UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 2, 2020January 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file no: 1-4121
DEERE & COMPANY
(Exact name of registrant as specified in its charter)
| | |
Delaware | | 36-2382580 |
One John Deere Place
Moline, Illinois 61265
(Address of principal executive offices)
Telephone Number: (309) 765-8000
Securities Registered Pursuant to Section 12(b) of the Act:
| | | | |
Title of each class | | Trading symbol | | Name of each exchange on which registered |
Common stock, $1 par value | | DE | | New York Stock Exchange |
8½% Debentures Due 2022 | | DE22 | | New York Stock Exchange |
6.55% Debentures Due 2028 | | DE28 | | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
At February 2, 2020, 313,619,999January 31, 2021, 313,438,923 shares of common stock, $1 par value, of the registrant were outstanding.
PART I. FINANCIAL INFORMATION
| | | | | | | | | | | | | | |
ITEM 1. FINANCIAL STATEMENTS | | | | | | | | | | | | | | |
DEERE & COMPANY | | | | | | | | | | | | | | |
STATEMENT OF CONSOLIDATED INCOME | | | | | | | | | | | | | | |
For the Three Months Ended February 2, 2020 and January 27, 2019 | | | | | | | | |||||||
For the Three Months Ended January 31, 2021 and February 2, 2020 | | | | | | | | |||||||
(In millions of dollars and shares except per share amounts) Unaudited | | | | | | | | | | | | | | |
| | 2020 | | 2019 |
|
| 2021 |
| 2020 |
| ||||
Net Sales and Revenues | | | | | | | | | | | | | | |
Net sales | | $ | 6,530 | | $ | 6,941 | |
| $ | 8,051 | | $ | 6,530 | |
Finance and interest income | | | 896 | |
| 815 | | | | 834 | |
| 896 | |
Other income | | | 205 | |
| 228 | | | | 227 | |
| 205 | |
Total | | | 7,631 | |
| 7,984 | | | | 9,112 | |
| 7,631 | |
| | | | | | | | | | | | | | |
Costs and Expenses | | | | | | | | | | | | | | |
Cost of sales | | | 5,077 | |
| 5,432 | | | | 5,805 | |
| 5,077 | |
Research and development expenses | | | 425 | |
| 407 | | | | 366 | |
| 425 | |
Selling, administrative and general expenses | | | 809 | |
| 764 | | | | 769 | |
| 809 | |
Interest expense | | | 336 | |
| 353 | | | | 271 | |
| 336 | |
Other operating expenses | | | 415 | |
| 351 | | | | 373 | |
| 415 | |
Total | | | 7,062 | |
| 7,307 | | | | 7,584 | |
| 7,062 | |
| | | | | | | | | | | | | | |
Income of Consolidated Group before Income Taxes | | | 569 | |
| 677 | | | | 1,528 | |
| 569 | |
Provision for income taxes | | | 50 | |
| 184 | | | | 308 | |
| 50 | |
| | | | | | | | |||||||
Income of Consolidated Group | | | 519 | |
| 493 | | | | 1,220 | |
| 519 | |
Equity in income (loss) of unconsolidated affiliates | | | (1) | |
| 7 | | | | 4 | |
| (1) | |
| | | | | | | | |||||||
Net Income | | | 518 | |
| 500 | | | | 1,224 | |
| 518 | |
Less: Net income attributable to noncontrolling interests | | | 1 | |
| 2 | | | | | |
| 1 | |
Net Income Attributable to Deere & Company | | $ | 517 | | $ | 498 | |
| $ | 1,224 | | $ | 517 | |
| | | | | | | | | | | | | | |
Per Share Data | | | | | | | | | | | | | | |
Basic | | $ | 1.65 | | $ | 1.56 | |
| $ | 3.90 | | $ | 1.65 | |
Diluted | | $ | 1.63 | | $ | 1.54 | |
| $ | 3.87 | | $ | 1.63 | |
| | | | | | | | | | | | | | |
Average Shares Outstanding | | | | | | | | | | | | | | |
Basic | | | 313.5 | | | 318.5 | | | | 313.5 | |
| 313.5 | |
Diluted | | | 317.2 | | | 322.7 | | | | 316.1 | |
| 317.2 | |
| | | | | | | | | | | | | | |
See Condensed Notes to Interim Consolidated Financial Statements.
2
| | | | | | | | | | | | | | |
DEERE & COMPANY | | | | | | | | | | | | | | |
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME | | | | | | | | | | | | | | |
For the Three Months Ended February 2, 2020 and January 27, 2019 | | | | | | | | |||||||
For the Three Months Ended January 31, 2021 and February 2, 2020 | | | | | | | | |||||||
(In millions of dollars) Unaudited | | | | | | | | | | | | | | |
|
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| ||||
| | | | | | |
| | | | | | |
|
Net Income |
| $ | 518 | | $ | 500 | |
| $ | 1,224 | | $ | 518 | |
| | | | | | | | | | | | | | |
Other Comprehensive Income (Loss), Net of Income Taxes | | | | | | | | | | | | | | |
Retirement benefits adjustment | | | 230 | |
| 20 | | | | 63 | |
| 230 | |
Cumulative translation adjustment | | | 43 | |
| (162) | | | | 396 | |
| 43 | |
Unrealized loss on derivatives | | | | |
| (9) | | |||||||
Unrealized gain on debt securities | | | 5 | |
| 8 | | |||||||
Unrealized gain on derivatives | | | 4 | |
| | | |||||||
Unrealized gain (loss) on debt securities | | | (2) | |
| 5 | | |||||||
Other Comprehensive Income (Loss), Net of Income Taxes | | | 278 | |
| (143) | | | | 461 | |
| 278 | |
| | | | | | | | | | | | | | |
Comprehensive Income of Consolidated Group | | | 796 | |
| 357 | | | | 1,685 | |
| 796 | |
Less: Comprehensive income attributable to noncontrolling interests | | | 1 | |
| 2 | | | | | |
| 1 | |
Comprehensive Income Attributable to Deere & Company |
| $ | 795 | | $ | 355 | |
| $ | 1,685 | | $ | 795 | |
| | | | | | | | | | | | | | |
See Condensed Notes to Interim Consolidated Financial Statements.
3
| | | | | | | | | | | | | | | | | | | | |
DEERE & COMPANY | | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATED BALANCE SHEET | | | | | | | | | | | | | | | | | | | | |
(In millions of dollars) Unaudited | | | | | | | | | | | | | | | | | | | | |
|
| February 2 |
| November 3 |
| January 27 |
|
| January 31 |
| November 1 |
| February 2 |
| ||||||
| | 2020 | | 2019 | | 2019 |
| | 2021 | | 2020 | | 2020 |
| ||||||
Assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents |
| $ | 3,602 | | $ | 3,857 | | $ | 3,626 | |
| $ | 6,962 | | $ | 7,066 | | $ | 3,602 | |
Marketable securities | | | 609 | |
| 581 | |
| 523 | | | | 667 | |
| 641 | |
| 609 | |
Receivables from unconsolidated affiliates | | | 38 | |
| 46 | |
| 36 | | | | 28 | |
| 31 | |
| 38 | |
Trade accounts and notes receivable – net | | | 5,360 | |
| 5,230 | |
| 5,497 | | | | 5,037 | |
| 4,171 | |
| 5,360 | |
Financing receivables – net | | | 27,294 | |
| 29,195 | |
| 25,150 | | | | 29,438 | |
| 29,750 | |
| 27,294 | |
Financing receivables securitized – net | | | 4,478 | |
| 4,383 | |
| 4,563 | | | | 3,931 | |
| 4,703 | |
| 4,478 | |
Other receivables | | | 1,367 | |
| 1,487 | |
| 1,651 | | | | 1,141 | |
| 1,220 | |
| 1,367 | |
Equipment on operating leases – net | | | 7,504 | |
| 7,567 | |
| 6,904 | | | | 7,030 | |
| 7,298 | |
| 7,504 | |
Inventories | | | 6,482 | |
| 5,975 | |
| 7,402 | | | | 5,956 | |
| 4,999 | |
| 6,482 | |
Property and equipment – net | | | 5,900 | |
| 5,973 | |
| 5,785 | | | | 5,741 | |
| 5,817 | |
| 5,900 | |
Investments in unconsolidated affiliates | | | 217 | |
| 215 | |
| 212 | | | | 178 | |
| 193 | |
| 217 | |
Goodwill | | | 2,945 | |
| 2,917 | |
| 3,048 | | | | 3,194 | |
| 3,081 | |
| 2,945 | |
Other intangible assets – net | | | 1,349 | |
| 1,380 | |
| 1,507 | | | | 1,342 | |
| 1,327 | |
| 1,349 | |
Retirement benefits | | | 900 | |
| 840 | |
| 1,348 | | | | 906 | |
| 863 | |
| 900 | |
Deferred income taxes | | | 1,414 | |
| 1,466 | |
| 834 | | | | 1,556 | |
| 1,499 | |
| 1,414 | |
Other assets | | | 2,362 | |
| 1,899 | |
| 1,832 | | | | 2,373 | |
| 2,432 | |
| 2,362 | |
Total Assets |
| $ | 71,821 | | $ | 73,011 | | $ | 69,918 | |
| $ | 75,480 | | $ | 75,091 | | $ | 71,821 | |
| | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | |
Short-term borrowings | | $ | 10,008 | | $ | 10,784 | | $ | 10,738 | | | $ | 9,224 | | $ | 8,582 | | $ | 10,008 | |
Short-term securitization borrowings | | | 4,416 | |
| 4,321 | |
| 4,464 | | | | 3,969 | |
| 4,682 | |
| 4,416 | |
Payables to unconsolidated affiliates | | | 147 | |
| 142 | |
| 144 | | | | 119 | |
| 105 | |
| 147 | |
Accounts payable and accrued expenses | | | 8,630 | |
| 9,656 | |
| 9,086 | | | | 9,404 | |
| 10,112 | |
| 8,630 | |
Deferred income taxes | | | 491 | |
| 495 | |
| 525 | | | | 532 | |
| 519 | |
| 491 | |
Long-term borrowings | | | 30,475 | |
| 30,229 | |
| 27,855 | | | | 32,772 | |
| 32,734 | |
| 30,475 | |
Retirement benefits and other liabilities | | | 5,710 | |
| 5,953 | |
| 5,759 | | | | 5,374 | |
| 5,413 | |
| 5,710 | |
Total liabilities | | | 59,877 | |
| 61,580 | |
| 58,571 | | | | 61,394 | |
| 62,147 | |
| 59,877 | |
| | | | | | | | | | | | | | | | | | | | |
Commitments and contingencies (Note 16) | | | | | | | | | | | | | | | | | | | | |
Redeemable noncontrolling interest | | | 14 | | | 14 | | | 14 | | | | | | | | | | 14 | |
| | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | |
Common stock, $1 par value (issued shares at | | | 4,675 | |
| 4,642 | |
| 4,512 | | ||||||||||
Common stock, $1 par value (issued shares at | | | 4,942 | |
| 4,895 | |
| 4,675 | | ||||||||||
Common stock in treasury | | | (17,549) | |
| (17,474) | |
| (16,422) | | | | (18,377) | |
| (18,065) | |
| (17,549) | |
Retained earnings | | | 30,129 | |
| 29,852 | |
| 27,816 | | | | 32,596 | |
| 31,646 | |
| 30,129 | |
Accumulated other comprehensive income (loss) | | | (5,329) | |
| (5,607) | |
| (4,578) | | | | (5,078) | |
| (5,539) | |
| (5,329) | |
Total Deere & Company stockholders’ equity | | | 11,926 | |
| 11,413 | |
| 11,328 | | | | 14,083 | |
| 12,937 | |
| 11,926 | |
Noncontrolling interests | | | 4 | |
| 4 | |
| 5 | | | | 3 | |
| 7 | |
| 4 | |
Total stockholders’ equity | | | 11,930 | |
| 11,417 | |
| 11,333 | | | | 14,086 | |
| 12,944 | |
| 11,930 | |
Total Liabilities and Stockholders’ Equity | | $ | 71,821 | | $ | 73,011 | | $ | 69,918 | | | $ | 75,480 | | $ | 75,091 | | $ | 71,821 | |
| | | | | | | | | | | | | | | | | | | | |
See Condensed Notes to Interim Consolidated Financial Statements.
4
| | | | | | | |
DEERE & COMPANY | | | | | | | |
STATEMENT OF CONSOLIDATED CASH FLOWS | | | | | | | |
For the Three Months Ended February 2, 2020 and January 27, 2019 | | | | | | | |
(In millions of dollars) Unaudited | | | | | | | |
|
| 2020 |
| 2019 |
| ||
Cash Flows from Operating Activities | | | | | | | |
Net income |
| $ | 518 | | $ | 500 | |
Adjustments to reconcile net income to net cash used for operating activities: | | | | | | | |
Provision for credit losses | | | 15 | |
| 2 | |
Provision for depreciation and amortization | | | 538 | |
| 503 | |
Share-based compensation expense | | | 19 | |
| 20 | |
Undistributed earnings of unconsolidated affiliates | | | | |
| (7) | |
Credit for deferred income taxes | | | (29) | |
| (56) | |
Changes in assets and liabilities: | | | | | | | |
Trade, notes, and financing receivables related to sales | | | 70 | |
| (507) | |
Inventories | | | (642) | |
| (1,396) | |
Accounts payable and accrued expenses | | | (1,134) | |
| (698) | |
Accrued income taxes payable/receivable | | | (53) | |
| 98 | |
Retirement benefits | | | 36 | |
| (4) | |
Other | | | 154 | |
| (106) | |
Net cash used for operating activities | | | (508) | |
| (1,651) | |
| | | | | | | |
Cash Flows from Investing Activities | | | | | | | |
Collections of receivables (excluding receivables related to sales) | | | 5,664 | |
| 5,496 | |
Proceeds from maturities and sales of marketable securities | | | 18 | |
| 8 | |
Proceeds from sales of equipment on operating leases | | | 426 | |
| 371 | |
Cost of receivables acquired (excluding receivables related to sales) | | | (4,303) | |
| (4,213) | |
Purchases of marketable securities | | | (34) | |
| (32) | |
Purchases of property and equipment | | | (271) | |
| (297) | |
Cost of equipment on operating leases acquired | | | (517) | |
| (361) | |
Other | | | 43 | |
| (3) | |
Net cash provided by investing activities | | | 1,026 | |
| 969 | |
| | | | | | | |
Cash Flows from Financing Activities | | | | | | | |
Increase (decrease) in total short-term borrowings | | | (473) | |
| 476 | |
Proceeds from long-term borrowings | | | 1,702 | |
| 2,211 | |
Payments of long-term borrowings | | | (1,651) | |
| (1,941) | |
Proceeds from issuance of common stock | | | 53 | |
| 51 | |
Repurchases of common stock | | | (114) | |
| (144) | |
Dividends paid | | | (242) | |
| (220) | |
Other | | | (38) | |
| (30) | |
Net cash provided by (used for) financing activities | | | (763) | |
| 403 | |
| | | | | | | |
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | | | (1) | |
| (13) | |
| | | | | | | |
Net Decrease in Cash, Cash Equivalents, and Restricted Cash | | | (246) | | | (292) | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | | | 3,956 | |
| 4,015 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | | $ | 3,710 | | $ | 3,723 | |
| | | | | | | |
| | | | | | | |
DEERE & COMPANY | | | | | | | |
STATEMENT OF CONSOLIDATED CASH FLOWS | | | | | | | |
For the Three Months Ended January 31, 2021 and February 2, 2020 | | | | | | | |
(In millions of dollars) Unaudited | | | | | | | |
|
| 2021 |
| 2020 |
| ||
Cash Flows from Operating Activities | | | | | | | |
Net income |
| $ | 1,224 | | $ | 518 | |
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | | | | | |
Provision (credit) for credit losses | | | (5) | |
| 15 | |
Provision for depreciation and amortization | | | 538 | |
| 538 | |
Impairment charges | | | 50 | |
| | |
Share-based compensation expense | | | 15 | |
| 19 | |
Undistributed earnings of unconsolidated affiliates | | | 18 | |
| | |
Credit for deferred income taxes | | | (38) | |
| (29) | |
Changes in assets and liabilities: | | | | | | | |
Trade, notes, and financing receivables related to sales | | | (97) | |
| 70 | |
Inventories | | | (926) | |
| (642) | |
Accounts payable and accrued expenses | | | (705) | |
| (1,134) | |
Accrued income taxes payable/receivable | | | 130 | |
| (53) | |
Retirement benefits | | | (14) | |
| 36 | |
Other | | | (47) | |
| 154 | |
Net cash provided by (used for) operating activities | | | 143 | |
| (508) | |
| | | | | | | |
Cash Flows from Investing Activities | | | | | | | |
Collections of receivables (excluding receivables related to sales) | | | 5,999 | |
| 5,664 | |
Proceeds from maturities and sales of marketable securities | | | 20 | |
| 18 | |
Proceeds from sales of equipment on operating leases | | | 460 | |
| 426 | |
Cost of receivables acquired (excluding receivables related to sales) | | | (5,300) | |
| (4,303) | |
Acquisitions of businesses, net of cash acquired | | | (19) | |
| | |
Purchases of marketable securities | | | (39) | |
| (34) | |
Purchases of property and equipment | | | (154) | |
| (271) | |
Cost of equipment on operating leases acquired | | | (294) | |
| (517) | |
Collateral on derivatives - net | | | (88) | | | 26 | |
Other | | | (6) | |
| 17 | |
Net cash provided by investing activities | | | 579 | |
| 1,026 | |
| | | | | | | |
Cash Flows from Financing Activities | | | | | | | |
Decrease in total short-term borrowings | | | (695) | |
| (473) | |
Proceeds from long-term borrowings | | | 1,757 | |
| 1,702 | |
Payments of long-term borrowings | | | (1,441) | |
| (1,651) | |
Proceeds from issuance of common stock | | | 71 | |
| 53 | |
Repurchases of common stock | | | (352) | |
| (114) | |
Dividends paid | | | (242) | |
| (242) | |
Other | | | (31) | |
| (38) | |
Net cash used for financing activities | | | (933) | |
| (763) | |
| | | | | | | |
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | | | 103 | |
| (1) | |
| | | | | | | |
Net Decrease in Cash, Cash Equivalents, and Restricted Cash | | | (108) | | | (246) | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | | | 7,172 | |
| 3,956 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | | $ | 7,064 | | $ | 3,710 | |
| | | | | | | |
See Condensed Notes to Interim Consolidated Financial Statements.
5
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||
DEERE & COMPANY | DEERE & COMPANY | | DEERE & COMPANY | | ||||||||||||||||||||||||||||||||||||||||||
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY | STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY | | STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY | | ||||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended February 2, 2020 and January 27, 2019 | | |||||||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended January 31, 2021 and February 2, 2020 | For the Three Months Ended January 31, 2021 and February 2, 2020 | | ||||||||||||||||||||||||||||||||||||||||||||
(In millions of dollars) Unaudited | (In millions of dollars) Unaudited | | (In millions of dollars) Unaudited | | ||||||||||||||||||||||||||||||||||||||||||
| | | | | Total Stockholders’ Equity | | | | | | | | | | Total Stockholders’ Equity | | | | | |||||||||||||||||||||||||||
| | | | | Deere & Company Stockholders | | |
| | | |
| | | | | | Deere & Company Stockholders | | |
| | |
| | |||||||||||||||||||||
| | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | Accumulated | | | | | | | ||||||||||||||
| | Total | | | | | | | | Other | | | | | Redeemable | | | Total | | | | | | | | Other | | | | | Redeemable | | ||||||||||||||
| | Stockholders’ | | Common | | Treasury | | Retained | | Comprehensive | | Noncontrolling | | | Noncontrolling | | | Stockholders’ | | Common | | Treasury | | Retained | | Comprehensive | | Noncontrolling | | | Noncontrolling | | ||||||||||||||
|
| Equity |
| Stock |
| Stock |
| Earnings |
| Income (Loss) |
| Interests |
|
| Interest | | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | |
| | | | | | |||||||||||||||||||||||||
Balance October 28, 2018 | | $ | 11,291 | | $ | 4,474 | | $ | (16,312) | | $ | 27,553 | | $ | (4,427) | | $ | 3 | | | $ | 14 |
| |||||||||||||||||||||||
ASU No. 2016-01 adoption | | | | | | | | | | 8 | | | (8) | | | | | | | | | |||||||||||||||||||||||||
Net income | |
| 500 | | | | | | | | 498 | | | | | | 2 | | | | | | ||||||||||||||||||||||||
Other comprehensive loss | |
| (143) | | | | | | | | | | | | (143) | | | | | | | | | |||||||||||||||||||||||
Repurchases of common stock | |
| (144) | | | | | (144) | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Treasury shares reissued | |
| 34 | | | | | 34 | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Dividends declared | |
| (243) | | | | | | | | (243) | | | | | | | | | | | | ||||||||||||||||||||||||
Stock options and other | |
| 38 | | | 38 | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Balance January 27, 2019 | | $ | 11,333 | | $ | 4,512 | | $ | (16,422) | | $ | 27,816 | | $ | (4,578) | | $ | 5 | | | $ | 14 | | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| Equity |
| Stock |
| Stock |
| Earnings |
| Income (Loss) |
| Interests |
|
| Interest | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | ||||
Balance November 3, 2019 | | $ | 11,417 | | $ | 4,642 | | $ | (17,474) | | $ | 29,852 | | $ | (5,607) | | $ | 4 | | | $ | 14 | | | $ | 11,417 | | $ | 4,642 | | $ | (17,474) | | $ | 29,852 | | $ | (5,607) | | $ | 4 | | | $ | 14 |
|
Net income | | | 517 | | | | | | | 517 | | | | | | | | | | 1 | | |
| 517 | | | | | | | | 517 | | | | | | | | | | 1 | | |||
Other comprehensive income | | | 278 | | | | | | | | | | 278 | | | | | | | | | |
| 278 | | | | | | | | | | | | 278 | | | | | | | | | ||
Repurchases of common stock | | | (114) | | | | | (114) | | | | | | | | | | | | | | |
| (114) | | | | | (114) | | | | | | | | | | | | | | | |||
Treasury shares reissued | | | 39 | | | | | 39 | | | | | | | | | | | | | | |
| 39 | | | | | 39 | | | | | | | | | | | | | | | |||
Dividends declared | | | (239) | | | | | | | (239) | | | | | | | | | | (1) | | |
| (239) | | | | | | | | (239) | | | | | | | | | | (1) | | |||
Stock options and other | | | 32 | | | 33 | | | | | | (1) | | | | | | | | | | | | |
| 32 | | | 33 | | | | | | (1) | | | | | | | | | | | |
Balance February 2, 2020 | | $ | 11,930 | | $ | 4,675 | | $ | (17,549) | | $ | 30,129 | | $ | (5,329) | | $ | 4 | | | $ | 14 | | | $ | 11,930 | | $ | 4,675 | | $ | (17,549) | | $ | 30,129 | | $ | (5,329) | | $ | 4 | | | $ | 14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Balance November 1, 2020 | | $ | 12,944 | | $ | 4,895 | | $ | (18,065) | | $ | 31,646 | | $ | (5,539) | | $ | 7 | | | | | | |||||||||||||||||||||||
ASU No. 2016-13 adoption* | | | (35) | | | | | | | (35) | | | | | | | | | | | | |||||||||||||||||||||||||
Net income | | | 1,224 | | | | | | | 1,224 | | | | | | | | | | | | |||||||||||||||||||||||||
Other comprehensive income | | | 461 | | | | | | | | | | 461 | | | | | | | | | |||||||||||||||||||||||||
Repurchases of common stock | | | (352) | | | | | (352) | | | | | | | | | | | | | | |||||||||||||||||||||||||
Treasury shares reissued | | | 40 | | | | | 40 | | | | | | | | | | | | | | |||||||||||||||||||||||||
Dividends declared | | | (239) | | | | | | | (239) | | | | | | | | | | | | |||||||||||||||||||||||||
Stock options and other | | | 43 | | | 47 | | | | | | | | | | | | (4) | | | | | | |||||||||||||||||||||||
Balance January 31, 2021 | | $ | 14,086 | | $ | 4,942 | | $ | (18,377) | | $ | 32,596 | | $ | (5,078) | | $ | 3 | | | | | | |||||||||||||||||||||||
* See Note 3 | | | | | | | | | | | | | | | | | | | | |
See Condensed Notes to Interim Consolidated Financial Statements.
6
Condensed Notes to Interim Consolidated Financial Statements (Unaudited)
(1) Organization and Consolidation
The information in the notes and related commentary are presented in a format which includes data grouped as follows:
Equipment Operations – IncludesRepresents the enterprise without financial services, while including the Company’s production and precision agriculture operations, small agriculture and turf operations, and construction and forestry operations, withand other corporate assets, liabilities, revenues, and expenses not reflected within financial services reflected on the equity basis.services.
Financial Services – Includes primarily the Company’s financing operations.
Consolidated – Represents the consolidation of the equipment operations and financial services. References to "Deere“Deere & Company"Company” or "the Company"“the Company” refer to the entire enterprise.
Beginning in fiscal year 2021, the Company implemented a new strategy, operating model, and reporting structure. With this change, the Company’s agriculture and turf operations were divided into two new segments: production and precision agriculture and small agriculture and turf. There were no changes to the construction and forestry and financial services segments. In addition, at the beginning of fiscal year 2021 the Company also reclassified goodwill from identifiable operating assets to corporate assets for segment reporting, as goodwill is no longer considered in evaluating the operating performance of the segments. Additional information on the new segments and the segment financial results are presented in Note 10. Prior period segment information was recast for a consistent presentation. References to agriculture and turf include both production and precision agriculture and small agriculture and turf.
The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The first quarter ends for fiscal year 2021 and 2020 were January 31, 2021 and 2019 were February 2, 2020, and January 27, 2019, respectively. Both periods contained 13 weeks.
Prior to November 2, 2020, the operating results of the Wirtgen Group (Wirtgen) were incorporated into the Company’s consolidated financial statements using a one-month lag period. In the first quarter of 2021, the reporting lag was eliminated resulting in four months of Wirtgen’s activity in the quarter. The effect was an increase to “Net sales” of $270 million, which the Company considers immaterial to construction and forestry’s annual net sales. Prior period results were not restated.
Variable Interest Entities
The Company consolidates certain Variable Interest Entitiesvariable interest entities (VIEs) related to retail note securitizations (see Note 12).
The Company also has an interest in a joint venture that manufactures construction equipment in Brazil for local and overseas markets. The joint venture is a VIE; however, the Company is not the primary beneficiary. Therefore, the entity’s financial results are not fully consolidated in the Company’s consolidated financial statements, but are included on the equity basis. The maximum exposure to loss was $7 million, $5 million, and $19 million $22 million,at January 31, 2021, November 1, 2020, and $27 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively.
(2) Summary of Significant Accounting Policies and Cash Flow Information
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 that 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 that 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.
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related
7
disclosures. ActualThe COVID pandemic has resulted in uncertainties in the Company’s business, which may result in actual results could differdiffering from those estimates.
Cash Flow Information
All cash flows from the changes in trade accounts and notes receivable are classified as operating activities in the statement of consolidated cash flows as these receivables arise from sales to the Company’s customers. Cash flows from financing receivables that are related to sales to the Company’s customers are also included in operating activities. The remaining financing receivables are related to the financing of equipment sold by independent dealers and are included in investing activities.
The Company had the following non-cash operating and investing activities that were not included in the statement of consolidated cash flows. The Company transferred inventory to equipment on operating leases of approximately $112$84 million and $106$112 million in the first three months of 20202021 and 2019,2020, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $39 million and $48 million at January 31, 2021 and $33 million at February 2, 2020, and January 27, 2019, respectively.
