5
| | | | | | | | | | | | | | | | | | | | | | | |
DEERE & COMPANY | | ||||||||||||||||||||||
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY | | ||||||||||||||||||||||
For the Three and Nine Months Ended July 31, 2022 and August 1, 2021 | | ||||||||||||||||||||||
(In millions of dollars) Unaudited | | ||||||||||||||||||||||
| | | | | Total Stockholders’ Equity | | | | | | |||||||||||||
| | | | | Deere & Company Stockholders | | |
| | | | | | ||||||||||
| | | | | | | | | | Accumulated | | | | | | | |||||||
| | Total | | | | | | | | Other | | | | | Redeemable | | |||||||
| | Stockholders’ | | Common | | Treasury | | Retained | | Comprehensive | | Noncontrolling | | | Noncontrolling | | |||||||
|
| Equity |
| Stock |
| Stock |
| Earnings |
| Income (Loss) |
| Interests |
|
| Interest | | |||||||
| | | | | | | | | | | | | | | | | |
| | | |
| |
Three Months Ended August 1, 2021 | | | | | | | | | | | | | | | | | | | | | |||
Balance May 2, 2021 |
| $ | i 15,096 | | $ | i 4,999 | | $ | ( i 19,052) | | $ | i 34,105 | | $ | ( i 4,960) | | $ | i 4 | | | | | |
Net income | |
| i 1,667 | | | | | | | | | i 1,667 | | | | | | | | | | | |
Other comprehensive loss | |
| ( i 51) | | | | | | | | | | | | ( i 51) | | | | | | | | |
Repurchases of common stock | |
| ( i 736) | | | | | | ( i 736) | | | | | | | | | | | | | | |
Treasury shares reissued | |
| i 8 | | | | | | i 8 | | | | | | | | | | | | | | |
Dividends declared | |
| ( i 282) | | | | | | | | | ( i 280) | | | | | | ( i 2) | | | | | |
Stock options and other | |
| i 31 | | | i 32 | | | | | | ( i 1) | | | | | | | | | | | |
Balance August 1, 2021 | | $ | i 15,733 | | $ | i 5,031 | | $ | ( i 19,780) | | $ | i 35,491 | | $ | ( i 5,011) | | $ | i 2 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended August 1, 2021 | | | | | | | | | | | | | | |
| | | |
| | |||
Balance November 1, 2020 |
| $ | i 12,944 | | $ | i 4,895 | | $ | ( i 18,065) | | $ | i 31,646 | | $ | ( i 5,539) | | $ | i 7 | | | | |
|
ASU No. 2016-13 adoption | | | ( i 35) | | | | | | | | | ( i 35) | | | | | | | | | | | |
Net income | |
| i 4,682 | | | | | | | | | i 4,680 | | | | | | i 2 | | | | | |
Other comprehensive income | |
| i 528 | | | | | | | | | | | | i 528 | | | | | | | | |
Repurchases of common stock | |
| ( i 1,780) | | | | | | ( i 1,780) | | | | | | | | | | | | | | |
Treasury shares reissued | |
| i 65 | | | | | | i 65 | | | | | | | | | | | | | | |
Dividends declared | |
| ( i 802) | | | | | | | | | ( i 800) | | | | | | ( i 2) | | | | | |
Stock options and other | |
| i 131 | | | i 136 | | | | | | | | | | | | ( i 5) | | | | | |
Balance August 1, 2021 | | $ | i 15,733 | | $ | i 5,031 | | $ | ( i 19,780) | | $ | i 35,491 | | $ | ( i 5,011) | | $ | i 2 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended July 31, 2022 | | | | | | | | | | | | | | | | | | | | | |||
Balance May 1, 2022 | | $ | i 18,907 | | $ | i 5,117 | | $ | ( i 21,727) | | $ | i 38,805 | | $ | ( i 3,291) | | $ | i 3 | | | $ | i 99 | |
Net income | | | i 1,884 | | | | | | | | | i 1,884 | | | | | | | | | | i 1 | |
Other comprehensive loss | | | ( i 185) | | | | | | | | | | | | ( i 185) | | | | | | | ( i 4) | |
Repurchases of common stock | | | ( i 1,251) | | | | | | ( i 1,251) | | | | | | | | | | | | | | |
Treasury shares reissued | | | i 2 | | | | | | i 2 | | | | | | | | | | | | | | |
Dividends declared | | | ( i 343) | | | | | | | | | ( i 343) | | | | | | | | | | | |
Stock options and other | | | i 22 | | | i 22 | | | | | | | | | | | | | | | | ( i 1) | |
Balance July 31, 2022 | | $ | i 19,036 | | $ | i 5,139 | | $ | ( i 22,976) | | $ | i 40,346 | | $ | ( i 3,476) | | $ | i 3 | | | $ | i 95 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended July 31, 2022 | | | | | | | | | | | | | | | | | | | | | |||
Balance October 31, 2021 | | $ | i 18,434 | | $ | i 5,054 | | $ | ( i 20,533) | | $ | i 36,449 | | $ | ( i 2,539) | | $ | i 3 | | | | | |
Acquisitions (see Note 19) | | | | | | | | | | | | | | | | | | | | | $ | i 105 | |
Net income (loss) | | | i 4,887 | | | | | | | | | i 4,885 | | | | | | i 2 | | | | ( i 1) | |
Other comprehensive loss | | | ( i 937) | | | | | | | | | | | | ( i 937) | | | | | | | ( i 9) | |
Repurchases of common stock | | | ( i 2,477) | | | | | | ( i 2,477) | | | | | | | | | | | | | | |
Treasury shares reissued | | | i 34 | | | | | | i 34 | | | | | | | | | | | | | | |
Dividends declared | | | ( i 990) | | | | | | | | | ( i 988) | | | | | | ( i 2) | | | | | |
Stock options and other | | | i 85 | | | i 85 | | | | | | | | | | | | | | | | | |
Balance July 31, 2022 | | $ | i 19,036 | | $ | i 5,139 | | $ | ( i 22,976) | | $ | i 40,346 | | $ | ( i 3,476) | | $ | i 3 | | | $ | i 95 | |
| | | | | | | | | | | | | | | | | | | | | | | |
See Condensed Notes to Interim Consolidated Financial Statements.
6
Condensed Notes to Interim Consolidated Financial Statements (Unaudited)
i(1) Organization and Consolidation
Deere & Company has been developing innovative solutions to help our customers become more profitable for 185 years. References to Deere & Company, John Deere, Deere, or the Company include our consolidated subsidiaries, including our 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 agriculture and turf include both production and precision agriculture and small agriculture and turf.
iThe Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The third quarter ends for fiscal year 2022 and 2021 were July 31, 2022 and August 1, 2021, respectively. Both third quarters contained i i 13 / weeks, while both year-to-date periods contained i i 39 / weeks. Unless otherwise stated, references to particular years or quarters refer to the Company’s fiscal years generally ending in October and the associated periods in those fiscal years.
/Prior to fiscal year 2021, the operating results of the Wirtgen Group (Wirtgen) were incorporated into the Company’s consolidated financial statements using a one-month lag period. The reporting lag was eliminated resulting in one additional month of Wirtgen activity in both the first quarter and the year-to-date period of 2021. The effect was an increase to Net sales of $ i i 270 / million, which the Company considers immaterial to construction and forestry’s annual Net sales.
As a result of recent acquisitions (see Note 19), the Company updated the presentation on the consolidated balance sheet to remove the following lines: Receivables from unconsolidated affiliates, Investments in unconsolidated affiliates, and Payables to unconsolidated affiliates. These balances are now immaterial to the Company’s consolidated balance sheet and have been reclassified into Other receivables, Other assets, and Accounts payable and accrued expenses, respectively.
The Company consolidates certain VIEs related to retail note securitizations (see Note 9).
/
i(2) Summary of Significant Accounting Policies and New Accounting Standards
Quarterly Financial Statements
The interim consolidated financial statements of Deere & Company have been prepared by the Company, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes the disclosures are adequate to present fairly the financial position, results of operations, and cash flows at the dates and for the periods presented. It is suggested these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest Annual Report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.
Use of Estimates in Financial Statements
iThe preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.
Revenue Recognition
i Prior to fiscal year 2022, certain goods were shipped to Canadian dealers on a consignment basis under which the risk and rewards of ownership were not transferred to the dealer at the time the goods were delivered. Accordingly, sales were not recorded until a retail customer purchased the goods. The dealer contract in Canada was changed for goods delivered after November 1, 2021, resulting in transfer of control and revenue recognition upon delivery. For certain goods delivered to Canadian dealers prior to November 1, 2021, the dealer consignment terms already in place remain in effect. As of July 31, 2022 and October 31, 2021, the remaining consigned inventory was $ i 26 million and $ i 150 million, respectively.
New Accounting Standards
The Company closely monitors all Accounting Standard Updates (ASUs) issued by the Financial Accounting Standards Board and other authoritative guidance. ASUs adopted in 2022 did not have a material impact on the Company’s financial statements, and ASUs to be adopted in future periods are being evaluated and at this point are not expected to have a material impact on the Company’s financial statements.
/
7
(3) Revenue Recognition
iThe Company’s Net sales and revenues by primary geographic market, major product line, and timing of revenue recognition in millions of dollars follow:
| | | | | | | | | | | | | | | | |
| | Three Months Ended July 31, 2022 | | |||||||||||||
|
| Production & Precision Ag |
| Small Ag & Turf |
| Construction |
| Financial |
| Total | | |||||
Primary geographic markets: | | | | | | | | | | | |
| | |
| |
United States | | $ | i 2,904 | | $ | i 2,177 | | $ | i 1,789 | | $ | i 602 | | $ | i 7,472 | |
Canada | | | i 451 | | | i 185 | | | i 288 | |
| i 149 | |
| i 1,073 | |
Western Europe | | | i 645 | | | i 646 | | | i 380 | |
| i 25 | |
| i 1,696 | |
Central Europe and CIS | | | i 348 | | | i 109 | | | i 111 | |
| i 14 | |
| i 582 | |
Latin America | | | i 1,327 | | | i 155 | | | i 459 | |
| i 77 | |
| i 2,018 | |
Asia, Africa, Australia, New Zealand, and Middle East | | | i 510 | | | i 419 | | | i 296 | | | i 36 | | | i 1,261 | |
Total | | $ | i 6,185 | | $ | i 3,691 | | $ | i 3,323 | | $ | i 903 | | $ | i 14,102 | |
| | | | | | | | | | | | | | | | |
Major product lines: | | | | | | | | | | | |
| | |
| |
Production agriculture | | $ | i 6,019 | | | | | | | | | | | $ | i 6,019 | |
Small agriculture | | | | | $ | i 2,705 | | | | |
| | |
| i 2,705 | |
Turf | | | | | | i 842 | | | | |
| | |
| i 842 | |
Construction | | | | | | | | $ | i 1,506 | |
| | |
| i 1,506 | |
Compact construction | | | | | | | | | i 460 | | | | | | i 460 | |
Roadbuilding | | | | | | | | | i 910 | |
| | |
| i 910 | |
Forestry | | | | | | | | | i 316 | |
| | |
| i 316 | |
Financial products | | | i 17 | | | i 15 | | | i 6 | | $ | i 903 | |
| i 941 | |
Other | | | i 149 | | | i 129 | | | i 125 | |
| | |
| i 403 | |
Total | | $ | i 6,185 | | $ | i 3,691 | | $ | i 3,323 | | $ | i 903 | | $ | i 14,102 | |
| | | | | | | | | | | | | | | | |
Revenue recognized: | | | | | | | | | | | |
| | |
| |
At a point in time | | $ | i 6,154 | | $ | i 3,672 | | $ | i 3,303 | | $ | i 27 | | $ | i 13,156 | |
Over time | | | i 31 | | | i 19 | | | i 20 | | | i 876 | | | i 946 | |
Total | | $ | i 6,185 | | $ | i 3,691 | | $ | i 3,323 | | $ | i 903 | | $ | i 14,102 | |
| | | | | | | | | | | | | | | | |
|
| Nine Months Ended July 31, 2022 | | |||||||||||||
| | Production & Precision Ag |
| Small Ag & Turf |
| Construction |
| Financial |
| Total | | |||||
Primary geographic markets: | | | | | | | | | | | | | | | | |
United States | | $ | i 6,946 | | $ | i 5,718 | | $ | i 5,157 | | $ | i 1,744 | | $ | i 19,565 | |
Canada | | | i 899 | | | i 468 | | | i 975 | |
| i 450 | |
| i 2,792 | |
Western Europe | | | i 1,648 | | | i 1,836 | | | i 1,202 | |
| i 76 | |
| i 4,762 | |
Central Europe and CIS | | | i 954 | | | i 386 | | | i 452 | |
| i 36 | |
| i 1,828 | |
Latin America | | | i 3,229 | | | i 393 | | | i 1,020 | |
| i 218 | |
| i 4,860 | |
Asia, Africa, Australia, New Zealand, and Middle East | | | i 1,118 | | | i 1,170 | | | i 833 | | | i 113 | | | i 3,234 | |
Total | | $ | i 14,794 | | $ | i 9,971 | | $ | i 9,639 | | $ | i 2,637 | | $ | i 37,041 | |
| | | | | | | | | | | | | | | | |
Major product lines: | | | | | | | | | | | |
| | |
| |
Production agriculture | | $ | i 14,333 | | | | | | | | | | | $ | i 14,333 | |
Small agriculture | | | | | $ | i 7,305 | | | | |
| | |
| i 7,305 | |
Turf | | | | | | i 2,286 | | | | |
| | |
| i 2,286 | |
Construction | | | | | | | | $ | i 4,198 | |
| | |
| i 4,198 | |
Compact construction | | | | | | | | | i 1,208 | | | | | | i 1,208 | |
Roadbuilding | | | | | | | | | i 2,619 | |
| | |
| i 2,619 | |
Forestry | | | | | | | | | i 946 | | | | |
| i 946 | |
Financial products | | | i 39 | | | i 35 | | | i 17 | | $ | i 2,637 | |
| i 2,728 | |
Other | | | i 422 | | | i 345 | | | i 651 | |
| | |
| i 1,418 | |
Total | | $ | i 14,794 | | $ | i 9,971 | | $ | i 9,639 | | $ | i 2,637 | | $ | i 37,041 | |
| | | | | | | | | | | | | | | | |
Revenue recognized: | | | | | | | | | | | |
| | |
| |
At a point in time | | $ | i 14,694 | | $ | i 9,919 | | $ | i 9,580 | | $ | i 77 | | $ | i 34,270 | |
Over time | | | i 100 | | | i 52 | | | i 59 | | | i 2,560 | | | i 2,771 | |
Total | | $ | i 14,794 | | $ | i 9,971 | | $ | i 9,639 | | $ | i 2,637 | | $ | i 37,041 | |
/ /8
| | | | | | | | | | | | | | | | |
| | Three Months Ended August 1, 2021 | | |||||||||||||
|
| Production & Precision Ag |
| Small Ag & Turf |
| Construction |
| Financial |
| Total | | |||||
Primary geographic markets: | | | | | | | | | | | |
| | |
| |
United States | | $ | i 1,995 | | $ | i 1,753 | | $ | i 1,559 | | $ | i 605 | | $ | i 5,912 | |
Canada | | | i 253 | | | i 153 | | | i 285 | |
| i 162 | |
| i 853 | |
Western Europe | | | i 566 | | | i 679 | | | i 455 | | | i 27 | |
| i 1,727 | |
Central Europe and CIS | | | i 398 | | | i 117 | | | i 241 | | | i 10 | |
| i 766 | |
Latin America | | | i 758 | | | i 125 | | | i 227 | | | i 60 | |
| i 1,170 | |
Asia, Africa, Australia, New Zealand, and Middle East | | | i 368 | | | i 385 | | | i 308 | | | i 38 | | | i 1,099 | |
Total | | $ | i 4,338 | | $ | i 3,212 | | $ | i 3,075 | | $ | i 902 | | $ | i 11,527 | |
| | | | | | | | | | | | | | | | |
Major product lines: | | | | | | | | | | | |
| | |
| |
Production agriculture | | $ | i 4,179 | | | | | | | | | | | $ | i 4,179 | |
Small agriculture | | | | | $ | i 2,355 | | | | |
| | |
| i 2,355 | |
Turf | | | | | | i 719 | | | | |
| | |
| i 719 | |
Construction | | | | | | | | $ | i 1,283 | |
| | |
| i 1,283 | |
Compact construction | | | | | | | | | i 398 | | | | | | i 398 | |
Roadbuilding | | | | | | | | | i 948 | |
| | |
| i 948 | |
Forestry | | | | | | | | | i 342 | |
| | |
| i 342 | |
Financial products | | | i 13 | | | i 12 | | | i 5 | | $ | i 902 | |
| i 932 | |
Other | | | i 146 | | | i 126 | | | i 99 | |
| | |
| i 371 | |
Total | | $ | i 4,338 | | $ | i 3,212 | | $ | i 3,075 | | $ | i 902 | | $ | i 11,527 | |
| | | | | | | | | | | | | | | | |
Revenue recognized: | | | | | | | | | | | |
| | |
| |
At a point in time | | $ | i 4,293 | | $ | i 3,191 | | $ | i 3,052 | | $ | i 27 | | $ | i 10,563 | |
Over time | | | i 45 | | | i 21 | | | i 23 | | | i 875 | | | i 964 | |
Total | | $ | i 4,338 | | $ | i 3,212 | | $ | i 3,075 | | $ | i 902 | | $ | i 11,527 | |
| | | | | | | | | | | | | | | | |
| | Nine Months Ended August 1, 2021 | | |||||||||||||
|
| Production & Precision Ag |
| Small Ag & Turf |
| Construction |
| Financial |
| Total | | |||||
Primary geographic markets: | | | | | | | | | | | | | | | | |
United States | | $ | i 5,814 | | $ | i 5,014 | | $ | i 4,242 | | $ | i 1,812 | | $ | i 16,882 | |
Canada | | | i 617 | | | i 376 | | | i 793 | | | i 469 | |
| i 2,255 | |
Western Europe | | | i 1,604 | | | i 1,903 | | | i 1,408 | | | i 77 | |
| i 4,992 | |
Central Europe and CIS | | | i 1,090 | | | i 361 | | | i 628 | | | i 28 | |
| i 2,107 | |
Latin America | | | i 1,971 | | | i 305 | | | i 617 | | | i 179 | |
| i 3,072 | |
Asia, Africa, Australia, New Zealand, and Middle East | | | i 991 | | | i 1,230 | | | i 1,054 | | | i 114 | | | i 3,389 | |
Total | | $ | i 12,087 | | $ | i 9,189 | | $ | i 8,742 | | $ | i 2,679 | | $ | i 32,697 | |
| | | | | | | | | | | | | | | | |
Major product lines: | | | | | | | | | | | |
| | |
| |
Production agriculture | | $ | i 11,656 | | | | | | | | | | | $ | i 11,656 | |
Small agriculture | | | | | $ | i 6,583 | | | | | | | |
| i 6,583 | |
Turf | | | | | | i 2,268 | | | | | | | |
| i 2,268 | |
Construction | | | | | | | | $ | i 3,402 | | | | |
| i 3,402 | |
Compact construction | | | | | | | | | i 1,140 | | | | | | i 1,140 | |
Roadbuilding | | | | | | | | | i 2,924 | | | | |
| i 2,924 | |
Forestry | | | | | | | | | i 975 | | | | |
| i 975 | |
Financial products | | | i 41 | | | i 32 | | | i 17 | | $ | i 2,679 | |
| i 2,769 | |
Other | | | i 390 | | | i 306 | | | i 284 | | | | |
| i 980 | |
Total | | $ | i 12,087 | | $ | i 9,189 | | $ | i 8,742 | | $ | i 2,679 | | $ | i 32,697 | |
| | | | | | | | | | | | | | | | |
Revenue recognized: | | | | | | | | | | | |
| | |
| |
At a point in time | | $ | i 11,960 | | $ | i 9,137 | | $ | i 8,666 | | $ | i 77 | | $ | i 29,840 | |
Over time | | | i 127 | | | i 52 | | | i 76 | | | i 2,602 | | | i 2,857 | |
Total | | $ | i 12,087 | | $ | i 9,189 | | $ | i 8,742 | | $ | i 2,679 | | $ | i 32,697 | |
9
The Company invoices in advance of recognizing the sale of certain products and the revenue for certain services. These items are primarily for premiums for extended warranties, advance payments for future equipment sales, and subscription and service revenue related to precision guidance and telematic services. These advanced customer payments are presented as deferred revenue, a contract liability, in Accounts payable and accrued expenses in the consolidated balance sheets. The deferred revenue received, but not recognized in revenue, including extended warranty premiums also shown in Note 15, was $ i 1,424 million, $ i 1,344 million, and $ i 1,259 million at July 31, 2022, October 31, 2021, and August 1, 2021, respectively. The contract liability is reduced as the revenue is recognized. During the three months ended July 31, 2022 and August 1, 2021, $ i 93 million and $ i 108 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year. During the nine months ended July 31, 2022 and August 1, 2021, $ i 488 million and $ i 442 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year.