7
The Company’s restricted cash held at January 31, 2021, November 1, 2020, February 2, 2020, and November 3, 2019 January 27, 2019, and October 28, 2018 was as follows in millions of dollars:
| | | | | | | | | | | | | | | | | | | ||||||||
| | February 2 | | November 3 | | January 27 | | October 28 | | | January 31 | | November 1 | | February 2 | | November 3 | | ||||||||
| | 2020 | | 2019 | | 2019 | | 2018 | | | 2021 | | 2020 | | 2020 | | 2019 | | ||||||||
Equipment operations | | $ | 21 | | $ | 21 | | $ | 10 | | $ | 7 | | | $ | 11 | | $ | 11 | | $ | 21 | | $ | 21 | |
Financial services | | | 87 | | | 78 | | | 87 | | | 104 | | | | 91 | | | 95 | | | 87 | | | 78 | |
Total | | $ | 108 | | $ | 99 | | $ | 97 | | $ | 111 | | | $ | 102 | | $ | 106 | | $ | 108 | | $ | 99 | |
The equipment operations’ restricted cash relates to miscellaneous operational activities. The financial services restricted cash primarily relates to securitization of financing receivables (see Note 12). The restricted cash is recorded in “Other assets” in the consolidated balance sheet.
(3) New Accounting Standards
New Accounting Standards Adopted
In the first quarter of 2020,2021, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842),2016-13, Measurement of Credit Losses on Financial Instruments, which supersedesestablishes Accounting Standards Codification (ASC) 840, Leases.326, Financial Instruments - Credit Losses. This ASU was adopted using a modified-retrospective approach. The ASU’s primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset during the term of operating lease arrangements. The ASU, did not significantly change the lessee’s recognition, measurement, and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. The ASU adds new disclosures about the Company’s leasing activities. The Company elected the optional practical expedients to not reassess whether existing contracts contain leases, not reassess lease classification, and not reassess initial direct costs for existing leases. The Company did not elect the hindsight practical expedient. In addition, the Company elected to combine lease and non-lease components for all asset classes and to not recognize a right of use asset or lease liability for arrangements that qualify as short-term leases.
The operating lease liabilities are recorded in “Accounts payable and accrued expenses” and the operating lease right of use assets are recorded in “Other assets.” The finance lease liabilities are recorded in “Short-term borrowings” or “Long-term borrowings” based on the remaining lease term, and the finance lease right of use assets are recorded in “Property and equipment - net.” In addition to the lease liabilities and right of use assets, land use rights were reclassified from “Other intangible assets - net” to “Other assets” and finance lease liabilities were reclassified from “Accounts payable and accrued expenses” to “Short-term borrowings” and “Long-term borrowings.” The effect of adopting the ASU on the consolidated balance sheet follows in millions of dollars:
| | | | | | | | | | |
| | November 3, 2019 | | Cumulative Effect | | November 4, 2019 | | |||
Assets | | | | | | | | | | |
Other intangible assets - net | | $ | 1,380 | | $ | (23) | | $ | 1,357 | |
Other assets | | | 1,899 | | | 402 | | | 2,301 | |
Liabilities | | | | | | | | | | |
Short-term borrowings | | $ | 10,784 | | $ | 11 | | $ | 10,795 | |
Accounts payable and accrued expenses | | | 9,656 | | | 348 | | | 10,004 | |
Long-term borrowings | | | 30,229 | | | 20 | | | 30,249 | |
The Company implemented a new system for lessee accountingalong with new processes and controls at the time of adopting the ASU. The adoption did not have a material effect on the Company’s operating results or cash flows. See Note 15 for additional information.
8
The Company also adopted the following standards in the first quarter of 2020, none of which had a material effect on the Company’s consolidated financial statements:
Accounting Standards Updates
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|
|
|
|
|
|
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New Accounting Standards to be Adopted
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASC 326, Financial Instruments – Credit Losses. The ASU revisesrelated amendments, revised the measurement of credit losses for financial assets measured at amortized cost from an incurred loss to an expected loss methodology. The ASU affects receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates
The Company holds deposits from dealers (dealer deposits), which are recorded in “Accounts payable and accrued liabilities” to absorb certain credit quality are also required. The effective date will belosses. Prior to adopting this ASU, the first quarterallowance for credit losses was estimated on probable credit losses incurred after consideration of fiscal year 2021.recoveries from dealer deposits. The ASU will be adopted usingconsiders dealer deposits and certain credit insurance contracts as freestanding credit enhancements. As a modified-retrospective approach. The Company is developing models to estimate expectedresult, after adoption, credit losses assessing appropriate assumptions, designing new proceduresrecovered from dealer deposits and controls,certain credit insurance contracts are presented in “Other income” and evaluatingno longer as part of the potentialallowance for credit losses or the provision for credit losses. The ASU also modified the treatment of the estimated write-off of delinquent receivables by no longer including the estimated benefit of charges to the dealer deposits in the write-off amount. This change increases the estimated write-offs on delinquent financing receivables with the benefit of credit losses recovered from dealer deposits presented in “Other income.” This benefit, in both situations, is recorded when the dealer deposits are charged and no longer based on estimated recoveries.
8
The effects of adopting the ASU on the consolidated financial statements.balance sheet follows in millions of dollars:
| | | | | | | | | | |
| | November 1 | | Cumulative Effect | | November 2 | | |||
| | 2020 | | from Adoption | | 2020 | | |||
Assets | | | | | | | | | | |
Trade accounts and note receivable - net | | $ | 4,171 | | $ | 2 | | $ | 4,173 | |
Financing receivables - net | | | 29,750 | | | (27) | | | 29,723 | |
Financing receivables securitized - net | | | 4,703 | | | (4) | | | 4,699 | |
Deferred income taxes | | | 1,499 | | | 1 | | | 1,500 | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 10,112 | | $ | 14 | | $ | 10,126 | |
Deferred income taxes | | | 519 | | | (7) | | | 512 | |
| | | | | | | | | | |
Stockholders’ equity | | | | | | | | | | |
Retained earnings | | $ | 31,646 | | $ | (35) | | $ | 31,611 | |
In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software. This ASU requires customers in a hosting arrangement that is a service contract to evaluate the implementation costs of the hosting arrangement using the guidance to develop internal-use software. The project development stage determines the implementation costs that are capitalized or expensed. Capitalized implementation costs are amortized over the term of the service arrangement and are presented in the same income statement line itemNote 11 contains additional disclosures as well as the service contract costs. The effective date will be the first quarter ofCompany’s updated allowance for credit losses accounting policy.
fiscal year 2021, with early adoption permitted. The Company will adoptalso adopted the ASU on a prospective basis. The Company is evaluating the potential effects on the Company’s consolidated financial statements.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The effective dates for the separate portionsfollowing standards in 2021, none of the ASU and the expected effect on the consolidated financial statements are as follows for the portions that have not yet been adopted: (1) clarifications to ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, is the first quarter of fiscal year 2021, which is under evaluation, and (2) clarifications to ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities is the first quarter of fiscal year 2021, which will not havehad a material effect on the Company’s consolidated financial statements.statements:
In December 2019,
| | |
No. 2018-15 | Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software | |
No. 2019-04 | Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments | |
No. 2021-01 | Reference Rate Reform (Topic 848): Scope | |
New Accounting Standards to be Adopted
The Company will adopt the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes,following standards in future periods, none of which amends ASC 740, Income Taxes. This ASU simplifies the accounting for income taxes by modifying the treatment of intraperiod tax allocation in certain circumstances, eliminating an exception to recognizing deferred tax liabilities for outside basis differences for foreign equity method investments and foreign subsidiaries when ownership or control changes, and modifying interim period tax calculations when a loss is forecast. In addition, the ASU also provides guidance for the accounting of a franchise tax that is partially based on income, requires that enacted changes in tax laws or rates be included in the annual effective rate determination in the period that includes the enactment date, and clarifies the tax accounting of a step up in tax basis of goodwill. The effective date will be the first quarter of fiscal year 2022, with early adoption permitted. The guidance related to the foreign equity method investments, foreign subsidiaries, and franchise taxes will be adopted using a modified-retrospective approach. The remaining provisions will be adopted prospectively. The adoption is notare expected to have a material effect on the Company’s consolidated financial statements.statements:
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No. 2019-12 | Simplifying the Accounting for Income Taxes, which amends ASC 740, Income Taxes | |
No. 2020-08 | Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs | |
9
(4) Revenue Recognition
The Company’s revenue by primary geographical market, major product line, and timing of revenue recognition in millions of dollars follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended February 2, 2020 | | | Three Months Ended January 31, 2021 | | |||||||||||||||||||||||
| | Agriculture and Turf | | Construction and Forestry | | Financial Services | | Total | | | Production & Precision Ag | | Small Ag & Turf | | Construction & Forestry | | Financial Services | | Total | | |||||||||
Primary geographical markets: | | | |
| | |
| |
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| |
| | | | | | | |
| | |
| |
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| |
| |
United States | | $ | 2,500 | | $ | 1,020 | | $ | 643 | | $ | 4,163 | | | $ | 1,608 | | $ | 1,424 | | $ | 1,202 | | $ | 598 | | $ | 4,832 | |
Canada | | | 138 | | | 172 | |
| 156 | |
| 466 | | | | 112 | | | 79 | | | 188 | |
| 154 | |
| 533 | |
Western Europe | | | 778 | | | 339 | |
| 22 | |
| 1,139 | | | | 449 | | | 486 | | | 439 | |
| 24 | |
| 1,398 | |
Central Europe and CIS | | | 220 | | | 159 | |
| 10 | |
| 389 | | | | 161 | | | 84 | | | 178 | |
| 9 | |
| 432 | |
Latin America | | | 455 | | | 159 | |
| 66 | |
| 680 | | | | 513 | | | 77 | | | 170 | |
| 59 | |
| 819 | |
Asia, Africa, Australia, New Zealand, and Middle East | | | 504 | | | 256 | | | 34 | | | 794 | | | | 304 | | | 401 | | | 353 | | | 40 | | | 1,098 | |
Total | | $ | 4,595 | | $ | 2,105 | | $ | 931 | | $ | 7,631 | | | $ | 3,147 | | $ | 2,551 | | $ | 2,530 | | $ | 884 | | $ | 9,112 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Major product lines: | | | | | | | | |
| | |
| | | | | | | | | | | | |
| | |
| |
Large Agriculture | | $ | 2,139 | | | | | | | | $ | 2,139 | | ||||||||||||||||
Production Agriculture | | $ | 3,011 | | | | | | | | | | | $ | 3,011 | | |||||||||||||
Small Agriculture | | | 1,765 | | | | |
| | |
| 1,765 | | | | | | $ | 1,812 | | | | |
| | |
| 1,812 | |
Turf | | | 468 | | | | |
| | |
| 468 | | | | | | | 651 | | | | |
| | |
| 651 | |
Construction | | | | | $ | 841 | |
| | |
| 841 | | | | | | | | | $ | 887 | |
| | |
| 887 | |
Compact Construction | | | | | | 288 | | | | | | 288 | | | | | | | | | | 346 | | | | | | 346 | |
Roadbuilding | | | | | | 605 | |
| | |
| 605 | | | | | | | | | | 910 | |
| | |
| 910 | |
Forestry | | | | | | 274 | |
| | |
| 274 | | | | | | | | | | 290 | |
| | |
| 290 | |
Financial Products | | | 27 | | | 7 | | $ | 931 | |
| 965 | | | | 16 | | | 10 | | | 7 | | $ | 884 | |
| 917 | |
Other | | | 196 | | | 90 | |
| | |
| 286 | | | | 120 | | | 78 | | | 90 | |
| | |
| 288 | |
Total | | $ | 4,595 | | $ | 2,105 | | $ | 931 | | $ | 7,631 | | | $ | 3,147 | | $ | 2,551 | | $ | 2,530 | | $ | 884 | | $ | 9,112 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Timing of revenue recognition: | | | | | | | | |
| | |
| | | | | | | | | | | | |
| | |
| |
Revenue recognized at a point in time | | $ | 4,540 | | $ | 2,079 | | $ | 26 | | $ | 6,645 | | | $ | 3,105 | | $ | 2,535 | | $ | 2,500 | | $ | 24 | | $ | 8,164 | |
Revenue recognized over time | | | 55 | | | 26 | | | 905 | | | 986 | | | | 42 | | | 16 | | | 30 | | | 860 | | | 948 | |
Total | | $ | 4,595 | | $ | 2,105 | | $ | 931 | | $ | 7,631 | | | $ | 3,147 | | $ | 2,551 | | $ | 2,530 | | $ | 884 | | $ | 9,112 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended January 27, 2019 | | | Three Months Ended February 2, 2020 | | |||||||||||||||||||||||
| | Agriculture and Turf | | Construction and Forestry | | Financial Services | | Total | | | Production & Precision Ag | | Small Ag & Turf | | Construction & Forestry | | Financial Services | | Total | | |||||||||
Primary geographical markets: | | | |
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| | |
| | |
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United States | | $ | 2,628 | | $ | 1,163 | | $ | 575 | | $ | 4,366 | | | $ | 1,433 | | $ | 1,067 | | $ | 1,020 | | $ | 643 | | $ | 4,163 | |
Canada | | | 172 | | | 248 | |
| 157 | |
| 577 | | | | 75 | | | 63 | | | 172 | |
| 156 | |
| 466 | |
Western Europe | | | 848 | | | 337 | |
| 20 | |
| 1,205 | | | | 365 | | | 413 | | | 339 | |
| 22 | |
| 1,139 | |
Central Europe and CIS | | | 148 | | | 171 | |
| 9 | |
| 328 | | | | 131 | | | 89 | | | 159 | |
| 10 | |
| 389 | |
Latin America | | | 548 | | | 150 | |
| 64 | |
| 762 | | | | 383 | | | 72 | | | 159 | |
| 66 | |
| 680 | |
Asia, Africa, Australia, New Zealand, and Middle East | | | 453 | | | 263 | | | 30 | | | 746 | | | | 189 | | | 315 | | | 256 | | | 34 | | | 794 | |
Total | | $ | 4,797 | | $ | 2,332 | | $ | 855 | | $ | 7,984 | | | $ | 2,576 | | $ | 2,019 | | $ | 2,105 | | $ | 931 | | $ | 7,631 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Major product lines: | | | | | | | | |
| | |
| | | | | | | | | | | | |
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| |
Large Agriculture | | $ | 2,167 | | | | | | | | $ | 2,167 | | ||||||||||||||||
Production Agriculture | | $ | 2,425 | | | | | | | | | | | $ | 2,425 | | |||||||||||||
Small Agriculture | | | 1,808 | | | | |
| | |
| 1,808 | | | | | | $ | 1,479 | | | | |
| | |
| 1,479 | |
Turf | | | 506 | | | | |
| | |
| 506 | | | | | | | 468 | | | | |
| | |
| 468 | |
Construction | | | | | $ | 1,009 | |
| | |
| 1,009 | | | | | | | | | $ | 841 | |
| | |
| 841 | |
Compact Construction | | | | | | 265 | | | | | | 265 | | | | | | | | | | 288 | | | | | | 288 | |
Roadbuilding | | | | | | 598 | |
| | |
| 598 | | | | | | | | | | 605 | |
| | |
| 605 | |
Forestry | | | | | | 352 | |
| | |
| 352 | | | | | | | | | | 274 | |
| | |
| 274 | |
Financial Products | | | 20 | | | 6 | | $ | 855 | |
| 881 | | | | 18 | | | 9 | | | 7 | | $ | 931 | |
| 965 | |
Other | | | 296 | | | 102 | |
| | |
| 398 | | | | 133 | | | 63 | | | 90 | |
| | |
| 286 | |
Total | | $ | 4,797 | | $ | 2,332 | | $ | 855 | | $ | 7,984 | | | $ | 2,576 | | $ | 2,019 | | $ | 2,105 | | $ | 931 | | $ | 7,631 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Timing of revenue recognition: | | | | | | | | |
| | |
| | | | | | | | | | | | |
| | |
| |
Revenue recognized at a point in time | | $ | 4,755 | | $ | 2,313 | | | | | $ | 7,068 | | | $ | 2,536 | | $ | 2,004 | | $ | 2,079 | | $ | 26 | | $ | 6,645 | |
Revenue recognized over time | | | 42 | | | 19 | | $ | 855 | | | 916 | | | | 40 | | | 15 | | | 26 | | | 905 | | | 986 | |
Total | | $ | 4,797 | | $ | 2,332 | | $ | 855 | | $ | 7,984 | | | $ | 2,576 | | $ | 2,019 | | $ | 2,105 | | $ | 931 | | $ | 7,631 | |
10
Following is a description of theThe Company’s major product lines:lines are described as follows:
LargeProduction Agriculture– Includes net sales of large and certain mid-size tractors with more than approximately 200 horsepower and associated attachments, combines, cotton pickers, cotton strippers, self-propelled forage harvesters and related attachments, and sugarcane harvesters, harvesting front-end equipment, sugarcane loaders and pull behind scrapers, tillage, seeding, and application equipment, including sprayers, nutrient management and soil preparation machinery, and related attachments and service parts.
Small Agriculture – Includes net sales of mediummid-size and utility tractors, with less than approximately 200 horsepower,self-propelled forage harvesters, hay and forage equipment, balers, mowers, and related attachments and service parts.
Turf – Includes net sales of turf and utility equipment, including riding lawn equipment, and walk-behind mowers, golf course equipment, utility vehicles, and commercial mowing equipment, along with a broad line of associated implements, other outdoor power products, and related attachments and service parts.
Construction – Includes net sales of a broad range of machines used in construction, earthmoving, and material handling, including backhoe loaders, crawler dozers and loaders, four-wheel-drive loaders, excavators, motor graders, articulated dump trucks, and related attachments and service parts.
Compact Construction – Includes net sales of smaller construction equipment, including compact excavators, compact track loaders, compact wheel loaders, skid steers, landscape loaders, and related attachments and service parts.
Roadbuilding – Includes net sales of equipment used in roadbuilding and renovation, including milling machines, recyclers, slipform pavers, surface miners, asphalt pavers, compactors, tandem and static rollers, mobile crushers and screens, mobile and stationary asphalt plants, and related attachments and service parts.
Forestry – Includes net sales of equipment used in timber harvesting, including log skidders, feller bunchers, log loaders, log forwarders, log harvesters, and related attachments and service parts.
Financial Products – Includes finance and interest income primarily from retail notes related to sales of John Deere equipment to end customers, wholesale financing to dealers of John Deere equipment, and revolving charge accounts; lease income from retail leases of John Deere equipment; and revenue from extended warranties.
Other – Includes sales of certain components to other equipment manufacturers, revenue earned over time from precision guidance, telematics, and other information enabled solutions, revenue from service performed at companyCompany owned dealerships and service centers, gains on disposition of property and businesses, trademark licensing revenue, and other miscellaneous revenue items.
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 sheet. The deferred revenue received, but not recognized in revenue, including extended warranty premiums also shown in Note 16, was $1,169 million, $1,090 million, and $1,070 million $1,010 million,at January 31, 2021, November 1, 2020, and $956 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively. The contract liability is reduced as the revenue is recognized. During the three months ended January 31, 2021 and February 2, 2020, and January 27, 2019, $181$223 million and $156$181 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 Company entered into contracts with customers to deliver equipment and services that have not been recognized at February 2, 2020January 31, 2021 because the equipment or services have not been provided. These contracts primarily relate to extended warranty and certain precision guidance and telematic services. The amount of unsatisfied performance obligations for contracts with an original duration greater than one year is $887$925 million at February 2, 2020.January 31, 2021. The estimated revenue to be recognized by fiscal year follows in millions of dollars:dollars follows: remainder of 2020 - $275, 2021 - $274, 2022 - $182, $291, 2023 - $101, $195, 2024 - $42,$104, 2025 - $43, 2026 - $15 and later years - $13.$3. The Company discloses unsatisfied 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 to dealers and end customers for equipment, service parts, repair services, and certain telematics services.
During 2020, the Company provided short-term payment relief on trade accounts and notes receivables to independent dealers and certain other customers that were negatively affected by the economic effects of COVID. The relief was provided both in regional programs and case-by-case situations with creditworthy
11
customers. This relief generally included payment deferrals not exceeding three months, extending interest-free periods for up to an additional three months with the total interest-free period not to exceed one year, or reducing interest rates for a maximum of three months. The trade receivable balance granted relief and remaining outstanding at January 31, 2021 was not material.
(5) Other Comprehensive Income Items
The after-tax changes in accumulated other comprehensive income (loss) in millions of dollars follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| | |
| | |
| Total |
|
| |
| | |
| | |
| | |
| Total |
| ||||
| | | | | | | Unrealized | | Unrealized | | Accumulated | | | | | | | | Unrealized | | Unrealized | | Accumulated | | ||||||||
| | Retirement | | Cumulative | | Gain (Loss) | | Gain (Loss) | | Other | | | Retirement | | Cumulative | | Gain (Loss) | | Gain (Loss) | | Other | | ||||||||||
| | Benefits | | Translation | | on | | on | | Comprehensive | | | Benefits | | Translation | | on | | on | | Comprehensive | | ||||||||||
| | Adjustment | | Adjustment | | Derivatives | | Debt Securities | | Income (Loss) | | | Adjustment | | Adjustment | | Derivatives | | Debt Securities | | Income (Loss) | | ||||||||||
Balance October 28, 2018 | | $ | (3,237) | | $ | (1,203) |
| $ | 15 | | $ | (2) | | $ | (4,427) | | ||||||||||||||||
ASU No. 2016-01 adoption | | | | | | | | | | | | (8) | | | (8) | | ||||||||||||||||
Other comprehensive income (loss) items before reclassification | |
| 1 | | | (162) | | | (7) | | | 8 | | | (160) | | ||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | |
| 19 | | | | | | (2) | | | | | | 17 | | ||||||||||||||||
Net current period other comprehensive income (loss) | |
| 20 | |
| (162) | |
| (9) | |
| 8 | |
| (143) | | ||||||||||||||||
Balance January 27, 2019 | | $ | (3,217) | | $ | (1,365) | | $ | 6 | | $ | (2) | | $ | (4,578) | | ||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Balance November 3, 2019 | | $ | (3,915) | | $ | (1,651) |
| $ | (60) | | $ | 19 | | $ | (5,607) | | | $ | (3,915) | | $ | (1,651) |
| $ | (60) | | $ | 19 | | $ | (5,607) | |
Other comprehensive income (loss) items before reclassification | | | 186 | | | 43 | | | (1) | | | 5 | | | 233 | | |
| 186 | | | 43 | | | (1) | | | 5 | | | 233 | |
Amounts reclassified from accumulated other comprehensive income | | | 44 | | | | | | 1 | | | | | | 45 | | |
| 44 | | | | | | 1 | | | | | | 45 | |
Net current period other comprehensive income (loss) | | | 230 | | | 43 | | | | | | 5 | | | 278 | | |
| 230 | |
| 43 | |
| | |
| 5 | |
| 278 | |
Balance February 2, 2020 | | $ | (3,685) |
| $ | (1,608) |
| $ | (60) |
| $ | 24 |
| $ | (5,329) | | | $ | (3,685) | | $ | (1,608) | | $ | (60) | | $ | 24 | | $ | (5,329) | |
| | | | | | | | | | | | | | | | | ||||||||||||||||
Balance November 1, 2020 | | $ | (3,918) | | $ | (1,596) | | $ | (58) | | $ | 33 | | $ | (5,539) | | ||||||||||||||||
Other comprehensive income (loss) items before reclassification | | | (1) | | | 396 | | | | | | (2) | | | 393 | | ||||||||||||||||
Amounts reclassified from accumulated other comprehensive income | | | 64 | | | | | | 4 | | | | | | 68 | | ||||||||||||||||
Net current period other comprehensive income (loss) | | | 63 | | | 396 | | | 4 | | | (2) | | | 461 | | ||||||||||||||||
Balance January 31, 2021 | | $ | (3,855) |
| $ | (1,200) |
| $ | (54) |
| $ | 31 |
| $ | (5,078) | |
Following are amountsAmounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, in millions of dollars:dollars follow:
| | | | | | | | | | | | | | | | | | | | |
|
| Before |
| Tax |
| After |
|
| Before |
| Tax |
| After |
| ||||||
| | Tax | | (Expense) | | Tax |
| | Tax | | (Expense) | | Tax |
| ||||||
Three Months Ended February 2, 2020 | | Amount | | Credit | | Amount |
| |||||||||||||
Three Months Ended January 31, 2021 | | Amount | | Credit | | Amount |
| |||||||||||||
Cumulative translation adjustment |
| $ | 43 | | | | | $ | 43 | |
| $ | 394 | | $ | 2 | | $ | 396 | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | | | | | | | | | | | |
Unrealized hedging gain (loss) | | | (2) | | $ | 1 | | | (1) | | ||||||||||
Reclassification of realized (gain) loss to: | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts – Interest expense | | | 2 | | | (1) | | | 1 | | | | 5 | | | (1) | | | 4 | |
Net unrealized gain (loss) on derivatives | | | | | | | | | | | | | 5 | | | (1) | | | 4 | |
Unrealized gain (loss) on debt securities: | | | | | | | | | | | | | | | | | | | | |
Unrealized holding gain (loss) | | | 6 | | | (1) | | | 5 | | | | (3) | | | 1 | | | (2) | |
Net unrealized gain (loss) on debt securities | | | 6 | | | (1) | | | 5 | | | | (3) | | | 1 | | | (2) | |
Retirement benefits adjustment: | | | | | | | | | | | | | | | | | | | | |
Pensions | | | | | | | | | | | ||||||||||
Net actuarial gain (loss) | | | 1 | | | | | | 1 | | | | (1) | | | | | | (1) | |
Reclassification to other operating expenses through amortization of: * | | | | | | | | | | | | | | | | | | | | |
Actuarial (gain) loss | | | 62 | | | (26) | | | 36 | | | | 70 | | | (17) | | | 53 | |
Prior service (credit) cost | | | 3 | | | (1) | | | 2 | | | | 2 | | | (1) | | | 1 | |
Settlements | | | 3 | | | (1) | | | 2 | | | | 13 | | | (3) | | | 10 | |
OPEB | | | | | | | | | | | ||||||||||
Net actuarial gain (loss) | | | 245 | | | (60) | | | 185 | | ||||||||||
Reclassification to other operating expenses through amortization of: * | | | | | | | | | | | ||||||||||
Actuarial (gain) loss | | | 7 | | | (2) | | | 5 | | ||||||||||
Prior service (credit) cost | | | (1) | | | | | | (1) | | ||||||||||
Net unrealized gain (loss) on retirement benefits adjustment | | | 320 | | | (90) | | | 230 | | | | 84 | | | (21) | | | 63 | |
Total other comprehensive income (loss) |
| $ | 369 | | $ | (91) | | $ | 278 | |
| $ | 480 | | $ | (19) | | $ | 461 | |
(continued)
12
| | | | | | | | | | | | | | | | | | | | |
|
| Before |
| Tax |
| After |
|
| Before |
| Tax |
| After |
| ||||||
| | Tax | | (Expense) | | Tax |
| | Tax | | (Expense) | | Tax |
| ||||||
Three Months Ended January 27, 2019 | | Amount | | Credit | | Amount |
| |||||||||||||
Three Months Ended February 2, 2020 | | Amount | | Credit | | Amount |
| |||||||||||||
Cumulative translation adjustment |
| $ | (162) | | | | | $ | (162) | |
| $ | 43 | | | | | $ | 43 | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | | | | | | | | | | | |
Unrealized hedging gain (loss) | | | (9) | | $ | 2 | | | (7) | | | | (2) | | $ | 1 | | | (1) | |
Reclassification of realized (gain) loss to: | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts – Interest expense | | | (2) | | | | | | (2) | | | | 2 | | | (1) | | | 1 | |
Net unrealized gain (loss) on derivatives | | | (11) | | | 2 | | | (9) | | | | | | | | | | | |
Unrealized gain (loss) on debt securities: | | | | | | | | | | | | | | | | | | | | |
Unrealized holding gain (loss) | | | 10 | | | (2) | | | 8 | | | | 6 | | | (1) | | | 5 | |
Net unrealized gain (loss) on debt securities | | | 10 | | | (2) | | | 8 | | | | 6 | | | (1) | | | 5 | |
Retirement benefits adjustment: | | | | | | | | | | | | | | | | | | | | |
Pensions | | | | | | | | | | | ||||||||||
Net actuarial gain (loss) | | | 1 | | | | | | 1 | | | | 246 | | | (60) | | | 186 | |
Reclassification to other operating expenses through amortization of: * | | | | | | | | | | | | | | | | | | | | |
Actuarial (gain) loss | | | 35 | | | (8) | | | 27 | | | | 69 | | | (28) | | | 41 | |
Prior service (credit) cost | | | 3 | | | (1) | | | 2 | | | | 2 | | | (1) | | | 1 | |
OPEB | | | | | | | | | | | ||||||||||
Reclassification to other operating expense through amortization of: * | | | | | | | | | | | ||||||||||
Actuarial (gain) loss | | | 5 | | | (1) | | | 4 | | ||||||||||
Prior service (credit) cost | | | (18) | | | 4 | | | (14) | | ||||||||||
Settlements | | | 3 | | | (1) | | | 2 | | ||||||||||
Net unrealized gain (loss) on retirement benefits adjustment | | | 26 | | | (6) | | | 20 | | | | 320 | | | (90) | | | 230 | |
Total other comprehensive income (loss) |
| $ | (137) | | $ | (6) | | $ | (143) | |
| $ | 369 | | $ | (91) | | $ | 278 | |
* These accumulated other comprehensive income amounts are included in net periodic pension and OPEB costs. See Note 8 for additional detail.
In the first quarter of 20202021 and 20192020, the noncontrolling interests’ comprehensive income was $1 millionNaN and $2$1 million, respectively, which consisted of net income.
(6) Dividends Declared and Paid
Dividends declared and paid on a per share basis were as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Three Months Ended |
| ||||||||
| | February 2 | | January 27 |
| | January 31 | | February 2 |
| ||||
| | 2020 | | 2019 |
| | 2021 | | 2020 |
| ||||
Dividends declared |
| $ | .76 |
| $ | .76 | |
| $ | .76 |
| $ | .76 | |
Dividends paid | | $ | .76 | | $ | .69 | | | $ | .76 | | $ | .76 | |
(7) Earnings Per Share
A reconciliation of basic and diluted net income per share attributable to Deere & Company follows in millions, except per share amounts:
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Three Months Ended |
| ||||||||
| | February 2 | | January 27 | | | January 31 | | February 2 | | ||||
| | 2020 | | 2019 | | | 2021 | | 2020 | | ||||
Net income attributable to Deere & Company |
| $ | 517 |
| $ | 498 | |
| $ | 1,224 |
| $ | 517 | |
Average shares outstanding | | | 313.5 | |
| 318.5 | | | | 313.5 | |
| 313.5 | |
Basic per share | | $ | 1.65 | | $ | 1.56 | | | $ | 3.90 | | $ | 1.65 | |
| | | | | | | | | | | | | | |
Average shares outstanding | | | 313.5 | |
| 318.5 | | | | 313.5 | |
| 313.5 | |
Effect of dilutive share-based compensation | | | 3.7 | |
| 4.2 | | | | 2.6 | |
| 3.7 | |
Total potential shares outstanding | | | 317.2 | |
| 322.7 | | | | 316.1 | |
| 317.2 | |
Diluted per share | | $ | 1.63 | | $ | 1.54 | | | $ | 3.87 | | $ | 1.63 | |
During the first quarter of 2021 and 2020, .1 million shares and 2019, .2 million and .6 million shares, respectively, were excluded from the computation because the incremental shares would have been antidilutive.
13
(8) Pension and Other Postretirement Benefits
The Company has several defined benefit pension plans and postretirement benefit (OPEB) plans, primarily health care and life insurance plans, covering its U.S. employees and employees in certain foreign countries.
The worldwide components of net periodic pension cost consisted of the following in millions of dollars:
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Three Months Ended |
| ||||||||
| | February 2 | | January 27 |
| | January 31 | | February 2 |
| ||||
| | 2020 | | 2019 |
| | 2021 | | 2020 |
| ||||
Service cost |
| $ | 84 |
| $ | 66 | |
| $ | 85 |
| $ | 84 | |
Interest cost | | | 87 | |
| 111 | | | | 69 | |
| 87 | |
Expected return on plan assets | | | (205) | |
| (200) | | | | (200) | |
| (205) | |
Amortization of actuarial loss | | | 62 | |
| 35 | | | | 63 | |
| 62 | |
Amortization of prior service cost | | | 3 | |
| 3 | | | | 3 | |
| 3 | |
Settlements | | | 3 | |
| | | | | 13 | |
| 3 | |
Net cost | | $ | 34 | | $ | 15 | | | $ | 33 | | $ | 34 | |
The worldwide components of net periodic OPEB cost consisted of the following in millions of dollars:
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Three Months Ended |
| ||||||||
| | February 2 | | January 27 |
| | January 31 | | February 2 |
| ||||
| | 2020 | | 2019 |
| | 2021 | | 2020 |
| ||||
Service cost |
| $ | 12 |
| $ | 10 | |
| $ | 12 |
| $ | 12 | |
Interest cost | | | 37 | |
| 54 | | | | 26 | |
| 37 | |
Expected return on plan assets | | | (12) | |
| (9) | | | | (19) | |
| (12) | |
Amortization of actuarial loss | | | 7 | |
| 5 | | | | 7 | |
| 7 | |
Amortization of prior service credit | | | (1) | |
| (18) | | | | (1) | |
| (1) | |
Curtailments | | | 21 | | | | | | | | | | 21 | |
Net cost | | $ | 64 | | $ | 42 | | | $ | 25 | | $ | 64 | |
The components of net periodic pension and OPEB costs excluding the service cost component are included in the line item “Other“Other operating expenses”expenses” in the statement of consolidated income.
In the first quarter of 2020, the Company remeasured the U.S. salary OPEB health care plans. The wage plan was remeasured due to the U.S. enactment of the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) that repealed the health insurance provider fee effective in 2021. The salary plans were remeasured due to the U.S. voluntary employee-separation program (see Note 20), which resulted in a $21 million curtailment loss. The combined effect of the remeasurements was to reduce the benefit obligation by $245 million.
During the first three months of 2020,2021, the Company contributed approximately $24$42 million to its pension plans and $43$57 million to its OPEB plans. The Company presently anticipates contributing an additional $68$58 million to its pension plans and $397$789 million to its OPEB plans during the remainder of fiscal year 2020.2021. The anticipated OPEB contributions include a voluntary $300$700 million in the fourth quarter to a U.S. plan, which will increase plan assets. These pension and remaining OPEB contributions primarily include direct benefit payments from Company funds.
(9) Income Taxes
The lower effective tax rate in the first quarter of 2020 primarily resulted from two discrete items. In January 2020, the Company changed the corporate structure of two foreign holding subsidiaries to be indirect branches of Deere & Company. The change in tax status generated a capital loss that will be carried back in the Company’s U.S. income tax return, resultingwhich resulted in a $43 million benefit.benefit in the first quarter of 2020. In addition, the Company recognized a discrete benefit of $24 million was recognized for the excess tax benefits related to vesting or exercise of share-based compensation awards.awards of $39 million and $24 million in the first quarters of 2021 and 2020, respectively.
The Company’s unrecognized tax benefits at January 31, 2021 were $710 million, compared to $668 million at November 1, 2020. The liability at January 31, 2021, November 1, 2020, and February 2, 2020 were $557 million, compared to $553 million at November 3, 2019. The liability at February 2, 2020, November 3, 2019, and January 27, 2019 consisted of approximately $105$148 million, $153$134 million, and $143$105 million, respectively, which would affect the effective tax rate if the tax benefits were recognized. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The changes in the
14
unrecognized tax benefits for the first three months of 20202021 were not significant. The Company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next 12 months would not be significant.
(10)Segment Reporting
Worldwide net sales and revenues, operating profit, and identifiable assets by segment in millions of dollars follow:
| | | | | | | | | |
| | Three Months Ended |
| ||||||
| | February 2 | | January 27 | | % |
| ||
| | 2020 | | 2019 | | Change |
| ||
Net sales and revenues: |
| |
|
| |
|
|
| |
Agriculture and turf |
| $ | 4,486 | | $ | 4,681 | | -4 | |
Construction and forestry | | | 2,044 | |
| 2,260 | | -10 | |
Total net sales | | | 6,530 | |
| 6,941 | | -6 | |
Financial services | | | 931 | |
| 855 | | +9 | |
Other revenues | | | 170 | |
| 188 | | -10 | |
Total net sales and revenues |
| $ | 7,631 | | $ | 7,984 | | -4 | |
Operating profit: * | | | | | | | | | |
Agriculture and turf |
| $ | 373 | | $ | 348 | | +7 | |
Construction and forestry | | | 93 | |
| 229 | | -59 | |
Financial services | | | 179 | |
| 192 | | -7 | |
Total operating profit | | | 645 | |
| 769 | | -16 | |
Reconciling items ** | | | (78) | |
| (87) | | -10 | |
Income taxes | | | (50) | |
| (184) | | -73 | |
Net income attributable to Deere & Company |
| $ | 517 | | $ | 498 | | +4 | |
| | | | | | | | | |
Intersegment sales and revenues: | | | | | | | | | |
Agriculture and turf net sales |
| $ | 7 | | $ | 9 | | -22 | |
Construction and forestry net sales | | | | | | 1 | | | |
Financial services | | | 67 | |
| 72 | | -7 | |
| | | | | | | | | |
Equipment operations outside the U.S. and Canada: | | | | | | | | | |
Net sales |
| $ | 2,780 | | $ | 2,818 | | -1 | |
Operating profit | | | 225 | |
| 176 | | +28 | |
| | | | | | | | | |
|
| February 2 |
| November 3 | | |
| ||
| | 2020 | | 2019 | |
|
| ||
Identifiable assets: | | | | | | | | | |
Agriculture and turf |
| $ | 10,817 | | $ | 10,379 |
| +4 | |
Construction and forestry | | | 9,376 | |
| 9,387 | | | |
Financial services | | | 47,279 | |
| 48,483 | | -2 | |
Corporate | | | 4,349 | |
| 4,762 | | -9 | |
Total assets |
| $ | 71,821 | | $ | 73,011 | | -2 | |
*Operating profit is income from continuing operations before corporate expenses, certain external interest expense, certain foreign exchange gains and losses, and income taxes. Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains and losses.
**Reconciling items are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, pension and postretirement benefit costs excluding the service cost component, and net income attributable to noncontrolling interests.
material.
1514
(10)Segment Reporting
Beginning in fiscal year 2021, the Company implemented a new strategy, operating model, and reporting structure. With this change, the Company’s agriculture and turf operations were divided into two new segments, which are described as follows:
The production and precision agriculture segment is responsible for defining, developing, and delivering global equipment and technology solutions to unlock customer value for production-scale growers of large grains, small grains, cotton, and sugar. Main products include large and certain mid-size tractors, combines, cotton pickers, sugarcane harvesters and loaders, and soil preparation, seeding, application and crop care equipment.
The small agriculture and turf segment is responsible for defining, developing, and delivering market-driven products to support mid-size and small growers and producers globally as well as turf customers. The operations are principally organized to support production systems for dairy and livestock, high-value crops, and turf and utility operators. Primary products include certain mid-size and small tractors, as well as hay and forage equipment, riding and commercial lawn equipment, golf course equipment, and utility vehicles.
There were no reporting changes for the construction and forestry and financial services segments. As a result, the Company has 4 reportable segments.
Worldwide net sales and revenues, operating profit, and identifiable assets by segment in millions of dollars follow:
| | | | | | | | | |
| | Three Months Ended |
| ||||||
| | January 31 | | February 2 | | % |
| ||
|
| 2021 |
| 2020 |
| Change |
| ||
Net sales and revenues: |
| |
|
| |
|
|
| |
Production & precision ag |
| $ | 3,069 | | $ | 2,507 | | +22 | |
Small ag & turf | | | 2,515 | | | 1,979 | | +27 | |
Construction & forestry | | | 2,467 | |
| 2,044 | | +21 | |
Total net sales | | | 8,051 | |
| 6,530 | | +23 | |
Financial services | | | 884 | |
| 931 | | -5 | |
Other revenues | | | 177 | |
| 170 | | +4 | |
Total net sales and revenues |
| $ | 9,112 | | $ | 7,631 | | +19 | |
Operating profit: * | | | | | | | | | |
Production & precision ag |
| $ | 643 | | $ | 218 | | +195 | |
Small ag & turf | | | 469 | | | 155 | | +203 | |
Construction & forestry | | | 268 | |
| 93 | | +188 | |
Financial services | | | 258 | |
| 179 | | +44 | |
Total operating profit | | | 1,638 | |
| 645 | | +154 | |
Reconciling items ** | | | (106) | |
| (78) | | +36 | |
Income taxes | | | (308) | |
| (50) | | +516 | |
Net income attributable to Deere & Company |
| $ | 1,224 | | $ | 517 | | +137 | |
| | | | | | | | | |
Intersegment sales and revenues: | | | | | | | | | |
Production & precision ag net sales |
| $ | 6 | | $ | 6 | | | |
Small ag & turf net sales | | | 3 | | | 1 | | +200 | |
Construction & forestry net sales | | | | | | | | | |
Financial services | | | 50 | |
| 67 | | -25 | |
| | | | | | | | | |
Equipment operations outside the U.S. and Canada: | | | | | | | | | |
Net sales |
| $ | 3,522 | | $ | 2,780 | | +27 | |
Operating profit | | | 563 | |
| 225 | | +150 | |
*Operating profit is income from continuing operations before corporate expenses, certain external interest expense, certain foreign exchange gains and losses, and income taxes. Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains and losses.
** Reconciling items are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, pension and postretirement benefit costs excluding the service cost component, and net income attributable to noncontrolling interests.
15
At the beginning of fiscal year 2021, the Company reclassified goodwill from identifiable operating segment assets to corporate assets for segment reporting, as goodwill is no longer considered in evaluating the operating performance of the segments. Prior period amounts have been restated for a consistent presentation.
| | | | | | | | | | |
|
| January 31 |
| November 1 |
| February 2 |
| |||
| | 2021 | | 2020 | | 2020 |
| |||
Identifiable assets: | | | | | | | | | | |
Production & precision ag |
| $ | 6,330 | | $ | 5,708 | | $ | 6,407 | |
Small ag & turf | | | 3,510 | | | 3,266 | | | 3,838 | |
Construction & forestry | | | 6,341 | |
| 6,322 | |
| 7,002 | |
Financial services | | | 48,378 | |
| 48,719 | |
| 47,279 | |
Corporate | | | 10,921 | |
| 11,076 | |
| 7,295 | |
Total assets |
| $ | 75,480 | | $ | 75,091 | | $ | 71,821 | |
(11) Financing Receivables
The Company monitors the credit quality of financing receivables based on delinquency status. Past due balances of financing receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date. Non-performing financing receivables represent loans for which the Company has ceased accruing finance income. The Company ceases accruing finance income, and accrued finance income previously recognized is reversed when these receivables are generally 90 days delinquent. Generally, when receivables are 120 days delinquent the estimated uncollectible amount after chargingfrom the dealer’s withholding account, if any,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.
An ageDue to the economic effects of COVID, the Company provided short-term relief to dealers and retail customers during 2020, and to a much lesser extent in 2021. The relief was provided in regional programs and on a case-by-case basis with customers that were generally current in their payment obligations. Financing receivables granted relief represented approximately 4 percent of the financing receivables balance at January 31, 2021. The majority of financing receivables granted short-term relief during 2020 are beyond the deferral period and have either resumed making payments or are reported as delinquent based on the modified payment schedule.
While the Company implemented a new strategy in fiscal year 2021 resulting in new operating segments, assets managed by financial services, including most financing receivables and equipment on operating leases, continue to be evaluated by market (agriculture and turf or construction and forestry).
The credit quality analysis of past dueretail notes, financing receivables that are still accruing interestleases, and non-performing financing receivablesrevolving charge accounts (collectively, customer receivables), in millions of dollars at January 31, 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year of Origination | | ||||||||||||||||||||||
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving Charge Accounts | | Total | | ||||||||
Customer receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 2,531 | | $ | 9,427 | | $ | 5,129 | | $ | 2,817 | | $ | 1,400 | | $ | 686 | | $ | 2,564 | | $ | 24,554 | |
30-59 days past due | | | 4 | | | 65 | | | 49 | | | 30 | | | 13 | | | 7 | | | 27 | | | 195 | |
60-89 days past due | | | | | | 20 | | | 17 | | | 11 | | | 5 | | | 3 | | | 5 | | | 61 | |
90+ days past due | | | | | | | | | 1 | | | | | | | | | | | | | | | 1 | |
Non-performing | | | | | | 40 | | | 78 | | | 57 | | | 36 | | | 46 | | | 7 | | | 264 | |
Construction and forestry | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | | 737 | | | 2,251 | | | 1,276 | | | 573 | | | 164 | | | 39 | | | 77 | | | 5,117 | |
30-59 days past due | | | 5 | | | 53 | | | 32 | | | 17 | | | 6 | | | 1 | | | 3 | | | 117 | |
60-89 days past due | | | 1 | | | 15 | | | 16 | | | 7 | | | 3 | | | 1 | | | 1 | | | 44 | |
90+ days past due | | | | | | 9 | | | 13 | | | 5 | | | 4 | | | 2 | | | | | | 33 | |
Non-performing | | | | | | 26 | | | 34 | | | 26 | | | 14 | | | 8 | | | 1 | | | 109 | |
Total customer receivables | | $ | 3,278 | | $ | 11,906 | | $ | 6,645 | | $ | 3,543 | | $ | 1,645 | | $ | 793 | | $ | 2,685 | | $ | 30,495 | |
| | | | | | | | | | | | | |
| | February 2, 2020 | | ||||||||||
|
| | |
| | |
| 90 Days |
| | |
| |
| | 30-59 Days | | 60-89 Days | | or Greater | | Total | | ||||
| | Past Due | | Past Due | | Past Due | | Past Due | | ||||
Retail Notes: | | | | | | | | | | | | | |
Agriculture and turf |
| $ | 150 |
| $ | 65 |
| $ | 3 |
| $ | 218 | |
Construction and forestry | | | 96 | | | 36 | | | 19 | | | 151 | |
Other: | | | | | | | | | | | | | |
Agriculture and turf | | | 66 | | | 21 | | | 1 | | | 88 | |
Construction and forestry | | | 29 | | | 11 | | | | | | 40 | |
Total |
| $ | 341 |
| $ | 133 |
| $ | 23 |
| $ | 497 | |
| | | | | | | | | | | | | |
|
| | | | | | |
| | | Total | | |
| | Total | | Total | | | | | Financing | | |||
| | Past Due | | Non-Performing | | Current | | Receivables | | ||||
Retail Notes: | | | | | | | | | | | | | |
Agriculture and turf |
| $ | 218 |
| $ | 283 |
| $ | 18,514 |
| $ | 19,015 | |
Construction and forestry | | | 151 | | | 131 | | | 3,488 | | | 3,770 | |
Other: | | | | | | | | | | | | | |
Agriculture and turf | | | 88 | | | 100 | | | 7,457 | | | 7,645 | |
Construction and forestry | | | 40 | | | 28 | | | 1,431 | | | 1,499 | |
Total |
| $ | 497 |
| $ | 542 |
| $ | 30,890 | | | 31,929 | |
Less allowance for credit losses | | | | | | | | | | | | 157 | |
Total financing receivables – net | | | | | | | | | |
| $ | 31,772 | |
16
| | | | | | | | | | | | | |
| | November 3, 2019 | | ||||||||||
|
| | |
| | |
| 90 Days |
| | |
| |
| | 30-59 Days | | 60-89 Days | | or Greater | | Total | | ||||
| | Past Due | | Past Due | | Past Due | | Past Due |
| ||||
Retail Notes: | | | | | | | | | | | | | |
Agriculture and turf | | $ | 138 | | $ | 73 | | $ | 1 | | $ | 212 | |
Construction and forestry | |
| 79 | | | 29 |
| | 4 |
| | 112 |
|
Other: | | | | | | | | | | | | | |
Agriculture and turf | |
| 39 | | | 19 |
| | 1 |
| | 59 |
|
Construction and forestry | |
| 26 | | | 7 |
| | |
| | 33 |
|
Total | | $ | 282 | | $ | 128 | | $ | 6 | | $ | 416 | |
| | | | | | | | | | | | | |
| | | | | | |
| | |
| Total |
| |
| | Total | | Total |
| | | | Financing |
| |||
| | Past Due | | Non-Performing | | Current | | Receivables |
| ||||
Retail Notes: | | | | | | | | | | | | | |
Agriculture and turf | | $ | 212 | | $ | 268 | | $ | 18,931 | | $ | 19,411 | |
Construction and forestry | | | 112 |
| | 127 |
| | 3,450 |
| | 3,689 |
|
Other: | | | | | | | | | | | | | |
Agriculture and turf | | | 59 |
| | 28 |
| | 8,986 |
| | 9,073 |
|
Construction and forestry | | | 33 |
| | 26 |
| | 1,496 |
| | 1,555 |
|
Total | | $ | 416 | | $ | 449 | | $ | 32,863 | | | 33,728 |
|
Less allowance for credit losses | | | | | | | | | | | | 150 |
|
Total financing receivables – net | | | | | | | | | | | $ | 33,578 | |
The credit quality analysis of customer receivables in millions of dollars at November 1, 2020 and February 2, 2020 was as follows:
| | | | | | | | | | | | | | | | | | | |
| | November 1, 2020 | | February 2, 2020 | | ||||||||||||||
Customer receivables: | | Retail Notes & Financing Leases | | Revolving Charge Accounts | | Total | | Retail Notes & Financing Leases | | Revolving Charge Accounts | | Total | | ||||||
Agriculture and turf | | | | | | | | | | | | | | | | | | | |
Current | | $ | 21,597 | | $ | 3,787 | | $ | 25,384 | | $ | 19,455 | | $ | 2,578 | | $ | 22,033 | |
30-59 days past due | | | 135 | | | 13 | | | 148 | | | 162 | | | 53 | | | 215 | |
60-89 days past due | | | 64 | | | 4 | | | 68 | | | 71 | | | 15 | | | 86 | |
90+ days past due | | | 2 | | | | | | 2 | | | 4 | | | | | | 4 | |
Non-performing | | | 263 | | | 6 | | | 269 | | | 301 | | | 6 | | | 307 | |
Construction and forestry | | | | | | | | | | | | | | | | | | | |
Current | | | 4,859 | | | 88 | | | 4,947 | | | 4,362 | | | 75 | | | 4,437 | |
30-59 days past due | | | 111 | | | 2 | | | 113 | | | 121 | | | 4 | | | 125 | |
60-89 days past due | | | 55 | | | 1 | | | 56 | | | 46 | | | 1 | | | 47 | |
90+ days past due | | | 14 | | | | | | 14 | | | 19 | | | | | | 19 | |
Non-performing | | | 106 | | | 1 | | | 107 | | | 156 | | | 1 | | | 157 | |
Total customer receivables | | $ | 27,206 | | $ | 3,902 | | $ | 31,108 | | $ | 24,697 | | $ | 2,733 | | $ | 27,430 | |
The credit quality analysis of wholesale receivables in millions of dollars at January 31, 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | January 27, 2019 | | | Year of Origination | | ||||||||||||||||||||||||||||||||
|
| | |
| | |
| 90 Days |
| | |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving | | Total | | |||||||||
| | 30-59 Days | | 60-89 Days | | or Greater | | Total | | |||||||||||||||||||||||||||||
| | Past Due | | Past Due | | Past Due | | Past Due | | |||||||||||||||||||||||||||||
Retail Notes: | | | | | | | | | | | | | | |||||||||||||||||||||||||
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | |||||||||||||
Agriculture and turf |
| $ | 162 | | $ | 63 |
| $ | 1 |
| $ | 226 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 78 | | $ | 226 | | $ | 67 | | $ | 18 | | $ | 8 | | $ | 1 | | $ | 2,297 | | $ | 2,695 | | |||||||||||||
30-59 days past due | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
60-89 days past due | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
90+ days past due | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
Non-performing | | | | | | | | | 35 | | | | | | | | | | | | | | | 35 | | |||||||||||||
Construction and forestry | | | 102 | | | 47 | |
| 1 | | | 150 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other: | | | | | | | | | | | | | | |||||||||||||||||||||||||
Agriculture and turf | | | 65 | | | 23 | |
| 1 | | | 89 | | |||||||||||||||||||||||||
Construction and forestry | | | 16 | | | 8 | |
| | | | 24 | | |||||||||||||||||||||||||
Total | | $ | 345 | | $ | 141 | | $ | 3 | | $ | 489 | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||||||||
| | | | | | | | | | | Total | | ||||||||||||||||||||||||||
| | Total | | Total | | | | | Financing | | ||||||||||||||||||||||||||||
| | Past Due | | Non-Performing | | Current | | Receivables | | |||||||||||||||||||||||||||||
Retail Notes: | | | | | | | | | | | | | | |||||||||||||||||||||||||
Agriculture and turf | | $ | 226 | | $ | 296 | | $ | 17,408 | | $ | 17,930 | | |||||||||||||||||||||||||
Construction and forestry | | | 150 | |
| 107 | |
| 3,092 | | | 3,349 | | |||||||||||||||||||||||||
Other: | | | | | | | | | | | | | | |||||||||||||||||||||||||
Agriculture and turf | | | 89 | |
| 28 | |
| 7,213 | | | 7,330 | | |||||||||||||||||||||||||
Construction and forestry | | | 24 | |
| 10 | |
| 1,247 | | | 1,281 | | |||||||||||||||||||||||||
Total | | $ | 489 | | $ | 441 | | $ | 28,960 | | | 29,890 | | |||||||||||||||||||||||||
Less allowance for credit losses | | | | | | | | | | | | 177 | | |||||||||||||||||||||||||
Total financing receivables – net | | | | | | | | | | | $ | 29,713 | | |||||||||||||||||||||||||
Current | | | 3 | | | 11 | | | 20 | | | 2 | | | 1 | | | 2 | | | 315 | | | 354 | | |||||||||||||
30-59 days past due | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
60-89 days past due | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
90+ days past due | | | | | | | | | | | | | | | | | | 1 | | | | | | 1 | | |||||||||||||
Non-performing | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
Total wholesale receivables | | $ | 81 | | $ | 237 | | $ | 122 | | $ | 20 | | $ | 9 | | $ | 4 | | $ | 2,612 | | $ | 3,085 | |
The credit quality analysis of wholesale receivables in millions of dollars at November 1, 2020 and February 2, 2020 was as follows:
| | | | | | | |
| | November 1 | | February 2 | | ||
Wholesale receivables: | | 2020 | | 2020 | | ||
Agriculture and turf | | | | | | | |
Current | | $ | 3,010 | | $ | 3,938 | |
30-59 days past due | | | | | | 1 | |
60-89 days past due | | | | | | | |
90+ days past due | | | | | | | |
Non-performing | | | 47 | | | 76 | |
Construction and forestry | | | | | | | |
Current | | | 472 | | | 482 | |
30-59 days past due | | | | | | | |
60-89 days past due | | | | | | | |
90+ days past due | | | | | | | |
Non-performing | | | | | | 2 | |
Total wholesale receivables | | $ | 3,529 | | $ | 4,499 | |
17
The allowance for credit losses is an estimate of the credit losses expected over the life of the Company’s receivable portfolio. The Company measures expected credit losses on a collective basis when similar risk characteristics exist. Risk characteristics considered by the Company include finance product category, market, geography, credit risk, and remaining duration. Receivables that do not share risk characteristics with other receivables in the portfolio are evaluated on an individual basis.
The Company utilizes loss forecast models, which are selected based on the size and credit risk of the underlying pool of receivables, to estimate expected credit losses. Transition matrix models are used for large and complex customer receivable pools, while weighted average remaining maturity models are used for smaller and less complex customer receivable pools. Expected credit losses on wholesale receivables are based on historical loss rates, adjusted for current economic conditions. The modeled expected credit losses are adjusted based on reasonable and supportable forecasts, which may include economic indicators such as commodity prices, industry equipment sales, unemployment rates, and housing starts. Management reviews each model’s output quarterly, and qualitative adjustments are incorporated as necessary.