The amount of unsatisfied performance obligations for contracts with an original duration greater than one year is $ i 1,167 million at July 31, 2022. The estimated revenue to be recognized by fiscal year follows in millions of dollars: remainder of 2022 - $ i 104, 2023 - $ i 337, 2024 - $ i 283, 2025 - $ i 196, 2026 - $ i 109, 2027 - $ i 60 and later years - $ i 78. As permitted, the Company elected only to disclose remaining performance obligations with an original contract duration greater than one year. The contracts with an expected duration of one year or less are generally for sales of equipment, service parts, repair services, and certain telematics services.
i(4) Other Comprehensive Income Items
iThe after-tax components of accumulated other comprehensive income (loss) in millions of dollars follow:
| | | | | | | | | | |
| | July 31 | | October 31 | | August 1 | | |||
| | 2022 | | 2021 | | 2021 | | |||
Retirement benefits adjustment | | $ | ( i 1,171) | | $ | ( i 1,034) | | $ | ( i 3,710) | |
Cumulative translation adjustment | | | ( i 2,262) | | | ( i 1,478) | | | ( i 1,277) | |
Unrealized loss on derivatives | | | ( i 1) | | | ( i 42) | | | ( i 50) | |
Unrealized gain (loss) on debt securities | | | ( i 42) | | | i 15 | | | i 26 | |
Total accumulated other comprehensive income (loss) | | $ | ( i 3,476) | | $ | ( i 2,539) | | $ | ( i 5,011) | |
iFollowing 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/curtailment are included in net periodic pension and other postretirement benefit costs (see Note 6).
| | | | | | | | | | |
|
| Before |
| Tax |
| After |
| |||
| | Tax | | (Expense) | | Tax |
| |||
Three Months Ended July 31, 2022 | | Amount | | Credit | | Amount |
| |||
Cumulative translation adjustment | | $ | ( i 267) | | $ | ( i 2) | | $ | ( i 269) | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | |
Unrealized hedging gain (loss) | | | i 1 | | | | | | i 1 | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Interest rate contracts – Interest expense | | | ( i 3) | | | i 1 | | | ( i 2) | |
Net unrealized gain (loss) on derivatives | | | ( i 2) | | | i 1 | | | ( i 1) | |
Unrealized gain (loss) on debt securities: | | | | | | | | | | |
Unrealized holding gain (loss) | | | i 6 | | | ( i 1) | | | i 5 | |
Reclassification of realized (gain) loss – Other income | | | i 1 | | | | | | i 1 | |
Net unrealized gain (loss) on debt securities | | | i 7 | | | ( i 1) | | | i 6 | |
Retirement benefits adjustment: | | | | | | | | | | |
Net actuarial gain (loss) | | | i 34 | | | ( i 9) | | | i 25 | |
Reclassification to Other operating expenses through amortization of: | | | | | | | | | | |
Actuarial (gain) loss | | | i 27 | | | ( i 7) | | | i 20 | |
Prior service (credit) cost | | | i 8 | | | ( i 2) | | | i 6 | |
Settlements/curtailment | | | i 36 | | | ( i 8) | | | i 28 | |
Net unrealized gain (loss) on retirement benefits adjustment | | | i 105 | | | ( i 26) | | | i 79 | |
Total other comprehensive income (loss) |
| $ | ( i 157) | | $ | ( i 28) | | $ | ( i 185) | |
/ /10
| | | | | | | | | | |
|
| Before |
| Tax |
| After |
| |||
| | Tax | | (Expense) | | Tax |
| |||
Nine Months Ended July 31, 2022 | | Amount | | Credit | | Amount |
| |||
Cumulative translation adjustment |
| $ | ( i 774) | | $ | ( i 10) | | $ | ( i 784) | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | |
Unrealized hedging gain (loss) | | | i 52 | | | ( i 11) | | | i 41 | |
Net unrealized gain (loss) on derivatives | | | i 52 | | | ( i 11) | | | i 41 | |
Unrealized gain (loss) on debt securities: | | | | | | | | | | |
Unrealized holding gain (loss) | | | ( i 74) | | | i 16 | | | ( i 58) | |
Reclassification of realized (gain) loss – Other income | | | i 1 | | | | | | i 1 | |
Net unrealized gain (loss) on debt securities | | | ( i 73) | | | i 16 | | | ( i 57) | |
Retirement benefits adjustment: | | | | | | | | | | |
Net actuarial gain (loss) and prior service (cost) | | | ( i 338) | | | i 81 | | | ( i 257) | |
Reclassification to Other operating expenses through amortization of: | | | | | | | | | | |
Actuarial (gain) loss | | | i 94 | | | ( i 24) | | | i 70 | |
Prior service (credit) cost | | | i 22 | | | ( i 6) | | | i 16 | |
Settlements/curtailment | | | i 44 | | | ( i 10) | | | i 34 | |
Net unrealized gain (loss) on retirement benefits adjustment | | | ( i 178) | | | i 41 | | | ( i 137) | |
Total other comprehensive income (loss) |
| $ | ( i 973) | | $ | i 36 | | $ | ( i 937) | |
| | | | | | | | | | |
|
| Before |
| Tax |
| After |
| |||
| | Tax | | (Expense) | | Tax |
| |||
Three Months Ended August 1, 2021 | | Amount | | Credit | | Amount |
| |||
Cumulative translation adjustment |
| $ | ( i 112) | | $ | ( i 2) | | $ | ( i 114) | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | |
Unrealized hedging gain (loss) | | | ( i 1) | | | | | | ( i 1) | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Interest rate contracts – Interest expense | | | i 3 | | | ( i 1) | | | i 2 | |
Net unrealized gain (loss) on derivatives | | | i 2 | | | ( i 1) | | | i 1 | |
Unrealized gain (loss) on debt securities: | | | | | | | | | | |
Unrealized holding gain (loss) | | | i 11 | | | ( i 3) | | | i 8 | |
Net unrealized gain (loss) on debt securities | | | i 11 | | | ( i 3) | | | i 8 | |
Retirement benefits adjustment: | | | | | | | | | | |
Net actuarial gain (loss) | | | ( i 5) | | | i 1 | | | ( i 4) | |
Reclassification to Other operating expenses through amortization of: | | | | | | | | | | |
Actuarial (gain) loss | | | i 71 | | | ( i 17) | | | i 54 | |
Prior service (credit) cost | | | i 1 | | | | | | i 1 | |
Settlements | | | i 4 | | | ( i 1) | | | i 3 | |
Net unrealized gain (loss) on retirement benefits adjustment | | | i 71 | | | ( i 17) | | | i 54 | |
Total other comprehensive income (loss) |
| $ | ( i 28) | | $ | ( i 23) | | $ | ( i 51) | |
11
| | | | | | | | | | |
|
| Before |
| Tax |
| After |
| |||
| | Tax | | (Expense) | | Tax |
| |||
Nine Months Ended August 1, 2021 | | Amount | | Credit | | Amount |
| |||
Cumulative translation adjustment |
| $ | i 319 |
| | | | $ | i 319 | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | |
Unrealized hedging gain (loss) | | | ( i 1) | | | | | | ( i 1) | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Interest rate contracts – Interest expense | | | i 11 | | $ | ( i 2) | | | i 9 | |
Net unrealized gain (loss) on derivatives | | | i 10 | | | ( i 2) | | | i 8 | |
Unrealized gain (loss) on debt securities: | | | | | | | | | | |
Unrealized holding gain (loss) | | | ( i 6) | | | ( i 1) | | | ( i 7) | |
Net unrealized gain (loss) on debt securities | | | ( i 6) | | | ( i 1) | | | ( i 7) | |
Retirement benefits adjustment: | | | | | | | | | | |
Net actuarial gain (loss) | | | i 35 | | | ( i 8) | | | i 27 | |
Reclassification to Other operating expenses through amortization of: | | | | | | | | | | |
Actuarial (gain) loss | | | i 213 | | | ( i 53) | | | i 160 | |
Prior service (credit) cost | | | i 5 | | | ( i 1) | | | i 4 | |
Settlements | | | i 22 | | | ( i 5) | | | i 17 | |
Net unrealized gain (loss) on retirement benefits adjustment | | | i 275 | | | ( i 67) | | | i 208 | |
Total other comprehensive income (loss) |
| $ | i 598 | | $ | ( i 70) | | $ | i 528 | |
i(5) Earnings Per Share
iA reconciliation of basic and diluted net income per share attributable to Deere & Company follows in millions, except per share amounts:
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| ||||||||
| | July 31 | | August 1 | | July 31 | | August 1 |
| ||||
| | 2022 | | 2021 | | 2022 | | 2021 |
| ||||
Net income attributable to Deere & Company |
| $ | i 1,884 |
| $ | i 1,667 |
| $ | i 4,885 |
| $ | i 4,680 | |
Average shares outstanding | | | i 304.1 | |
| i 311.0 | | | i 305.8 | |
| i 312.4 | |
Basic per share | | $ | i 6.20 | | $ | i 5.36 | | $ | i 15.97 | | $ | i 14.98 | |
| | | | | | | | | | | | | |
Average shares outstanding | | | i 304.1 | |
| i 311.0 | | | i 305.8 | |
| i 312.4 | |
Effect of dilutive share-based compensation | | | i 1.6 | |
| i 2.4 | | | i 1.9 | |
| i 2.5 | |
Total potential shares outstanding | | | i 305.7 | |
| i 313.4 | | | i 307.7 | |
| i 314.9 | |
Diluted per share | | $ | i 6.16 | | $ | i 5.32 | | $ | i 15.88 | | $ | i 14.86 | |
During both the third quarter and first nine months of 2022, i i .2 / million shares were excluded from the computation because the incremental shares would have been antidilutive.
/
12
(6) Pension and Other Postretirement Benefits
The Company has several defined benefit pension plans and postretirement benefit (OPEB) plans, primarily health care and life insurance plans, covering its U.S. employees and employees in certain foreign countries.
iThe components of net periodic pension cost consisted of the following in millions of dollars:
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| ||||||||
| | July 31 | | August 1 | | July 31 | | August 1 |
| ||||
| | 2022 | | 2021 | | 2022 | | 2021 |
| ||||
Service cost |
| $ | i 86 |
| $ | i 83 |
| $ | i 265 |
| $ | i 251 | |
Interest cost | | | i 85 | |
| i 69 | | | i 242 | |
| i 207 | |
Expected return on plan assets | | | ( i 182) | |
| ( i 199) | | | ( i 544) | |
| ( i 599) | |
Amortization of actuarial loss | | | i 31 | |
| i 64 | | | i 107 | |
| i 192 | |
Amortization of prior service cost | | | i 9 | |
| i 2 | | | i 25 | |
| i 8 | |
Settlements/curtailment | | | i 36 | |
| i 4 | | | i 44 | |
| i 22 | |
Net cost | | $ | i 65 | | $ | i 23 | | $ | i 139 | | $ | i 81 | |
The components of net periodic OPEB cost consisted of the following in millions of dollars:
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| ||||||||
| | July 31 | | August 1 | | July 31 | | August 1 |
| ||||
| | 2022 | | 2021 | | 2022 | | 2021 |
| ||||
Service cost |
| $ | i 11 |
| $ | i 12 |
| $ | i 34 |
| $ | i 36 | |
Interest cost | | | i 25 | |
| i 25 | | | i 74 | |
| i 76 | |
Expected return on plan assets | | | ( i 28) | |
| ( i 19) | | | ( i 83) | |
| ( i 58) | |
Amortization of actuarial (gain) loss | | | ( i 4) | |
| i 7 | | | ( i 13) | |
| i 21 | |
Amortization of prior service credit | | | ( i 1) | |
| ( i 1) | | | ( i 3) | |
| ( i 3) | |
Net cost | | $ | i 3 | | $ | i 24 | | $ | i 9 | | $ | i 72 | |
The components of net periodic pension and OPEB costs excluding the service cost component are included in the line item Other operating expenses in the statements of consolidated income.
On November 17, 2021, employees represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) approved a new collective bargaining agreement. In the first quarter of 2022, the Company remeasured the U.S. hourly pension plan due to the new collective bargaining agreement, which decreased the plan’s funded status by approximately $ i 495 million and will increase pension expense in 2022 by nearly $ i 80 million with $ i 35 million negatively impacting operating profit in 2022.
During the third quarter of 2022, the Company remeasured the U.S. hourly pension plan when i 10 percent of active, eligible employees elected to freeze their defined benefit pension plan benefit for an enhanced defined contribution benefit. The remeasurement resulted in a $ i 34 million curtailment loss, while the impact to the plan’s funded status was not material.
During the first nine months of 2022, the Company contributed $ i 67 million to its pension plans and $ i 1,109 million to its OPEB plans. The OPEB contributions include a voluntary contribution of $ i 1,000 million to a U.S. plan on November 30, 2021. The Company presently anticipates contributing an additional $ i 16 million to its pension plans and $ i 28 million to its OPEB plans during the remainder of 2022. The remaining pension and OPEB contributions are primarily direct benefit payments from Company funds.
/
13
(7) Segment Reporting
iWorldwide Net sales and revenues, operating profit, and identifiable assets by segment were as follows in millions of dollars:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| ||||||||||||
| | July 31 | | August 1 | | % | | July 31 | | August 1 | | % |
| ||||
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
| ||||
Net sales and revenues: |
| |
|
| |
|
|
|
| | |
| |
|
|
| |
Production & precision ag net sales |
| $ | i 6,096 | | $ | i 4,250 | | + i 43 |
| $ | i 14,568 | | $ | i 11,848 | | + i 23 | |
Small ag & turf net sales | | | i 3,635 | | | i 3,147 | | + i 16 | | | i 9,836 | | | i 9,051 | | + i 9 | |
Construction & forestry net sales | | | i 3,269 | |
| i 3,016 | | + i 8 | | | i 9,161 | |
| i 8,562 | | + i 7 | |
Financial services revenues | | | i 903 | |
| i 902 | | | | | i 2,637 | |
| i 2,679 | | - i 2 | |
Other revenues | | | i 199 | |
| i 212 | | - i 6 | | | i 839 | |
| i 557 | | + i 51 | |
Total net sales and revenues |
| $ | i 14,102 | | $ | i 11,527 | | + i 22 |
| $ | i 37,041 | | $ | i 32,697 | | + i 13 | |
Operating profit: | | | | | | | | | | | | | | | | | |
Production & precision ag |
| $ | i 1,293 | | $ | i 906 | | + i 43 |
| $ | i 2,646 | | $ | i 2,557 | | + i 3 | |
Small ag & turf | | | i 552 | | | i 583 | | - i 5 | | | i 1,443 | | | i 1,699 | | - i 15 | |
Construction & forestry | | | i 514 | |
| i 463 | | + i 11 | | | i 1,599 | |
| i 1,220 | | + i 31 | |
Financial services | | | i 287 | |
| i 291 | | - i 1 | | | i 864 | |
| i 844 | | + i 2 | |
Total operating profit | | | i 2,646 | |
| i 2,243 | | + i 18 | | | i 6,552 | |
| i 6,320 | | + i 4 | |
Reconciling items | | | ( i 108) | |
| ( i 85) | | + i 27 | | | ( i 303) | |
| ( i 312) | | - i 3 | |
Income taxes | | | ( i 654) | |
| ( i 491) | | + i 33 | | | ( i 1,364) | |
| ( i 1,328) | | + i 3 | |
Net income attributable to Deere & Company |
| $ | i 1,884 | | $ | i 1,667 | | + i 13 |
| $ | i 4,885 | | $ | i 4,680 | | + i 4 | |
| | | | | | | | | | | | | | | | | |
Intersegment sales and revenues: | | | | | | | | | | | | | | | | | |
Production & precision ag net sales |
| $ | i 5 | | $ | i 8 | | - i 38 |
| $ | i 15 | | $ | i 21 | | - i 29 | |
Small ag & turf net sales | | | i 2 | | | i 2 | | | | | i 8 | | | i 9 | | - i 11 | |
Construction & forestry net sales | | | | | | | | | | | | |
| | | | |
Financial services revenues | | | i 81 | |
| i 61 | | + i 33 | | | i 214 | |
| i 172 | | + i 24 | |
Operating profit is income from continuing operations before reconciling items and income taxes. Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains and losses. Reconciling items to net income are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, pension and OPEB benefit costs excluding the service cost component, and net income attributable to noncontrolling interests.
| | | | | | | | | | |
|
| July 31 |
| October 31 | | August 1 |
| |||
| | 2022 | | 2021 | | 2021 |
| |||
Identifiable assets: | | | | | | | | | | |
Production & precision ag |
| $ | i 8,728 | | $ | i 7,021 | | $ | i 6,910 | |
Small ag & turf | | | i 4,361 | | | i 3,959 | | | i 3,643 | |
Construction & forestry | | | i 6,824 | |
| i 6,457 | |
| i 6,378 | |
Financial services | | | i 56,008 | |
| i 51,624 | |
| i 51,647 | |
Corporate | | | i 10,896 | |
| i 15,053 | |
| i 12,110 | |
Total assets |
| $ | i 86,817 | | $ | i 84,114 | | $ | i 80,688 | |
/
i(8) i Financing Receivables
iThe 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 i 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 i 90 days delinquent. Generally, when receivables are i 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:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |||||||||||||||||||||||
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior Years | | Revolving Charge Accounts | | Total | | ||||||||
Retail customer receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Agriculture and turf | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | i 9,161 | | $ | i 9,169 | | $ | i 4,713 | | $ | i 2,234 | | $ | i 935 | | $ | i 378 | | $ | i 3,962 | | $ | i 30,552 | |
30-59 days past due | | | i 40 | | | i 70 | | | i 38 | | | i 23 | | | i 8 | | | i 4 | | | i 18 | | | i 201 | |
60-89 days past due | | | i 15 | | | i 24 | | | i 15 | | | i 7 | | | i 3 | | | i 1 | | | i 5 | | | i 70 | |
90+ days past due | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-performing | | | i 17 | | | i 62 | | | i 48 | | | i 37 | | | i 19 | | | i 27 | | | i 7 | | | i 217 | |
Construction and forestry | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | | i 2,336 | | | i 2,249 | | | i 1,004 | | | i 382 | | | i 106 | | | i 20 | | | i 102 | | | i 6,199 | |
30-59 days past due | | | i 47 | | | i 54 | | | i 26 | | | i 12 | | | i 4 | | | i 1 | | | i 3 | | | i 147 | |
60-89 days past due | | | i 14 | | | i 14 | | | i 12 | | | i 4 | | | i 1 | | | | | | i 1 | | | i 46 | |
90+ days past due | | | | | | i 11 | | | i 3 | | | i 1 | | | | | | i 3 | | | | | | i 18 | |
Non-performing | | | i 13 | | | i 63 | | | i 49 | | | i 25 | | | i 9 | | | i 4 | | | i 1 | | | i 164 | |
Total retail customer receivables | | $ | i 11,643 | | $ | i 11,716 | | $ | i 5,908 | | $ | i 2,725 | | $ | i 1,085 | | $ | i 438 | | $ | i 4,099 | | $ | i 37,614 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |||||||||||||||||||||||
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving Charge Accounts | | Total | | ||||||||
Retail customer receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Agriculture and turf | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | i 12,877 | | $ | i 6,676 | | $ | i 3,463 | | $ | i 1,738 | | $ | i 728 | | $ | i 211 | | $ | i 3,704 | | $ | i 29,397 | |
30-59 days past due | | | i 43 | | | i 53 | | | i 29 | | | i 16 | | | i 7 | | | i 3 | | | i 14 | | | i 165 | |
60-89 days past due | | | i 16 | | | i 23 | | | i 12 | | | i 6 | | | i 3 | | | i 1 | | | i 4 | | | i 65 | |
90+ days past due | | | | | | i 1 | | | | | | | | | | | | | | | | | | i 1 | |
Non-performing | | | i 23 | | | i 57 | | | i 53 | | | i 32 | | | i 17 | | | i 23 | | | i 7 | | | i 212 | |
Construction and forestry | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | | i 3,122 | | | i 1,575 | | | i 754 | | | i 273 | | | i 57 | | | i 7 | | | i 92 | | | i 5,880 | |
30-59 days past due | | | i 50 | | | i 40 | | | i 27 | | | i 7 | | | i 4 | | | i 1 | | | i 3 | | | i 132 | |
60-89 days past due | | | i 15 | | | i 11 | | | i 9 | | | i 6 | | | i 1 | | | | | | i 1 | | | i 43 | |
90+ days past due | | | i 1 | | | i 2 | | | i 3 | | | i 3 | | | i 4 | | | i 2 | | | | | | i 15 | |
Non-performing | | | i 26 | | | i 56 | | | i 39 | | | i 17 | | | i 7 | | | i 3 | | | | | | i 148 | |
Total retail customer receivables | | $ | i 16,173 | | $ | i 8,494 | | $ | i 4,389 | | $ | i 2,098 | | $ | i 828 | | $ | i 251 | | $ | i 3,825 | | $ | i 36,058 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |||||||||||||||||||||||
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving Charge Accounts | | Total | | ||||||||
Retail customer receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Agriculture and turf | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | i 9,159 | | $ | i 7,516 | | $ | i 3,938 | | $ | i 2,053 | | $ | i 910 | | $ | i 317 | | $ | i 3,658 | | $ | i 27,551 | |
30-59 days past due | | | i 38 | | | i 54 | | | i 35 | | | i 19 | | | i 7 | | | i 3 | | | i 13 | | | i 169 | |
60-89 days past due | | | i 14 | | | i 28 | | | i 15 | | | i 6 | | | i 3 | | | i 1 | | | i 4 | | | i 71 | |
90+ days past due | | | | | | i 1 | | | | | | | | | | | | | | | | | | i 1 | |
Non-performing | | | i 12 | | | i 58 | | | i 63 | | | i 42 | | | i 22 | | | i 30 | | | i 6 | | | i 233 | |
Construction and forestry | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | | i 2,327 | | | i 1,845 | | | i 938 | | | i 357 | | | i 84 | | | i 13 | | | i 86 | | | i 5,650 | |
30-59 days past due | | | i 35 | | | i 44 | | | i 26 | | | i 9 | | | i 4 | | | i 1 | | | i 3 | | | i 122 | |
60-89 days past due | | | i 13 | | | i 19 | | | i 10 | | | i 5 | | | i 1 | | | i 1 | | | i 1 | | | i 50 | |
90+ days past due | | | i 4 | | | i 2 | | | i 9 | | | i 5 | | | i 6 | | | i 2 | | | | | | i 28 | |
Non-performing | | | i 12 | | | i 47 | | | i 41 | | | i 19 | | | i 8 | | | i 4 | | | i 1 | | | i 132 | |
Total retail customer receivables | | $ | i 11,614 | | $ | i 9,614 | | $ | i 5,075 | | $ | i 2,515 | | $ | i 1,045 | | $ | i 372 | | $ | i 3,772 | | $ | i 34,007 | |
15
The credit quality analysis of wholesale receivables by year of origination was as follows in millions of dollars:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |||||||||||||||||||||||
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving | | Total | | ||||||||
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Agriculture and turf | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | i 289 | | $ | i 99 | | $ | i 34 | | $ | i 6 | | $ | i 1 | | $ | i 1 | | $ | i 2,022 | | $ | i 2,452 | |
30+ days past due | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-performing | | | | | | | | | | | | i 1 | | | | | | | | | | | | i 1 | |
Construction and forestry | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | | i 11 | | | i 32 | | | i 3 | | | i 1 | | | | | | i 1 | | | i 283 | | | i 331 | |
30+ days past due | | | | | | | | | | | | | | | | | | i 1 | | | | | | i 1 | |
Non-performing | | | | | | | | | | | | | | | | | | | | | | | | | |
Total wholesale receivables | | $ | i 300 | | $ | i 131 | | $ | i 37 | | $ | i 8 | | $ | i 1 | | $ | i 3 | | $ | i 2,305 | | $ | i 2,785 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |||||||||||||||||||||||
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving | | Total | | ||||||||
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Agriculture and turf | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | i 346 | | $ | i 80 | | $ | i 22 | | $ | i 9 | | $ | i 3 | | | | | $ | i 1,696 | | $ | i 2,156 | |
30+ days past due | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-performing | | | | | | | | | i 12 | | | | | | | | | | | | | | | i 12 | |
Construction and forestry | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | | i 41 | | | i 7 | | | i 7 | | | | | | i 1 | | $ | i 1 | | | i 340 | | | i 397 | |
30+ days past due | | | | | | | | | | | | | | | | | | i 1 | | | | | | i 1 | |
Non-performing | | | | | | | | | | | | | | | | | | | | | | | | | |
Total wholesale receivables | | $ | i 387 | | $ | i 87 | | $ | i 41 | | $ | i 9 | | $ | i 4 | | $ | i 2 | | $ | i 2,036 | | $ | i 2,566 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |||||||||||||||||||||||
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving | | Total | | ||||||||
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Agriculture and turf | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | i 263 | | $ | i 110 | | $ | i 38 | | $ | i 13 | | $ | i 3 | | $ | i 1 | | $ | i 2,256 | | $ | i 2,684 | |
30+ days past due | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-performing | | | | | | | | | i 18 | | | | | | | | | | | | | | | i 18 | |
Construction and forestry | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | | i 8 | | | i 8 | | | i 8 | | | i 1 | | | i 1 | | | i 1 | | | i 287 | | | i 314 | |
30+ days past due | | | | | | | | | | | | | | | | | | i 1 | | | | | | i 1 | |
Non-performing | | | | | | | | | | | | | | | | | | | | | | | | | |
Total wholesale receivables | | $ | i 271 | | $ | i 118 | | $ | i 64 | | $ | i 14 | | $ | i 4 | | $ | i 3 | | $ | i 2,543 | | $ | i 3,017 | |
i
16
An analysis of the allowance for credit losses and investment in financing receivables in millions of dollars during the periods follows:
| | | | | | | | | | | | | |
| | Retail Notes | | Revolving | | | | | | | | ||
| | & Financing | | Charge | | Wholesale | | | | | |||
| | Leases | | Accounts | | Receivables | | Total | | ||||
Three Months Ended July 31, 2022 | | | | | | | | | | | | | |
Allowance: |
|
|
|
|
|
|
|
|
|
| | |
|
Beginning of period balance |
| $ | i 168 |
| $ | i 17 | | $ | i 5 | | $ | i 190 | |
Provision (credit) | | | i 14 | | | i 3 | | | ( i 1) | | | i 16 | |
Write-offs | | | ( i 12) | | | ( i 10) | | | | | | ( i 22) | |
Recoveries | | | i 8 | | | i 7 | | | | | | i 15 | |
Translation adjustments | | | i 3 | | | | | | | | | i 3 | |
End of period balance |
| $ | i 181 |
| $ | i 17 | | $ | i 4 | | $ | i 202 | |
| | | | | | | | | | | | | |
Nine Months Ended July 31, 2022 | | | | | | | | | | | | | |
Allowance: |
| | | | | | | | | | | | |
Beginning of period balance |
| $ | i 138 |
| $ | i 21 | | $ | i 7 | | $ | i 166 | |
Provision (credit) | | | i 66 | | | ( i 4) | | | ( i 3) | | | i 59 | |
Write-offs | | | ( i 47) | | | ( i 22) | | | | | | ( i 69) | |
Recoveries | | | i 17 | | | i 22 | | | | | | i 39 | |
Translation adjustments | | | i 7 | | | | | | | | | i 7 | |
End of period balance |
| $ | i 181 |
| $ | i 17 | | $ | i 4 | | $ | i 202 | |
Financing receivables: | | | | | | | | | | | | | |
End of period balance |
| $ | i 33,515 |
| $ | i 4,099 | | $ | i 2,785 | | $ | i 40,399 | |
| | | | | | | | | | | | | |
| | Retail Notes | | Revolving | | | | | | |
| ||
| | & Financing | | Charge | | Wholesale | | | |
| |||
| | Leases | | Accounts | | Receivables | | Total | | ||||
Three Months Ended August 1, 2021 | | | | | | | | | | | | | |
Allowance: |
| |
|
| |
|
| |
|
| |
| |
Beginning of period balance | | $ | i 152 |
| $ | i 19 | | $ | i 7 | | $ | i 178 | |
Provision | |
| i 3 | | | | | | | |
| i 3 | |
Write-offs | |
| ( i 14) | | | ( i 9) | | | | |
| ( i 23) | |
Recoveries | |
| i 8 | | | i 8 | | | | |
| i 16 | |
End of period balance | | $ | i 149 | | $ | i 18 | | $ | i 7 | | $ | i 174 | |
| | | | | | | | | | | | | |
Nine Months Ended August 1, 2021 | | | | | | | | | | | | | |
Allowance: |
|
|
|
|
|
|
|
|
|
| | | |
Beginning of period balance | | $ | i 133 |
| $ | i 43 | | $ | i 8 | | $ | i 184 | |
ASU No. 2016-13 adoption | | | i 44 | | | ( i 13) | | | | | | i 31 | |
Provision (credit) | |
| ( i 9) | | | ( i 16) | | | ( i 1) | |
| ( i 26) | |
Write-offs | |
| ( i 38) | | | ( i 23) | | | | |
| ( i 61) | |
Recoveries | |
| i 17 | | | i 27 | | | | |
| i 44 | |
Translation adjustments | | | i 2 | | | | | | | |
| i 2 | |
End of period balance | | $ | i 149 | | $ | i 18 | | $ | i 7 | | $ | i 174 | |
Financing receivables: | | | | | | | | | | | | | |
End of period balance | | $ | i 30,235 |
| $ | i 3,772 | | $ | i 3,017 | | $ | i 37,024 | |
The allowance for credit losses increased in the third quarter and the first nine months of 2022 mainly due to higher reserves related to the events in Russia / Ukraine and higher portfolio balances. As part of the allowance setting process, the Company continues to monitor the economy, including potential impacts of inflation, commodity prices, and interest rates on portfolio performance and adjustments to the allowance are incorporated, as necessary.
i A troubled debt restructuring is the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity date, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During the first nine months of 2022, the Company identified i 230 receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $ i 10 million pre-modification and $ i 9 million post-modification. During the first nine months of 2021, the Company identified i 304 receivable contracts, primarily retail notes, as troubled debt
17
restructurings with aggregate balances of $ i 12 million pre-modification and $ i 10 million post-modification. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At July 31, 2022, the Company had i no commitments to lend to borrowers whose accounts were modified in troubled debt restructurings.
i(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.
iThe components of consolidated restricted assets, secured borrowings, and other liabilities related to secured borrowings in securitization transactions were as follows in millions of dollars:
| | | | | | | | | | |
|
| July 31 |
| October 31 |
| August 1 |
| |||
| | 2022 | | 2021 | | 2021 |
| |||
Financing receivables securitized (retail notes) |
| $ | i 5,156 | | $ | i 4,673 | | $ | i 5,421 | |
Allowance for credit losses | | | ( i 15) | |
| ( i 14) | |
| ( i 20) | |
Other assets (primarily restricted cash) | | | i 136 | |
| i 107 | |
| i 113 | |
Total restricted securitized assets |
| $ | i 5,277 | | $ | i 4,766 | | $ | i 5,514 | |
| | | | | | | | | | |
Short-term securitization borrowings | | $ | i 4,920 | | $ | i 4,605 | | $ | i 5,277 | |
Accrued interest on borrowings | | | i 4 | | | i 2 | |
| i 2 | |
Total liabilities related to restricted securitized assets | | $ | i 4,924 | | $ | i 4,607 | | $ | i 5,279 | |
/
i(10) Inventories
i Most inventories owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost on the last-in, first-out (LIFO) basis. i If all of the Company’s inventories had been valued on a first-in, first-out (FIFO) basis, estimated inventories by major classification in millions of dollars would have been as follows:
| | | | | | | | | | |
|
| July 31 |
| October 31 |
| August 1 |
| |||
| | 2022 | | 2021 | | 2021 |
| |||
Raw materials and supplies |
| $ | i 4,508 | | $ | i 3,524 | | $ | i 2,895 | |
Work-in-process | | | i 1,621 | |
| i 994 | |
| i 1,124 | |
Finished goods and parts | | | i 5,434 | |
| i 4,373 | |
| i 4,176 | |
Total FIFO value | | | i 11,563 | |
| i 8,891 | |
| i 8,195 | |
Less adjustment to LIFO value | | | i 2,442 | |
| i 2,110 | |
| i 1,785 | |
Inventories |
| $ | i 9,121 | | $ | i 6,781 | | $ | i 6,410 | |
/
i(11) Goodwill and Other Intangible Assets–Net
iThe changes in amounts of goodwill by operating segments were as follows in millions of dollars:
| | | | | | | | | | | | | |
|
| Production & |
| Small Ag |
| Construction |
| | |
| |||
| | Precision Ag | | & Turf | | & Forestry | | Total |
| ||||
Goodwill at November 1, 2020 | | $ | i 333 | | $ | i 268 | | $ | i 2,480 | | $ | i 3,081 | |
Acquisition | |
| i 12 | | | | | | | | | i 12 | |
Translation adjustments | |
| i 13 | | | ( i 3) | | | i 45 | | | i 55 | |
Goodwill at August 1, 2021 | | $ | i 358 | | $ | i 265 | | $ | i 2,525 | | $ | i 3,148 | |
| | | | | | | | | | | | | |
Goodwill at October 31, 2021 | | $ | i 542 | | $ | i 265 | | $ | i 2,484 | | $ | i 3,291 | |
Acquisitions | | | i 132 | | | i 69 | | | i 597 | | | i 798 | |
Translation adjustments | | | ( i 23) | | | ( i 11) | | | ( i 301) | | | ( i 335) | |
Goodwill at July 31, 2022 | | $ | i 651 | | $ | i 323 | | $ | i 2,780 | | $ | i 3,754 | |
There were i i no / accumulated goodwill impairment losses in the reported periods.