An analysis of the allowance for credit losses and investment in financing receivables in millions of dollars during the periods follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended February 2, 2020 | | | Three Months Ended January 31, 2021 | | ||||||||||||||||||||
| | | | | Revolving | | | | | | | | | Retail Notes | | Revolving | | | | | | | | |||
| | Retail | | Charge | | | | | | | | | & Financing | | Charge | | Wholesale | | | | | |||||
| | Notes | | Accounts | | Other | | Total | | | Leases | | Accounts | | Receivables | | Total | | ||||||||
Allowance: |
|
|
|
|
|
|
|
|
|
| | |
|
|
|
|
|
|
|
|
|
|
| | |
|
Beginning of period balance |
| $ | 89 |
| $ | 40 | | $ | 21 | | $ | 150 | |
| $ | 133 |
| $ | 43 | | $ | 8 | | $ | 184 | |
ASU No. 2016-13 adoption | | | 44 | | | (13) | | | | | | 31 | | |||||||||||||
Provision (credit) | | | 15 | | | (1) | | | 7 | | | 21 | | | | 5 | | | (10) | | | (1) | | | (6) | |
Write-offs | | | (17) | | | (7) | | | (1) | | | (25) | | | | (8) | | | (5) | | | | | | (13) | |
Recoveries | | | 2 | | | 8 | | | | | | 10 | | | | 5 | | | 9 | | | | | | 14 | |
Translation adjustments | | | (1) | | | | | | 2 | | | 1 | | | | 1 | | | | | | | | | 1 | |
End of period balance * |
| $ | 88 |
| $ | 40 | | $ | 29 | | $ | 157 | | |||||||||||||
End of period balance |
| $ | 180 |
| $ | 24 | | $ | 7 | | $ | 211 | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Financing receivables: | | | | | | | | | | | | | | | | | | | | | | | | | | |
End of period balance |
| $ | 22,785 |
| $ | 2,733 | | $ | 6,411 | | $ | 31,929 | |
| $ | 27,810 |
| $ | 2,685 | | $ | 3,085 | | $ | 33,580 | |
Balance individually evaluated ** |
| $ | 170 |
| | | | $ | 86 | | $ | 256 | |
| | | | | | | | | | | | | |
| | Three Months Ended February 2, 2020 |
| ||||||||||
| | Retail Notes | | Revolving | | | | | | |
| ||
| | & Financing | | Charge | | Wholesale | | | |
| |||
| | Leases | | Accounts | | Receivables | | Total | | ||||
Allowance: |
| |
|
| |
|
| |
|
| |
| |
Beginning of period balance | | $ | 107 |
| $ | 40 | | $ | 3 | | $ | 150 | |
Provision (credit) | |
| 16 | | | (1) | | | 6 | |
| 21 | |
Write-offs | |
| (18) | | | (7) | | | | |
| (25) | |
Recoveries | |
| 2 | | | 8 | | | | |
| 10 | |
Translation adjustments | |
| (1) | | | | | | 2 | |
| 1 | |
End of period balance | | $ | 106 | | $ | 40 | | $ | 11 | | $ | 157 | |
| | | | | | | | | | | | | |
Financing receivables: | | | | | | | | | | | | | |
End of period balance | | $ | 24,697 |
| $ | 2,733 | | $ | 4,499 | | $ | 31,929 | |
| | | | | | | | | | | | | |
| | Three Months Ended January 27, 2019 |
| ||||||||||
| | | | | Revolving | | | | | | |
| |
| | Retail | | Charge | | | | | | |
| ||
| | Notes | | Accounts | | Other | | Total | | ||||
Allowance: |
| |
|
| |
|
| |
|
| |
| |
Beginning of period balance | | $ | 113 |
| $ | 43 | | $ | 22 | | $ | 178 | |
Provision (credit) | |
| 6 | | | (1) | | | 2 | |
| 7 | |
Write-offs | |
| (11) | | | (4) | | | (1) | |
| (16) | |
Recoveries | |
| 4 | | | 5 | | | | |
| 9 | |
Translation adjustments | |
| (1) | | | | | | | |
| (1) | |
End of period balance * | | $ | 111 | | $ | 43 | | $ | 23 | | $ | 177 | |
| | | | | | | | | | | | | |
Financing receivables: | | | | | | | | | | | | | |
End of period balance | | $ | 21,279 |
| $ | 2,737 | | $ | 5,874 | | $ | 29,890 | |
Balance individually evaluated ** | | $ | 118 |
| $ | 2 | | $ | 13 | | $ | 133 | |
*Individual allowances were not significant.
**Remainder is collectively evaluated.
18
Financing receivables are considered impaired when it is probable the Company will be unable to collect all amounts due according to the contractual terms. Receivables reviewed for impairment generally include those that are either past due, or have provided bankruptcy notification, or require significant collection efforts. Receivables that are impaired are generally classified as non-performing.
An analysis of the impaired financing receivables in millions of dollars follows:
| | | | | | | | | | | | | |
|
| | |
| Unpaid |
| | |
| Average |
| ||
| | Recorded | | Principal | | Specific | | Recorded | | ||||
| | Investment | | Balance | | Allowance | | Investment | | ||||
February 2, 2020* | | | | | | | | | | | | | |
Receivables with specific allowance *** |
| $ | 117 |
| $ | 116 |
| $ | 22 | | $ | 119 | |
Receivables without a specific allowance ** | | | 31 | | | 30 | | | | | | 32 | |
Total |
| $ | 148 |
| $ | 146 |
| $ | 22 | | $ | 151 | |
Agriculture and turf |
| $ | 120 |
| $ | 120 |
| $ | 17 | | $ | 123 | |
Construction and forestry |
| $ | 28 |
| $ | 26 | | $ | 5 |
| $ | 28 | |
| | | | | | | | | | | | | |
November 3, 2019* | | | | | | | | | | | | | |
Receivables with specific allowance ** | | $ | 40 | | $ | 39 | | $ | 13 | | $ | 40 | |
Receivables without a specific allowance ** | |
| 32 | |
| 31 | | | | |
| 37 | |
Total | | $ | 72 |
| $ | 70 |
| $ | 13 | | $ | 77 | |
Agriculture and turf | | $ | 49 | | $ | 48 | | $ | 8 | | $ | 52 | |
Construction and forestry | | $ | 23 | | $ | 22 | | $ | 5 | | $ | 25 | |
| | | | | | | | | | | | | |
January 27, 2019* | | | | | | | | | | | | | |
Receivables with specific allowance ** | | $ | 30 | | $ | 30 | | $ | 12 | | $ | 30 | |
Receivables without a specific allowance ** | |
| 36 | |
| 34 | | | | |
| 36 | |
Total | | $ | 66 |
| $ | 64 |
| $ | 12 | | $ | 66 | |
Agriculture and turf | | $ | 49 | | $ | 48 | | $ | 9 | | $ | 49 | |
Construction and forestry | | $ | 17 | | $ | 16 | | $ | 3 | | $ | 17 | |
*Finance income recognized was not material.
** Primarily retail notes.
*** Primarily retail notes and wholesale receivables.
A troubled debt restructuring is generally 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 dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During the first three months of 2020,2021, the Company identified 98 receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $5 million pre-modification and post-modification. During the first three months of 2020, there were 88 receivable contracts, primarily wholesale receivables in Argentina, identified as troubled debt restructurings with aggregate balances of $85 million pre-modification and $74 million post-modification. DuringThe short-term payment relief related to COVID, mentioned earlier, did not meet the first three monthsdefinition of 2019, there were 70 financing receivable contracts, primarily retail notes, identified asa troubled debt restructurings with aggregate balances of $2 million pre-modification and $2 million post-modification.restructuring. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At February 2, 2020,January 31, 2021, the Company had 0 commitments to lend approximately $14 million to borrowers whose accounts were modified in troubled debt restructurings.
1918
(12) Securitization of Financing Receivables
The Company, as a part of its overall funding strategy, periodically transfers certain financing receivables (retail notes) into variable interest entities (VIEs)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 did 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.
In these securitizations, the retail notes are transferred to certain SPEs or to non-VIE banking operations, which in turn issue debt to investors. The debt securities issued to the third party investors resulted in secured borrowings, which are recorded as “Short-term securitization borrowings” on the balance sheet. The securitized retail notes are recorded as “Financing receivables securitized – net” on the balance sheet. The total restricted assets on the consolidated balance sheet related to these securitizations include the financing receivables securitized less an allowance for credit losses, and other assets primarily representing restricted cash. Restricted cash results from contractual requirements in securitized borrowing arrangements and serves as a credit enhancement. The restricted cash is used to satisfy payment deficiencies, if any, in the required payments on secured borrowings. The balance of restricted cash is contractually stipulated and is either a fixed amount as determined by the initial balance of the financing receivables securitized or a fixed percentage of the outstanding balance of the securitized financing receivables. The restriction is removed either after all secured borrowing payments are made or proportionally as these receivables are collected and borrowing obligations reduced. For those securitizations in which retail notes are transferred into SPEs, the SPEs supporting the secured borrowings are consolidated unless the Company does not have both the power to direct the activities that most significantly impact the SPEs’ economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the SPEs. No additional support to these SPEs beyond what was previously contractually required has been provided during the reporting periods.
In certain securitizations, the Company consolidates the SPEs since it has both the power to direct the activities that most significantly impact the SPEs’ economic performance through its role as servicer of all the receivables held by the SPEs and the obligation through variable interests in the SPEs to absorb losses or receive benefits that could potentially be significant to the SPEs. The restricted assets (retail notes securitized, allowance for credit losses, and other assets) of the consolidated SPEs totaled $2,425 million, $2,898 million, and $2,490 million $2,895 million,at January 31, 2021, November 1, 2020, and $2,137 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively. The liabilities (short-term securitization borrowings and accrued interest) of these SPEs totaled $2,403 million, $2,856 million, and $2,442 million $2,847 million,at January 31, 2021, November 1, 2020, and $2,092 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively. The credit holders of these SPEs do not have legal recourse to the Company’s general credit.
In certain securitizations, the Company transfers retail notes to non-VIE banking operations, which are not consolidated since the Company does not have a controlling interest in the entities. The Company’s carrying values and interests related to the securitizations with the unconsolidated non-VIEs were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of $481 million, $576 million, and $638 million $491 million,at January 31, 2021, November 1, 2020, and $790 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively. The liabilities (short-term securitization borrowings and accrued interest) were $471 million, $554 million, and $609 million $465 million,at January 31, 2021, November 1, 2020, and $743 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively.
In certain securitizations, the Company transfers retail notes into bank-sponsored, multi-seller, commercial paper conduits, which are SPEs that are not consolidated. The Company does not service a significant portion of the conduits’ receivables, and therefore, does not have the power to direct the activities that most significantly impact the conduits’ economic performance. These conduits provide a funding source to the Company (as well as other transferors into the conduit) as they fund the retail notes through the issuance of commercial paper. The Company’s carrying values and variable interest related to these conduits were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of $1,120 million, $1,327 million, and $1,441 million $1,079 million,at January 31, 2021, November 1, 2020, and $1,745 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively. The liabilities (short-term securitization borrowings and accrued interest) related to these conduits were $1,097 million, $1,275 million, and $1,370 million $1,015 million,at January 31, 2021, November 1, 2020, and $1,632 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively.
2019
The Company’s carrying amount of the liabilities to the unconsolidated conduits, compared to the maximum exposure to loss related to these conduits, which would only be incurred in the event of a complete loss on the restricted assets, was as follows in millions of dollars:
| | | | | | | | |
|
| February 2, 2020 |
|
| January 31, 2021 |
| ||
Carrying value of liabilities |
| $ | 1,370 | |
| $ | 1,097 | |
Maximum exposure to loss | | | 1,441 | | | | 1,120 | |
The total assets of unconsolidated VIEs related to securitizations were approximately $41 billion.$37 billion at January 31, 2021.
The components of consolidated restricted assets related to secured borrowings in securitization transactions follow in millions of dollars:
| | | | | | | | | | | | | | | | | | | | |
|
| February 2 |
| November 3 |
| January 27 |
|
| January 31 |
| November 1 |
| February 2 |
| ||||||
| | 2020 | | 2019 | | 2019 |
| | 2021 | | 2020 | | 2020 |
| ||||||
Financing receivables securitized (retail notes) |
| $ | 4,487 | | $ | 4,395 | | $ | 4,573 | |
| $ | 3,946 | | $ | 4,716 | | $ | 4,487 | |
Allowance for credit losses | | | (9) | |
| (12) | |
| (10) | | | | (15) | |
| (13) | |
| (9) | |
Other assets | | | 91 | |
| 82 | |
| 109 | | | | 95 | |
| 98 | |
| 91 | |
Total restricted securitized assets |
| $ | 4,569 | | $ | 4,465 | | $ | 4,672 | |
| $ | 4,026 | | $ | 4,801 | | $ | 4,569 | |
The components of consolidated secured borrowings and other liabilities related to securitizations follow in millions of dollars:
| | | | | | | | | | | | | | | | | | | | |
|
| February 2 |
| November 3 |
| January 27 |
|
| January 31 |
| November 1 |
| February 2 |
| ||||||
| | 2020 | | 2019 | | 2019 |
| | 2021 | | 2020 | | 2020 |
| ||||||
Short-term securitization borrowings |
| $ | 4,416 | | $ | 4,321 | | $ | 4,464 | |
| $ | 3,969 | | $ | 4,682 | | $ | 4,416 | |
Accrued interest on borrowings | | | 5 | |
| 6 | |
| 3 | | | | 2 | |
| 3 | |
| 5 | |
Total liabilities related to restricted securitized assets |
| $ | 4,421 | | $ | 4,327 | | $ | 4,467 | |
| $ | 3,971 | | $ | 4,685 | | $ | 4,421 | |
The secured borrowings related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash flows generated by the restricted assets. Due to the Company’s short-term credit rating, cash collections from these restricted assets are not required to be placed into a segregated collection account until immediately prior to the time payment is required to the secured creditors. At February 2, 2020,January 31, 2021, the maximum remaining term of all securitized retail notes was approximately sevensix years.
(13) Inventories
Most inventories owned by Deere & Company and its U.S. equipment subsidiaries and certain foreign equipment subsidiaries are valued at cost on the “last-in, first-out” (LIFO) method. If all of the Company’s inventories had been valued on a “first-in, first-out” (FIFO) method, estimated inventories by major classification in millions of dollars would have been as follows:
| | | | | | | | | | |
|
| February 2 |
| November 3 |
| January 27 |
| |||
| | 2020 | | 2019 | | 2019 |
| |||
Raw materials and supplies |
| $ | 2,311 | | $ | 2,285 | | $ | 2,506 | |
Work-in-process | | | 818 | |
| 747 | |
| 1,026 | |
Finished goods and parts | | | 4,946 | |
| 4,613 | |
| 5,693 | |
Total FIFO value | | | 8,075 | |
| 7,645 | |
| 9,225 | |
Less adjustment to LIFO value | | | 1,593 | |
| 1,670 | |
| 1,823 | |
Inventories |
| $ | 6,482 | | $ | 5,975 | | $ | 7,402 | |
| | | | | | | | | | |
|
| January 31 |
| November 1 |
| February 2 |
| |||
| | 2021 | | 2020 | | 2020 |
| |||
Raw materials and supplies |
| $ | 2,303 | | $ | 1,995 | | $ | 2,311 | |
Work-in-process | | | 839 | |
| 648 | |
| 818 | |
Finished goods and parts | | | 4,485 | |
| 4,006 | |
| 4,946 | |
Total FIFO value | | | 7,627 | |
| 6,649 | |
| 8,075 | |
Less adjustment to LIFO value | | | 1,671 | |
| 1,650 | |
| 1,593 | |
Inventories |
| $ | 5,956 | | $ | 4,999 | | $ | 6,482 | |
2120
(14) Goodwill and Other Intangible Assets-Net
The changes in amounts of goodwill by operating segmentssegment were as follows in millions of dollars:
| | | | | | | | | | | | | | | | | | | | | | | |
|
| Agriculture |
| Construction |
| | |
| |||||||||||||||
| | and Turf | | and Forestry | | Total |
| ||||||||||||||||
Goodwill at October 28, 2018 | | $ | 583 | | $ | 2,518 | | $ | 3,101 | | |||||||||||||
Translation adjustments and other | |
| 2 | | | (55) | |
| (53) | | |||||||||||||
Goodwill at January 27, 2019 | | $ | 585 | | $ | 2,463 | | $ | 3,048 | | |||||||||||||
| | | | | | | | | | | | Production & Precision Ag | | Small Ag & Turf | | Construction & Forestry | | Total |
| ||||
Goodwill at November 3, 2019 | | $ | 574 | | $ | 2,343 | | $ | 2,917 | | | $ | 310 | | $ | 264 | | $ | 2,343 | | $ | 2,917 | |
Translation adjustments and other | | | (3) | | | 31 | | | 28 | | |
| (2) | |
| (1) | | | 31 | |
| 28 | |
Goodwill at February 2, 2020 | | $ | 571 | | $ | 2,374 | | $ | 2,945 | | | $ | 308 | | $ | 263 | | $ | 2,374 | | $ | 2,945 | |
| | | | | | | | | | | | | | ||||||||||
Goodwill at November 1, 2020 | | $ | 333 | | $ | 268 | | $ | 2,480 | | $ | 3,081 | | ||||||||||
Acquisition | | | 12 | | | | | | | | | 12 | | ||||||||||
Translation adjustments and other | | | 12 | | | (1) | | | 90 | | | 101 | | ||||||||||
Goodwill at January 31, 2021 | | $ | 357 | | $ | 267 | | $ | 2,570 | | $ | 3,194 | |
There were 0 accumulated goodwill impairment losses in the reported periods.
The components of other intangible assets were as follows in millions of dollars:
| | | | | | | | | | | | | | | | | | | | |
|
| February 2 |
| November 3 |
| January 27 |
|
| January 31 |
| November 1 |
| February 2 |
| ||||||
| | 2020 | | 2019 | | 2019 |
| | 2021 | | 2020 | | 2020 |
| ||||||
Amortized intangible assets: | | | | | | | | | | | | | | | | | | | | |
Customer lists and relationships |
| $ | 517 | | $ | 511 | | $ | 538 | |
| $ | 553 | | $ | 535 | | $ | 517 | |
Technology, patents, trademarks, and other | | | 1,013 | |
| 1,028 | |
| 1,053 | | | | 1,099 | |
| 1,056 | |
| 1,013 | |
Total at cost | | | 1,530 | |
| 1,539 | |
| 1,591 | | | | 1,652 | |
| 1,591 | |
| 1,530 | |
Less accumulated amortization * | | | 304 | |
| 282 | |
| 207 | | | | 433 | |
| 387 | |
| 304 | |
Total | | | 1,226 | | | 1,257 | | | 1,384 | | | | 1,219 | | | 1,204 | | | 1,226 | |
Unamortized intangible assets: | | | | | | | | | | | | | | | | | | | | |
In-process research and development | | | 123 | | | 123 | | | 123 | | | | 123 | | | 123 | | | 123 | |
Other intangible assets – net |
| $ | 1,349 | | $ | 1,380 | | $ | 1,507 | |
| $ | 1,342 | | $ | 1,327 | | $ | 1,349 | |
* Accumulated amortization at January 31, 2021, November 1, 2020, and February 2, 2020 November 3, 2019, and January 27, 2019 for customer lists and relationships totaled $86$128 million, $77$113 million, and $54$86 million and technology, patents, trademarks, and other totaled $218$305 million, $205$274 million, and $153$218 million, respectively.
The amortization of other intangible assets in the first quarter of 2021 and 2020 and 2019 was $25$34 million and $27$25 million, respectively. The estimated amortization expense for the next five years is as follows in millions of dollars: remainder of 2020 – $77, 2021 – $101,$82, 2022 – $100,$109, 2023 – $98, and$107, 2024 – $96.$103, 2025 – $100, and 2026 – $98.
(15) Leases
The Company is both a lessee and a lessor. The Company leases for its own use, under leases with expected use periods generally ranging from less than one year to 20 years, primarily warehouse facilities, office space, production equipment, information technology equipment, and vehicles. The Company’s financial services segment leases to users equipment produced or sold by the Company. These leases are usually written for periods of less than one year to seven years.
The Company determines if an arrangement is or contains a lease at the contract inception.
Lessee
The Company recognizes on the balance sheet aLessee operating and finance lease liability and a right of use asset for leases with a term greater than 12 months for both operatingassets and finance leases.
The amountsliabilities follow in millions of the lease liability and right of use asset are determined at lease commencement and are based on the present value of the lease payments over the lease term. The lease payments are discounted using the Company’s incremental borrowing rate since the rate implicit in the lease is generally not readily determinable. The Company determines the incremental borrowing rate for each lease based primarily on the lease term and the economic environment of the country where the asset will be used, adjusted as if the borrowings were collateralized. Leases with contractual periods greater than 12 months and that do not meet the finance lease criteria are classified as operating leases.dollars:
| | | | | | | | | | |
| | January 31 | | November 1 | | February 2 | | |||
| | 2021 | | 2020 | | 2020 | | |||
Operating leases: | | | | | | | | | | |
Other assets | | $ | 327 | | $ | 324 | | $ | 376 | |
Accounts payable and accrued expenses | | | 315 | | | 305 | | | 361 | |
| | | | | | | | | | |
Finance leases: | | | | | | | | | | |
Property and equipment – net | | $ | 57 | | $ | 63 | | $ | 37 | |
| | | | | | | | | | |
Short-term borrowings | | | 20 | | | 21 | | | 12 | |
Long-term borrowings | | | 36 | | | 39 | | | 23 | |
Total finance lease liabilities | | $ | 56 | | $ | 60 | | $ | 35 | |
2221
Certain real estate leases contain one or more options to terminate or renew, with terms that can generally extend the lease term from one to 10 years. Options that the Company is reasonably certain to exercise are included in the lease term.
The Company has elected to combine lease and non-lease components, such as maintenance and utilities costs included in a lease contract, for all asset classes. Leases with an initial term of 12 months or less are expensed on a straight-line basis over the lease term and recorded in short-term lease expense. Variable lease expense primarily includes warehouse facilities leases with payments based on utilization exceeding contractual minimum amounts and leases with payments indexed to inflation when the index changes after lease commencement.
The lease expense by type consisted of the following in millions of dollars:
| | | | |
| | Three Months Ended | | |
| | February 2, 2020 | | |
Operating lease expense | | $ | 32 | |
Short-term lease expense | | | 4 | |
Variable lease expense | | | 10 | |
Finance lease depreciation expense | | | 5 | |
Total lease expense | | $ | 51 | |
Operating and finance lease right of use assets and liabilities follow in millions of dollars:
| | | | |
| | February 2, 2020 | | |
Operating leases | | | | |
Other assets | | $ | 376 | |
Accounts payable and accrued expenses | | | 361 | |
| | | | |
Finance leases | | | | |
Property and equipment — net | | $ | 37 | |
| | | | |
Short-term borrowings | | | 12 | |
Long-term borrowings | | | 23 | |
Total finance lease liabilities | | $ | 35 | |
The weighted-average remaining lease term in years and discount rates follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
Lease payment amounts in each of the next five years at February 2, 2020 follow in millions of dollars:
| | | | | | | |
| | Operating | | Finance | | ||
February 2, 2020 | | Leases | | Leases | | ||
Remainder of 2020 | | $ | 93 | | $ | 12 | |
2021 | | | 80 | | | 11 | |
2022 | | | 69 | | | 8 | |
2023 | | | 53 | | | 3 | |
2024 | | | 38 | | | 2 | |
2025 | | | 19 | | | | |
Later years | | | 33 | | | 1 | |
Total lease payments | | | 385 | | | 37 | |
Less imputed interest | | | 24 | | | 2 | |
Total lease liabilities | | $ | 361 | | $ | 35 | |
23
Future minimum lease payments under the previous lease standard for operating and finance leases at November 3, 2019 follow in millions of dollars:
| | | | | | | |
| | Operating | | Capital | | ||
November 3, 2019 | | Leases | | Leases | | ||
2020 | | $ | 111 | | $ | 12 | |
2021 | | | 77 | | | 10 | |
2022 | | | 56 | | | 6 | |
2023 | | | 39 | | | 2 | |
2024 | | | 28 | | | 1 | |
Later years | | | 26 | | | 1 | |
Total minimum lease payments | | $ | 337 | | $ | 32 | |
Cash paid for amounts included in the measurement of lease liabilities:
| | | | |
| | Three Months Ended | | |
| | February 2, 2020 | | |
Operating cash flows from operating leases | | $ | 30 | |
Financing cash flows from finance leases | | | 5 | |
Right of use assets obtained in exchange for lease liabilities:liabilities follow in millions of dollars:
| | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | |||||
| | February 2, 2020 | | | January 31, 2021 | | February 2, 2020 | | |||
Operating leases | | $ | 16 | | | $ | 22 | | $ | 16 | |
Finance leases | | | 9 | | | | 2 | | | 9 | |
Lessor
The Company leases equipment manufactured or sold by the Company and a limited amount of non-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 sheet. Operatingsheet, while operating leases are reported in “Equipment on operating leases - net” on the consolidated balance sheet.– net.”
Leases offeredLease revenues earned by the Company may include early termination and renewal options. At the endwere as follows in millions of a lease, the lessee generally has the option to purchase the underlying equipment for a fixed price or return itdollars:
| | | | | | | |
| | Three Months Ended | | ||||
| | January 31, 2021 | | February 2, 2020 | | ||
Sales-type and direct finance lease revenues | | $ | 36 | | $ | 36 | |
Operating lease revenues | | | 363 | | | 374 | |
Variable lease revenues | | | 6 | | | 5 | |
Total lease revenues | | $ | 405 | | $ | 415 | |
Due to the dealer. If the equipment is returned to the dealer, the dealer also has the option to purchase the equipment or return it tosignificant, negative effects of COVID, the Company for remarketing.
provided short-term relief to lessees during 2020, and to a much lesser extent in 2021. The Company estimates the residual values forrelief, which included payment deferrals of three months or less, was provided in regional programs and on a case-by-case basis with customers that were generally current in their payment obligations. The operating leases at lease inception based on several factors, including lease term, expected hours of usage, historical wholesale sale prices, return experience, intended usegranted relief represented approximately 3 percent of the equipment, market dynamics and trends, and dealer residual guarantees. The Company reviews residual value estimates during the lease term and tests the carrying value of itsCompany’s operating lease assets for impairment when events or circumstances necessitate. The depreciation is adjusted on a straight-line basis over the remaining lease term if residual value estimates decline. Lease agreements include usage limits and specifications on machine condition, which allow the Company to assess lessees for excess use or damages to the underlying equipment.portfolio at January 31, 2021.
The Company has elected to combine lease and nonlease components. The nonlease components primarily relate to preventative maintenance and extended warranty agreements financed by the retail customer. The Company has also elected to report consideration related to sales and value added taxes net of the related tax expense. Property taxes on leased assets are recorded on a gross basis in “Finance and interest income” and “Other operating expenses” on the statement of consolidated income. Variable lease revenues primarily relate to property taxes on leased assets in certain markets and late fees.
24
Lease revenues earned by the Company were as follows in millions of dollars:
| | | | |
| | Three Months Ended | | |
| | February 2, 2020 | | |
Sales-type and direct finance lease revenues | | $ | 36 | |
Operating lease revenues | | | 374 | |
Variable lease revenues | | | 5 | |
Total lease revenues | | $ | 415 | |
At the time of accepting a lease that qualifies as a sales-type or direct financing lease, the Company records the gross amount of lease payments receivable, estimated residual value of the leased equipment, and unearned finance income. The unearned finance income is recognized as revenue over the lease term using the interest method.
Sales-type and direct financing lease receivables by product category were as follows in millions of dollars:
| | | | | | | |
| | February 2 | | November 3 | | ||
| | 2020 | | 2019 | | ||
Agriculture and turf | | $ | 863 | | $ | 897 | |
Construction and forestry | | | 1,007 | | | 1,033 | |
Total | | | 1,870 | | | 1,930 | |
Guaranteed residual values | | | 152 | | | 232 | |
Unguaranteed residual values | | | 98 | | | 101 | |
Less unearned finance income | | | 209 | | | 212 | |
Financing leases receivables | | $ | 1,911 | | $ | 2,051 | |
Scheduled payments, including guaranteed residual values, on sales-type and direct financing lease receivables at February 2, 2020 follow in millions of dollars:
| | | | |
| | February 2 | | |
| | 2020 | | |
Due in: | | | | |
Remainder of 2020 | | $ | 732 | |
2021 | | | 614 | |
2022 | | | 380 | |
2023 | | | 188 | |
2024 | | | 86 | |
2025 | | | 18 | |
Later years | | | 4 | |
Total | | $ | 2,022 | |
Scheduled payments on financing lease receivables under the previous lease standard at November 3, 2019 follow in millions of dollars:
| | | | |
| | November 3 | | |
| | 2019 | | |
Due in: | | | | |
2020 | | $ | 833 | |
2021 | | | 557 | |
2022 | | | 321 | |
2023 | | | 153 | |
2024 | | | 53 | |
Later years | | | 13 | |
Total | | $ | 1,930 | |
Lease payments from operating leases are recorded as income on a straight-line method over the lease terms. Operating lease assets are recorded at cost and depreciated to their estimated residual value on a straight-line method over the terms of the leases.
25
The cost of equipment on operating leases by product category was as follows in millions of dollars:
| | | | | | | |
| | February 2 | | November 3 | | ||
| | 2020 | | 2019 | | ||
Agriculture and turf | | $ | 7,260 | | $ | 7,257 | |
Construction and forestry | | | 2,163 | | | 2,165 | |
Total | | | 9,423 | | | 9,422 | |
Less accumulated depreciation | | | 1,919 | | | 1,855 | |
Equipment on operating leases - net | | $ | 7,504 | | $ | 7,567 | |
The total operating lease residual values at February 2, 2020 and November 3, 2019 were $5,299 million and $5,259 million, respectively. Certain operating leases are subject to residual value guarantees. The total residual value guarantees were $652 million and $647 million at February 2, 2020 and November 3, 2019, respectively.
Lease payments for equipment on operating leases at February 2, 2020 were scheduled as follows in millions of dollars:
| | | | |
| | February 2 | | |
| | 2020 | | |
Due in: | | | | |
Remainder of 2020 | | $ | 948 | |
2021 | | | 871 | |
2022 | | | 513 | |
2023 | | | 248 | |
2024 | | | 80 | |
2025 | | | 3 | |
Total | | $ | 2,663 | |
Rental payments for equipment on operating leases under the previous lease standard at November 3, 2019 were scheduled as follows in millions of dollars:
| | | | |
| | November 3 | | |
| | 2019 | | |
Due in: | | | | |
2020 | | $ | 1,086 | |
2021 | | | 759 | |
2022 | | | 419 | |
2023 | | | 193 | |
2024 | | | 41 | |
Total | | $ | 2,498 | |
The Company discusses with lessees and dealers options to purchase the equipment or extend the lease prior to lease maturity. Equipment returned to the Company upon termination of leases is remarketed by the Company. The matured operating lease inventory balances at February 2, 2020 and November 3, 2019 were $130 million and $163 million, respectively.
(16) Commitments and Contingencies
The Company generally determines its total warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs and current quality developments.
The premiums for extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. These unamortized extended warranty premiums (deferred revenue) included in the following table totaled $656 million and $588 million at January 31, 2021 and $514 million at February 2, 2020, and January 27, 2019, respectively.
26
A reconciliation of the changes in the warranty liability and unearned premiums in millions of dollars follows:
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Three Months Ended |
| ||||||||
| | February 2 | | January 27 |
| | January 31 | | February 2 |
| ||||
| | 2020 | | 2019 |
| | 2021 | | 2020 |
| ||||
Beginning of period balance |
| $ | 1,800 |
| $ | 1,652 | |
| $ | 1,743 |
| $ | 1,800 | |
Payments | | | (230) | |
| (228) | | | | (215) | |
| (230) | |
Amortization of premiums received | | | (59) | |
| (54) | | | | (63) | |
| (59) | |
Accruals for warranties | | | 222 | |
| 253 | | | | 247 | |
| 222 | |
Premiums received | | | 65 | |
| 65 | | | | 73 | |
| 65 | |
Foreign exchange | | | (6) | |
| (1) | | | | 18 | |
| (6) | |
End of period balance | | $ | 1,792 | | $ | 1,687 | | | $ | 1,803 | | $ | 1,792 | |
At February 2, 2020,January 31, 2021, the Company had approximately $360$398 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 February 2, 2020,January 31, 2021, the Company had accrued losses of approximately $14$18 million under these agreements. The maximum remaining term of the receivables guaranteed at February 2, 2020January 31, 2021 was approximately seven years.
22
At February 2, 2020,January 31, 2021, the Company had commitments of approximately $264$167 million for the construction and acquisition of property and equipment. Also, at February 2, 2020,January 31, 2021, the Company had restricted assets of $83$72 million, primarily as collateral for borrowings and restricted other assets. See Note 12 for additional restricted assets associated with borrowings related to securitizations.
The Company also had other miscellaneous contingent liabilities totaling approximately $50$55 million at February 2, 2020.January 31, 2021. The accrued liability for these contingencies was not material at February 2, 2020.January 31, 2021.
The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, and trademark matters. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements.
(17) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine fair value, the Company uses various methods including market and income approaches. The Company utilizes valuation models and techniques that maximize the use of observable inputs. The models are industry-standard models that consider various assumptions including time values and yield curves as well as other economic measures. These valuation techniques are consistently applied.
Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs. Level 3 measurements include significant unobservable inputs.
2723
The fair values of financial instruments that do not approximate the carrying values in millions of dollars follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
| | February 2, 2020 | | November 3, 2019 | | January 27, 2019 |
| | January 31, 2021 | | November 1, 2020 | | February 2, 2020 |
| ||||||||||||||||||||||||
| | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair |
| | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair |
| ||||||||||||
Financing receivables – net: |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | ||||||||||
Equipment operations | | $ | 130 |
| $ | 123 |
| $ | 65 |
| $ | 61 |
| $ | 102 |
| $ | 99 | | | $ | 103 |
| $ | 100 |
| $ | 105 |
| $ | 103 |
| $ | 130 |
| $ | 123 | |
Financial services | | | 27,164 | | | 27,177 | | | 29,130 | | | 29,106 | | | 25,048 | | | 24,900 | | | | 29,335 | | | 29,591 | | | 29,645 | | | 29,838 | | | 27,164 | | | 27,177 | |
Total | | $ | 27,294 | | $ | 27,300 | | $ | 29,195 | | $ | 29,167 | | $ | 25,150 | | $ | 24,999 | | | $ | 29,438 | | $ | 29,691 | | $ | 29,750 | | $ | 29,941 | | $ | 27,294 | | $ | 27,300 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Financing receivables | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Equipment operations | | $ | 42 | | $ | 40 | | $ | 44 | | $ | 43 | | $ | 67 | | $ | 65 | | | $ | 18 | | $ | 17 | | $ | 26 | | $ | 26 | | $ | 42 | | $ | 40 | |
Financial services | | | 4,436 | | | 4,464 | | | 4,339 | | | 4,362 | | | 4,496 | | | 4,454 | | | | 3,913 | | | 4,002 | | | 4,677 | | | 4,773 | | | 4,436 | | | 4,464 | |
Total | | $ | 4,478 | | $ | 4,504 | | $ | 4,383 | | $ | 4,405 | | $ | 4,563 | | $ | 4,519 | | | $ | 3,931 | | $ | 4,019 | | $ | 4,703 | | $ | 4,799 | | $ | 4,478 | | $ | 4,504 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Short-term securitization borrowings: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Equipment operations | | $ | 42 | | $ | 42 | | $ | 44 | | $ | 45 | | $ | 67 | | $ | 67 | | | $ | 17 | | $ | 17 | | $ | 26 | | $ | 26 | | $ | 42 | | $ | 42 | |
Financial services | | | 4,374 | | | 4,403 | | | 4,277 | | | 4,302 | | | 4,397 | | | 4,391 | | | | 3,952 | | | 3,986 | | | 4,656 | | | 4,698 | | | 4,374 | | | 4,403 | |
Total | | $ | 4,416 | | $ | 4,445 | | $ | 4,321 | | $ | 4,347 | | $ | 4,464 | | $ | 4,458 | | | $ | 3,969 | | $ | 4,003 | | $ | 4,682 | | $ | 4,724 | | $ | 4,416 | | $ | 4,445 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Long-term borrowings due within one year: ** | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Equipment operations | | $ | 567 | | $ | 567 | | $ | 642 |
| $ | 645 | | $ | 928 | | $ | 937 | | | $ | 191 | | $ | 198 | | $ | 79 |
| $ | 78 | | $ | 567 | | $ | 567 | |
Financial services | | | 6,638 | | | 6,650 | |
| 6,786 | |
| 6,788 | |
| 5,198 | | | 5,186 | | | | 7,341 | | | 7,424 | |
| 6,870 | |
| 6,936 | |
| 6,638 | | | 6,650 | |
Total | | $ | 7,205 | | $ | 7,217 | | $ | 7,428 | | $ | 7,433 | | $ | 6,126 | | $ | 6,123 | | | $ | 7,532 | | $ | 7,622 | | $ | 6,949 | | $ | 7,014 | | $ | 7,205 | | $ | 7,217 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Long-term borrowings: ** | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Equipment operations | | $ | 5,544 | | $ | 6,403 | | $ | 5,415 |
| $ | 6,138 | | $ | 4,712 | | $ | 4,989 | | | $ | 10,103 | | $ | 11,813 | | $ | 10,085 |
| $ | 11,837 | | $ | 5,544 | | $ | 6,403 | |
Financial services | | | 24,908 | | | 25,299 | |
| 24,814 | |
| 25,122 | |
| 23,143 | | | 23,217 | | | | 22,633 | | | 23,219 | |
| 22,610 | |
| 23,170 | |
| 24,908 | | | 25,299 | |
Total | | $ | 30,452 | | $ | 31,702 | | $ | 30,229 | | $ | 31,260 | | $ | 27,855 | | $ | 28,206 | | | $ | 32,736 | | $ | 35,032 | | $ | 32,695 | | $ | 35,007 | | $ | 30,452 | | $ | 31,702 | |
* Fair value measurements above were Level 3 for all financing receivables, Level 3 for equipment operations short-term securitization borrowings, and Level 2 for all other borrowings.
** Carrying values excludeExcludes finance lease liabilities that are presented as borrowings beginning in 2020 (see Notes 3 andNote 15).
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.
2824
Assets and liabilities measured at fair value on a recurring basis in millions of dollars follow*:
| | | | | | | | | | | | | | | | | | | | |
|
| February 2 |
| November 3 |
| January 27 |
|
| January 31 |
| November 1 |
| February 2 |
| ||||||
| | 2020 | | 2019 | | 2019 |
| | 2021 | | 2020 | | 2020 |
| ||||||
Level 1: | | | | | | | | | | | | | | | | | | | | |
Marketable securities |
| | | | | | | | | |
| | | | | | | | | |
International equity securities *** | | $ | 3 | | | | | | | | ||||||||||
Equity fund *** | | | 62 | | $ | 59 | | $ | 51 | | ||||||||||
International equity securities | | $ | 2 | | $ | 2 | | $ | 3 | | ||||||||||
U.S. equity fund | | | 70 | | | 62 | | | 62 | | ||||||||||
U.S. government debt securities | | | 52 | |
| 50 | |
| 44 | | | | 60 | |
| 55 | |
| 52 | |
Total Level 1 marketable securities | | | 117 | | | 109 | | | 95 | | | | 132 | | | 119 | | | 117 | |
| | | | | | | | | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | | | | | | | | |
Marketable securities | | | | | | | | | | | | | | | | | | | | |
U.S. government debt securities | | | 87 | | | 81 | | | 76 | | | | 119 | | | 113 | | | 87 | |
Municipal debt securities | | | 62 | |
| 60 | |
| 51 | | | | 71 | |
| 68 | |
| 62 | |
Corporate debt securities | | | 173 | |
| 165 | |
| 141 | | | | 197 | |
| 188 | |
| 173 | |
International debt securities | | | 4 | | | 5 | | | 9 | | | | 8 | | | 2 | | | 4 | |
Mortgage-backed securities** | | | 165 | |
| 160 | |
| 145 | | | | 140 | |
| 147 | |
| 165 | |
Total Level 2 marketable securities | | | 491 | |
| 471 | |
| 422 | | | | 535 | |
| 518 | |
| 491 | |
Other assets | | | | | | | | | | | | | | | | | | | | |
Derivatives: | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | | | 443 | |
| 363 | |
| 76 | | | | 568 | |
| 669 | |
| 443 | |
Foreign exchange contracts | | | 37 | |
| 20 | |
| 59 | | | | 34 | |
| 48 | |
| 37 | |
Cross-currency interest rate contracts | | | 1 | |
| 1 | |
| 3 | | | | 3 | |
| 8 | |
| 1 | |
Total Level 2 other assets |
| | 481 | | | 384 | | | 138 | |
| | 605 | | | 725 | | | 481 | |
Accounts payable and accrued expenses | | | | | | | | | | | | | | | | | | | | |
Derivatives: | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts |
| | 57 | | | 65 | | | 232 | |
| | 97 | | | 88 | | | 57 | |
Foreign exchange contracts | | | 40 | |
| 71 | |
| 64 | | | | 76 | |
| 26 | |
| 40 | |
Cross-currency interest rate contracts | | | 4 | | | 3 | | | 2 | | | | 2 | | | 1 | | | 4 | |
Total Level 2 accounts payable and accrued expenses | | | 101 | | | 139 | | | 298 | | | | 175 | | | 115 | | | 101 | |
| | | | | | | | | | | | | | | | | | | | |
Level 3: | | | | | | | | | | | | | | | | | | | | |
Marketable securities | | | | | | | | | | | | | | | | | | | | |
International debt securities |
| | 1 | | | 1 | | | 6 | |
| | | | | 4 | | | 1 | |
* Excluded from this table were the Company’s cash equivalents, which were carried at cost that approximates fair value. The cash equivalents consist primarily of money market funds and time deposits.
** Primarily issued by U.S. government sponsored enterprises.
***During the first quarter of 2020 and 2019 net unrealized gains on equity securities recorded in “Other income” were $6 million and NaN, respectively.
The contractual maturities of debt securities at February 2, 2020January 31, 2021 in millions of dollars are shown below. Actual maturities may differ from those scheduled as a result of prepayments by the issuers. Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity.
| | | | | | | | | | | | | | |
| | Amortized | | Fair | | | Amortized | | Fair | | ||||
| | Cost | | Value | | | Cost | | Value | | ||||
Due in one year or less |
| $ | 28 | | $ | 24 | |
| $ | 21 | | $ | 22 | |
Due after one through five years | | | 96 | | | 99 | | | | 89 | | | 94 | |
Due after five through 10 years | | | 96 | | | 103 | | | | 117 | | | 124 | |
Due after 10 years | | | 143 | | | 153 | | | | 203 | | | 215 | |
Mortgage-backed securities | | | 159 | | | 165 | | | | 134 | | | 140 | |
Debt securities |
| $ | 522 |
| $ | 544 | |
| $ | 564 |
| $ | 595 | |
2925
Fair value, recurring Level 3 measurements from available-for-sale marketable securities in millions of dollars follow:
| | | | | | | | | | | | | | |
|
| Three Months Ended | |
| Three Months Ended | | ||||||||
| | February 2 | | January 27 | | | January 31 | | February 2 | | ||||
| | 2020 | | 2019 | | | 2021 | | 2020 | | ||||
Beginning of period balance |
| $ | 1 | | $ | 8 | |
| $ | 4 | | $ | 1 | |
Principal payments | | | | | | (3) | | | | | | | | |
Other | | | | | | 1 | | | | (4) | | | | |
End of period balance | | $ | 1 |
| $ | 6 | | | | |
| $ | 1 | |
Fair value, nonrecurring Level 3 measurements from impairments in millions of dollars follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value * | | Losses | | | Fair Value * | | Losses | | ||||||||||||||||||||||
| | | | | | | | | | | Three Months Ended | | | | | | | | | | | | Three Months Ended | | ||||||||
| | February 2 | | November 3 | | January 27 | | February 2 | | January 27 | | | January 31 | | November 1 | | February 2 | | January 31 | | February 2 | | ||||||||||
|
| 2020 |
| 2019 |
| 2019 |
| 2020 | | 2019 |
|
| 2021 |
| 2020 |
| 2020 |
| 2021 | | 2020 |
| ||||||||||
Other receivables | | | | | $ | 1 | | | | | | | | | | | ||||||||||||||||
Equipment on operating leases – net | | | | | $ | 855 | | | | | | | | | | | | | | | $ | 371 | | | | | | | | | | |
Property and equipment – net | | $ | 41 | | $ | 135 | | | | | $ | 44 | | | | | ||||||||||||||||
Investments in unconsolidated affiliates | | | | | $ | 19 | | | | | | | | | | | ||||||||||||||||
Other assets | | | | | $ | 142 | | | | | | | | | | | | $ | 1 | | $ | 59 | | | | | $ | 6 | | | | |
* See financingFinancing receivables with specific allowances in Note 11. Losses were not significant.
The following is a description of the valuation methodologies the Company uses to measure certain financial instruments on the balance sheet at fair value:
Marketable Securities – The portfolio of investments, except for the Level 3 measurement international debt securities, 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. The Level 3 measurement international debt securities are primarily valued using an income approach based on discounted cash flows using yield curves derived from limited, observable market data.
Derivatives – The Company’s derivative financial instruments consist of interest rate swaps and caps, foreign currency futures, forwards and swaps, and cross-currency interest rate 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.
Other Receivables – The impairment was based on the expected realization of value-added tax receivables related to a closed factory operation.
Equipment on Operating Leases –- Net – The impairments are based on an income approach (discounted cash flow), using the contractual payments, plus an estimate of return rates and equipment sale price at lease maturity. Inputs include realized sales values.
Property and Equipment - Net – The impairments are measured at the lower of the carrying amount, or fair value. The valuations were based on cost and market approaches. The inputs include replacement cost estimates adjusted for physical deterioration and economic obsolescence or quoted prices when available.
Investment in Unconsolidated Affiliates – Other than temporary impairments for investments are measured as the difference between the implied fair value and the carrying value of the investments or the estimated realization amount.
26
Other Assets – The impairments arewere measured at the fair value of the matured operating lease inventory.inventory or the right of use operating lease asset. The valuations were based on a market approach. The inputs for matured operating lease inventory include sales of comparable assets.
(18) Derivative Instruments
It is the Company’s policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. The Company’s financial services operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. The Company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling, and financing in currencies other than the functional currencies. In addition, the Company has interest rate exposure at certain
30
equipment operations units for below market retail financing programs that are used as sales incentives and are offered for extended periods.
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. 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 January 31, 2021, November 1, 2020, and February 2, 2020 November 3, 2019, and January 27, 2019 were $2,900$2,350 million, $3,150$1,550 million, and $2,800$2,900 million, respectively. Fair value gains or losses on cash flow hedges were recorded in OCI and are subsequently reclassified into interest expense in the same periods during which the hedged transactions affected earnings. These amounts offset the effects of interest rate changes on the related borrowings. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.
The amount of loss recorded in OCI at February 2, 2020January 31, 2021 that is expected to be reclassified to interest expense or other operating expenses in the next twelve months if interest rates or exchange rates remain unchanged is approximately $9$6 million after-tax. There were 0 gains or losses 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 January 31, 2021, November 1, 2020, and February 2, 2020 November 3, 2019, and January 27, 2019 were $9,424$8,333 million, $8,717$7,239 million, and $8,622$9,424 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.
27
The amounts recorded in the consolidated balance sheet related to borrowings designated in fair value hedging relationships in millions of dollars follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Cumulative Increase (Decrease) of Fair |
| | | | | Cumulative Increase (Decrease) of Fair |
| ||||||||||||||
| | | | | Value Hedging Adjustments Included in | | | | | | Value Hedging Adjustments Included in | | ||||||||||||||
| | | | | the Carrying Amount | | | | | | the Carrying Amount | | ||||||||||||||
| | Carrying | | Active | | | | | | | | | Carrying | | Active | | | | | | | | ||||
| | Amount of | | Hedging | | Discontinued | | | |
| | Amount of | | Hedging | | Discontinued | | | |
| ||||||
| | Hedged Item | | Relationships | | Relationships | | Total |
| | Hedged Item | | Relationships | | Relationships | | Total |
| ||||||||
January 31, 2021 | | | | | | | | | | | | | | |||||||||||||
Long-term borrowings due within one year* |
| $ | 159 |
| $ | 2 |
| $ | 1 |
| $ | 3 | | |||||||||||||
Long-term borrowings | | | 8,713 | | | 435 | | | 137 | | | 572 | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
November 1, 2020 | | | | | | | | | | | | | | |||||||||||||
Long-term borrowings due within one year* | | $ | 155 | | $ | 2 | | $ | 3 | | $ | 5 | | |||||||||||||
Long-term borrowings | | | 7,725 | | | 543 | | | 122 | | | 665 | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
February 2, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term borrowings due within one year* |
| $ | 220 |
| $ | (1) |
| $ | (5) |
| $ | (6) | | | $ | 220 | | $ | (1) | | $ | (5) | | $ | (6) | |
Long-term borrowings | | | 9,521 | | | 379 | | | (21) | | | 358 | | | | 9,521 | | | 379 | | | (21) | | | 358 | |
| | | | | | | | | | | | | | |||||||||||||
November 3, 2019 | | | | | | | | | | | | | | |||||||||||||
Long-term borrowings due within one year* | | $ | 412 | | $ | (1) | | $ | (4) | | $ | (5) | | |||||||||||||
Long-term borrowings | | | 8,532 | | | 295 | | | (32) | | | 263 | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
January 27, 2019 | | | | | | | | | | | | | | |||||||||||||
Long-term borrowings due within one year* | | $ | 192 | | $ | 1 | | $ | (4) | | $ | (3) | | |||||||||||||
Long-term borrowings | | | 8,177 | | | (179) | | | (41) | | | (220) | |
* Presented in short-term borrowings
Derivatives not designated as hedging instruments
The Company has certain interest rate contracts (swaps and caps), foreign 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 below market retail
31
financing programs. The total notional amounts of these interest rate swaps at January 31, 2021, November 1, 2020, and February 2, 2020 November 3, 2019, and January 27, 2019 were $9,102$8,801 million, $9,166$8,514 million, and $8,225$9,102 million, the foreign exchange contracts were $5,249$5,478 million, $4,962$4,903 million, and $6,500$5,249 million, and the cross-currency interest rate contracts were $102$145 million, $92$113 million, and $87$102 million, respectively. The fair value gains or losses from the interest rate contracts were recognized currently in interest expense or net sales and the gains or losses from foreign exchange contracts in cost of sales or other operating expenses, generally offsetting over time the expenses on the exposures being hedged. The cash flows from these non-designated contracts were recorded in operating activities in the statement of consolidated cash flows.
Fair values of derivative instruments in the condensed consolidated balance sheet in millions of dollars follow:
| | | | | | | | | | |
|
| February 2 |
| November 3 |
| January 27 |
| |||
Other Assets | | 2020 | | 2019 | | 2019 |
| |||
Designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts |
| $ | 409 | | $ | 332 | | $ | 47 | |
Total designated | �� | | 409 | |
| 332 | |
| 47 | |
| | | | | | | | | | |
Not designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts | | | 34 | |
| 31 | |
| 29 | |
Foreign exchange contracts | | | 37 | |
| 20 | |
| 59 | |
Cross-currency interest rate contracts | | | 1 | |
| 1 | |
| 3 | |
Total not designated | | | 72 | |
| 52 | |
| 91 | |
| | | | | | | | | | |
Total derivative assets |
| $ | 481 | | $ | 384 | | $ | 138 | |
| | | | | | | | | | |
Accounts Payable and Accrued Expenses | | | | | | | | | | |
Designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts |
| $ | 17 | | $ | 28 | | $ | 205 | |
Total designated | | | 17 | | | 28 | | | 205 | |
| | | | | | | | | | |
Not designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts | | | 40 | | | 37 | | | 27 | |
Foreign exchange contracts | | | 40 | |
| 71 | |
| 64 | |
Cross-currency interest rate contracts | | | 4 | |
| 3 | |
| 2 | |
Total not designated | | | 84 | |
| 111 | |
| 93 | |
| | | | | | | | | | |
Total derivative liabilities |
| $ | 101 | | $ | 139 | | $ | 298 | |
3228
Fair values of derivative instruments in the condensed consolidated balance sheet in millions of dollars follow:
| | | | | | | | | | |
|
| January 31 |
| November 1 |
| February 2 |
| |||
Other Assets | | 2021 | | 2020 | | 2020 |
| |||
Designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts |
| $ | 491 | | $ | 586 | | $ | 409 | |
Total designated | | | 491 | |
| 586 | |
| 409 | |
| | | | | | | | | | |
Not designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts | | | 77 | |
| 83 | |
| 34 | |
Foreign exchange contracts | | | 34 | |
| 48 | |
| 37 | |
Cross-currency interest rate contracts | | | 3 | |
| 8 | |
| 1 | |
Total not designated | | | 114 | |
| 139 | |
| 72 | |
| | | | | | | | | | |
Total derivative assets |
| $ | 605 | | $ | 725 | | $ | 481 | |
| | | | | | | | | | |
Accounts Payable and Accrued Expenses | | | | | | | | | | |
Designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts |
| $ | 31 | | $ | 14 | | $ | 17 | |
Total designated | | | 31 | | | 14 | | | 17 | |
| | | | | | | | | | |
Not designated as hedging instruments: | | | | | | | | | | |
Interest rate contracts | | | 66 | | | 74 | | | 40 | |
Foreign exchange contracts | | | 76 | |
| 26 | |
| 40 | |
Cross-currency interest rate contracts | | | 2 | |
| 1 | |
| 4 | |
Total not designated | | | 144 | |
| 101 | |
| 84 | |
| | | | | | | | | | |
Total derivative liabilities |
| $ | 175 | | $ | 115 | | $ | 101 | |
The classification and gains (losses) including accrued interest expense related to derivative instruments on the statement of consolidated income consisted of the following in millions of dollars:
| | | | | | | | | | | ||||
| | Three Months Ended |
| | Three Months Ended |
| ||||||||
| | February 2 | | January 27 |
| | January 31 | | February 2 |
| ||||
| | 2020 | | 2019 |
| | 2021 | | 2020 |
| ||||
Fair Value Hedges: |
|
|
|
| | |
|
|
|
|
| | |
|
Interest rate contracts - Interest expense |
| $ | 96 | | $ | 133 | |
| $ | (55) | | $ | 96 | |
| | | | | | | | | | | ||||
Cash Flow Hedges: | | | | | | | | | | | ||||
Recognized in OCI | | | | | | | | | | | ||||
Interest rate contracts - OCI (pretax) |
| | (2) | |
| (9) | |
| | | |
| (2) | |
| | | | | | | | | | | ||||
Reclassified from OCI | | | | | | | | | | | ||||
Interest rate contracts - Interest expense |
| | (2) | |
| 2 | |
| | (5) | |
| (2) | |
| | | | | | | | | | | ||||
Not Designated as Hedges: | | | | | | | | | | | ||||
Interest rate contracts - Net sales | | $ | (4) | | $ | (10) | | | | | $ | (4) | | |
Interest rate contracts - Interest expense * |
| | 2 | | (8) | |
| $ | (4) | | 2 | | ||
Foreign exchange contracts - Cost of sales |
| | 11 | |
| (5) | |
| | (52) | |
| 11 | |
Foreign exchange contracts - Other operating * |
| | (1) | |
| 20 | |
| | (126) | |
| (1) | |
Total not designated | | $ | 8 | | $ | (3) | | | $ | (182) | | $ | 8 | |
* Includes interest and foreign exchange gains (losses) from cross-currency interest rate contracts.
29
Counterparty Risk and Collateral
Derivative instruments are subject to significant concentrations of credit risk to the banking sector. The Company manages individual counterparty exposure by setting limits that consider the credit rating of the counterparty, the credit default swap spread of the counterparty, and other financial commitments and exposures between the Company and the counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Some of these agreements include credit support provisions. Each master agreement permits the net settlement of amounts owed in the event of default or termination.