/ /18
The components of other intangible assets were as follows in millions of dollars:
| | | | | | | | | | |
|
| July 31 |
| October 31 |
| August 1 |
| |||
| | 2022 | | 2021 | | 2021 |
| |||
Amortized intangible assets: | | | | | | | | | | |
Customer lists and relationships | | $ | i 507 | | $ | i 542 | | $ | i 545 | |
Technology, patents, trademarks, and other | | | i 1,320 | |
| i 1,104 | |
| i 1,080 | |
Total at cost | | | i 1,827 | |
| i 1,646 | |
| i 1,625 | |
Less accumulated amortization: | | | | |
| | |
| | |
Customer lists and relationships | | | i 162 | | | i 151 | | | i 144 | |
Technology, patents, trademarks, and other | | | i 384 | | | i 343 | | | i 337 | |
Total accumulated amortization | | | i 546 | | | i 494 | | | i 481 | |
Amortized intangible assets, net | | | i 1,281 | | | i 1,152 | | | i 1,144 | |
Unamortized intangible assets: | | | | | | | | | | |
In-process research and development | | | | | | i 123 | | | i 123 | |
Other intangible assets – net | | $ | i 1,281 | | $ | i 1,275 | | $ | i 1,267 | |
In September 2017, the Company acquired Blue River Technology’s in-process research and development related to machine learning technology to optimize the use of farm inputs. Those research and development activities were completed, and the Company started amortizing the acquired technology in the second quarter of 2022.
The amortization of other intangible assets in the third quarter and the first nine months of 2022 was $ i 42 million and $ i 104 million, and for 2021 was $ i 27 million and $ i 89 million, respectively. The estimated amortization expense for the next five years is as follows in millions of dollars: remainder of 2022 – $ i 62, 2023 – $ i 164, 2024 – $ i 160, 2025 – $ i 133, 2026 – $ i 113, and 2027 – $ i 112.
i
(12) Short-Term Borrowings
iShort-term borrowings were as follows in millions of dollars:
| | | | | | | | | | |
| | July 31 | | October 31 | | August 1 | | |||
|
| 2022 |
| 2021 |
| 2021 | | |||
Commercial paper | | $ | i 6,035 | | $ | i 2,230 | | $ | i 1,882 | |
Notes payable to banks | | | i 427 | | | i 336 | | | i 133 | |
Finance lease obligations due within one year | | | i 21 | | | i 23 | | | i 23 | |
Long-term borrowings due within one year | |
| i 7,693 | |
| i 8,330 | |
| i 8,366 | |
Short-term borrowings | | $ | i 14,176 | | $ | i 10,919 | | $ | i 10,404 | |
/
19
(13) Long-Term Borrowings
iLong-term borrowings were as follows in millions of dollars:
| | | | | | | | | | |
| | July 31 | | October 31 | | August 1 | | |||
|
| 2022 |
| 2021 |
| 2021 | | |||
Underwritten term debt | | |
| | |
| | |
| |
U.S. dollar notes and debentures: | | | | | | | | | | |
i i i 2.75 / / % notes due 2025 | | $ | i 700 | | $ | i 700 | | $ | i 700 | |
i i i 6.55 / / % debentures due 2028 | |
| i 200 | |
| i 200 | |
| i 200 | |
i i i 5.375 / / % notes due 2029 | |
| i 500 | |
| i 500 | |
| i 500 | |
i i i 3.10 / / % notes due 2030 | | | i 700 | | | i 700 | | | i 700 | |
i i i 8.10 / / % debentures due 2030 | |
| i 250 | |
| i 250 | |
| i 250 | |
i i i 7.125 / / % notes due 2031 | |
| i 300 | |
| i 300 | |
| i 300 | |
i i i 3.90 / / % notes due 2042 | |
| i 1,250 | |
| i 1,250 | |
| i 1,250 | |
i i i 2.875 / / % notes due 2049 | | | i 500 | | | i 500 | | | i 500 | |
i i i 3.75 / / % notes due 2050 | | | i 850 | | | i 850 | | | i 850 | |
Euro notes: | | | | | | | | | | |
i i i .5 / / % notes due 2023 (€ i i i 500 / / principal) | | | i 510 | | | i 584 | | | i 594 | |
i i i 1.375 / / % notes due 2024 (€ i i i 800 / / principal) | | | i 816 | | | i 934 | | | i 951 | |
i i i 1.85 / / % notes due 2028 (€ i i i 600 / / principal) | | | i 612 | | | i 701 | | | i 713 | |
i i i 2.20 / / % notes due 2032 (€ i i i 600 / / principal) | | | i 612 | | | i 701 | | | i 713 | |
i i i 1.65 / / % notes due 2039 (€ i i i 650 / / principal) | | | i 663 | | | i 759 | | | i 773 | |
Serial issuances | | | | | | | | | | |
Medium-term notes (principal as of: July 31, 2022 - $ i 22,983, October 31, 2021 - $ i 22,647, August 1, 2021 - $ i 21,892) |
| | i 22,593 | | | i 22,899 | | | i 22,346 | |
Other notes and finance lease obligations | |
| i 1,191 | |
| i 1,178 | |
| i 1,059 | |
Less debt issuance costs and debt discounts | | | ( i 115) | | | ( i 118) | | | ( i 119) | |
Long-term borrowings |
| $ | i 32,132 | | $ | i 32,888 | | $ | i 32,280 | |
Medium-term notes serially due 2023 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 generally rank equally with each other.
In April 2022, the Company issued $ i 600 million of sustainability-linked medium-term notes with an initial interest rate of i 3.35 percent, which are due in 2029. This transaction supports the Company’s commitment to environmental sustainability. Failure to meet the stated sustainability performance target will result in a i 25-basis point increase to the interest rate payable on the 2029 notes from and including April 2026.
/i
(14) Leases - Lessor
The Company leases equipment manufactured or sold by the Company and a limited amount of non-John Deere equipment to retail customers through sales-type, direct financing, and operating leases. Sales-type and direct financing leases are reported in Financing receivables - net on the consolidated balance sheets, while operating leases are reported in Equipment on operating leases - net.
iLease revenues earned by the Company were as follows in millions of dollars:
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
|
|
|
|
| | ||||||||
Sales-type and direct finance lease revenues | | $ | i 39 | | $ | i 37 | | $ | i 113 | | $ | i 107 | |
Operating lease revenues | | | i 326 | | | i 359 | | | i 991 | | | i 1,079 | |
Variable lease revenues | | | i 6 | | | i 8 | | | i 20 | | | i 23 | |
Total lease revenues | | $ | i 371 | | $ | i 404 | | $ | i 1,124 | | $ | i 1,209 | |
Variable lease revenues reported above primarily relate to separately invoiced property taxes on leased equipment in certain markets, late fees, and excess use and damage fees. Excess use and damage fees are reported in other income on the statements of consolidated income. Excess use and damage fees were $ i 1 million and $ i 2 million for the third quarter and first nine months ended July 31, 2022, respectively, compared with $ i 2 million and $ i 5 million for the same periods last year, respectively.
/ /
20
(15) Commitments and Contingencies
iThe Company generally determines its total warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of i five-year claims costs and current quality developments.
/i The premiums for extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. These unamortized extended warranty premiums (deferred revenue) included in the following table totaled $ i 839 million and $ i 709 million at July 31, 2022 and August 1, 2021, respectively.
iA reconciliation of the changes in the warranty liability and unearned premiums was as follows in millions of dollars:
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| ||||||||
| | July 31 | | August 1 | | July 31 | | August 1 |
| ||||
| | 2022 | | 2021 | | 2022 | | 2021 |
| ||||
Beginning of period balance |
| $ | i 2,095 |
| $ | i 1,876 |
| $ | i 2,086 |
| $ | i 1,743 | |
Payments | | | ( i 240) | |
| ( i 209) | | | ( i 657) | |
| ( i 626) | |
Amortization of premiums received | | | ( i 70) | |
| ( i 66) | | | ( i 200) | |
| ( i 193) | |
Accruals for warranties | | | i 358 | |
| i 299 | | | i 762 | |
| i 794 | |
Premiums received | | | i 103 | |
| i 96 | | | i 277 | |
| i 258 | |
Foreign exchange | | | ( i 10) | |
| ( i 2) | | | ( i 32) | |
| i 18 | |
End of period balance | | $ | i 2,236 | | $ | i 1,994 | | $ | i 2,236 | | $ | i 1,994 | |
At July 31, 2022, the Company had approximately $ i 330 million of guarantees issued primarily to banks outside the U.S. and Canada related to third-party receivables for the retail financing of John Deere equipment. The Company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At July 31, 2022, the Company had accrued losses of $ i 4 million under these agreements. The maximum remaining term of the receivables guaranteed at July 31, 2022 was approximately i six years.
At July 31, 2022, the Company had commitments of $ i 468 million for the construction and acquisition of property and equipment. Also, at July 31, 2022, the Company had restricted assets of $ i 77 million, classified as Other assets. See Note 9 for additional restricted assets associated with borrowings related to securitizations.
The Company also had other miscellaneous contingent liabilities totaling approximately $ i 90 million at July 31, 2022. The accrued liability for these contingencies was not material at July 31, 2022.
The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, 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.
/
i(16) Fair Value Measurements
iFair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine fair value, the Company uses various methods including market and income approaches. The Company utilizes valuation models and techniques that maximize the use of observable inputs. The models are industry-standard models that consider various assumptions including time values and yield curves as well as other economic measures. These valuation techniques are consistently applied.
Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs. Level 3 measurements include significant unobservable inputs.
/21
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.
| | | | | | | | | | | | | | | | | | | |
| | | |
| |||||||||||||||
| | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair |
| ||||||
Financing receivables – net | | $ | i 35,056 | | $ | i 34,158 | | $ | i 33,799 | | $ | i 33,718 | | $ | i 31,449 | | $ | i 31,515 | |
Financing receivables securitized – net | | | i 5,141 | | | i 4,990 | | | i 4,659 | | | i 4,704 | | | i 5,401 | | | i 5,467 | |
Short-term securitization borrowings | | | i 4,920 | | | i 4,862 | | | i 4,605 | | | i 4,610 | | | i 5,277 | | | i 5,302 | |
Long-term borrowings due within one year | | | i 7,693 | | | i 7,608 | | | i 8,330 | | | i 8,364 | | | i 8,366 | | | i 8,440 | |
Long-term borrowings | | | i 32,101 | | | i 31,741 | | | i 32,850 | | | i 34,506 | | | i 32,238 | | | i 34,345 | |
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.
iAssets and liabilities measured at fair value on a recurring basis in millions of dollars follow, excluding the Company’s cash equivalents, which were carried at cost that approximates fair value and consisted primarily of money market funds and time deposits.
| | | | | | | | | | |
|
| July 31 |
| October 31 |
| August 1 |
| |||
| | 2022 | | 2021 | | 2021 |
| |||
Level 1: | | | | | | | | | | |
Marketable securities | | | | | | | | | | |
International equity securities | | $ | i 2 | | $ | i 2 | | $ | i 3 | |
U.S. equity fund | | | i 75 | | | i 75 | | | i 74 | |
U.S. government debt securities | | | i 63 | |
| i 59 | |
| i 60 | |
Total Level 1 marketable securities | | | i 140 | | | i 136 | | | i 137 | |
| | | | | | | | | | |
Level 2: | | | | | | | | | | |
Marketable securities | | | | | | | | | | |
U.S. government debt securities | | | i 134 | | | i 139 | | | i 124 | |
Municipal debt securities | | | i 70 | |
| i 73 | |
| i 71 | |
Corporate debt securities | | | i 213 | |
| i 224 | |
| i 217 | |
International debt securities | | | i 1 | | | i 2 | | | i 3 | |
Mortgage-backed securities | | | i 161 | |
| i 154 | |
| i 136 | |
Total Level 2 marketable securities | | | i 579 | |
| i 592 | |
| i 551 | |
Other assets | | | | | | | | | | |
Derivatives | | | i 280 | | | i 275 | | | i 432 | |
Accounts payable and accrued expenses | | | | | | | | | | |
Derivatives | | | i 667 | | | i 228 | | | i 152 | |
| | | | | | | | | | |
Level 3: | | | | | | | | | | |
Accounts payable and accrued expenses – Deferred consideration | | | i 252 | | | | | | | |
22
The contractual maturities of debt securities at July 31, 2022 in millions of dollars are shown below. Actual maturities may differ from contractual maturities because some securities may be called or prepaid. Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity. Mortgage-backed securities were primarily issued by U.S. government-sponsored enterprises. Unrealized losses of debt securities at July 31, 2022 were not recognized in income due to the ability and intent to hold to maturity.
| | | | | | | |
| | Amortized | | Fair | | ||
| | Cost | | Value | | ||
Due in one year or less |
| $ | i 23 | | $ | i 23 | |
Due after one through five years | | | i 98 | | | i 95 | |
Due after five through 10 years | | | i 189 | | | i 175 | |
Due after 10 years | | | i 211 | | | i 188 | |
Mortgage-backed securities | | | i 176 | | | i 161 | |
Debt securities |
| $ | i 697 |
| $ | i 642 | |
/ iFair value, nonrecurring Level 3 measurements from impairments, excluding financing receivables with specific allowances which were not significant, were as follows in millions of dollars. Property and equipment – net and Other assets fair values for October 31, 2021 represent the fair value assessments at January 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | Losses | | |||||||||||||||||
| | | | | | | | | | | Three Months Ended | | Nine Months Ended | | ||||||||
| | July 31 | | October 31 | | August 1 | | July 31 | | August 1 | | July 31 | | August 1 | | |||||||
|
| 2022 |
| 2021 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||||
Inventories | | $ | i 13 | | | | | | | | $ | i 4 | | | | | $ | i 12 | | | | |
Property and equipment – net | | | | | $ | i 41 | | | | | | | | | | | $ | i 41 | | $ | i 44 | |
Other intangible assets – net | | | | | | | | | | | | | | | | | $ | i 28 | | | | |
Other assets | | | | | $ | i 1 | | | | | | | | | | | | | | $ | i 6 | |
The following is a description of the valuation methodologies the Company uses to measure certain balance sheet items at fair value:
Marketable securities – The portfolio of investments is primarily valued on a market approach (matrix pricing model) in which all significant inputs are observable or can be derived from or corroborated by observable market data such as interest rates, yield curves, volatilities, credit risk, and prepayment speeds. Funds are primarily valued using the fund’s net asset value, based on the fair value of the underlying securities.
Derivatives – The Company’s derivative financial instruments consist of interest rate contracts (swaps), foreign currency exchange contracts (futures, forwards, and swaps), and cross-currency interest rate contracts (swaps). The portfolio is valued based on an income approach (discounted cash flow) using market observable inputs, including swap curves and both forward and spot exchange rates for currencies.
Financing receivables – Specific reserve impairments are based on the fair value of the collateral, which is measured using a market approach (appraisal values or realizable values). Inputs include a selection of realizable values.
Inventories – The service parts inventory impairment was based on net realizable value, less reasonably predictable selling and disposal costs.
Property and equipment – net – The valuations were based on cost and market approaches. The inputs include replacement cost estimates adjusted for physical deterioration and economic obsolescence.
Other intangible assets – net – The Company considered external valuations based on the Company’s probability weighted cash flow analysis.
Other assets – The impairments were measured at the fair value of the right of use operating lease asset.
i
(17) Derivative Instruments
iIt is the Company’s policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. The Company’s financial services operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to
/23
diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. The Company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling, and financing in currencies other than the functional currencies. In addition, the Company has interest rate and foreign currency exposures for sales incentive programs.
All derivatives are recorded at fair value on the balance sheet. Cash collateral received or paid is not offset against the derivative fair values on the balance sheet. The cash flows from these contracts are 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 July 31, 2022, October 31, 2021, and August 1, 2021 were $ i 2,350 million, $ i 2,700 million, and $ i 1,750 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 affects earnings. These amounts offset the effects of interest rate changes on the related borrowings.
The amount of gain recorded in OCI at July 31, 2022 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is approximately $ i 31 million after-tax. i 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 July 31, 2022, October 31, 2021, and August 1, 2021 were $ i 8,303 million, $ i 8,043 million, and $ i 8,658 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.
iThe 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 | | ||||
| | | | | | | | | | | | | |
Short-term borrowings | | | | | | | | $ | i 2,605 | | $ | i 5 | |
Long-term borrowings | | $ | i 7,835 | | $ | ( i 430) | | | i 5,728 | | | i 39 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Short-term borrowings | | $ | i 191 | | $ | i 3 | | $ | i 1,997 | | $ | ( i 2) | |
Long-term borrowings | | | i 7,847 | | | i 29 | | | i 6,287 | | | i 223 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Short-term borrowings | | $ | i 189 | | $ | i 4 | | $ | i 1,898 | | $ | ( i 1) | |
Long-term borrowings | | | i 8,698 | | | i 263 | | | i 5,831 | | | i 190 | |
/
Derivatives Not Designated as Hedging Instruments
The Company has certain interest rate contracts (swaps), foreign currency exchange contracts (futures, forwards, and swaps), and cross-currency interest rate contracts (swaps), which were not formally designated as hedges. These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures, primarily for certain borrowings, purchases or sales of inventory, and sales incentive programs. The total notional amounts of these interest rate swaps at July 31, 2022, October 31, 2021, and August 1, 2021 were $ i 9,880 million, $ i 10,848 million, and $ i 9,195 million, the foreign exchange contracts were $ i 7,457 million, $ i 7,584 million, and $ i 6,328 million, and the cross-currency interest rate contracts were $ i 276 million, $ i 238 million, and $ i 197 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.