Certain of the Company’s derivative agreements contain credit support provisions that may require the Company to post collateral based on the size of the net liability positions and credit ratings. The aggregate fair value of all derivatives with credit-risk-related contingent features that were in a net liability position at January 31, 2021, November 1, 2020, and February 2, 2020, November 3, 2019, and January 27, 2019, was $60$99 million, $68$89 million, and $233$60 million, respectively. In accordance with the limits established in these agreements, the Company received $26 million in cash collateral at February 2, 2020 and posted $8 million in0 cash collateral at January 27, 2019. NaN31, 2021, November 1, 2020, and February 2, 2020. In addition, the Company paid $8 million of collateral either in cash collateralor pledged securities that was posted or receivedoutstanding at both January 31, 2021 and November 3, 2019.1, 2020 to participate in an international futures market to hedge currency exposure, not included in the table below.
Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities related to netting arrangements and any collateral received or paid in millions of dollars follows:
| | | | | | | | | | | | | | | | | | | ||||||||
| | Gross Amounts | | Netting | | Collateral | | |
| | Gross Amounts | | Netting | | | | |
| ||||||||
February 2, 2020 |
| Recognized |
| Arrangements |
| Received |
| Net Amount |
| |||||||||||||||||
January 31, 2021 |
| Recognized |
| Arrangements |
| Collateral |
| Net Amount |
| |||||||||||||||||
Assets |
| $ | 481 |
| $ | (60) |
| $ | (26) |
| $ | 395 | |
| $ | 605 |
| $ | (106) |
| $ | (186) |
| $ | 313 | |
Liabilities | | 101 | | (60) | | | | 41 | | | 175 | | (106) | | | | 69 | |
| | | | | | | | | | | | | | | | | | | ||||||||
| | Gross Amounts | | Netting | | Collateral | | |
| | Gross Amounts | | Netting | | | | |
| ||||||||
November 3, 2019 |
| Recognized |
| Arrangements |
| Received/Paid |
| Net Amount |
| |||||||||||||||||
November 1, 2020 |
| Recognized |
| Arrangements |
| Collateral |
| Net Amount |
| |||||||||||||||||
Assets | | $ | 384 |
| $ | (70) |
| | |
| $ | 314 | | | $ | 725 |
| $ | (93) |
| $ | (274) |
| $ | 358 | |
Liabilities | | | 139 | |
| (70) | | | | | 69 | | | | 115 | |
| (93) | | | | | 22 | |
| | | | | | | | | | | | | | | | | | | ||||||||
|
| Gross Amounts |
| Netting |
| Collateral |
| | |
|
| Gross Amounts |
| Netting |
| |
| | |
| ||||||
January 27, 2019 | | Recognized | | Arrangements | | Paid | | Net Amount |
| |||||||||||||||||
February 2, 2020 | | Recognized | | Arrangements | | Collateral | | Net Amount |
| |||||||||||||||||
Assets | | $ | 138 | | $ | (75) | | | | $ | 63 | | | $ | 481 | | $ | (60) | | $ | (26) | | $ | 395 | | |
Liabilities | |
| 298 | |
| (75) | | $ | (8) | |
| 215 | | |
| 101 | |
| (60) | | | | |
| 41 | |
33
(19) Stock Option and Restricted Stock Awards
In December 2019,2020, the Company granted stock options to employees for the purchase of 495269 thousand shares of common stock at an exercise price of $169.70$254.83 per share and a binomial lattice model fair value of $35.83$62.73 per share at the grant date. At February 2, 2020,January 31, 2021, options for 6.83.2 million shares were outstanding with a weighted-average exercise price of $99.21$122.01 per share. The Company also granted 342205 thousand restricted stock units to employees in the first three months of 2020,2021, of which 275158 thousand are subject to service based only conditions and 6747 thousand are subject to performance/service based conditions. The weighted-average fair value of the service based only units at the grant date was $169.70$254.71 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 $160.81$245.73 per unit based on the market price of a share of underlying common stock excluding dividends. At February 2, 2020,January 31, 2021, the Company was authorized to grant an additional 6.817.7 million shares related to stock option and restricted stock awards.under the equity incentive plan.
30
(20) Special Items
During the first quarter of 2021, the fixed assets in an asphalt plant factory in Germany were impaired by $38 million, pretax and after-tax. The Company also continued to assess its manufacturing locations, resulting in additional long-lived asset impairments of $12 million pretax. The impairments were the result of a decline in forecasted financial performance that indicated it was probable future cash flows would not cover the carrying amount of the net assets. These impairments were offset by a favorable indirect tax ruling in Brazil of $58 million pretax.
| | | | | | | | | | | | | |
| | Three Months Ended | | ||||||||||
| | January 31, 2021 | | ||||||||||
Expense (benefit): | | Production & Precision Ag |
| Small Ag & Turf |
| Construction & Forestry |
| Total | | ||||
Long-lived asset impairments – Cost of sales | | $ | 5 | | $ | 3 | | $ | 42 | | $ | 50 | |
Brazil indirect tax – Cost of sales | | | (53) | | | | | | (5) | | | (58) | |
Total expense (benefit) | | $ | (48) | | $ | 3 | | $ | 37 | | $ | (8) | |
See Note 17 for fair value measurement information.
Employee-Separation ProgramPrograms
During the first quarter of 2020, the Company announced a broad voluntary employee-separation program for the U.S. salaried workforce that continues the efforts to create a more efficient organization structure and reduce operating costs. The program provided for cash payments based on years of service. The expense was recorded primarily in the period in which the employees irrevocably accepted the separation offer. The program’s total estimated pretax expenses are approximately $136 million, of which $127 million was recorded in the first quarter. The payments for the program were also substantially made in the first quarter.quarter of 2020. Included in the total pretax expense is a non-cash charge of $21 million resulting from a curtailment in certain OPEB plans (see Note 8), which was recorded outside of operating profit in “Other operating expense.”
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | |||||||||||||
| | February 2, 2020 | | |||||||||||||
|
| Production & Precision Ag |
| Small Ag & Turf |
| Construction & Forestry |
| Financial Services |
| Total | | |||||
Cost of sales | | $ | 19 | | $ | 11 | | $ | 9 | | | | | $ | 39 | |
Research and development expenses | | | 6 | | | 7 | | | 3 | | | | | | 16 | |
Selling, administrative and general expenses | | | 17 | | | 18 | | | 12 | | $ | 3 | | | 50 | |
Total operating profit impact | | $ | 42 | | $ | 36 | | $ | 24 | | $ | 3 | | | 105 | |
Other operating expenses | | | | | | | | | | | | | | | 22 | |
Total expense | | | | | | | | | | | | | | $ | 127 | |
” The first quarter 2020 expenses that are included in operating profit of $105 million are allocated 37 percent “Cost of sales,” 15 percent “Research and development,” and 48 percent “Selling, administrative and general.” In addition, the expenses are allocated 75 percent to the agriculture and turf operations, 23 percent to the construction and forestry operations, and 2 percent to the financial services operations. Annual savings from these programs are estimated to be approximately $85 million with about $65 million in 2020.
34
| | | | | | | | | | | | | |
(21) SUPPLEMENTAL CONSOLIDATING DATA | | | | | | | | | | | | | |
STATEMENT OF INCOME | | | | | | | | | | | | | |
For the Three Months Ended February 2, 2020 and January 27, 2019 | | | | | | | | | | | | | |
(In millions of dollars) Unaudited | | EQUIPMENT OPERATIONS* | | FINANCIAL SERVICES |
| ||||||||
| | 2020 | | 2019 | | 2020 | | 2019 |
| ||||
Net Sales and Revenues |
| |
|
| | |
| |
|
| | | |
Net sales | | $ | 6,530 | | $ | 6,941 | | | | | | | |
Finance and interest income | | | 27 | |
| 23 | | $ | 936 | | $ | 866 | |
Other income | | | 209 | |
| 215 | | | 62 | |
| 60 | |
Total | | | 6,766 | |
| 7,179 | | | 998 | |
| 926 | |
| | | | | | | | | | | | | |
Costs and Expenses | | | | | | | | | | | | | |
Cost of sales | | | 5,078 | |
| 5,432 | | | | | | | |
Research and development expenses | | | 425 | |
| 407 | | | | | | | |
Selling, administrative and general expenses | | | 672 | |
| 645 | | | 138 | |
| 121 | |
Interest expense | | | 63 | |
| 71 | | | 275 | |
| 287 | |
Interest compensation to Financial Services | | | 64 | |
| 69 | | | | | | | |
Other operating expenses | | | 72 | |
| 71 | | | 408 | |
| 325 | |
Total | | | 6,374 | |
| 6,695 | | | 821 | |
| 733 | |
| | | | | | | | | | | | | |
Income of Consolidated Group before Income Taxes | | | 392 | |
| 484 | | | 177 | |
| 193 | |
Provision for income taxes | | | 9 | |
| 144 | | | 41 | |
| 40 | |
Income of Consolidated Group | | | 383 | |
| 340 | | | 136 | |
| 153 | |
| | | | | | | | | | | | | |
Equity in Income (Loss) of Unconsolidated Subsidiaries | | | | | | | | | | | | | |
Financial Services | | | 137 | |
| 154 | | | 1 | |
| 1 | |
Other | | | (2) | |
| 6 | | | | | | | |
Total | | | 135 | |
| 160 | | | 1 | |
| 1 | |
Net Income | | | 518 | |
| 500 | | | 137 | |
| 154 | |
Less: Net income attributable to noncontrolling interests | | | 1 | |
| 2 | | | | | | | |
Net Income Attributable to Deere & Company | | $ | 517 | | $ | 498 | | $ | 137 | | $ | 154 | |
| | | | | | | | | | | | | |
*Deere & Company with Financial Services on the equity basis.
The supplemental consolidating data is presented for informational purposes. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.
35
| | | | | | | | | | | | | | | | | | | |
SUPPLEMENTAL CONSOLIDATING DATA (Continued) | | | | | | | | | | | |||||||||
CONDENSED BALANCE SHEET | | | | | | | | | | | |||||||||
(In millions of dollars) Unaudited | | EQUIPMENT OPERATIONS* | | FINANCIAL SERVICES |
| ||||||||||||||
| | February 2 | | November 3 | | January 27 | | February 2 | | November 3 | | January 27 |
| ||||||
| | 2020 | | 2019 | | 2019 | | 2020 | | 2019 | | 2019 |
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents | | $ | 2,862 | | $ | 3,175 | | $ | 2,671 | | $ | 740 | | $ | 682 | | $ | 955 | |
Marketable securities | | | 4 | |
| 1 | |
| 8 | | | 605 | |
| 580 | |
| 515 | |
Receivables from unconsolidated subsidiaries | | | 1,425 | |
| 2,017 | |
| 274 | | | | | | | | | | |
Trade accounts and notes receivable – net | | | 1,115 | |
| 1,482 | |
| 1,177 | | | 5,707 | |
| 5,153 | |
| 5,746 | |
Financing receivables – net | | | 130 | |
| 65 | |
| 102 | | | 27,164 | |
| 29,130 | |
| 25,048 | |
Financing receivables securitized – net | | | 42 | | | 44 | | | 67 | | | 4,436 | |
| 4,339 | |
| 4,496 | |
Other receivables | | | 1,252 | |
| 1,376 | |
| 1,485 | | | 131 | |
| 116 | |
| 184 | |
Equipment on operating leases – net | | | | | | | | | | | | 7,504 | |
| 7,567 | |
| 6,904 | |
Inventories | | | 6,482 | |
| 5,975 | |
| 7,402 | | | | | | | | | | |
Property and equipment – net | | | 5,857 | |
| 5,929 | |
| 5,739 | | | 43 | |
| 44 | |
| 46 | |
Investments in unconsolidated subsidiaries and affiliates | | | 5,317 | |
| 5,326 | |
| 5,175 | | | 17 | |
| 16 | |
| 16 | |
Goodwill | | | 2,945 | |
| 2,917 | |
| 3,048 | | | | | | | | | | |
Other intangible assets – net | | | 1,349 | |
| 1,380 | |
| 1,507 | | | | |
| | |
| | |
Retirement benefits | | | 871 | |
| 836 | |
| 1,291 | | | 58 | |
| 58 | |
| 57 | |
Deferred income taxes | | | 1,821 | |
| 1,896 | |
| 1,507 | | | 56 | |
| 57 | |
| 70 | |
Other assets | | | 1,546 | |
| 1,158 | |
| 1,241 | | | 818 | |
| 741 | |
| 593 | |
Total Assets | | $ | 33,018 | | $ | 33,577 | | $ | 32,694 | | $ | 47,279 | | $ | 48,483 | | $ | 44,630 | |
| | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | |
Short-term borrowings | | $ | 947 | | $ | 987 | | $ | 1,494 | | $ | 9,061 | | $ | 9,797 | | $ | 9,244 | |
Short-term securitization borrowings | | | 42 | | | 44 | | | 67 | | | 4,374 | |
| 4,277 | |
| 4,397 | |
Payables to unconsolidated subsidiaries and affiliates | | | 146 | |
| 142 | |
| 227 | | | 1,387 | |
| 1,970 | |
| 155 | |
Accounts payable and accrued expenses | | | 8,325 | |
| 9,232 | |
| 8,711 | | | 1,786 | |
| 1,836 | |
| 1,821 | |
Deferred income taxes | | | 408 | |
| 414 | |
| 470 | | | 546 | |
| 568 | |
| 798 | |
Long-term borrowings | | | 5,567 | |
| 5,415 | |
| 4,712 | | | 24,908 | |
| 24,814 | |
| 23,143 | |
Retirement benefits and other liabilities | | | 5,639 | |
| 5,912 | |
| 5,666 | | | 100 | |
| 94 | |
| 93 | |
Total liabilities | | | 21,074 | | | 22,146 | | | 21,347 | | | 42,162 | | | 43,356 | | | 39,651 | |
| | | | | | | | | | | | | | | | | | | |
Commitments and contingencies (Note 16) | | | | | | | | | | | | | | | | | | | |
Redeemable noncontrolling interest | | | 14 | | | 14 | | | 14 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | | | | | | | | | | | |
Common stock, $1 par value (issued shares at February 2, 2020 – 536,431,204) | | | 4,675 | |
| 4,642 | |
| 4,512 | | | 2,107 | |
| 2,107 | |
| 2,099 | |
Common stock in treasury | | | (17,549) | |
| (17,474) | |
| (16,422) | | | | | | | | | | |
Retained earnings | | | 30,129 | |
| 29,852 | |
| 27,816 | | | 3,390 | |
| 3,378 | |
| 3,219 | |
Accumulated other comprehensive income (loss) | | | (5,329) | |
| (5,607) | |
| (4,578) | | | (380) | |
| (358) | |
| (339) | |
Total Deere & Company stockholders' equity | | | 11,926 | |
| 11,413 | |
| 11,328 | | | 5,117 | | | 5,127 | | | 4,979 | |
Noncontrolling interests | | | 4 | |
| 4 | |
| 5 | | | | | | | | | | |
Total stockholders’ equity | | | 11,930 | |
| 11,417 | |
| 11,333 | | | 5,117 | |
| 5,127 | |
| 4,979 | |
Total Liabilities and Stockholders’ Equity | | $ | 33,018 | | $ | 33,577 | | $ | 32,694 | | $ | 47,279 | | $ | 48,483 | | $ | 44,630 | |
| | | | | | | | | | | | | | | | | | | |
*Deere & Company with Financial Services on the equity basis.
The supplemental consolidating data is presented for informational purposes. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.
36
| | | | | | | | | | | | | |
SUPPLEMENTAL CONSOLIDATING DATA (Continued) | | | | | | | | | | | | | |
STATEMENT OF CASH FLOWS | | | | | | | | | | | | | |
For the Three Months Ended February 2, 2020 and January 27, 2019 | | | | | | | | | | | | | |
(In millions of dollars) Unaudited | | EQUIPMENT OPERATIONS* | | FINANCIAL SERVICES | | ||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | ||||
Cash Flows from Operating Activities |
| |
|
| |
|
| |
|
| |
| |
Net income | | $ | 518 | | $ | 500 | | $ | 137 | | $ | 154 | |
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | | | | | | | | | | | |
Provision (credit) for credit losses | |
| 1 | |
| (1) | |
| 14 | |
| 3 | |
Provision for depreciation and amortization | |
| 261 | |
| 260 | |
| 311 | |
| 276 | |
Undistributed earnings of unconsolidated subsidiaries and affiliates | |
| (11) | |
| 39 | |
| (1) | |
| | |
Credit for deferred income taxes | |
| (7) | |
| (31) | |
| (22) | |
| (25) | |
Changes in assets and liabilities: | | | | | | | | | | | | | |
Trade receivables and Equipment Operations' financing receivables | |
| 312 | |
| 186 | | | | | | | |
Inventories | |
| (530) | |
| (1,290) | | | | | | | |
Accounts payable and accrued expenses | |
| (1,058) | |
| (535) | |
| (19) | |
| (12) | |
Accrued income taxes payable/receivable | |
| (43) | |
| (429) | |
| (10) | |
| 527 | |
Retirement benefits | |
| 30 | |
| (6) | |
| 6 | |
| 2 | |
Other | |
| 147 | |
| (127) | |
| 30 | |
| 47 | |
Net cash provided by (used for) operating activities | |
| (380) | |
| (1,434) | |
| 446 | |
| 972 | |
| | | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | | |
Collections of receivables (excluding trade and wholesale) | | | | | | | |
| 6,056 | |
| 5,885 | |
Proceeds from maturities and sales of marketable securities | |
| | |
| 3 | |
| 18 | |
| 5 | |
Proceeds from sales of equipment on operating leases | | | | | | | |
| 426 | |
| 371 | |
Cost of receivables acquired (excluding trade and wholesale) | | | | | | | |
| (4,569) | |
| (4,448) | |
Purchases of marketable securities | | | | |
| (2) | |
| (34) | |
| (30) | |
Purchases of property and equipment | |
| (271) | |
| (297) | |
| | |
| | |
Cost of equipment on operating leases acquired | | | | | | | |
| (669) | |
| (505) | |
Increase in trade and wholesale receivables | | | | | | | |
| (382) | |
| (1,021) | |
Other | |
| (9) | |
| (6) | |
| 11 | |
| 26 | |
Net cash provided by (used for) investing activities | |
| (280) | |
| (302) | |
| 857 | |
| 283 | |
| | | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | | |
Increase (decrease) in total short-term borrowings | |
| 20 | |
| 88 | |
| (493) | |
| 388 | |
Change in intercompany receivables/payables | |
| 572 | |
| 1,526 | |
| (572) | |
| (1,526) | |
Proceeds from long-term borrowings | |
| 167 | |
| 91 | |
| 1,535 | |
| 2,120 | |
Payments of long-term borrowings | |
| (83) | |
| (142) | |
| (1,568) | |
| (1,799) | |
Proceeds from issuance of common stock | |
| 53 | |
| 51 | | | | | | | |
Repurchases of common stock | |
| (114) | |
| (144) | | | | | | | |
Dividends paid | |
| (242) | |
| (220) | |
| (125) | | | (200) | |
Other | |
| (29) | |
| (23) | |
| (9) | |
| (8) | |
Net cash provided by (used for) financing activities | |
| 344 | |
| 1,227 | |
| (1,232) | |
| (1,025) | |
| | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | |
| 3 | |
| (12) | |
| (4) | |
| (1) | |
| | | | | | | | | | | | | |
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | |
| (313) | |
| (521) | |
| 67 | |
| 229 | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | |
| 3,196 | |
| 3,202 | |
| 760 | |
| 813 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | | $ | 2,883 | | $ | 2,681 | | $ | 827 | | $ | 1,042 | |
| | | | | | | | | | | | | |
*Deere & Company with Financial Services on the equity basis.
The supplemental consolidating data is presented for informational purposes. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.
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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’s equipment operations generate revenues and cash primarily from the sale of equipment to John Deere dealers and distributors. The equipment operations manufacture and distribute a full line of agricultural equipment; a variety of commercial and consumer equipment; and a broad range of equipment for construction, roadbuilding, and forestry. The Company’s financial services primarily provide credit services, which mainly finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the equipment operations. In addition, financial services offers extended equipment warranties. The information in the following discussion is presented in a format that includes information grouped as consolidated, equipment operations, and financial services. The Company also views its operations as consisting of two geographic areas,areas: the U.S. and Canada and outside the U.S. and Canada. The Company’s operating segments consist of production and precision agriculture, small agriculture and turf, construction and forestry, and financial services.
Trends and Economic Conditions
Industry sales of agricultural machinery in the U.S. and Canada are forecast to be down about 5up 15 to 20 percent for fiscal year 2020.in 2021. Industry sales in Europe are forecast to be up about the same5 percent in 2020.2021. In South America, industry sales of tractors and combines are projected to be approximately the same as 2019 levels.up about 10 percent in 2021. Asian sales are forecast to be about the samedown slightly in 2020.2021. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be up about the same in 2020. The Company’s agriculture and turf segment sales decreased 45 percent in the first quarter and are forecast to decrease about 5 to 10 percent for fiscal year 2020.2021. Construction industry sales in North AmericaU.S. and Canada for 20202021 are expected to declineincrease about 5 percent, while compact construction industry sales in the U.S. and Canada are expected to increase about 10 percent.percent in 2021. In forestry, global industry sales are expected to be about 5 to 10 percent lower.higher. The Company’s construction and forestry segment sales decreased 10 percent in the first quarter, and are forecast to decrease about 10 to 15 percent in 2020 reflecting slowing construction activity as well as efforts to bring down field inventory levels. Net income attributable to Deere & Company for the Company’s financial services operations is forecastare expected to be approximately $600 million in 2020.benefit from income earned from a higher average portfolio, lower losses on lease residual values, and favorable financing spreads.
Items of concern include uncertainty of the effectiveness of governmental and private sector actions to address COVID, trade agreements, the uncertainty of the effectivenessresults of governmental actions in respect to monetary and fiscal policies, the impact of elevated levels of sovereign debt, Eurozone and Argentine issues,state debt, capital market disruptions, changes in demand and pricing for new and used equipment, potential effects of epidemics,geopolitical events, and geopolitical events.the other items discussed in the “Safe Harbor Statement” below. Significant fluctuations in foreign currency exchange rates and volatility in the price of many commodities could also impact the Company’s results. The future financial effects of COVID are unknown due to many factors. As a result, predicting the Company’s forecasted financial performance is subject to many assumptions.
The Company’s results reflect early signs of stabilizationstrong performance across its product lines and improving conditions in the U.S. farm sector.and construction sectors. The Companysmart industrial operating strategy is encouraged by the broad use of precision technologies and believes it is well positioned to strengthen its leadership position in this area. For the quarter, construction sector activity slowed leading to lower sales and profit for the construction and forestry division. Actions to reduce factory production and lower inventories in response to construction equipment market conditions also negatively affected results. Additionally, the quarter included costs ofmaking a voluntary employee-separation program, which is intended to improvesignificant impact on the Company’s flexibility.results. The Company is also proceeding with a series of measures to create a more focused organizational structure. These stepsCompany’s recent actions are leading to improvedimproving efficiencies and helping the Company focus itstargeting resources and investments on areas that have the most impact on performance.greatest impact. As the Company increases factory production and serves customers, the Company is mindful of the continuing challenges associated with the global pandemic. The Company remains committed, above all else, to safeguarding the health and well-being of its employees.
COVID Effects and Actions
The effects of COVID and the related actions of governments and other authorities to contain COVID continue to affect the Company’s operations, results, cash flows, and forecasts.
The U.S. government and many other governments in countries where the Company operates have designated the Company an essential critical infrastructure business. This designation allows the Company to operate in support of its customers to the extent possible.
The Company’s first priority in addressing the effects of COVID continues to be the health, safety, and overall welfare of its employees. The Company effectively activated previously established business continuity plans and proactively implemented health and safety measures at its operations around the world.
The Company maintained the broadened supply base and increased inventory levels of certain essential materials and components in the first quarter to support the expected demand for equipment in 2021 and to address potential supplier issues throughout COVID.
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The Company continued to work closely with distribution channel and equipment user customers in the first quarter
in connection with short-term payment relief on obligations owed to the Company. Financing receivables and operating leases granted relief since the beginning of the pandemic and remaining outstanding at January 31, 2021 represented about 4 percent and 3 percent of the portfolio balances, respectively. The trade receivable balance granted relief and remaining outstanding at January 31, 2021 was not material. Additional information is presented in Notes 4, 11, and 15.
20202021 Compared with 20192020
The following table provides the net income attributable to Deere & Company in millions of dollars and diluted earnings per share in dollars:
| | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | ||||||||||
| | February 2 | | January 27 | | | January 31 | | February 2 | | ||||
| | 2020 | | 2019 | | | 2021 | | 2020 | | ||||
Net income attributable to Deere & Company | | $ | 517 | �� | $ | 498 | | | $ | 1,224 | | $ | 517 | |
Diluted earnings per share | | | 1.63 | | | 1.54 | | | | 3.87 | | | 1.63 | |
The voluntary employee-separation program’s totalIn the first quarter of 2021, the Company recorded impairments totaling $50 million pretax expense recognizedto certain long-lived assets. These impairments were offset by a favorable indirect tax ruling in Brazil of $58 million pretax. In the first quarter of 2020, total voluntary employee-separation program (VSEP) expense recognized was $127 million with another $9 million to be recorded over the remainder of the year. Included in first quarter expense was $22 million for items excluded from operating profit and $3 million recorded by financial services. Annual estimated savings from the separation program are approximately $85 million, with about $65 million expected in 2020 (see Note 20). Discrete income tax benefits also affected the quarter’s net income (see Note 9).pretax.
The worldwide net sales and revenues, and the impact of price realization and the effect of currency translation, for worldwide, U.S. and Canada, and outside U.S. and Canada in millions of dollars follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | ||||||||||||
| | February 2 | | January 27 | | | | | January 31 | | February 2 | | | | ||||
| | 2020 | | 2019 | | % Change | | | 2021 | | 2020 | | % Change | | ||||
Worldwide net sales and revenues | | $ | 7,631 | | $ | 7,984 | | -4 | | | $ | 9,112 | | $ | 7,631 | | +19 | |
Worldwide equipment operations net sales | | | 6,530 | | | 6,941 | | -6 | | | | 8,051 | | | 6,530 | | +23 | |
Price realization | | | | | | | | +2 | | | | | | | | | +6 | |
Currency translation (unfavorable) | | | | | | | | -1 | | |||||||||
Currency translation | | | | | | | | +1 | | |||||||||
| | | | | | | | | | | | | | | | | | |
U.S. and Canada equipment operations net sales | | | 3,750 | | | 4,123 | | -9 | | | | 4,529 | | | 3,750 | | +21 | |
Price realization | | | | | | | | +2 | | | | | | | | | +5 | |
| | | | | | | | | | | | | | | | | | |
Outside U.S. and Canada equipment operations net sales | | | 2,780 | | | 2,818 | | -1 | | | | 3,522 | | | 2,780 | | +27 | |
Price realization | | | | | | | | +3 | | | | | | | | | +7 | |
Currency translation (unfavorable) | | | | | | | | -3 | | |||||||||
Currency translation | | | | | | | | +1 | |
The Company’s equipment operations operating profit and net income and financial services operations net income follow in millions of dollars:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | ||||||||||||
| | February 2 | | January 27 | | | | | January 31 | | February 2 | | | | ||||
| | 2020 | | 2019 | | % Change | | | 2021 | | 2020 | | % Change | | ||||
Equipment operations operating profit | | $ | 466 | | $ | 577 | | -19 | | | $ | 1,380 | | $ | 466 | | +196 | |
Equipment operations net income | | | 383 | | | 340 | | +13 | | | | 1,020 | | | 380 | | +168 | |
Financial services net income | | | 137 | | | 154 | | -11 | | | | 204 | | | 137 | | +49 | |
The discussion on net sales and operating profit are included in the Business Segment Results below.
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Business Segment Results
Agriculture and Turf. The agriculture and turf segment results in millions of dollars follow:
| | | | | | | | | |
| | Three Months Ended | | ||||||
| | February 2 | | January 27 | | | | ||
|
| 2020 |
| 2019 |
| % Change | | ||
Net sales | | $ | 4,486 | | $ | 4,681 | | -4 | |
Operating profit | | | 373 | | | 348 | | +7 | |
Operating margin | | | 8.3% | | | 7.4% | | | |
Agriculture and turf sales for the quarter declined due to lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. Operating profit increased mainly as a result of price realization, improved production costs, and lower warranty related expenses, partially offset by lower shipment volumes / sales mix and voluntary employee-separation expenses.
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Construction and Forestry. The construction and forestry segment results in millions of dollars follow:
| | | | | | | | | |
| | Three Months Ended | | ||||||
| | February 2 | | January 27 | | | | ||
|
| 2020 |
| 2019 |
| % Change | | ||
Net sales | | $ | 2,044 | | $ | 2,260 | | -10 | |
Operating profit | | | 93 | | | 229 | | -59 | |
Operating margin | | | 4.5% | | | 10.1% | | | |
Construction and forestry sales decreased for the quarter primarily due to lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. Operating profit moved lower as a result of lower shipment volumes / sales mix and voluntary employee-separation expenses, partially offset by price realization.
Financial Services. The financial services segment revenue, interest expense, and operating profit in millions of dollars, along with the ratio of earnings to fixed charges follow:
| | | | | | | | | |
| | Three Months Ended | | ||||||
| | February 2 | | January 27 | | | | ||
| | 2020 | | 2019 | | % Change | | ||
Revenue (including intercompany revenue) | | $ | 998 | | $ | 926 | | +8 | |
Interest expense | | | 275 | | | 287 | | -4 | |
Operating profit | | | 179 | | | 192 | | -7 | |
Consolidated ratio of earnings to fixed charges | | | 1.64 | | | 1.68 | | | |
Operating profit decreased due to higher losses on lease residual values, an increased provision for credit losses, and higher selling, administrative and general expenses, partially offset by income earned on a higher average portfolio. The average balance of receivables and leases financed was 7 percent higher in the first three months of 2020, compared with the same period last year. Interest expense decreased 4 percent in the first quarter of 2020 primarily as a result of lower average borrowing rates, partially offset by higher average borrowings.
4133
The cost of sales to net sales ratio and other significant statement of consolidated income changes not previously discussed follow:follow in millions of dollars:
| | | | | | | | | |
| | Three Months Ended | | ||||||
| | February 2 | | January 27 | | | | ||
| | 2020 | | 2019 | | % Change | | ||
Cost of sales to net sales | | | 77.7% | | | 78.3% | | | |
| | | | | | | | | |
Research and development expenses | | $ | 425 | | $ | 407 | | +4 | |
Selling, administrative and general expenses | | | 809 | | | 764 | | +6 | |
Other operating expenses | | | 415 | | | 351 | | +18 | |
| | | | | | | | | |
| | Three Months Ended | | ||||||
| | January 31 | | February 2 | | | | ||
| | 2021 | | 2020 | | % Change | | ||
Cost of sales to net sales | | | 72.1% | | | 77.7% | | | |
| | | | | | | | | |
Research and development expenses | | $ | 366 | | $ | 425 | | -14 | |
Selling, administrative and general expenses | | | 769 | | | 809 | | -5 | |
Other operating expenses | | | 373 | | | 415 | | -10 | |
The cost of sales ratio improved due to price realization and lower productionthe VSEP costs partially offset by costsrecorded in the first quarter of the voluntary employee-separation program.2020. Research and development expenses declined due to the timing of research initiatives and selling,the VSEP costs recorded last year. Selling, administrative and general expenses increaseddecreased primarily as a result of voluntary employee-separation costs.VSEP costs recorded in the same period last year. Other operating expenses increaseddecreased primarily as a result of higherlower losses on operating lease residual values, reduced depreciation of equipment on operating leases, and a curtailment loss in certain OPEB plans recorded in the same period last year (see Note 8).
Market ConditionsBusiness Segment Results
Production and OutlookPrecision Agriculture. The production and precision agriculture segment results in millions of dollars follow:
| | | | | | | | | |
| | Three Months Ended | | ||||||
| | January 31 | | February 2 | | | | ||
|
| 2021 |
| 2020 |
| % Change | | ||
Net sales | | $ | 3,069 | | $ | 2,507 | | +22 | |
Operating profit | | | 643 | | | 218 | | +195 | |
Operating margin | | | 21.0% | | | 8.7% | | | |
Production and precision agriculture sales for the quarter increased due to higher shipment volumes and price realization, partially offset by the unfavorable effects of currency translation. Operating profit rose primarily due to price realization, higher shipment volumes / sales mix, and a favorable indirect tax ruling in Brazil. These items were partially offset by unfavorable effects of foreign-currency exchange. The prior period was affected by voluntary employee-separation expenses.
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Small Agriculture and Turf. The small agriculture and turf segment results in millions of dollars follow:
| | | | | | | | | |
| | Three Months Ended | | ||||||
| | January 31 | | February 2 | | | | ||
|
| 2021 |
| 2020 |
| % Change | | ||
Net sales | | $ | 2,515 | | $ | 1,979 | | +27 | |
Operating profit | | | 469 | | | 155 | | +203 | |
Operating margin | | | 18.6% | | | 7.8% | | | |
Net income attributableSmall agriculture and turf sales for the quarter increased due to Deere & Company is forecasthigher shipment volumes, price realization, and the favorable effects of currency translation. Operating profit increased primarily due to behigher shipment volumes / sales mix and price realization. Results for the prior period were affected by voluntary employee-separation expenses.
35
Construction and Forestry. The construction and forestry segment results in millions of dollars follow:
| | | | | | | | | |
| | Three Months Ended | | ||||||
| | January 31 | | February 2 | | | | ||
|
| 2021 |
| 2020 |
| % Change | | ||
Net sales | | $ | 2,467 | | $ | 2,044 | | +21 | |
Operating profit | | | 268 | | | 93 | | +188 | |
Operating margin | | | 10.9% | | | 4.5% | | | |
Construction and forestry sales moved higher for the quarter primarily due to higher shipment volumes, price realization, and the favorable effects of currency translation. Additionally, the Wirtgen operation’s one-month reporting lag was eliminated resulting in four months of Wirtgen activity in the quarter. Operating profit increased mainly due to higher shipment volumes / sales mix and price realization. The increase in profit was partially offset by impairments of long-lived assets and higher production costs. Results last year also included voluntary employee-separation costs.
Financial Services. The financial services segment revenue, interest expense, and operating profit in millions of dollars:
| | | | | | | | | |
| | Three Months Ended | | ||||||
| | January 31 | | February 2 | | | | ||
| | 2021 | | 2020 | | % Change | | ||
Revenue (including intercompany revenue) | | $ | 934 | | $ | 998 | | -6 | |
Interest expense | | | 188 | | | 275 | | -32 | |
Operating profit | | | 258 | | | 179 | | +44 | |
Operating profit increased due to favorable financing spreads, lower losses on operating lease residual values, and a rangelower provision for credit losses. The average balance of $2,700 million to $3,100 million.receivables and leases financed was 1 percent higher in the first three months of 2021, compared with the same period last year. Interest expense decreased 32 percent in the first quarter of 2021 primarily as a result of lower average borrowing rates.
36
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under “Overview,” “Market Conditions and Outlook,” and other forward-looking statements herein that relate to future events, expectations, and trends involve factors that are subject to change, and risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the Company’s businesses.
The Company’s agricultural equipment business isbusinesses are subject to a number of uncertainties including the factors that affect farmers’ confidence and financial condition. These factors include demand for agricultural products, world grain stocks, weather conditions, soil conditions, harvest yields, prices for commodities and livestock, crop and livestock production expenses, availability of transport for crops, trade restrictions and tariffs (e.g., China), global trade agreements, (e.g., the United States-Mexico-Canada Agreement), the level of farm product exports (including concerns about genetically modified organisms), the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production), real estate values, available acreage for farming, the land ownership policies of governments, changes in government farm programs and policies, international reaction to such programs, changes in and effects of crop insurance programs, changes in environmental regulations and their impact on farming practices, animal diseases (e.g., African swine fever) and their effects on poultry, beef and pork consumption and prices and on livestock feed demand, and crop pests and diseases.diseases and the impact of the COVID pandemic on the agricultural industry including demand for, and production and exports of, agricultural products, and commodity prices.
42The production and precision agriculture business is dependent on agricultural conditions, and relies 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 or sustainability outcomes; the rate of adoption and use by customers; availability of technological innovations; speed of research and development; effectiveness of partnerships with third-parties; and the dealer channel’s ability to support and service precision technology solutions.
Factors affecting the outlook for the Company’s turfsmall agriculture and utilityturf equipment include agricultural conditions, consumer confidence, weather conditions, customer profitability, labor supply, consumer borrowing patterns, consumer purchasing preferences, housing starts and supply, infrastructure investment, spending by municipalities and golf courses, and consumable input costs.
Consumer spending patterns, real estate and housing prices, the number of housing starts, interest rates, commodity prices such as oil and gas, the levels of public and non-residential construction, are important toand investment in infrastructure affect sales and results of the Company’s construction and forestry equipment. Prices for pulp, paper, lumber and structural panels are important toaffect sales of forestry equipment.
Many of the factors affecting production and precision agriculture, small agriculture and turf, and construction and forestry segments, have been and may continue to be impacted by global economic conditions, including those resulting from the COVID pandemic and responses to the pandemic taken by governments and other authorities.
All of the Company’s businesses and its results are affected by general economic conditions in the global markets and industries in which the Company operates; customer confidence in general economic conditions; government spending and taxing; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates (including the availability of IBOR reference rates); inflation and deflation rates; changes in weather patterns; the political and social stability of the global markets in which the Company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts; natural disasters; and the spread of major epidemics (including Coronavirus)the COVID pandemic) and government and industry responses to epidemics such as government-imposed travel restrictions and extended shut down of businesses.
Uncertainties related to the magnitude and duration of the COVID pandemic may significantly adversely affect the Company’s business and outlook. These uncertainties include: the duration and impact of any resurgence in COVID cases in any country, state, or region; the emergence, contagiousness, and threat of new and different strains of COVID; prolonged reduction or closure of the Company’s operations, or a delayed recovery in our operations; additional closures as mandated or otherwise made necessary by governmental authorities; disruptions in the supply chain and a prolonged delay in resumption of operations by one or more key suppliers, or the failure of any key suppliers; the Company’s ability to meet commitments to customers on a timely basis as a result of increased costs and supply challenges; the ability to receive goods on a timely basis and at anticipated costs; increased logistics costs; delays in the Company’s strategic initiatives as a result of reduced spending on research and development; additional operating costs due to remote working arrangements, adherence to social distancing guidelines and other
37
COVID-related challenges; increased risk of cyber attacks on network connections used in remote working arrangements; increased privacy-related risks due to processing health-related personal information; legal claims related to personal protective equipment designed, made, or provided by the Company or alleged exposure to COVID on Company premises; absence of employees due to illness; the impact of the pandemic on the Company’s customers and dealers, and their delays in their plans to invest in new equipment; requests by the Company’s customers or dealers for payment deferrals and contract modifications; the impact of disruptions in the global capital markets and/or declines in the Company’s financial performance, outlook or credit ratings, which could impact the Company’s ability to obtain funding in the future; and the impact of the pandemic on demand for our products and services as discussed above. It is unclear when a sustained economic recovery could occur and what a recovery may look like. All of these factors could materially and adversely affect our business, liquidity, results of operations and financial position.
Significant changes in market liquidity conditions, changes in the Company’s credit ratings and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the Company’s earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of the Company’s products and customer confidence and purchase decisions, borrowing and repayment practices, and the number and size of customer loan delinquencies and defaults. A debt crisis, in Europe or elsewhere, could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, demand for equipment, and Company operations and results. The Company’s investment management activities could be impaired by changes in the equity, bond and other financial markets, which would negatively affect earnings.
The withdrawal of the United Kingdom from the European Union and the perceptions as to the impact of the withdrawal may adversely affect business activity, political stability and economic conditions in the United Kingdom, the European Union and elsewhere. The economic conditions and outlook could be further adversely affected by (i) uncertainty regarding any new or modified trade arrangements between the United Kingdom and the European Union and/or other countries, (ii) the risk that one or more other European Union countries could come under increasing pressure to leave the European Union, or (iii) the risk that the euro as the single currency of the Eurozone could cease to exist. Any of these developments, or the perception that any of these developments are likely to occur, could affect economic growth or business activity in the United Kingdom or the European Union, and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, currency exchange rates, interest rates, financial institutions, and political, financial and monetary systems. Any of these developments could affect our businesses, liquidity, results of operations and financial position.
Additional factors that could materially affect the Company’s operations, access to capital, expenses and results include changes in, uncertainty surrounding and the impact of governmental trade, banking, monetary and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs and other areas, andareas; governmental programs, policies, tariffs and sanctions in particular jurisdictions ortariffs for the benefit of certain industries or sectors; sanctions in particular jurisdictions; retaliatory actions to such changes in trade, banking, monetary and fiscal policies; actions by central banks; actions by financial and securities regulators; actions by environmental, health and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, noise and the effects of climate change; changes to GPS radio frequency bands or their permitted uses; changes in labor and immigration regulations; changes to accounting standards; changes in tax rates, estimates, laws and regulations and Company actions related thereto; changes to and compliance with privacy regulations; changes to and compliance with economic sanctions and export controls laws and regulations; compliance with U.S. and foreign laws when expanding to new markets and otherwise; and actions by other regulatory bodies.
Other factors that could materially affect results include production, design and technological innovations and difficulties, including capacity and supply constraints and prices; the loss of or challenges to intellectual property rights whether through theft, infringement, counterfeiting or otherwise; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the Company’s supply chain or the loss of liquidity by suppliers; disruptions of infrastructures that support communications, operations or distribution; the failure of customers, dealers, suppliers or the Company to comply with laws, regulations and Company policy pertaining to
43
employment, human rights, health, safety, the environment, sanctions, export controls, anti-corruption, privacy and data protection and other ethical business practices; events that damage the Company’s reputation or brand; significant investigations, claims, lawsuits or other legal proceedings; start-up of new plants and products; the success of new product initiatives;initiatives or business strategies; changes in customer product preferences and sales mix; gaps or limitations in rural broadband coverage, capacity and speed needed to support technology solutions; oil and energy prices, supplies and volatility; the availability and cost of freight; actions of competitors in the various industries in which the Company competes, particularly price discounting; dealer practices especially as to levels of
38
new and used field inventories; changes in demand and pricing for used equipment and resulting impacts on lease residual values; labor relations and contracts; changes in the ability to attract, traindevelop, engage, and retain qualified personnel; acquisitions and divestitures of businesses; greater than anticipated transaction costs; the integration of new businesses; the failure or delay in closing or realizing anticipated benefits of acquisitions, joint ventures or divestitures; the inability to deliver precision technology and agricultural solutions to customers; the implementation of the smart industrial operating strategy and other organizational changes; the failure to realize anticipated savings or benefits of cost reduction, productivity, or efficiency efforts; difficulties related to the conversion and implementation of enterprise resource planning systems; security breaches, cybersecurity attacks, technology failures and other disruptions to the Company’s and suppliers’ information technology infrastructure; changes in Company declared dividends and common stock issuances and repurchases; changes in the level and funding of employee retirement benefits; changes in market values of investment assets, compensation, retirement, discount and mortality rates which impact retirement benefit costs; and significant changes in health care costs.
The liquidity and ongoing profitability of John Deere Capital Corporation and other credit subsidiaries depend largely on timely access to capital in order to meet future cash flow requirements, and to fund operations, costs, and purchases of the Company’s products. If general economic conditions deteriorate or capital markets become more volatile, including as a result of the COVID pandemic, 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.
The Company’s outlook isforward-looking statements are based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The Company, except as required by law, undertakes no obligation to update or revise its outlook,forward-looking statements, whether as a result of new developments or otherwise. 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 quarterly reports on Form 10-Q).
Critical Accounting Policies
See the Company’s critical accounting policies discussed in the Management’s Discussion and Analysis of the most recent annual report filed on Form 10-K. There have been no material changes to these policies.policies, other than as described below related to the allowance for credit losses, as a result of the adoption of ASU No. 2016-13 during the first quarter of 2021.
The allowance for credit losses is an estimate of the credit losses expected over the life of the Company’s receivable portfolio. The Company measures expected credit losses on a collective basis when similar risk characteristics exist. Risk characteristics considered by the Company include finance product category, market, geography, credit risk, and remaining duration. Receivables that do not share risk characteristics with other receivables in the portfolio are evaluated on an individual basis.
The Company utilizes loss forecast models, which are selected based on the size and credit risk of the underlying pool of receivables, to estimate expected credit losses. Transition matrix models are used for large and complex customer receivable pools, while weighted average remaining maturity models are used for smaller and less complex customer receivable pools. Expected credit losses on wholesale receivables are based on historical loss rates, adjusted for current economic conditions. The modeled expected credit losses are adjusted based on reasonable and supportable forecasts, which may include economic indicators such as commodity prices, industry equipment sales, unemployment rates, and housing starts. Management reviews each model’s output quarterly, and qualitative adjustments are incorporated as necessary. While the Company believes its allowance is sufficient to provide for losses over the life of its existing receivable portfolio, different assumptions or changes in economic conditions would result in changes to the allowance for credit losses and the provision for credit losses.
CAPITAL RESOURCES AND LIQUIDITY
The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the Company’s consolidated totals, equipment operations, and financial services operations.
Consolidated
Positive cash flows from consolidated operating activities in the first three months of 2021 were $143 million. This resulted primarily from net income adjusted for non-cash provisions and a change in accrued income taxes payable / receivable, which were partially offset by a seasonal increase in inventories and receivables related to sales and a
39
decrease in accounts payable and accrued expenses. Cash inflows from investing activities were $579 million in the first three months of this year, primarily due to collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired by $865 million, partially offset by purchases of property and equipment of $154 million and a change in collateral on derivatives - net of $88 million. Negative cash flows from financing activities were $933 million in the first three months of 2021 primarily due to a decrease in borrowings of $379 million, repurchases of common stock of $352 million, and dividends paid of $242 million, partially offset by proceeds from issuance of common stock of $71 million (resulting from the exercise of stock options). Cash, cash equivalents, and restricted cash decreased $108 million during the first three months of this year.
Negative cash flows from consolidated operating activities in the first three months of 2020 were $508 million. This resulted primarily from a decrease in accounts payable and accrued expenses, a seasonal increase in inventories, and a change in accrued income taxes payable / receivable, which were partially offset by net income adjusted for non-cash provisions and a decrease in receivables related to sales. Cash inflows from investing activities were $1,026 million in the first three months of this year,2020, primarily due to collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired by $1,270 million, partially offset by purchases of property and equipment of $271 million. Negative cash flows from financing activities were $763 million in the first three months of 2020 primarily due to a decrease in borrowings of $422 million, dividends paid of $242 million, and repurchases of common stock of $114 million, partially offset by proceeds from issuance of common stock of $53 million (resulting from the exercise of stock options). Cash, cash equivalents, and restricted cash decreased $246 million during the first three months of this year.
Negative cash flows from consolidated operating activities in the first three months of 2019 were $1,651 million. This resulted primarily from a seasonal increase in inventories, a decrease in accounts payable and accrued expenses, and an increase in receivables related to sales, which were partially offset by net income adjusted for non-
44
cash provisions and a change in accrued income taxes payable / receivable. Cash inflows from investing activities were $969 million in the first three months of 2019, primarily due to collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired by $1,293 million, partially offset by purchases of property and equipment of $297 million. Positive cash flows from financing activities were $403 million in the first three months of 2019 primarily due to an increase in borrowings of $746 million and proceeds from issuance of common stock of $51 million (resulting from the exercise of stock options), partially offset by dividends paid of $220 million and repurchases of common stock of $144 million. Cash, cash equivalents, and restricted cash decreased $292 million during the first three months of 2019.2020.
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. Sources of liquidity for the Company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets), and committed and uncommitted bank lines of credit. The Company’s commercial paper outstanding at January 31, 2021, November 1, 2020, and February 2, 2020 November 3, 2019, and January 27, 2019 was $2,149$1,346 million, $2,698$1,238 million, and $3,760$2,149 million, respectively, while the total cash, and cash equivalents, and marketable securities position was $4,211$7,629 million, $4,438$7,707 million, and $4,149$4,211 million, respectively. The total cash, and cash equivalents, and marketable securities held by foreign subsidiaries, was $4,956 million, $5,010 million, and $2,572 million $2,731 million,at January 31, 2021, November 1, 2020, and $2,076 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively.
Lines of Credit. The Company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled $8,484$8,326 million at February 2, 2020, $5,692January 31, 2021, $6,654 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 February 2, 2020January 31, 2021 was a 364-day credit facility agreement of $2,800$3,000 million, expiring in fiscal April 2020.2021. In addition, total credit lines included long-term credit facility agreements of $2,500 million, expiring in fiscal April 2023,2024, and $2,500 million, expiring in fiscal April 2024.2025. These credit agreements require John Deere Capital Corporation (Capital Corporation) to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholder’s equity excluding accumulated other comprehensive income (loss)) at not more than 11 to 1 at the end of any fiscal quarter. The credit agreements also require the equipment operations to maintain a ratio of total debt to total capital (total debt and stockholders’ equity excluding accumulated other comprehensive income (loss)) of 65 percent or less at the end of each fiscal quarter. Under this provision, the Company’s excess equity capacity and retained earnings balance free of restriction at February 2, 2020January 31, 2021 was $13,729$13,514 million. Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $25,497$25,098 million at February 2, 2020.January 31, 2021. All of these requirements of the credit agreementagreements 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
40
and outlook currently assigned to unsecured Company debt securities by the rating agencies engaged by the Company are as follows:
| | | | | | | |
|
| Senior |
| |
| |
|
| | Long-Term | | Short-Term | | Outlook |
|
Fitch Ratings | | A | | F1 | | Stable | |
Moody’s Investors Service, Inc. |
| A2 |
| Prime-1 |
| Stable | |
Standard & Poor’s |
| A |
| A-1 |
| Stable | |
Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Trade receivables increased $130$866 million during the first three months of 2020,2021, primarily due to a seasonal increase. These receivables decreased $137$323 million, compared to a year ago, primarily due to lower shipment volumes and foreign currency translation.ago. The ratios of worldwide trade accounts and notes receivable to the last 12 months’ net sales were 15 percent at January 31, 2021, compared to 13 percent at November 1, 2020 and 16 percent at February 2, 2020, compared to 15 percent at November 3, 20192020. Production and 16 percent at January 27, 2019. Agricultureprecision agriculture trade receivables decreased $46 million, small agriculture and turf trade receivables decreased $69increased $154 million, and construction and forestry trade receivables decreased $68$431 million, compared to a year ago. The percentage of total worldwide trade receivables outstanding for
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periods exceeding 12 months was 3 percent at January 31, 2021, November 1, 2020, and February 2, 2020, 3 percent at November 3, 2019, and 1 percent at January 27, 2019.2020.
Deere & Company stockholders’ equity was $14,083 million at January 31, 2021, compared with $12,937 million at November 1, 2020 and $11,926 million at February 2, 2020, compared with $11,413 million at November 3, 2019 and $11,328 million at January 27, 2019.2020. The increase of $513$1,146 million during the first three months of 20202021 resulted primarily from net income attributable to Deere & Company of $517$1,224 million, a change in the cumulative translation adjustment of $396 million, a change in the retirement benefits adjustment of $230 million, a change in the cumulative translation adjustment of $43$63 million, and an increase in common stock of $33$47 million, partially offset by dividends declared of $239 million and an increase in treasury stock of $75$312 million and dividends declared of $239 million.
Equipment Operations
The Company’s equipment businesses are capital intensive and are subject to seasonal variations in financing requirements for inventories and certain receivables from dealers. The equipment operations sell a significant portion of their trade receivables to financial services. To the extent necessary, funds provided from operations are supplemented by external financing sources.
Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first three months of 2021 was $348 million. This resulted primarily from cash inflows from net income adjusted for non-cash provisions, a change in accrued income taxes payable / receivable, and a decrease in trade and financing receivables held by the equipment operations. Partially offsetting these operating cash inflows were cash outflows from a seasonal increase in inventories and a decrease in accounts payable and accrued expenses. Cash, cash equivalents, and restricted cash decreased $71 million in the first three months of 2021.
Cash used for operating activities of the equipment operations, including intercompany cash flows, in the first three months of 2020 was $380 million. This resulted primarily from a decrease in accounts payable and accrued expenses, a seasonal increase in inventories, and a change in accrued income taxes payable / receivable. Partially offsetting these operating cash outflows were cash inflows from net income adjusted for non-cash provisions and a decrease in trade and financing receivables held by the equipment operations. Cash, cash equivalents, and restricted cash decreased $313 million in the first three months of 2020.
Cash used for operating activities of the equipment operations, including intercompany cash flows, in the first three months of 2019 was $1,434 million. This resulted primarily from a seasonal increase in inventories, a decrease in accounts payable and accrued expenses, and a change in accrued income taxes payable / receivable. Partially offsetting these operating cash outflows were cash inflows from net income adjusted for non-cash provisions and a decrease in trade and financing receivables held by the equipment operations. Cash, cash equivalents, and restricted cash decreased $521 million in the first three months of 2019.
Trade receivables held by the equipment operations decreased $367$113 million during the first three months of 20202021 and decreased $62$215 million from a year ago. The equipment operations sell a significant portion of their trade receivables to financial services. See the previous consolidated discussion of trade receivables.
Inventories increased by $507$957 million during the first three months, primarily due to a seasonal increase.increase and the effect of foreign currency translation. Inventories decreased $920$526 million, compared to a year ago, primarily due to lower productionhigher shipment volumes, andpartially offset by the effect of foreign currency translation. A majority of these inventories are valued on the last-in, first-out (LIFO) method. The ratios of inventories on a first-in, first-out (FIFO) basis (see Note 13), which approximates current cost, to the last 12 months’ cost of sales were 31 percent at February 2, 2020,January 31, 2021, compared to 2928 percent at November 3, 20191, 2020 and 3531 percent at January 27, 2019.February 2, 2020.
Total interest-bearing debt, excluding finance lease liabilities, of the equipment operations was $6,556$10,494 million at January 31, 2021, compared with $10,382 million at November 1, 2020 and $6,521 million at February 2, 2020, compared with $6,446 million at November 3, 2019 and $6,273 million at January 27, 2019.2020. The ratios of debt to total capital (total interest-bearing debt and stockholders’ equity) were 43 percent, 45 percent, and 35 percent 36 percent,at January 31, 2021, November 1, 2020, and 36 percent at February 2, 2020, November 3, 2019, and January 27, 2019, respectively.
The Company may from time to time seek to retire portions of its outstanding debt securities through cash repurchases or exchanges for other securities, in open-market purchases, privately negotiated transactions, or otherwise. Such repurchases or exchanges, if any, will be subject to and depend on prevailing market conditions, the company’s liquidity requirements, contractual restrictions, and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material.41
Property and equipment cash expenditures for the equipment operations in the first three months of 20202021 were $271$154 million, compared with $297$271 million in the same period last year. Capital expenditures for the equipment operations in 20202021 are estimated to be approximately $1,100$900 million.
In October 2019, the Company entered into a definitive agreement to acquire Unimil, a privately held Brazilian company in the aftermarket service parts business for sugarcane harvesters. The expected cash purchase price is R$375 million (or approximately US$90 million based on the exchange rate at the end of the fiscal quarter). The Company expects to fund the acquisition and the transaction expenses with current cash. The transaction requires customary regulatory approval and is expected to close within six months.
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Financial Services
The financial services operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios. Their primary sources of funds for this purpose are a combination of commercial paper, term debt, securitization of retail notes, equity capital, and borrowings from Deere & Company.
During the first three months of 2021, the cash provided by operating and investing activities was used for financing activities. Cash flows provided by operating activities, including intercompany cash flows, were $420 million in the first three months of 2021. Cash provided by investing activities totaled $270 million in the first three months of 2021 primarily due to the collection of receivables (excluding trade and wholesale) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired by $909 million, partially offset by an increase in trade and wholesale receivables of $523 million and a change in collateral on derivatives - net of $88 million. Cash used for financing activities totaled $747 million, resulting primarily from a decrease in external borrowings of $339 million, a decrease in borrowings from Deere & Company of $264 million, and dividends paid to Deere & Company of $135 million. Cash, cash equivalents, and restricted cash decreased $37 million in the first three months of 2021.