24
Fair values of derivative instruments in the condensed consolidated balance sheets were as follows in millions of dollars:
| | | | | | | | | | |
|
| July 31 |
| October 31 |
| August 1 |
| |||
Other Assets | | 2022 | | 2021 | | 2021 |
| |||
Designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts |
| $ | i 82 | | $ | i 166 | | $ | i 332 | |
| | | | | | | | | | |
Not designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts | | | i 163 | |
| i 73 | |
| i 57 | |
Foreign exchange contracts | | | i 30 | |
| i 31 | |
| i 41 | |
Cross-currency interest rate contracts | | | i 5 | |
| i 5 | |
| i 2 | |
Total not designated | | | i 198 | |
| i 109 | |
| i 100 | |
| | | | | | | | | | |
Total derivative assets |
| $ | i 280 | | $ | i 275 | | $ | i 432 | |
| | | | | | | | | | |
Accounts Payable and Accrued Expenses | | | | | | | | | | |
Designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts |
| $ | i 434 | | $ | i 99 | | $ | i 40 | |
| | | | | | | | | | |
Not designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts | | | i 79 | | | i 33 | | | i 43 | |
Foreign exchange contracts | | | i 149 | |
| i 94 | |
| i 67 | |
Cross-currency interest rate contracts | | | i 5 | |
| i 2 | |
| i 2 | |
Total not designated | | | i 233 | |
| i 129 | |
| i 112 | |
| | | | | | | | | | |
Total derivative liabilities |
| $ | i 667 | | $ | i 228 | | $ | i 152 | |
iThe classification and gains (losses) including accrued interest expense related to derivative instruments consisted of the following in millions of dollars:
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| ||||||||
| | July 31 | | August 1 | | July 31 | | August 1 |
| ||||
| | 2022 | | 2021 | | 2022 | | 2021 |
| ||||
Fair Value Hedges: |
|
|
|
| | |
|
|
|
| | |
|
Interest rate contracts - Interest expense |
| $ | i 149 | | $ | i 146 |
| $ | ( i 507) | | $ | ( i 79) | |
| | | | | | | | | | | | | |
Cash Flow Hedges: | | | | | | | | | | | | | |
Recognized in OCI | | | | | | | | | | | | | |
Interest rate contracts - OCI (pretax) | | $ | i 1 | | $ | ( i 1) | | $ | i 52 | | $ | ( i 1) | |
Reclassified from OCI | | | | | | | | | | | | | |
Interest rate contracts - Interest expense | | | i 3 | |
| ( i 3) | | | | |
| ( i 11) | |
| | | | | | | | | | | | | |
Not Designated as Hedges: | | | | | | | | | | | | | |
Interest rate contracts - Net sales | | | | | $ | ( i 2) | | $ | i 44 | | $ | i 3 | |
Interest rate contracts - Interest expense * |
| $ | ( i 18) | | | ( i 2) |
| | i 41 | | | ( i 6) | |
Foreign exchange contracts - Net sales | | | ( i 1) | | | | | | ( i 2) | | | | |
Foreign exchange contracts - Cost of sales | | | ( i 29) | |
| ( i 7) | | | ( i 109) | | | ( i 107) | |
Foreign exchange contracts - Other operating expenses * | | | ( i 20) | |
| ( i 5) | | | i 153 | |
| ( i 209) | |
Total not designated |
| $ | ( i 68) | | $ | ( i 16) |
| $ | i 127 | | $ | ( i 319) | |
* 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
25
credit-risk-related contingent features that were in a net liability position at July 31, 2022, October 31, 2021, and August 1, 2021, was $ i 518 million, $ i 135 million, and $ i 87 million, respectively. In accordance with the limits established in these agreements, the Company posted $ i 238 million of cash collateral at July 31, 2022. The Company posted i i no / cash collateral in accordance with the limits established in those agreements at either October 31, 2021 or August 1, 2021. In addition, the Company paid $ i i i 8 / / million of cash collateral that was outstanding at July 31, 2022, October 31, 2021, and August 1, 2021 to participate in an international futures market to hedge currency exposure, not included in the table below.
iDerivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities related to netting arrangements and any collateral received or paid was as follows in millions of dollars:
| | | | | | | | | | | | | |
| | Gross Amounts | | Netting | | | | | |
| |||
| Recognized |
| Arrangements |
| Collateral |
| Net Amount |
| |||||
Assets |
| $ | i 280 |
| $ | ( i 125) |
| $ | ( i 40) |
| $ | i 115 | |
Liabilities | | | i 667 | | | ( i 125) | | | ( i 238) | | | i 304 | |
| | | | | | | | | | | | | |
| | Gross Amounts | | Netting | | | | | |
| |||
| Recognized |
| Arrangements |
| Collateral |
| Net Amount |
| |||||
Assets | | $ | i 275 |
| $ | ( i 105) | | | |
| $ | i 170 | |
Liabilities | | | i 228 | | | ( i 105) | | $ | ( i 5) | | | i 118 | |
| | | | | | | | | | | | | |
|
| Gross Amounts |
| Netting |
| |
| | |
| |||
| Recognized | | Arrangements | | Collateral | | Net Amount |
| |||||
Assets | | $ | i 432 | | $ | ( i 94) | | $ | ( i 88) | | $ | i 250 | |
Liabilities | |
| i 152 | |
| ( i 94) | | | ( i 2) | |
| i 56 | |
i(18) Stock Option and Restricted Stock Awards
In December 2021, the Company granted stock options to employees for the purchase of i 197 thousand shares of common stock at an exercise price of $ i 343.94 per share and a binomial i lattice model fair value of $ i 89.20 per share at the grant date. At July 31, 2022, options for i 2.1 million shares were outstanding with a weighted-average exercise price of $ i 152.12 per share. The Company also granted i 165 thousand restricted stock units to employees and non-employee directors in the first nine months of 2022, of which i 128 thousand are subject to service-based only conditions and i 37 thousand are subject to performance/service-based conditions. The weighted-average fair value of the service-based only units at the grant date was $ i 346.46 per unit based on the market price of a share of underlying common stock. The fair value of the performance/service-based units at the grant date was $ i 331.47 per unit based on the market price of a share of underlying common stock excluding dividends. At July 31, 2022, the Company was authorized to grant an additional i 17.3 million shares under the equity incentive plan.
/
i(19) Acquisitions
Kreisel Acquisition
On February 7, 2022, the Company acquired majority ownership in Kreisel Electric Inc. (Kreisel), a pioneer in the development of immersion-cooled battery technology. The Austrian company manufactures high-density, high-durability electric battery modules and packs for high-performance and off-highway applications and has created a battery-buffered, high-powered charging infrastructure platform.
The transaction includes a call option to purchase the remaining ownership interest in Kreisel in 2027. The minority interest holders also have a put option that would require the Company to purchase the holder’s ownership interest in 2027. The put and call options cannot be separated from the noncontrolling interest. Due to the redemption features, the minority interest is classified as redeemable noncontrolling interest in the Company’s consolidated balance sheets.
The total cash purchase price was $ i 276 million, consisting of $ i 253 million for the acquired equity interests, $ i 21 million to reduce the option price, and customary working capital adjustments, net of cash acquired. i The preliminary fair values assigned
/26
to the assets and liabilities of the acquired entity in millions of dollars, which is based on information as of the acquisition date and available at July 31, 2022 follows:
| | | | |
| | February 7 | | |
| | 2022 | | |
Trade accounts and notes receivable | | $ | i 2 | |
Other receivables | | | i 11 | |
Inventories | | | i 11 | |
Property and equipment | | | i 11 | |
Goodwill | | | i 218 | |
Other intangible assets | | | i 178 | |
Other assets | | | i 6 | |
Total assets | | $ | i 437 | |
| | | | |
Accounts payable and accrued expenses | | $ | i 27 | |
Deferred income taxes | | | i 38 | |
| | | | |
Redeemable noncontrolling interest | | $ | i 96 | |
The identifiable intangible assets were related to technology, trade name, and customer relationships with a weighted average amortization period of i 12 years. The goodwill is not deductible for income tax purposes. Kreisel will be allocated amongst the Company’s production and precision agriculture, small agriculture and turf, and construction and forestry segments.
Acquisition of Excavator Factories
On February 28, 2022, the Company acquired full ownership of three former Deere-Hitachi joint venture factories and began new license and supply agreements with Hitachi Construction Machinery (Hitachi). The two companies also ended their joint venture manufacturing and marketing agreements. The former joint venture factories will continue to manufacture Deere-branded construction excavators and forestry equipment. Through a new supply agreement with Hitachi, Deere will continue to offer a full portfolio of excavators. Deere’s marketing arrangement for Hitachi-branded construction excavators and mining equipment in the Americas has ended with Hitachi assuming distribution and support of these products. John Deere dealers may continue to support their existing field population of Hitachi-branded excavators.
With the completion of this acquisition, the Company now has complete control over its excavator design, product, and feature updates, making it possible to more rapidly respond to customer requirements and integrate excavators with other construction products in the John Deere product portfolio. The Company can leverage technology developed for other product lines and production systems across the enterprise and extend those advanced solutions to Deere-designed excavators, strengthening the entire product portfolio.
iThe total invested capital follows:
| | | | |
| | February 28 | | |
| | 2022 | | |
Cash consideration for factories | | $ | i 205 | |
Cash consideration for license agreement | | | i 70 | |
Deferred consideration | | | i 271 | |
Total purchase price consideration | | | i 546 | |
Less: Cash obtained | | | ( i 187) | |
Less: Settlement of intercompany balances | | | ( i 113) | |
Net purchase price consideration | | | i 246 | |
Fair value of previously held equity investment | | | i 444 | |
Total invested capital | | $ | i 690 | |
The total purchase price consideration includes deferred consideration that will be paid as the Company purchases Deere-branded excavators, components, and service parts from Hitachi under the new supply agreement with a duration that ranges from 5 to i 30 years. The deferred consideration represents the price increases under the new supply arrangement. Excluding inflation adjustments, the price increases for products to be acquired by the Company from Hitachi are as much as i 27 percent higher than the prior supply arrangement. At July 31, 2022, the net present value of the deferred consideration was approximately $ i 252 million, subject to changes in market conditions, developments in the Company’s product offerings, and sourcing changes. The Company financed the acquisition and associated transaction expenses from cash on hand. The fair value of the previously held equity investment created a non-cash gain of $ i 326 million (pretax and after-tax), which was recorded in Other income and included in the construction and forestry segment’s operating profit.
27
Prior to the acquisition, the Company purchased Deere and Hitachi-branded excavators, components, and parts from the Deere-Hitachi joint venture factories for sale to John Deere dealers. These purchases were included in Cost of sales, while the sales to John Deere dealers were included in Net sales. Cost of sales also included profit-sharing payments to Hitachi in accordance with the previous marketing agreements. Following the acquisition, Net sales will only include the sale of Deere-branded excavators to John Deere dealers, while Cost of sales will reflect market pricing to purchase and manufacture excavators, as well as the related components and service parts.
iThe preliminary fair values assigned to the assets and liabilities of the acquired factories in millions of dollars, which are based on information as of the acquisition date and available at July 31, 2022, follows:
| | | | |
| | February 28 | | |
| | 2022 | | |
Other receivables | | $ | i 29 | |
Inventories | | | i 286 | |
Property and equipment | | | i 182 | |
Goodwill | | | i 527 | |
Other intangible assets | | | i 70 | |
Deferred income taxes | | | i 56 | |
Total assets | | $ | i 1,150 | |
| | | | |
Accounts payable and accrued expenses | | $ | i 297 | |
Long-term borrowings | | | i 163 | |
Total liabilities | | $ | i 460 | |
The identifiable intangible assets were related to technology with a 10-year amortization period. The goodwill is not deductible for income tax purposes. The excavator factories will be reported in the Company’s construction and forestry segment.
Other Acquisitions
In the first nine months of the year, the Company acquired AgriSync Inc. (AgriSync), a technology service provider; an i 80 percent stake in both SureFire Ag Systems, Inc. and SureFire Electronics, LLC (together SureFire), which design and manufacture liquid fertilizer application and spray tendering systems; a i 40 percent equity method investment in GUSS Automation LLC (GUSS Automation), a pioneer in semi-autonomous orchard and vineyard sprayers; and LGT, LLC (Light), which specializes in depth sensing and camera-based perception for autonomous vehicles. The combined cost of the acquisitions was $ i 124 million, net of cash acquired of $ i 3 million. i The preliminary asset and liability fair values at the respective acquisition dates follow in millions of dollars:
| | | | |
| | July 31 | | |
| | 2022 | | |
Trade accounts and notes receivable | | $ | i 8 | |
Inventories | | | i 8 | |
Property and equipment | | | i 4 | |
Goodwill | | | i 53 | |
Other intangible assets | | | i 21 | |
Other assets | | | i 50 | |
Total assets | | $ | i 144 | |
| | | | |
Accounts payable and accrued expenses | | $ | i 6 | |
Deferred income taxes | | | i 5 | |
Total liabilities | | $ | i 11 | |
| | | | |
Redeemable noncontrolling interest | | $ | i 9 | |
The identifiable intangible assets were related to trade name, technology, and customer relationships with a weighted average amortization period of i 7 years. AgriSync will be allocated amongst the Company’s production and precision agriculture, small agriculture and turf, and construction and forestry segments, while SureFire and Light will be allocated to the production and precision agriculture segment. GUSS Automation will be assigned to the small agriculture and turf segment.
For all acquisitions, the goodwill was the result of future cash flows and related fair value exceeding the fair value of the identified assets and liabilities. Presenting the pro forma results of operations as if these acquisitions had occurred at the beginning of the current or comparative fiscal year would not differ significantly from the reported results.
28
(20) Special Items
2022 Special Items
Impact of Events in Russia / Ukraine
The events in Russia / Ukraine have resulted in the Company suspending shipments of machines and service parts to Russia. The Company manufactures and markets equipment in Russia / Ukraine, and provides financial services in Russia. As of July 31, 2022, the Company’s net exposure in Russia / Ukraine was approximately $ i 436 million. Net sales from the Company’s Russian operations represented i 2 percent of consolidated annual Net sales from 2017 to 2021. The Ukraine operations were not material to the consolidated financial statements.
The suspension of shipments to Russia will reduce forecasted revenue for the region, which makes it probable future cash flows will not cover the carrying value of certain assets. The accounting consequences during the second quarter of 2022 were impairments of most long-lived assets, an increase in reserves of certain financial assets, and an accrual for various contractual uncertainties. No significant reserves were established on trade receivables or complete goods inventory, as the Company continues to experience strong payment performance and requires prepayment of existing inventories. During the third quarter of 2022, the Company initiated a voluntary employee-separation program, updated reserves on assets, and reassessed accruals for contractual uncertainties. The Russian government has imposed certain restrictions on companies’ abilities to repatriate or remit cash from their Russian-based operations to locations outside of Russia. Cash in excess of what is required to fund operations in Russia has been reclassified as restricted and recorded in Other assets. The Company continues to closely monitor all financial risks to its operations in the region. i A summary of the reserves, impairments, voluntary-separation costs, and contingent liabilities recorded in the first nine months of 2022 follows in millions of dollars:
| | | | | | | | | | | | | | | | |
| | Nine Months Ended July 31, 2022 | | |||||||||||||
| | PPA |
| SAT |
| CF |
| FS |
| Total | | |||||
2022 Expense: | | | | | | | | | | | | | | | | |
Inventory reserve – Cost of sales | | $ | i 8 | | | | | $ | i 4 | | | | | $ | i 12 | |
Fixed asset impairment – Cost of sales | | | i 30 | | | | | | i 11 | | | | | | i 41 | |
Intangible asset impairment – Cost of sales | | | | | | | | | i 28 | | | | | | i 28 | |
Allowance for credit losses – Financing receivables – SA&G expenses | | | | | | | | | | | $ | i 32 | | | i 32 | |
Voluntary-separation program – Cost of sales | | | i 1 | | | | | | | | | | | | i 1 | |
Voluntary-separation program – SA&G expenses | | | i 3 | | | | | | i 4 | | | i 1 | | | i 8 | |
Contingent liabilities – Other operating expenses | | | i 3 | | $ | i 1 | | | i 1 | | | | | | i 5 | |
Total Russia/Ukraine events pretax expense | | $ | i 45 | | $ | i 1 | | $ | i 48 | | $ | i 33 | | | i 127 | |
| | | | | | | | | | | | | | | | |
Net tax impact | | | | | | | | | | | | | | | ( i 8) | |
Total Russia/Ukraine events after-tax expense | | | | | | | | | | | | | | $ | i 119 | |
Gain on Previously Held Equity Investment
On February 28, 2022, the Company acquired full ownership of three former Deere-Hitachi joint venture factories and began new license and supply agreements with Hitachi. The fair value of the previous equity investment resulted in a non-cash gain of $ i 326 million (pretax and after-tax; see Note 19).
UAW Collective Bargaining Agreement
On November 17, 2021, employees represented by the UAW approved a new collective bargaining agreement. The agreement, which has a term of i six years, covers the wages, hours, benefits, and other terms and conditions of employment for the Company’s UAW-represented employees at i 14 U.S. facilities. The labor agreement includes a lump sum ratification bonus payment of $ i 8,500 per eligible employee, totaling $ i 90 million, and an immediate wage increase of i 10 percent plus further wage increases over the term of the contract. The lump sum payment was expensed in the first quarter of 2022. The Company remeasured the U.S. hourly pension plan as of November 30, 2021 due to the new collective bargaining agreement. See Note 6 for more information on the U.S. hourly plan remeasurement.
/29
2021 Special Items
In the third quarter of 2021, the Company sold a closed factory that previously produced small agricultural equipment in China, resulting in a $ i 27 million pretax gain. During the first quarter of 2021, the fixed assets in an asphalt plant factory in Germany were impaired by $ i 38 million, pretax and after-tax. The Company also continued to assess its manufacturing locations, resulting in additional long-lived asset impairments of $ i 12 million pretax. The impairments were the result of a decline in forecasted financial performance that indicated it was probable future cash flows would not cover the carrying amount of the net assets. These impairments were offset by a favorable indirect tax ruling in Brazil of $ i 58 million pretax. See Note 16 for fair value measurement information.
The following table summarizes the operating profit impact, in millions of dollars, of the special items recorded for the three months and nine months ended July 31, 2022 and August 1, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months | | Nine Months | | ||||||||||||||||||||||||||
| | PPA |
| SAT |
| CF |
| FS |
| Total | | PPA |
| SAT |
| CF |
| FS |
| Total | | ||||||||||
2022 Expense (benefit): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gain on remeasurement of equity investment – Other income (see Note 19) | | | | | | | | | | | | | | | | | | | | | | | $ | ( i 326) | | | | | $ | ( i 326) | |
Total Russia/Ukraine events pretax expense | | $ | ( i 1) | | | | | $ | i 1 | | $ | i 7 | | $ | i 7 | | $ | i 45 | | $ | i 1 | | | i 48 | | $ | i 33 | | | i 127 | |
UAW ratification bonus – Cost of sales | | | | | | | | | | | | | | | | | | i 53 | | | i 9 | | | i 28 | | | | | | i 90 | |
Total expense (benefit) | | | ( i 1) | | | | | | i 1 | | | i 7 | | | i 7 | | | i 98 | | | i 10 | | | ( i 250) | | | i 33 | | | ( i 109) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2021 Expense (benefit): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gain on sale – Other income | | | | | $ | ( i 27) | | | | | | | | | ( i 27) | | | | | | ( i 27) | | | | | | | | | ( i 27) | |
Long-lived asset impairments – Cost of sales | | | | | | | | | | | | | | | | | | i 5 | | | i 3 | | | i 42 | | | | | | i 50 | |
Brazil indirect tax – Cost of sales | | | | | | | | | | | | | | | | | | ( i 53) | | | | | | ( i 5) | | | | | | ( i 58) | |
Total expense (benefit) | | | | | | ( i 27) | | | | | | | | | ( i 27) | | | ( i 48) | | | ( i 24) | | | i 37 | | | | | | ( i 35) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period over period change | | $ | ( i 1) | | $ | i 27 | | $ | i 1 | | $ | i 7 | | $ | i 34 | | $ | i 146 | | $ | i 34 | | $ | ( i 287) | | $ | i 33 | | $ | ( i 74) | |
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
Organization
The Company generates net sales primarily 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 are managed through the production and precision agriculture, small agriculture and turf, and construction and forestry operating segments. The Company’s financial services segment primarily provides credit services, which mainly finance sales and leases of equipment by John Deere dealers.
Trends and Economic Conditions for Fiscal Year 2022
Industry sales of large agricultural machinery in the U.S. and Canada are expected to be up about 15 percent. Industry sales of small agriculture and turf equipment in the U.S. and Canada are expected to be flat. Industry sales of agricultural machinery in Europe are forecast to be flat. In South America, industry sales of tractors and combines are projected to be up about 10 to 15 percent. Asia industry sales of agricultural machinery are forecast to be down moderately. Construction equipment industry sales in the U.S. and Canada are expected to increase about 10 percent, while compact construction equipment industry sales in the U.S. and Canada are anticipated to be flat to down 5 percent. Forestry global industry equipment sales are expected to be flat to down 5 percent. Global roadbuilding equipment industry sales are forecasted to be flat to up 5 percent. Net income for the Company’s financial services operations is expected to be slightly lower than fiscal year 2021 due to a higher provision for credit losses, less-favorable financing spreads, and higher selling, administrative, and general expenses. These factors are expected to be partially offset by income earned on a higher average portfolio.
Items of concern include global and regional political conditions, economic and trade policies, inflationary pressures, the ongoing pandemic, capital market disruptions, changes in demand and pricing for new and used equipment, and the other items discussed in the “Forward-Looking Statements” below. Significant fluctuations in foreign currency exchange rates, volatility in the prices of many commodities, and supply chain disruptions could also impact the Company’s results.
The Company’s third quarter results reflect increased factory output and shipments to customers while supply chain pressures endure. Also during the third quarter, the Company experienced higher costs and production inefficiencies from these supply chain pressures. The Company is confident favorable conditions will continue into fiscal year 2023 based on strong underlying fundamentals and customer responses to early-order programs. The Company’s factories and suppliers are also preparing for higher levels of customer demand in 2023. Additionally, the Company believes the smart industrial operating model and recently announced leap ambitions will create value for customers through the Company’s advanced technologies and solutions.
Impact of Events in Russia / Ukraine
The events in Russia / Ukraine have impacted the safety, welfare, and well-being of the Company’s employees in the region. The Company’s top priority is to support and maintain close communication with its affected teams, providing necessary resources when possible. The Company has suspended shipments of machines and service parts to Russia. These events are impacting business continuity, liquidity, and asset values for the Company’s operations in Russia / Ukraine (see Note 20).
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2022 Compared with 2021
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||||||
Deere & Company | | July 31 | | August 1 | | % | | July 31 | | August 1 | | % | | ||||
(In millions of dollars, except per share amounts) | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | ||||
Net sales and revenues | | $ | 14,102 | | $ | 11,527 | | +22 | | $ | 37,041 | | $ | 32,697 | | +13 | |
Net income attributable to Deere & Company | | | 1,884 | | | 1,667 | | +13 | | | 4,885 | | | 4,680 | | +4 | |
Diluted earnings per share | | | 6.16 | | | 5.32 | | | | | 15.88 | | | 14.86 | | | |
Results for the third quarter and year-to-date periods of 2022 and 2021 were impacted by special items. More information on these special items is provided in Note 20. The discussion on Net sales and operating profit is included in the Business Segment Results below.
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||||||
Deere & Company | | July 31 | | August 1 | | % | | July 31 | | August 1 | | % | | ||||
(In millions of dollars) | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | ||||
Cost of sales to net sales | | | 73.2% | | | 72.7% | | | | | 74.9% | | | 72.3% | | | |
| | | | | | | | | | | | | | | | | |
Other income | | $ | 256 | | $ | 289 | | -11 | | $ | 1,035 | | $ | 768 | | +35 | |
Research and development expenses | | | 481 | | | 394 | | +22 | | | 1,336 | | | 1,137 | | +18 | |
Selling, administrative and general expenses | | | 959 | | | 841 | | +14 | | | 2,672 | | | 2,448 | | +9 | |
Other operating expenses | | | 316 | | | 324 | | -2 | | | 954 | | | 1,033 | | -8 | |
Provision for income taxes | | | 654 | | | 491 | | +33 | | | 1,364 | | | 1,328 | | +3 | |
The cost of sales to net sales ratio increased in the third quarter and the first nine months of fiscal 2022 primarily due to higher production costs partially offset by price realization. Other income decreased in the third quarter due to a prior period gain on sale of a closed factory in China. Other income increased in the first nine months due to a non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture. Research and development expenses were higher for both periods due to continued focus on developing and incorporating technology solutions. Selling, administrative, and general expenses increased in the third quarter and the first nine months primarily due to a higher provision for credit losses, including higher reserves due to the events in Russia / Ukraine, as well as a higher merit pay increase due to inflationary conditions. Other operating expenses decreased in the third quarter and the first nine months primarily due to lower depreciation of equipment on operating leases, while lower retirement benefit costs impacted the first nine months. The provision for income taxes increased in the third quarter due to higher pretax income and unfavorable discrete income-tax adjustments.
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Business Segment Results
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||||||
Production and Precision Agriculture | | July 31 | | August 1 | | % | | July 31 | | August 1 | | % | | ||||
(In millions of dollars) | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | ||||
Net sales | | $ | 6,096 | | $ | 4,250 | | +43 | | $ | 14,568 | | $ | 11,848 | | +23 | |
Operating profit | | | 1,293 | | | 906 | | +43 | | | 2,646 | | | 2,557 | | +3 | |
Operating margin | | | 21.2% | | | 21.3% | | | | | 18.2% | | | 21.6% | | | |
Price realization | | | | | | | | +15 | | | | | | | | +12 | |
Currency translation | | | | | | | | -4 | | | | | | | | -2 | |
Production and precision agriculture sales increased for the quarter due to higher shipment volumes and price realization, partially offset by the unfavorable impact of currency translation. Operating profit rose primarily due to price realization and higher shipment volumes / sales mix. These items were partially offset by higher production costs, higher selling, administrative, and general expenses, increased research and development expenses, and the unfavorable effects of foreign currency exchange.
Sales for the first nine months increased mainly as a result of higher shipment volumes and price realization. Operating profit for the first nine months increased primarily resulting from price realization, higher sales volume / mix, and the favorable effects of foreign currency exchange. Partially offsetting these factors were higher production costs, higher research and development and selling, administrative, and general expenses, the UAW contract ratification bonus, and the impact of impairments related to events in Russia / Ukraine. The prior year was also impacted by a favorable indirect tax ruling in Brazil.
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| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||||||
Small Agriculture and Turf | | July 31 | | August 1 | | % | | July 31 | | August 1 | | % | | ||||
(In millions of dollars) | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | ||||
Net sales | | $ | 3,635 | | $ | 3,147 | | +16 | | $ | 9,836 | | $ | 9,051 | | +9 | |
Operating profit | | | 552 | | | 583 | | -5 | | | 1,443 | | | 1,699 | | -15 | |
Operating margin | | | 15.2% | | | 18.5% | | | | | 14.7% | | | 18.8% | | | |
Price realization | | | | | | | | +10 | | | | | | | | +8 | |
Currency translation | | | | | | | | -5 | | | | | | | | -3 | |
Small agriculture and turf sales for the quarter increased due to higher shipment volumes and price realization partially offset by the unfavorable impact of currency translation. Operating profit decreased primarily due to higher production costs, higher selling, administrative, and general expenses, increased research and development expenses, and the unfavorable effects of foreign currency exchange. These items were partially offset by price realization and higher sales volumes. Results for the prior period included a gain on the sale of a closed factory in China that had produced small agricultural equipment.
Sales for the first nine months increased mainly as a result of price realization and higher shipment volumes, partially offset by the unfavorable impact of currency translation. Operating profit for the first nine months decreased primarily resulting from higher production costs and higher selling, administrative, and general and research and development expenses. Partially offsetting these factors was price realization. Results for the prior period included a gain on the sale of a closed factory in China that had produced small agricultural equipment.
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| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||||||
Construction and Forestry | | July 31 | | August 1 | | % | | July 31 | | August 1 | | % | | ||||
(In millions of dollars) | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | ||||
Net sales | | $ | 3,269 | | $ | 3,016 | | +8 | | $ | 9,161 | | $ | 8,562 | | +7 | |
Operating profit | | | 514 | | | 463 | | +11 | | | 1,599 | | | 1,220 | | +31 | |
Operating margin | | | 15.7% | | | 15.4% | | | | | 17.5% | | | 14.2% | | | |
Price realization | | | | | | | | +10 | | | | | | | | +9 | |
Currency translation | | | | | | | | -4 | | | | | | | | -3 | |
Construction and forestry sales moved higher for the quarter primarily due to price realization. Operating profit increased due to price realization, partially offset by higher production costs.
The segment’s nine-month sales also increased due to price realization partially offset by the unfavorable impact of currency translation. The first nine-month’s operating profit moved higher mainly due to price realization and a non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture, partially offset by higher production costs and unfavorable product mix.
35
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||||||
Financial Services | | July 31 | | August 1 | | % | | July 31 | | August 1 | | % | | ||||
(In millions of dollars) | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | ||||
Revenue (including intercompany) | | $ | 984 | | $ | 963 | | +2 | | $ | 2,851 | | $ | 2,851 | | | |
Interest expense | | | 223 | | | 169 | | +32 | | | 493 | | | 539 | | -9 | |
Net income | | | 209 | | | 227 | | -8 | | | 649 | | | 654 | | -1 | |
While the average balance of receivables financed increased 9 percent in the third quarter and 8 percent in the first nine months of 2022 compared with the same periods last year, revenues increased 2 percent in the third quarter and were unchanged in the first nine months. Lower operating lease revenue partially offset the higher average receivable balances in both periods. Interest expense increased in the third quarter due to higher average borrowing rates and higher average borrowings. Interest expense decreased in the first nine months of 2022 primarily as a result of non-designated derivative gains, partially offset by higher average borrowings. Net income decreased for the quarter mainly due to unfavorable discrete income-tax adjustments, a higher provision for credit losses, and lower gains on operating lease residual values. These items were partially offset by income earned on a higher average portfolio. Results for the first nine months decreased slightly due to a higher provision for credit losses, partially offset by income earned on higher average portfolio balances.
Critical Accounting Estimates
See the Company’s critical accounting estimates discussed in Management’s Discussion and Analysis of the most recently filed Annual Report on Form 10-K. There have been no material changes to these estimates.
CAPITAL RESOURCES AND LIQUIDITY
Sources of Liquidity, including Key Metrics and Balance Sheet Data
The Company has access to most global markets at a reasonable cost and expects to have sufficient sources of global funding and liquidity to meet its funding needs in the short term and long term. Sources of liquidity for the Company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets), and bank lines of credit. 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 subject to seasonal variations in financing requirements for inventories and certain receivables from dealers. The financial services operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios. The key metrics are provided in the following table, in millions of dollars:
| | | | | | | | | | |
| | July 31 | | October 31 | | August 1 | | |||
| | 2022 | | 2021 | | 2021 | | |||
Cash, cash equivalents, and marketable securities | | $ | 5,078 | | $ | 8,745 | | $ | 8,207 | |
| | | | | | | | | | |
Trade accounts and notes receivable – net | | | 6,696 | | | 4,208 | | | 5,268 | |
Ratio to prior 12 month’s net sales | | | 15% | | | 11% | | | 14% | |
| | | | | | | | | | |
Inventories | | | 9,121 | | | 6,781 | | | 6,410 | |
Ratio to prior 12 month’s cost of sales | | | 28% | | | 23% | | | 23% | |
| | | | | | | | | | |
Unused credit lines | | | 1,957 | | | 5,770 | | | 6,131 | |
| | | | | | | | | | |
Financial Services: | | | | | | | | | | |
Ratio of interest-bearing debt to stockholder’s equity | | | 8.2 to 1 | | | 7.8 to 1 | | | 7.6 to 1 | |
Due to the uncertainties around the COVID-19 pandemic, the Company temporarily increased its cash, cash equivalents, and marketable securities target beginning in March 2020. The reduction in unused credit lines compared to both prior periods relates to an increase in commercial paper outstanding to fund growth in the receivable portfolio. The Company expects to generate excess operating cash flows in 2022, as evidenced by the common stock dividend increase declared on May 25, 2022, and $2,477 million of share repurchases during the first nine months of 2022. As the underlying fundamentals remain strong in the Company’s operating segments, the Company expects to generate long-term cash flows.
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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
| | | | | | | |
| | Nine Months Ended | | ||||
| | | | ||||
Net cash provided by operating activities | | $ | 418 | | $ | 4,314 | |
Net cash used for investing activities | | | (4,430) | | | (3,102) | |
Net cash provided by (used for) financing activities | | | 515 | | | (851) | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | | | (143) | | | 106 | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | $ | (3,640) | | $ | 467 | |
Cash inflows from operating activities in the first nine months of 2022 were $418 million. This resulted mainly from net income adjusted for non-cash provisions, partially offset by a working capital change and a $1,000 million voluntary contribution to a U.S. OPEB plan. Cash outflows from investing activities were $4,430 million in the first nine months of 2022. The primary drivers were growth in the retail customer receivable portfolio; purchases of property and equipment; acquisitions of businesses, net of cash acquired; and a change in collateral on derivatives – net. Cash inflows from financing activities were $515 million in the first nine months of 2022, as higher external borrowings of $3,970 million were mainly offset by repurchases of common stock and dividends paid. Cash, cash equivalents, and restricted cash decreased $3,640 million during the first nine months of this year as the Company lowered its targeted cash balance, as previously noted.
Cash and Marketable Securities Held by Foreign Subsidiaries. The total cash and cash equivalents and marketable securities held by foreign subsidiaries was $2,713 million, $5,817 million, and $5,690 million at July 31, 2022, October 31, 2021, and August 1, 2021, respectively. During the first nine months of 2022, the Company’s foreign subsidiaries returned $4,460 million of cash and cash equivalents to the U.S.
Trade Accounts and Notes Receivable. Trade accounts and notes receivable primarily arise from sales of goods to dealers. Trade receivables increased $2,488 million during the first nine months of 2022, primarily due to a seasonal increase and higher overall demand, partially offset by the effect of foreign currency translation. These receivables increased $1,428 million, compared to a year ago, primarily due to higher overall demand partially offset by the effect of foreign currency translation. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent at July 31, 2022, 1 percent at October 31, 2021, and 2 percent at August 1, 2021.
Financing Receivables and Equipment on Operating Leases. These receivables and leases primarily 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 $1,305 million during the first nine months of 2022 and increased $2,919 million in the past 12 months primarily due to higher equipment sales. Total acquisition volumes of financing receivables and equipment on operating leases were 2 percent higher in the first nine months of 2022, compared with the same period last year, as volumes of revolving charge accounts, retail notes, and operating leases were higher, while volumes of financing leases and wholesale notes were lower.
Inventories. Inventories increased by $2,340 million during the first nine months of 2022 and increased by $2,711 million compared to a year ago. The higher levels in both periods are due to increased overall demand and the impact of supply chain disruptions, partially offset by foreign currency translation.
Property and Equipment. Property and equipment cash expenditures in the first nine months of 2022 were $596 million, compared with $492 million in the same period last year. Capital expenditures in 2022 are estimated to be approximately $1,100 million.
Borrowings. Total external borrowings have changed generally corresponding with the level of the receivable and the lease portfolio, as well as the level of cash and cash equivalents.