During the first three months of 2020, the cash provided by operating and investing activities was used for financing activities. Cash flows provided by operating activities, including intercompany cash flows, were $446 million in the first three months of 2020. Cash provided by investing activities totaled $857 million in the first three months of 2020 primarily due to the collection of receivables (excluding trade and wholesale) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired by $1,244 million, partially offset by an increase in trade and wholesale receivables of $382 million. Cash used for financing activities totaled $1,232 million, resulting primarily from a decrease in borrowings from Deere & Company of $572 million, a decrease in external borrowings of $526 million, and dividends paid to Deere & Company of $125 million. Cash, cash equivalents, and restricted cash increased $67 million in the first three months of 2020.
During the first three months of 2019, the cash provided by operating and investing activities was used for financing activities. Cash flows provided by operating activities, including intercompany cash flows, were $972 million in the first three months of 2019. Cash provided by investing activities totaled $283 million in the first three months of 2019 primarily due to the collection of receivables (excluding trade and wholesale) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired by $1,303 million, partially offset by an increase in trade and wholesale receivables of $1,021 million. Cash used for financing activities totaled $1,025 million, resulting primarily from a decrease in borrowings from Deere & Company of $1,526 million and dividends paid to Deere & Company of $200 million, partially offset by an increase in external borrowings of $709 million. Cash, cash equivalents, and restricted cash increased $229 million in the first three months of 2019.
Receivables and leases held by the financial services operations consist of retail notes originated in connection with retail sales of new and used equipment by dealers of John Deere products, retail notes from non-Deere equipment customers, trade receivables, wholesale notes, revolving charge accounts, credit enhanced international export financing generally involving John Deere products, sales-type and direct financing leases, and operating leases. Total receivables and leases decreased $1,378$238 million during the first quarter of 20202021 and increased $2,617$808 million in the past 12 months. Acquisition volumes of receivables (excluding trade and wholesale) and leases were 614 percent higher in the first three months of 2020,2021, compared with the same period last year, as volumes of retail notes, revolving charge accounts, and operatingsales-type and direct financing leases were higher, while volumes of sales-type and direct financingoperating leases and revolving charge accounts were lower. The amount of total trade receivables and wholesale notes increased compared to November 3, 20191, 2020 and decreased compared to January 27, 2019.February 2, 2020.
Total external interest-bearing debt of the financial services operations was $35,415 million at January 31, 2021, compared with $35,556 million at November 1, 2020 and $38,343 million at February 2, 2020, compared with $38,888 million at November 3, 2019 and $36,784 million at January 27, 2019.2020. Total external borrowings have generally changed corresponding with the level of receivable and lease portfolio, the level of cash and cash equivalents, the change in payables owed to Deere & Company, and the change in investment from Deere & Company. The financial services operations’ ratio of interest-bearing debt to stockholder’s equity was 7.6 to 1 at January 31, 2021, compared with 7.8 to 1 at November 1, 2020 and 7.8 to 1 at February 2, 2020, compared with 8.0 to 1 at November 3, 2019 and 7.4 to 1 at January 27, 2019.2020.
Capital Corporation has a revolving credit agreement to utilize bank conduit facilities to securitize retail notes (see Note 12). During November 2019,2020, the agreement was renewed with a total capacity, or “financing limit,” of $3,500$2,000 million of secured financings at any time. After a two-year 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. At February 2, 2020, $1,935January 31, 2021, $1,550 million of secured short-term borrowings were outstanding under the agreement.
In the first three months of 2020,2021, the financial services operations issued $760 million and retired $664$706 million of retail note securitization borrowings. In addition, during the first three months of 2020,2021, the financial services operations issued $1,535$1,757 million and retired $1,568$1,421 million of long-term borrowings, which were primarily medium-term notes.
42
Dividends
The Company’s Board of Directors at its meeting on February 26, 202024, 2021 declared a quarterly dividend of $.76$.90 per share payable May 8, 2020,10, 2021, to stockholders of record on March 31, 2020.2021.
Supplemental Consolidating Information
The supplemental consolidating data presented on the subsequent pages is presented for informational purposes. The equipment operations represents the enterprise without financial services. The equipment operations includes the Company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services. Transactions between the “equipment operations” and “financial services” have been eliminated to arrive at the consolidated financial statements.
The equipment operations and financial services participate in different industries. The equipment operations primarily generate earnings and cash flows by manufacturing and distributing equipment, service parts, and technology solutions to dealers and end users. 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. The two businesses are capitalized differently and have different performance metrics. The supplemental consolidating data is also used by management due to these differences.
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
DEERE & COMPANY | | | ||||||||||||||||||||||||
SUPPLEMENTAL CONSOLIDATING DATA | | | ||||||||||||||||||||||||
STATEMENT OF INCOME | | | ||||||||||||||||||||||||
For the Three Months Ended January 31, 2021 and February 2, 2020 | | | ||||||||||||||||||||||||
(In millions of dollars) Unaudited | | | ||||||||||||||||||||||||
| | EQUIPMENT OPERATIONS1 | | FINANCIAL SERVICES | | ELIMINATIONS | | CONSOLIDATED | |
| ||||||||||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | |
| ||||||||
Net Sales and Revenues |
| |
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| | |
| |
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| | |
| |
|
| | |
| |
|
| | | | |
Net sales | | $ | 8,051 | | $ | 6,530 | | | | | | | | | | | | | | $ | 8,051 | | $ | 6,530 | | |
Finance and interest income | | | 32 | |
| 27 | | $ | 862 | | $ | 936 | | $ | (60) | | $ | (67) | | | 834 | | | 896 | 2 | |
Other income | | | 220 | |
| 209 | | | 72 | |
| 62 | | | (65) | |
| (66) | | | 227 | |
| 205 | 3 | |
Total | | | 8,303 | |
| 6,766 | | | 934 | |
| 998 | | | (125) | |
| (133) | | | 9,112 | |
| 7,631 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Costs and Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of sales | | | 5,806 | |
| 5,078 | | | | | | | | | (1) | | | (1) | | | 5,805 | | | 5,077 | 4 | |
Research and development expenses | | | 366 | |
| 425 | | | | | | | | | | | | | | | 366 | | | 425 | | |
Selling, administrative and general expenses | | | 653 | |
| 672 | | | 117 | |
| 138 | | | (1) | |
| (1) | | | 769 | |
| 809 | 4 | |
Interest expense | | | 95 | |
| 63 | | | 188 | |
| 275 | | | (12) | |
| (2) | | | 271 | |
| 336 | 5 | |
Interest compensation to Financial Services | | | 48 | |
| 64 | | | | | | | | | (48) | | | (64) | | | | | | | 5 | |
Other operating expenses | | | 67 | |
| 72 | | | 369 | |
| 408 | | | (63) | |
| (65) | | | 373 | |
| 415 | 6 | |
Total | | | 7,035 | |
| 6,374 | | | 674 | |
| 821 | | | (125) | |
| (133) | | | 7,584 | |
| 7,062 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before Income Taxes | | | 1,268 | |
| 392 | | | 260 | |
| 177 | | | | |
| | | | 1,528 | |
| 569 | | |
Provision for income taxes | | | 252 | |
| 9 | | | 56 | |
| 41 | | | | |
| | | | 308 | |
| 50 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Income after Income Taxes | | | 1,016 | |
| 383 | | | 204 | |
| 136 | | | | |
| | | | 1,220 | |
| 519 | | |
Equity in income (loss) of unconsolidated affiliates | | | 4 | |
| (2) | | | | | | 1 | | | | | | | | | 4 | | | (1) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Income | | | 1,020 | |
| 381 | | | 204 | |
| 137 | | | | |
| | | | 1,224 | |
| 518 | | |
Less: Net income attributable to noncontrolling interests | | | | |
| 1 | | | | | | | | | | | | | | | | | | 1 | | |
Net Income Attributable to Deere & Company | | $ | 1,020 | | $ | 380 | | $ | 204 | | $ | 137 | | | | | | | | $ | 1,224 | | $ | 517 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
1 The equipment operations represents the enterprise without financial services. The equipment operations includes the Company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services.
2 Elimination of financial services’ interest income earned from equipment operations.
3 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases (see Note 2).
4 Elimination of intercompany service fees.
5 Elimination of equipment operations’ interest expense to financial services.
6 Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
DEERE & COMPANY | | | ||||||||||||||||||||||||||||||||||||
SUPPLEMENTAL CONSOLIDATING DATA (Continued) | | | ||||||||||||||||||||||||||||||||||||
CONDENSED BALANCE SHEET | | | ||||||||||||||||||||||||||||||||||||
(In millions of dollars) Unaudited | | | ||||||||||||||||||||||||||||||||||||
| | EQUIPMENT OPERATIONS1 | | FINANCIAL SERVICES | | ELIMINATIONS | | CONSOLIDATED | |
| ||||||||||||||||||||||||||||
| | Jan 31 | | Nov 1 | | Feb 2 | | Jan 31 | | Nov 1 | | Feb 2 | | Jan 31 | | Nov 1 | | Feb 2 | | Jan 31 | | Nov 1 | | Feb 2 | |
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| | 2021 | | 2020 | | 2020 | | 2021 | | 2020 | | 2020 | | 2021 | | 2020 | | 2020 | | 2021 | | 2020 | | 2020 | |
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Assets |
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Cash and cash equivalents | | $ | 6,074 | | $ | 6,145 | | $ | 2,862 | | $ | 888 | | $ | 921 | | $ | 740 | | | | | | | | | | | $ | 6,962 | | $ | 7,066 | | $ | 3,602 | | |
Marketable securities | | | 8 | |
| 7 | |
| 4 | | | 659 | |
| 634 | |
| 605 | | | | |
| | |
| | | | 667 | |
| 641 | |
| 609 | | |
Receivables from unconsolidated affiliates | | | 5,151 | |
| 5,290 | |
| 1,425 | | | | | | | | | | | $ | (5,123) | | $ | (5,259) | | $ | (1,387) | | | 28 | | | 31 | | | 38 | 7 | |
Trade accounts and notes receivable – net | | | 900 | |
| 1,013 | |
| 1,115 | | | 5,341 | |
| 4,238 | |
| 5,707 | | | (1,204) | |
| (1,080) | |
| (1,462) | | | 5,037 | |
| 4,171 | |
| 5,360 | 8 | |
Financing receivables – net | | | 103 | |
| 106 | |
| 130 | | | 29,335 | |
| 29,644 | |
| 27,164 | | | | |
| | |
| | | | 29,438 | |
| 29,750 | |
| 27,294 | | |
Financing receivables securitized – net | | | 18 | | | 26 | | | 42 | | | 3,913 | |
| 4,677 | |
| 4,436 | | | | |
| | |
| | | | 3,931 | |
| 4,703 | |
| 4,478 | | |
Other receivables | | | 1,010 | |
| 1,117 | |
| 1,252 | | | 151 | |
| 151 | |
| 131 | | | (20) | |
| (48) | |
| (16) | | | 1,141 | |
| 1,220 | |
| 1,367 | 8 | |
Equipment on operating leases – net | | | | | | | | | | | | 7,030 | |
| 7,298 | |
| 7,504 | | | | |
| | |
| | | | 7,030 | |
| 7,298 | |
| 7,504 | | |
Inventories | | | 5,956 | |
| 4,999 | |
| 6,482 | | | | | | | | | | | | | | | | | | | | | 5,956 | | | 4,999 | | | 6,482 | | |
Property and equipment – net | | | 5,703 | |
| 5,778 | |
| 5,857 | | | 38 | |
| 39 | |
| 43 | | | | |
| | |
| | | | 5,741 | |
| 5,817 | |
| 5,900 | | |
Investments in unconsolidated affiliates | | | 157 | |
| 174 | |
| 200 | | | 21 | |
| 19 | |
| 17 | | | | |
| | |
| | | | 178 | |
| 193 | |
| 217 | | |
Goodwill | | | 3,194 | |
| 3,081 | |
| 2,945 | | | | | | | | | | | | | | | | | | | | | 3,194 | | | 3,081 | | | 2,945 | | |
Other intangible assets – net | | | 1,342 | |
| 1,327 | |
| 1,349 | | | | |
| | |
| | | | | |
| | |
| | | | 1,342 | |
| 1,327 | |
| 1,349 | | |
Retirement benefits | | | 903 | |
| 859 | |
| 871 | | | 60 | |
| 59 | |
| 58 | | | (57) | |
| (55) | |
| (29) | | | 906 | |
| 863 | |
| 900 | 9 | |
Deferred income taxes | | | 1,797 | |
| 1,763 | |
| 1,821 | | | 51 | |
| 45 | |
| 56 | | | (292) | |
| (309) | |
| (463) | | | 1,556 | |
| 1,499 | |
| 1,414 | 10 | |
Other assets | | | 1,485 | |
| 1,439 | |
| 1,546 | | | 891 | |
| 994 | |
| 818 | | | (3) | |
| (1) | |
| (2) | | | 2,373 | |
| 2,432 | |
| 2,362 | | |
Total Assets | | $ | 33,801 | | $ | 33,124 | | $ | 27,901 | | $ | 48,378 | | $ | 48,719 | | $ | 47,279 | | $ | (6,699) | | $ | (6,752) | | $ | (3,359) | | $ | 75,480 | | $ | 75,091 | | $ | 71,821 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Short-term borrowings | | $ | 394 | | $ | 292 | | $ | 947 | | $ | 8,830 | | $ | 8,290 | | $ | 9,061 | | | | | | | | | | | $ | 9,224 | | $ | 8,582 | | $ | 10,008 | | |
Short-term securitization borrowings | | | 17 | | | 26 | | | 42 | | | 3,952 | |
| 4,656 | |
| 4,374 | | | | |
| | |
| | | | 3,969 | |
| 4,682 | |
| 4,416 | | |
Payables to unconsolidated affiliates | | | 119 | |
| 104 | |
| 146 | | | 5,123 | |
| 5,260 | |
| 1,387 | | $ | (5,123) | | $ | (5,259) | | $ | (1,386) | | | 119 | |
| 105 | |
| 147 | 7 | |
Accounts payable and accrued expenses | | | 8,672 | |
| 9,114 | |
| 8,325 | | | 1,959 | |
| 2,127 | |
| 1,786 | | | (1,227) | |
| (1,129) | |
| (1,481) | | | 9,404 | |
| 10,112 | |
| 8,630 | 8 | |
Deferred income taxes | | | 394 | |
| 385 | |
| 408 | | | 430 | |
| 443 | |
| 546 | | | (292) | |
| (309) | |
| (463) | | | 532 | |
| 519 | |
| 491 | 10 | |
Long-term borrowings | | | 10,139 | |
| 10,124 | |
| 5,567 | | | 22,633 | |
| 22,610 | |
| 24,908 | | | | |
| | |
| | | | 32,772 | |
| 32,734 | |
| 30,475 | | |
Retirement benefits and other liabilities | | | 5,325 | |
| 5,366 | |
| 5,639 | | | 106 | |
| 102 | |
| 100 | | | (57) | |
| (55) | |
| (29) | | | 5,374 | |
| 5,413 | |
| 5,710 | 9 | |
Total liabilities | | | 25,060 | | | 25,411 | | | 21,074 | | | 43,033 | | | 43,488 | | | 42,162 | | | (6,699) | | | (6,752) | | | (3,359) | | | 61,394 | | | 62,147 | | | 59,877 | | |
| | | | | | | | | | | | | ��� | | | | | | | | | | | | | | | | | | | | | | | | | |
Commitments and contingencies (Note 16) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Redeemable noncontrolling interest | | | | | | | | | 14 | | | | | | | | | | | | | | | | | | | | | | | | | | | 14 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Deere & Company stockholders’ equity | | | 14,083 | |
| 12,937 | |
| 11,926 | | | 5,345 | | | 5,231 | | | 5,117 | | | (5,345) | | | (5,231) | | | (5,117) | | | 14,083 | | | 12,937 | | | 11,926 | 11 | |
Noncontrolling interests | | | 3 | |
| 7 | |
| 4 | | | | | | | | | | | | | | | | | | | | | 3 | | | 7 | | | 4 | | |
Financial Services’ equity | | | (5,345) | | | (5,231) | | | (5,117) | | | | | | | | | | | | 5,345 | | | 5,231 | | | 5,117 | | | | | | | | | | 11 | |
Adjusted total stockholders’ equity | | | 8,741 | |
| 7,713 | |
| 6,813 | | | 5,345 | |
| 5,231 | |
| 5,117 | | | | |
| | |
| | | | 14,086 | |
| 12,944 | |
| 11,930 | | |
Total Liabilities and Stockholders’ Equity | | $ | 33,801 | | $ | 33,124 | | $ | 27,901 | | $ | 48,378 | | $ | 48,719 | | $ | 47,279 | | $ | (6,699) | | $ | (6,752) | | $ | (3,359) | | $ | 75,480 | | $ | 75,091 | | $ | 71,821 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 The equipment operations represents the enterprise without financial services. The equipment operations includes the Company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services.
7 Elimination of receivables / payables between equipment operations and financial services.
8 Reclassification of sales incentive accruals on receivables sold to financial services.
9 Reclassification of net pension assets / liabilities.
10 Reclassification of deferred tax assets / liabilities in the same taxing jurisdictions.
11 Elimination of financial services’ equity.
45
| | | | | | | | | | | | | | | | | | | | | | | | | | |
DEERE & COMPANY | | | ||||||||||||||||||||||||
SUPPLEMENTAL CONSOLIDATING DATA (Continued) | | | ||||||||||||||||||||||||
STATEMENT OF CASH FLOWS | | | ||||||||||||||||||||||||
For the Three Months Ended January 31, 2021 and February 2, 2020 | | | ||||||||||||||||||||||||
(In millions of dollars) Unaudited | | | ||||||||||||||||||||||||
| | EQUIPMENT OPERATIONS1 | | FINANCIAL SERVICES | | ELIMINATIONS | | CONSOLIDATED | | | ||||||||||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | | | ||||||||
Cash Flows from Operating Activities |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Net income | | $ | 1,020 | | $ | 381 | | $ | 204 | | $ | 137 | | | | | | | | $ | 1,224 | | $ | 518 | | |
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Provision (credit) for credit losses | |
| (2) | |
| 1 | |
| (3) | |
| 14 | |
| | |
| | |
| (5) | |
| 15 | | |
Provision for depreciation and amortization | |
| 279 | |
| 261 | |
| 294 | |
| 311 | | $ | (35) | | $ | (34) | |
| 538 | |
| 538 | 12 | |
Impairment charges | | | 50 | |
| | | | | | | | | | | | | | | | 50 | | | | | |
Share-based compensation expense | | | | |
| | | | | | | | | | 15 | | | 19 | | | 15 | | | 19 | 13 | |
Undistributed earnings of unconsolidated affiliates | |
| 154 | |
| 126 | |
| (1) | |
| (1) | |
| (135) | |
| (125) | |
| 18 | |
| | 14 | |
Credit for deferred income taxes | |
| (27) | |
| (7) | |
| (11) | |
| (22) | |
| | |
| | |
| (38) | |
| (29) | | |
Changes in assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trade, notes, and financing receivables related to sales | |
| 156 | |
| 312 | | | | | | | | | (253) | | | (242) | | | (97) | | | 70 | 15, 17, 18 | |
Inventories | |
| (842) | |
| (530) | | | | | | | | | (84) | | | (112) | | | (926) | | | (642) | 16 | |
Accounts payable and accrued expenses | |
| (529) | |
| (1,058) | |
| (53) | |
| (19) | |
| (123) | |
| (57) | |
| (705) | |
| (1,134) | 17 | |
Accrued income taxes payable/receivable | |
| 173 | |
| (43) | |
| (43) | |
| (10) | |
| | |
| | |
| 130 | |
| (53) | | |
Retirement benefits | |
| (16) | |
| 30 | |
| 2 | |
| 6 | |
| | |
| | |
| (14) | |
| 36 | | |
Other | |
| (68) | |
| 147 | |
| 31 | |
| 30 | |
| (10) | |
| (23) | |
| (47) | |
| 154 | 12, 13, 16 | |
Net cash provided by (used for) operating activities | |
| 348 | |
| (380) | |
| 420 | |
| 446 | |
| (625) | |
| (574) | |
| 143 | |
| (508) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | | | | | | | | | | | | | | | |
Collections of receivables (excluding receivables related to sales) | | | | | | | |
| 6,416 | |
| 6,056 | |
| (417) | |
| (392) | |
| 5,999 | |
| 5,664 | 15 | |
Proceeds from maturities and sales of marketable securities | |
| | |
| | |
| 20 | |
| 18 | |
| | |
| | |
| 20 | |
| 18 | | |
Proceeds from sales of equipment on operating leases | | | | | | | |
| 460 | |
| 426 | |
| | |
| | |
| 460 | |
| 426 | | |
Cost of receivables acquired (excluding receivables related to sales) | | | | | | | |
| (5,559) | |
| (4,569) | |
| 259 | |
| 266 | |
| (5,300) | |
| (4,303) | 15 | |
Acquisitions of businesses, net of cash acquired | | | (19) | | | | |
| | |
| | |
| | |
| | |
| (19) | |
| | | |
Purchases of marketable securities | | | | |
| | |
| (39) | |
| (34) | |
| | |
| | |
| (39) | |
| (34) | | |
Purchases of property and equipment | |
| (154) | |
| (271) | |
| | |
| | |
| | |
| | |
| (154) | |
| (271) | | |
Cost of equipment on operating leases acquired | | | | | | | |
| (408) | |
| (669) | |
| 114 | |
| 152 | |
| (294) | |
| (517) | 16 | |
Increase in trade and wholesale receivables | | | | | | | |
| (523) | |
| (382) | |
| 523 | |
| 382 | |
| | |
| | 15 | |
Collateral on derivatives – net | | | | | | | | | (88) | | | 26 | | | | | | | | | (88) | | | 26 | | |
Other | |
| (8) | |
| (9) | |
| (9) | |
| (15) | |
| 11 | |
| 41 | |
| (6) | |
| 17 | 18 | |
Net cash provided by (used for) investing activities | |
| (181) | |
| (280) | |
| 270 | |
| 857 | |
| 490 | |
| 449 | |
| 579 | |
| 1,026 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | | | | | | | | | | | | | | | |
Increase (decrease) in total short-term borrowings | |
| (20) | |
| 20 | |
| (675) | |
| (493) | |
| | |
| | |
| (695) | |
| (473) | | |
Change in intercompany receivables/payables | |
| 264 | |
| 572 | |
| (264) | |
| (572) | |
| | |
| | |
| | |
| | | |
Proceeds from long-term borrowings | |
| | |
| 167 | |
| 1,757 | |
| 1,535 | |
| | |
| | |
| 1,757 | |
| 1,702 | | |
Payments of long-term borrowings | |
| (20) | |
| (83) | |
| (1,421) | |
| (1,568) | |
| | |
| | |
| (1,441) | |
| (1,651) | | |
Proceeds from issuance of common stock | |
| 71 | |
| 53 | | | | | | | | | | | | | | | 71 | | | 53 | | |
Repurchases of common stock | |
| (352) | |
| (114) | | | | | | | | | | | | | | | (352) | | | (114) | | |
Dividends paid | |
| (242) | |
| (242) | |
| (135) | | | (125) | |
| 135 | | | 125 | |
| (242) | | | (242) | 14 | |
Other | |
| (22) | |
| (29) | |
| (9) | |
| (9) | |
| | |
| | |
| (31) | |
| (38) | | |
Net cash provided by (used for) financing activities | |
| (321) | |
| 344 | |
| (747) | |
| (1,232) | |
| 135 | |
| 125 | |
| (933) | |
| (763) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | |
| 83 | |
| 3 | |
| 20 | |
| (4) | |
| | |
| | |
| 103 | |
| (1) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | |
| (71) | |
| (313) | |
| (37) | |
| 67 | |
| | |
| | |
| (108) | |
| (246) | | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | |
| 6,156 | |
| 3,196 | |
| 1,016 | |
| 760 | |
| | |
| | |
| 7,172 | |
| 3,956 | | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | | $ | 6,085 | | $ | 2,883 | | $ | 979 | | $ | 827 | | | | | | | | $ | 7,064 | | $ | 3,710 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
1 The equipment operations represents the enterprise without financial services. The equipment operations includes the Company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services.
12 Elimination of depreciation on leases related to inventory transferred to equipment on operating leases (see Note 2).
13 Reclassification of share-based compensation expense.
14 Elimination of dividends from financial services to the equipment operations, which are included in the equipment operations net cash provided by operating activities, and capital investments in financial services from the equipment operations.
15 Primarily reclassification of receivables related to the sale of equipment.
16 Reclassification of lease agreements with direct customers.
17 Reclassification of sales incentive accruals on receivables sold to financial services.
18 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.
4746
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the Company’s most recent annual report filed 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 February 2, 2020,January 31, 2021, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act. The Company implemented a new system for lessee accounting with the adoption of ASU No. 2016-02, Leases. The Company began using this system on November 4, 2019 to account for all lease transactions when the Company is the user of the equipment. In addition, controls were implemented to properly account for leasing arrangements in accordance with the new lease standard. During the first quarter, there were no other changes that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
48
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, and trademark matters. Item 103 of the SEC’s Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions that John Deere reasonably believes could exceed $100,000.$300,000. The following matter is disclosed solely pursuant to that requirement: on October 3, 2018, the Provincia Santa Fe Ministerio de Medio Ambiente of Argentina issued a Notice of Violation to Industrias John Deere Argentina in connection with alleged groundwater contamination at the site; the Company worked with the appropriate authorities to implement corrective actions to remediate the site. On December 16, 2019, the Provincia Santa Fe Ministerio de Medio Ambiente issued a Notice of FineFine. The current amount of the fine is approximately $328,000;$296,000. The Company has filed an appeal with the Company is determining its response.Provincia Santa Fe Ministerio de Medio Ambiente. The Company believes the reasonably possible range of losses for this and other unresolved legal actions would not have a material effect on its financial statements.
Item 1A. Risk Factors
See the Company’s most recent annual report filed 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 “Safe Harbor Statement” 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.
47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company’s purchases of its common stock during the first quarter of 20202021 were as follows:
| | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| Total Number of |
| |
|
| |
| | |
| Total Number of |
| |
|
| | | | | | | Shares Purchased as | | Maximum Number of |
| | | | | | | Shares Purchased as | | Maximum Number of |
|
| | Total Number of | | | | | Part of Publicly | | Shares that May Yet Be |
| | Total Number of | | | | | Part of Publicly | | Shares that May Yet Be |
|
| | Shares | | | | | Announced Plans or | | Purchased under the |
| | Shares | | | | | Announced Plans or | | Purchased under the |
|
| | Purchased (2) | | Average Price | | Programs (1) | | Plans or Programs (1) |
| | Purchased (2) | | Average Price | | Programs (1) | | Plans or Programs (1) |
| ||
Period | | (thousands) | | Paid Per Share | | (thousands) | | (millions) |
| | (thousands) | | Paid Per Share | | (thousands) | | (millions) |
| ||
Nov 4 to Dec 1 | | 79 |
| $ | 175.18 | | 79 | | 6.7 | | ||||||||||
Dec 2 to Dec 29 | | 156 | | | 169.97 | | 70 | | 57.1 | | ||||||||||
Dec 30 to Feb 2 | | 426 | | | 173.17 | | 426 | | 56.6 | | ||||||||||
Nov 2 to Nov 29 | | 369 |
| $ | 251.45 | | 369 | | 28.6 | | ||||||||||
Nov 30 to Dec 27 | | 336 | | | 257.00 | | 297 | | 28.3 | | ||||||||||
Dec 28 to Jan 31 | | 587 | | | 294.36 | | 587 | | 27.7 | | ||||||||||
Total | | 661 | | | | | 575 | | | | | 1,292 | | | | | 1,253 | | | |
(1) | During the first quarter of |
(2) | In the first quarter of |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
49
Item 5. Other Information
Not applicable.
48
Item 6. Exhibits
Certain instruments relating to long-term borrowings constituting less than 10%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) | |
| |
* Incorporated by reference. Copies of these exhibits are available from the Company upon request.
5049
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: | February | | By: | /s/ Ryan D. Campbell |
| | | | Ryan D. Campbell |
| | | | (Principal Financial Officer and Principal Accounting Officer) |
5150