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 2021 with an expiration in November 2022 and a reduction of the total capacity or “financing limit” from $2,000 million to $1,000 million. As a result of the reduced capacity, Capital Corporation repurchased $511 million of outstanding short-term securitization borrowings in November 2021, in addition to the normal payments collected on the retail notes. At July 31, 2022, $891 million of securitization borrowings was outstanding under the facility. At the end of the contractual revolving period, unless the banks and Capital Corporation agree to renew, Capital Corporation would liquidate the secured borrowings over time as payments on the retail notes are collected.
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In the first nine months of 2022, the Company issued $2,669 million and retired $2,343 million of retail note securitization borrowings, which are presented in Increase in total short-term borrowings on the statements of consolidated cash flows. In April 2022, the Company issued $600 million of sustainability-linked medium-term notes with an initial interest rate of 3.35 percent, which are due in 2029. This transaction supports the Company’s commitment to environmental sustainability by linking financing to the achievement of its ambitious and comprehensive environmental, social, and governance (ESG) targets. Failure to meet the stated sustainability performance target will result in a 25-basis point increase to the interest rate payable on the 2029 notes from and including April 2026.
Lines of Credit. The Company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled $8,427 million at July 31, 2022, $1,957 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 primarily considered to constitute utilization. Included in the total credit lines at July 31, 2022 was a 364-day credit facility agreement of $3,000 million expiring in the second quarter of 2023. In addition, total credit lines included long-term credit facility agreements of $2,500 million expiring in the second quarter of 2026 and $2,500 million expiring in the second quarter of 2027. These credit agreements require Capital Corporation and other parts of the Company to maintain certain performance metrics and liquidity targets. All of these credit agreement requirements have been met during the periods included in the financial statements.
Debt Ratings. To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company’s securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell, or hold Company securities. A credit rating agency may change or withdraw Company ratings based on its assessment of the Company’s current and future ability to meet interest and principal repayment obligations. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets. The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company debt securities by the rating agencies engaged by the Company are as follows:
| | | | | | | |
|
| Senior |
| |
| |
|
| | Long-Term | | Short-Term | | Outlook |
|
Fitch Ratings | | A | | F1 | | Stable | |
Moody’s Investors Service, Inc. |
| A2 |
| Prime-1 |
| Stable | |
Standard & Poor’s |
| A |
| A-1 |
| Stable | |
Subsequent Events
On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act of 2022. The bill contains numerous tax provisions, including a 15 percent corporate minimum tax. The Company has not yet completed its analysis of the newly enacted tax legislation. At this point, however, this legislation is not expected to have a material impact on the Company’s financial statements.
On August 31, 2022, the Company’s Board of Directors declared a quarterly dividend of $1.13 per share payable November 8, 2022 to stockholders of record on September 30, 2022.
Forward-Looking Statements
Certain statements contained herein, including in the section entitled “Overview” relating to future events, expectations, and trends constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 and involve factors that are subject to change, assumptions, risks, and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect all lines of the Company’s operations generally while others could more heavily affect a particular line of business.
Forward-looking statements are based on currently available information and current assumptions, expectations, and projections about future events 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. Further information concerning the Company and its businesses, including factors that could materially affect the Company’s financial results, is included in the Company’s other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. “Risk Factors” of the Company’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q).
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Factors Affecting All Lines of Business
All of the Company’s businesses and their results are affected by general global macroeconomic conditions, including but not limited to inflation, including rising costs for materials used in our production, slower growth or recession, higher interest rates and currency fluctuations which could adversely affect the U.S. dollar and customer confidence, and customer access to capital and overall demand for our products; delays or disruptions in the Company’s supply chain, including work stoppages or disputes by suppliers with their unionized labor; shipping delays; government spending and taxing; changes in weather and climate patterns; the political and social stability of the markets in which the Company operates; the effects of, or response to, wars and other conflicts, including the current military conflict between Russia and Ukraine; natural disasters; and the spread of major epidemics or pandemics (including the COVID-19 pandemic). The sustainability of economic recovery from COVID-19 remains unclear and significant volatility could continue for a prolonged period.
Significant changes in market liquidity conditions, changes in the Company’s credit ratings, and any failure to comply with financial covenants in credit agreements could impact our access to or terms of future funding, which could reduce the Company’s earnings and cash flows. A debt crisis in Europe, Latin America, or elsewhere could negatively impact currencies, global financial markets, funding sources and costs, asset and obligation values, customers, suppliers, and demand for equipment. The Company’s investment management activities could be impaired by changes in the equity, bond, and other financial markets, which would negatively affect earnings.
Additional factors that could materially affect the Company’s operations, financial condition, and results include changes in governmental trade, banking, monetary, and fiscal policies, including policies and tariffs for the benefit of certain industries or sectors; actions by environmental, health, and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, and the effects of climate change; changes to GPS radio frequency bands and their permitted uses; changes to accounting standards; changes to and compliance with economic sanctions and export controls laws and regulations (including those in place for Russia); and compliance with evolving U.S. and foreign laws when expanding to new markets and otherwise.
Other factors that could materially affect the Company’s results and operations include security breaches, cybersecurity attacks, technology failures, and other disruptions to the information technology infrastructure of the Company and its suppliers and dealers; security breaches with respect to the Company’s products; the loss of or challenges to intellectual property rights; the availability and prices of strategically sourced materials, components, and whole goods; introduction of legislation that could affect the Company’s business model and intellectual property, such as so-called right to repair or right to modify legislation; events that damage the Company’s reputation or brand; significant investigations, claims, lawsuits, or other legal proceedings; the success or failure of new product initiatives or business strategies; changes in product preferences, sales mix, and take rates of products and life cycle solutions; gaps or limitations in rural broadband coverage, capacity, and speed needed to support technology solutions; oil and energy prices, supplies, and volatility; the availability and cost of freight; actions of competitors in the various industries in which the Company competes, particularly price discounting; dealer practices, especially as to levels of new and used field inventories; changes in demand and pricing for used equipment and resulting impacts on lease residual values; the inability to deliver precision technology and agricultural solutions to customers; labor relations and contracts, including work stoppages and other disruptions; changes in the ability to attract, develop, engage, and retain qualified personnel; and the integration of acquired businesses.
Production & Precision Agriculture and Small Agriculture & Turf Operations
The Company’s agricultural equipment operations are subject to a number of uncertainties, including certain factors that affect farmers’ confidence and financial condition. These factors include demand for agricultural products; world grain stocks; soil conditions; harvest yields; prices for commodities and livestock; availability and cost of fertilizer; availability of transport for crops; the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production); real estate values; available acreage for farming; changes in government farm programs and policies; changes in and effects of crop insurance programs; changes in environmental regulations and their impact on farming practices; animal diseases and their effects on poultry, beef, and pork consumption and prices on livestock feed demand; and crop pests and diseases.
Production and Precision Agriculture Operations
The production and precision agriculture operations rely in part on hardware and software, guidance, connectivity and digital solutions, and automation and machine intelligence. Many factors contribute to the Company’s precision agriculture sales and results, including the impact to customers’ profitability and/or sustainability outcomes;
39
availability of technological innovations; speed of research and development; effectiveness of partnerships with third parties; and the dealer channel’s ability to support and service precision technology solutions.
Small Agriculture and Turf Equipment
Factors affecting the Company’s small agriculture and turf equipment operations include customer profitability; consumer purchasing preferences; housing starts and supply; infrastructure investment; spending by municipalities and golf courses; and consumable input costs.
Construction and Forestry
Factors affecting the Company’s construction and forestry equipment operations include real estate and housing prices; the number of housing starts; commodity prices such as oil and gas; the levels of public and non-residential construction; and investment in infrastructure. Prices for pulp, paper, lumber, and structural panels affect sales of forestry equipment.
John Deere Financial
The liquidity and ongoing profitability of John Deere Capital Corporation and the Company’s other financial services subsidiaries depend on timely access to capital to meet future cash flow requirements, and to fund operations, costs, and purchases of the Company’s products. If general economic conditions deteriorate or capital markets become more volatile, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses.
Supplemental Consolidating Information
The supplemental consolidating data presented on the subsequent pages is presented for informational purposes. The equipment operations represent the enterprise without financial services. The equipment operations include the Company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services. Transactions between the equipment operations and financial services have been eliminated to arrive at the consolidated financial statements.
The equipment operations and financial services participate in different industries. The equipment operations primarily generate earnings and cash flows by manufacturing and selling equipment, service parts, and technology solutions to dealers and retail customers. Financial services primarily finances sales and leases by dealers of new and used equipment that is largely manufactured by the Company. Those earnings and cash flows generally are the difference between the finance income received from customer payments less interest expense, and depreciation on equipment subject to an operating lease. These two businesses are capitalized differently and have separate performance metrics. The supplemental consolidating data is also used by management due to these differences.
40
| | | | | | | | | | | | | | | | | | | | | | | | | | |
DEERE & COMPANY | | | ||||||||||||||||||||||||
SUPPLEMENTAL CONSOLIDATING DATA | | | ||||||||||||||||||||||||
STATEMENTS OF INCOME | | | ||||||||||||||||||||||||
For the Three Months Ended July 31, 2022 and August 1, 2021 | | | ||||||||||||||||||||||||
(In millions of dollars) Unaudited | | | ||||||||||||||||||||||||
| | EQUIPMENT | | FINANCIAL | | | | | | | ||||||||||||||||
| | OPERATIONS | | SERVICES | | ELIMINATIONS | | CONSOLIDATED | |
| ||||||||||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | |
| ||||||||
Net Sales and Revenues |
| |
|
| | |
| |
|
| | |
| |
|
| | |
| |
|
| | | | |
Net sales | | $ | 13,000 | | $ | 10,413 | | | | | | | | | | | | | | $ | 13,000 | | $ | 10,413 | | |
Finance and interest income | | | 60 | |
| 33 | | $ | 905 | | $ | 867 | | $ | (119) | | $ | (75) | | | 846 | | | 825 | 1 | |
Other income | | | 228 | |
| 263 | | | 79 | |
| 96 | | | (51) | |
| (70) | | | 256 | |
| 289 | 2 | |
Total | | | 13,288 | |
| 10,709 | | | 984 | |
| 963 | | | (170) | |
| (145) | | | 14,102 | |
| 11,527 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Costs and Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of sales | | | 9,512 | |
| 7,574 | | | | | | | | | (1) | |
| | | | 9,511 | | | 7,574 | 3 | |
Research and development expenses | | | 481 | |
| 394 | | | | | | | | | | | | | | | 481 | | | 394 | | |
Selling, administrative and general expenses | | | 805 | |
| 702 | | | 156 | |
| 141 | | | (2) | |
| (2) | | | 959 | |
| 841 | 3 | |
Interest expense | | | 109 | |
| 92 | | | 223 | |
| 169 | | | (36) | |
| (17) | | | 296 | |
| 244 | 4 | |
Interest compensation to Financial Services | | | 83 | |
| 58 | | | | | | | | | (83) | |
| (58) | | | | | | | 4 | |
Other operating expenses | | | 47 | |
| 32 | | | 317 | |
| 360 | | | (48) | |
| (68) | | | 316 | |
| 324 | 5 | |
Total | | | 11,037 | |
| 8,852 | | | 696 | |
| 670 | | | (170) | |
| (145) | | | 11,563 | |
| 9,377 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before Income Taxes | | | 2,251 | |
| 1,857 | | | 288 | |
| 293 | | | | |
| | | | 2,539 | |
| 2,150 | | |
Provision for income taxes | | | 574 | |
| 425 | | | 80 | |
| 66 | | | | |
| | | | 654 | |
| 491 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Income after Income Taxes | | | 1,677 | |
| 1,432 | | | 208 | |
| 227 | | | | |
| | | | 1,885 | |
| 1,659 | | |
Equity in income (loss) of unconsolidated affiliates | | | (1) | |
| 8 | | | 1 | |
| | | | | | | | | | | | | 8 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Income | | | 1,676 | |
| 1,440 | | | 209 | |
| 227 | | | | |
| | | | 1,885 | |
| 1,667 | | |
Less: Net income attributable to noncontrolling interests | | | 1 | |
| | | | | | | | | | | | | | | | 1 | | | | | |
Net Income Attributable to Deere & Company | | $ | 1,675 | | $ | 1,440 | | $ | 209 | | $ | 227 | | | | | | | | $ | 1,884 | | $ | 1,667 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
1 Elimination of financial services’ interest income earned from equipment operations.
2 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases.
3 Elimination of intercompany service fees.
4 Elimination of equipment operations’ interest expense to financial services.
5 Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.
41
| | | | | | | | | | | | | | | | | | | | | | | | | | |
DEERE & COMPANY | | | ||||||||||||||||||||||||
SUPPLEMENTAL CONSOLIDATING DATA (Continued) | | | ||||||||||||||||||||||||
STATEMENTS OF INCOME | | | ||||||||||||||||||||||||
For the Nine Months Ended July 31, 2022 and August 1, 2021 | | | ||||||||||||||||||||||||
(In millions of dollars) Unaudited | | | ||||||||||||||||||||||||
| | EQUIPMENT | | FINANCIAL | | | | | | | ||||||||||||||||
| | OPERATIONS | | SERVICES | | ELIMINATIONS | | CONSOLIDATED | |
| ||||||||||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | |
| ||||||||
Net Sales and Revenues |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Net sales | | $ | 33,565 | | $ | 29,461 | | | | | | | | | | | | | | $ | 33,565 | | $ | 29,461 | | |
Finance and interest income | | | 131 | |
| 95 | | $ | 2,580 | | $ | 2,582 | | $ | (270) | | $ | (209) | | | 2,441 | | | 2,468 | 1 | |
Other income | | | 1,028 | |
| 712 | | | 271 | |
| 269 | | | (264) | |
| (213) | | | 1,035 | |
| 768 | 2 | |
Total | | | 34,724 | |
| 30,268 | | | 2,851 | |
| 2,851 | | | (534) | |
| (422) | | | 37,041 | |
| 32,697 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Costs and Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of sales | | | 25,126 | |
| 21,309 | | | | | | | | | (2) | |
| (2) | | | 25,124 | | | 21,307 | 3 | |
Research and development expenses | | | 1,336 | |
| 1,137 | | | | | | | | | | | | | | | 1,336 | | | 1,137 | | |
Selling, administrative and general expenses | | | 2,215 | |
| 2,089 | | | 463 | |
| 365 | | | (6) | |
| (6) | | | 2,672 | |
| 2,448 | 3 | |
Interest expense | | | 297 | |
| 287 | | | 493 | |
| 539 | | | (77) | |
| (43) | | | 713 | |
| 783 | 4 | |
Interest compensation to Financial Services | | | 189 | |
| 166 | | | | | | | | | (189) | |
| (166) | | | | | | | 4 | |
Other operating expenses | | | 186 | |
| 140 | | | 1,028 | |
| 1,098 | | | (260) | |
| (205) | | | 954 | |
| 1,033 | 5 | |
Total | | | 29,349 | |
| 25,128 | | | 1,984 | |
| 2,002 | | | (534) | |
| (422) | | | 30,799 | |
| 26,708 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before Income Taxes | | | 5,375 | |
| 5,140 | | | 867 | |
| 849 | | | | |
| | | | 6,242 | |
| 5,989 | | |
Provision for income taxes | | | 1,142 | |
| 1,130 | | | 222 | |
| 198 | | | | |
| | | | 1,364 | |
| 1,328 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Income after Income Taxes | | | 4,233 | |
| 4,010 | | | 645 | |
| 651 | | | | |
| | | | 4,878 | |
| 4,661 | | |
Equity in income of unconsolidated affiliates | | | 4 | |
| 18 | | | 4 | |
| 3 | | | | | | | | | 8 | | | 21 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Income | | | 4,237 | |
| 4,028 | | | 649 | |
| 654 | | | | |
| | | | 4,886 | |
| 4,682 | | |
Less: Net income attributable to noncontrolling interests | | | 1 | |
| 2 | | | | |
| | | | | | | | | | 1 | | | 2 | | |
Net Income Attributable to Deere & Company | | $ | 4,236 | | $ | 4,026 | | $ | 649 | | $ | 654 | | | | | | | | $ | 4,885 | | $ | 4,680 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
1 Elimination of financial services’ interest income earned from equipment operations.
2 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases.
3 Elimination of intercompany service fees.
4 Elimination of equipment operations’ interest expense to financial services.
5 Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.
42
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
DEERE & COMPANY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
SUPPLEMENTAL CONSOLIDATING DATA (Continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
CONDENSED BALANCE SHEETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
(In millions of dollars) Unaudited | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
| | EQUIPMENT | | FINANCIAL | | | | | | | ||||||||||||||||||||||||||||
| | OPERATIONS | | SERVICES | | ELIMINATIONS | | CONSOLIDATED | | | ||||||||||||||||||||||||||||
| | Jul 31 | | Oct 31 | | Aug 1 | | Jul 31 | | Oct 31 | | Aug 1 | | Jul 31 | | Oct 31 | | Aug 1 | | Jul 31 | | Oct 31 | | Aug 1 | | | ||||||||||||
| | 2022 | | 2021 | | 2021 | | 2022 | | 2021 | | 2021 | | 2022 | | 2021 | | 2021 | | 2022 | | 2021 | | 2021 | | | ||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | |
Cash and cash equivalents | | $ | 3,540 | | $ | 7,188 | | $ | 6,638 | | $ | 819 | | $ | 829 | | $ | 881 | | | | | | | | | | | $ | 4,359 | | $ | 8,017 | | $ | 7,519 | | |
Marketable securities | | | 2 | |
| 3 | |
| 3 | | | 717 | |
| 725 | |
| 685 | | | | |
| | |
| | | | 719 | |
| 728 | |
| 688 | | |
Receivables from Financial Services | | | 5,055 | |
| 5,564 | |
| 5,913 | | | | | | | | | | | $ | (5,055) | | $ | (5,564) | | $ | (5,913) | | | | | | | | | | 6 | |
Trade accounts and notes receivable – net | | | 1,342 | |
| 1,155 | |
| 1,127 | | | 6,738 | |
| 3,895 | |
| 5,319 | | | (1,384) | |
| (842) | |
| (1,178) | | | 6,696 | |
| 4,208 | |
| 5,268 | 7 | |
Financing receivables – net | | | 45 | |
| 73 | |
| 89 | | | 35,011 | |
| 33,726 | |
| 31,360 | | | | |
| | |
| | | | 35,056 | |
| 33,799 | |
| 31,449 | | |
Financing receivables securitized – net | | | 2 | | | 10 | | | 13 | | | 5,139 | |
| 4,649 | |
| 5,388 | | | | |
| | |
| | | | 5,141 | |
| 4,659 | |
| 5,401 | | |
Other receivables | | | 1,676 | |
| 1,629 | |
| 1,545 | | | 371 | |
| 159 | |
| 171 | | | (48) | |
| (23) | |
| (14) | | | 1,999 | |
| 1,765 | |
| 1,702 | 7 | |
Equipment on operating leases – net | | | | | | | | | | | | 6,554 | |
| 6,988 | |
| 6,982 | | | | |
| | |
| | | | 6,554 | |
| 6,988 | |
| 6,982 | | |
Inventories | | | 9,121 | |
| 6,781 | |
| 6,410 | | | | | | | | | | | | | | | | | | | | | 9,121 | | | 6,781 | | | 6,410 | | |
Property and equipment – net | | | 5,630 | |
| 5,783 | |
| 5,612 | | | 36 | |
| 37 | |
| 37 | | | | |
| | |
| | | | 5,666 | |
| 5,820 | |
| 5,649 | | |
Goodwill | | | 3,754 | |
| 3,291 | |
| 3,148 | | | | | | | | | | | | | | | | | | | | | 3,754 | | | 3,291 | | | 3,148 | | |
Other intangible assets – net | | | 1,281 | |
| 1,275 | |
| 1,267 | | | | |
| | |
| | | | | |
| | |
| | | | 1,281 | |
| 1,275 | |
| 1,267 | | |
Retirement benefits | | | 3,062 | |
| 3,539 | |
| 986 | | | 65 | |
| 64 | |
| 63 | | | (2) | |
| (2) | |
| (59) | | | 3,125 | |
| 3,601 | |
| 990 | 8 | |
Deferred income taxes | | | 1,248 | |
| 1,215 | |
| 1,959 | | | 48 | |
| 53 | |
| 59 | | | (186) | |
| (231) | |
| (251) | | | 1,110 | |
| 1,037 | |
| 1,767 | 9 | |
Other assets | | | 1,727 | |
| 1,646 | |
| 1,747 | | | 510 | |
| 499 | |
| 702 | | | (1) | |
| | |
| (1) | | | 2,236 | |
| 2,145 | |
| 2,448 | | |
Total Assets | | $ | 37,485 | | $ | 39,152 | | $ | 36,457 | | $ | 56,008 | | $ | 51,624 | | $ | 51,647 | | $ | (6,676) | | $ | (6,662) | | $ | (7,416) | | $ | 86,817 | | $ | 84,114 | | $ | 80,688 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Short-term borrowings | | $ | 471 | | $ | 1,509 | | $ | 1,376 | | $ | 13,705 | | $ | 9,410 | | $ | 9,028 | | | | | | | | | | | $ | 14,176 | | $ | 10,919 | | $ | 10,404 | | |
Short-term securitization borrowings | | | 2 | | | 10 | | | 12 | | | 4,918 | |
| 4,595 | |
| 5,265 | | | | |
| | |
| | | | 4,920 | |
| 4,605 | |
| 5,277 | | |
Payables to Equipment Operations | | | | |
| | |
| | | | 5,055 | |
| 5,564 | |
| 5,913 | | $ | (5,055) | | $ | (5,564) | | $ | (5,913) | | | | |
| | |
| | 6 | |
Accounts payable and accrued expenses | | | 11,925 | |
| 11,198 | |
| 10,484 | | | 2,494 | |
| 2,015 | |
| 1,916 | | | (1,433) | |
| (865) | |
| (1,193) | | | 12,986 | |
| 12,348 | |
| 11,207 | 7 | |
Deferred income taxes | | | 436 | |
| 438 | |
| 371 | | | 311 | |
| 369 | |
| 395 | | | (186) | |
| (231) | |
| (251) | | | 561 | |
| 576 | |
| 515 | 9 | |
Long-term borrowings | | | 8,481 | |
| 8,915 | |
| 8,982 | | | 23,651 | |
| 23,973 | |
| 23,298 | | | | |
| | |
| | | | 32,132 | |
| 32,888 | |
| 32,280 | | |
Retirement benefits and other liabilities | | | 2,799 | |
| 4,239 | |
| 5,219 | | | 114 | |
| 107 | |
| 112 | | | (2) | |
| (2) | |
| (59) | | | 2,911 | |
| 4,344 | |
| 5,272 | 8 | |
Total liabilities | | | 24,114 | | | 26,309 | | | 26,444 | | | 50,248 | | | 46,033 | | | 45,927 | | | (6,676) | | | (6,662) | | | (7,416) | | | 67,686 | | | 65,680 | | | 64,955 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commitments and contingencies (Note 15) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Redeemable noncontrolling interest (Note 19) | | | 95 | | | | | | | | | | | | | | | | | | | | | | | | | | | 95 | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Deere & Company stockholders’ equity | | | 19,033 | |
| 18,431 | |
| 15,731 | | | 5,760 | | | 5,591 | | | 5,720 | | | (5,760) | | | (5,591) | | | (5,720) | | | 19,033 | | | 18,431 | | | 15,731 | 10 | |
Noncontrolling interests | | | 3 | |
| 3 | |
| 2 | | | | | | | | | | | | | | | | | | | | | 3 | | | 3 | | | 2 | | |
Financial Services’ equity | | | (5,760) | |
| (5,591) | |
| (5,720) | | | | | | | | | | | | 5,760 | | | 5,591 | | | 5,720 | | | | | | | | | | 10 | |
Adjusted total stockholders’ equity | | | 13,276 | |
| 12,843 | |
| 10,013 | | | 5,760 | |
| 5,591 | |
| 5,720 | | | | |
| | |
| | | | 19,036 | |
| 18,434 | |
| 15,733 | | |
Total Liabilities and Stockholders’ Equity | | $ | 37,485 | | $ | 39,152 | | $ | 36,457 | | $ | 56,008 | | $ | 51,624 | | $ | 51,647 | | $ | (6,676) | | $ | (6,662) | | $ | (7,416) | | $ | 86,817 | | $ | 84,114 | | $ | 80,688 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
6 Elimination of receivables / payables between equipment operations and financial services.
7 Primarily reclassification of sales incentive accruals on receivables sold to financial services.
8 Reclassification of net pension assets / liabilities.
9 Reclassification of deferred tax assets / liabilities in the same taxing jurisdictions.
10 Elimination of financial services’ equity.
43
| | | | | | | | | | | | | | | | | | | | | | | | | | |
DEERE & COMPANY | | | ||||||||||||||||||||||||
SUPPLEMENTAL CONSOLIDATING DATA (Continued) | | | ||||||||||||||||||||||||
STATEMENTS OF CASH FLOWS | | | ||||||||||||||||||||||||
For the Nine Months Ended July 31, 2022 and August 1, 2021 | | | ||||||||||||||||||||||||
(In millions of dollars) Unaudited | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | EQUIPMENT | | FINANCIAL | | | | | | | ||||||||||||||||
| | OPERATIONS | | SERVICES | | ELIMINATIONS | | CONSOLIDATED | | | ||||||||||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | | ||||||||
Cash Flows from Operating Activities |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Net income | | $ | 4,237 | | $ | 4,028 | | $ | 649 | | $ | 654 | | | | | | | | $ | 4,886 | | $ | 4,682 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Provision (credit) for credit losses | |
| | |
| 5 | |
| 62 | |
| (22) | |
| | |
| | |
| 62 | |
| (17) | | |
Provision for depreciation and amortization | |
| 806 | |
| 803 | |
| 790 | |
| 866 | | $ | (153) | | $ | (100) | |
| 1,443 | |
| 1,569 | 11 | |
Impairment charges | | | 81 | |
| 50 | |
| | |
| | |
| | |
| | |
| 81 | |
| 50 | | |
Share-based compensation expense | | | | | | | | | | | | | | | 64 | | | 64 | | | 64 | | | 64 | 12 | |
Gain on remeasurement of previously held equity investment | | | (326) | |
| | |
| | |
| | |
| | |
| | |
| (326) | |
| | | |
Undistributed earnings of unconsolidated affiliates | |
| 370 | |
| 246 | |
| (3) | |
| (2) | |
| (368) | |
| (240) | |
| (1) | |
| 4 | 13 | |
Provision (credit) for deferred income taxes | |
| 44 | |
| (218) | |
| (50) | |
| (53) | |
| | |
| | |
| (6) | |
| (271) | | |
Changes in assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trade, notes, and financing receivables related to sales | |
| (215) | |
| (73) | | | | | | | | | (2,142) | | | (371) | | | (2,357) | | | (444) | 14, 16, 17 | |
Inventories | |
| (2,415) | |
| (1,367) | | | | | | | | | (111) | | | (450) | | | (2,526) | | | (1,817) | 15 | |
Accounts payable and accrued expenses | |
| 491 | |
| 860 | |
| 36 | |
| (20) | |
| (542) | |
| (98) | |
| (15) | |
| 742 | 16 | |
Accrued income taxes payable/receivable | |
| 52 | |
| 43 | |
| 30 | |
| (9) | |
| | |
| | |
| 82 | |
| 34 | | |
Retirement benefits | |
| (1,020) | |
| 8 | |
| 6 | |
| 5 | |
| | |
| | |
| (1,014) | |
| 13 | | |
Other | |
| 101 | |
| (200) | |
| (105) | |
| 26 | |
| 49 | |
| (121) | |
| 45 | |
| (295) | 11, 12, 15 | |
Net cash provided by operating activities | |
| 2,206 | |
| 4,185 | |
| 1,415 | |
| 1,445 | |
| (3,203) | |
| (1,316) | |
| 418 | |
| 4,314 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collections of receivables (excluding receivables related to sales) | | | | | | | |
| 16,927 | |
| 15,704 | |
| (1,153) | |
| (1,224) | |
| 15,774 | |
| 14,480 | 14 | |
Proceeds from sales of equipment on operating leases | | | | | | | |
| 1,501 | |
| 1,510 | |
| | |
| | |
| 1,501 | |
| 1,510 | | |
Cost of receivables acquired (excluding receivables related to sales) | | | | | | | |
| (19,069) | |
| (18,349) | |
| 491 | |
| 1,188 | |
| (18,578) | |
| (17,161) | 14 | |
Acquisitions of businesses, net of cash acquired | | | (488) | | | (19) | |
| | |
| | |
| | |
| | |
| (488) | |
| (19) | | |
Purchases of property and equipment | |
| (595) | |
| (491) | |
| (1) | |
| (1) | |
| | |
| | |
| (596) | |
| (492) | | |
Cost of equipment on operating leases acquired | | | | | | | |
| (1,868) | |
| (1,818) | |
| 151 | |
| 608 | |
| (1,717) | |
| (1,210) | 15 | |
Increase in trade and wholesale receivables | | | | | | | |
| (3,318) | |
| (481) | |
| 3,318 | |
| 481 | |
| | |
| | 14 | |
Collateral on derivatives – net | | | 5 | | | (4) | | | (198) | | | (185) | | | | | | | | | (193) | | | (189) | | |
Other | |
| (87) | |
| (10) | |
| (74) | |
| (42) | |
| 28 | |
| 31 | |
| (133) | |
| (21) | 13, 17 | |
Net cash used for investing activities | |
| (1,165) | |
| (524) | |
| (6,100) | |
| (3,662) | |
| 2,835 | |
| 1,084 | |
| (4,430) | |
| (3,102) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | | | | | | | | | | | | | | | |
Increase (decrease) in total short-term borrowings | |
| 58 | |
| (93) | |
| 4,209 | |
| 1,022 | |
| | |
| | |
| 4,267 | |
| 929 | | |
Change in intercompany receivables/payables | |
| 70 | |
| (624) | |
| (70) | |
| 624 | |
| | |
| | |
| | |
| | | |
Proceeds from long-term borrowings | |
| 137 | |
| | |
| 6,144 | |
| 5,877 | |
| | |
| | |
| 6,281 | |
| 5,877 | | |
Payments of long-term borrowings | |
| (1,372) | |
| (71) | |
| (5,206) | |
| (5,101) | |
| | |
| | |
| (6,578) | |
| (5,172) | | |
Proceeds from issuance of common stock | |
| 55 | |
| 136 | | | | | | | | | | | | | | | 55 | | | 136 | | |
Repurchases of common stock | |
| (2,477) | |
| (1,780) | | | | | | | | | | | | | | | (2,477) | | | (1,780) | | |
Dividends paid | |
| (971) | |
| (761) | |
| (368) | | | (240) | |
| 368 | | | 240 | |
| (971) | | | (761) | 13 | |
Other | |
| (39) | |
| (50) | |
| (23) | |
| (22) | |
| | |
| (8) | |
| (62) | |
| (80) | 13 | |
Net cash provided by (used for) financing activities | |
| (4,539) | |
| (3,243) | |
| 4,686 | |
| 2,160 | |
| 368 | |
| 232 | |
| 515 | |
| (851) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | |
| (148) | |
| 77 | |
| 5 | |
| 29 | |
| | |
| | |
| (143) | |
| 106 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | |
| (3,646) | |
| 495 | |
| 6 | |
| (28) | |
| | |
| | |
| (3,640) | |
| 467 | | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | |
| 7,200 | |
| 6,156 | |
| 925 | |
| 1,016 | |
| | |
| | |
| 8,125 | |
| 7,172 | | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | | $ | 3,554 | | $ | 6,651 | | $ | 931 | | $ | 988 | | | | | | | | $ | 4,485 | | $ | 7,639 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Components of cash, cash equivalents, and restricted cash | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 3,540 | | $ | 6,638 | | $ | 819 | | $ | 881 | | | | | | | | $ | 4,359 | | $ | 7,519 | | |
Restricted cash (Other assets) | | | 14 | | | 13 | | | 112 | | | 107 | | | | | | | | | 126 | | | 120 | | |
Total cash, cash equivalents, and restricted cash | | $ | 3,554 | | $ | 6,651 | | $ | 931 | | $ | 988 | | | | | | | | $ | 4,485 | | $ | 7,639 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
11 Elimination of depreciation on leases related to inventory transferred to equipment on operating leases.
12 Reclassification of share-based compensation expense.
13 Elimination of dividends from financial services to the equipment operations, which are included in the equipment operations’ operating activities, and capital investments in financial services from the equipment operations.
14 Primarily reclassification of receivables related to the sale of equipment.
15 Reclassification of direct lease agreements with retail customers.
16 Reclassification of sales incentive accruals on receivables sold to financial services.
17 Elimination and reclassification of the effects of financial services’ partial financing of the construction and forestry retail locations sales and subsequent collection of those amounts.
44
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the Company’s most recently filed Annual Report on Form 10-K (Part II, Item 7A). There has been no material change in this information.
Item 4. CONTROLS AND PROCEDURES
The Company’s principal executive officer and its principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) were effective as of July 31, 2022, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act. During the third quarter of 2022, there were no changes that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, trademark, and antitrust matters. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements.
Item 1A. Risk Factors
See the Company’s most recently filed Annual Report on Form 10-K (Part I, Item 1A). There has been no material change in this information. The risks described in the Annual Report on Form 10-K, and the “Forward-Looking Statements” in this report, are not the only risks faced by the Company. Additional risks and uncertainties may also materially affect the Company’s business, financial condition, or operating results. One should not consider the risk factors to be a complete discussion of risks, uncertainties, and assumptions.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The Company’s purchases of its common stock during the third quarter of 2022 were as follows:
| | | | | | | | | | |
|
| |
| | |
| Total Number of |
| |
|
| | | | | | | Shares Purchased as | | Maximum Number of |
|
| | Total Number of | | | | | Part of Publicly | | Shares that May Yet Be |
|
| | Shares | | | | | Announced Plans or | | Purchased under the |
|
| | Purchased | | Average Price | | Programs (1) | | Plans or Programs (1) |
| |
Period | | (thousands) | | Paid Per Share | | (thousands) | | (millions) |
| |
May 2 to May 29 | | 611 |
| $ | 360.10 | | 611 | | 12.8 | |
May 30 to Jun 26 | | 1,309 | | | 337.72 | | 1,309 | | 11.5 | |
Jun 27 to Jul 31 | | 1,933 | | | 304.62 | | 1,933 | | 9.8 | |
Total | | 3,853 | | | | | 3,853 | | | |
| (1) | The Company has a share repurchase plan that was announced in December 2019 to purchase up to $8,000 million of shares of the Company’s common stock. The maximum number of shares that may yet be purchased under this plan was based on the end of the third quarter closing share price of $343.18 per share. At the end of the third quarter of 2022, $3,348 million of common stock remained to be purchased under the plan. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
45
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 file copies of such instruments upon request of the Commission.
| |
| |
3.1 | |
| |
3.2 | |
| |
31.1 | |
| |
31.2 | |
| |
32 | |
| |
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) |
| |
46
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: | | By: | /s/ Rajesh Kalathur | |
| | | | Rajesh
Kalathur (Principal Financial Officer) |
47
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 11/8/22 | ||||
| 9/30/22 | ||||
| Filed on: | 9/1/22 | 8-K | ||
| 8/31/22 | ||||
| 8/16/22 | 3 | |||
| For Period end: | 7/31/22 | |||
| 5/25/22 | 8-K | |||
| 5/1/22 | 10-Q | |||
| 2/28/22 | ||||
| 2/7/22 | ||||
| 11/30/21 | 4 | |||
| 11/17/21 | 8-K | |||
| 11/1/21 | 3, 4, 8-K | |||
| 10/31/21 | 10-K, 11-K | |||
| 8/1/21 | 10-Q | |||
| 5/2/21 | 10-Q | |||
| 1/31/21 | 10-Q | |||
| 11/1/20 | 10-K | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 12/03/20 Deere & Co. 8-K:5,9 12/02/20 12:461K Toppan Merrill Bridge/FA 8/29/19 Deere & Co. 10-Q 7/28/19 102:23M Toppan Merrill Bridge/FA |