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DE Deere & Co.

Filed: 27 May 21, 1:21pm
0000315189us-gaap:AccountingStandardsUpdate201904Member2021-05-02

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended May 2, 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
(State of incorporation)

36-2382580
(IRS employer identification no.)

One John Deere Place

Moline, Illinois 61265

(Address of principal executive offices)

Telephone Number: (309) 765-8000

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

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock, $1 par value

DE

New York Stock Exchange

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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

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

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

Yes No 

 

At May 2, 2021, 311,942,092 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 May 2, 2021 and May 3, 2020

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

    

2021

    

2020

 

Net Sales and Revenues

Net sales

 

$

10,998

$

8,224

Finance and interest income

809

 

849

Other income

251

 

180

Total

12,058

 

9,253

Costs and Expenses

Cost of sales

7,928

 

6,294

Research and development expenses

377

 

406

Selling, administrative and general expenses

838

 

906

Interest expense

268

 

342

Other operating expenses

335

 

377

Total

9,746

 

8,325

Income of Consolidated Group before Income Taxes

2,312

 

928

Provision for income taxes

530

 

245

Income of Consolidated Group

1,782

 

683

Equity in income (loss) of unconsolidated affiliates

8

 

(17)

Net Income

1,790

 

666

Less: Net income attributable to noncontrolling interests

 

Net Income Attributable to Deere & Company

 

$

1,790

$

666

Per Share Data

Basic

 

$

5.72

$

2.13

Diluted

 

$

5.68

$

2.11

Average Shares Outstanding

Basic

312.8

 

313.2

Diluted

315.2

 

316.2

See Condensed Notes to Interim Consolidated Financial Statements.

2

DEERE & COMPANY

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

For the Three Months Ended May 2, 2021 and May 3, 2020

(In millions of dollars) Unaudited

    

2021

    

2020

 

 

Net Income

 

$

1,790

$

666

Other Comprehensive Income (Loss), Net of Income Taxes

Retirement benefits adjustment

91

 

57

Cumulative translation adjustment

37

 

(441)

Unrealized gain (loss) on derivatives

3

 

(8)

Unrealized gain (loss) on debt securities

(13)

 

6

Other Comprehensive Income (Loss), Net of Income Taxes

118

 

(386)

Comprehensive Income of Consolidated Group

1,908

 

280

Less: Comprehensive income attributable to noncontrolling interests

 

Comprehensive Income Attributable to Deere & Company

 

$

1,908

$

280

See Condensed Notes to Interim Consolidated Financial Statements.

3

DEERE & COMPANY

STATEMENT OF CONSOLIDATED INCOME

For the Six Months Ended May 2, 2021 and May 3, 2020

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

    

2021

    

2020

 

Net Sales and Revenues

Net sales

 

$

19,049

$

14,754

Finance and interest income

1,644

 

1,745

Other income

477

 

385

Total

21,170

 

16,884

Costs and Expenses

Cost of sales

13,734

 

11,371

Research and development expenses

743

 

831

Selling, administrative and general expenses

1,607

 

1,715

Interest expense

538

 

678

Other operating expenses

708

 

792

Total

17,330

 

15,387

Income of Consolidated Group before Income Taxes

3,840

 

1,497

Provision for income taxes

838

 

295

Income of Consolidated Group

3,002

 

1,202

Equity in income (loss) of unconsolidated affiliates

12

 

(18)

Net Income

3,014

 

1,184

Less: Net income attributable to noncontrolling interests

1

 

2

Net Income Attributable to Deere & Company

 

$

3,013

$

1,182

Per Share Data

Basic

 

$

9.62

$

3.77

Diluted

 

$

9.55

$

3.73

Average Shares Outstanding

Basic

313.1

 

313.3

Diluted

315.6

 

316.7

See Condensed Notes to Interim Consolidated Financial Statements.

4

DEERE & COMPANY

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

For the Six Months Ended May 2, 2021 and May 3, 2020

(In millions of dollars) Unaudited

    

2021

    

2020

 

 

Net Income

 

$

3,014

$

1,184

Other Comprehensive Income (Loss), Net of Income Taxes

Retirement benefits adjustment

154

 

287

Cumulative translation adjustment

433

 

(398)

Unrealized gain (loss) on derivatives

7

 

(8)

Unrealized gain (loss) on debt securities

(15)

 

11

Other Comprehensive Income (Loss), Net of Income Taxes

579

 

(108)

Comprehensive Income of Consolidated Group

3,593

 

1,076

Less: Comprehensive income attributable to noncontrolling interests

1

 

2

Comprehensive Income Attributable to Deere & Company

 

$

3,592

$

1,074

See Condensed Notes to Interim Consolidated Financial Statements.

5

DEERE & COMPANY

CONDENSED CONSOLIDATED BALANCE SHEET

(In millions of dollars) Unaudited

    

May 2 

    

November 1

    

May 3 

 

2021

2020

2020

 

Assets

Cash and cash equivalents

 

$

7,182

$

7,066

$

8,900

Marketable securities

668

 

641

 

626

Receivables from unconsolidated affiliates

31

 

31

 

32

Trade accounts and notes receivable – net

6,158

 

4,171

 

5,986

Financing receivables – net

30,994

 

29,750

 

27,256

Financing receivables securitized – net

4,107

 

4,703

 

4,685

Other receivables

1,473

 

1,220

 

1,212

Equipment on operating leases – net

7,108

 

7,298

 

7,245

Inventories

6,042

 

4,999

 

6,171

Property and equipment – net

5,704

 

5,817

 

5,685

Investments in unconsolidated affiliates

182

 

193

 

192

Goodwill

3,190

 

3,081

 

2,917

Other intangible assets – net

1,310

 

1,327

 

1,311

Retirement benefits

951

 

863

 

960

Deferred income taxes

1,724

 

1,499

 

1,435

Other assets

2,155

 

2,432

 

2,713

Total Assets

 

$

78,979

$

75,091

$

77,326

Liabilities and Stockholders’ Equity

Liabilities

Short-term borrowings

$

9,911

$

8,582

$

11,179

Short-term securitization borrowings

4,106

 

4,682

 

4,640

Payables to unconsolidated affiliates

155

 

105

 

91

Accounts payable and accrued expenses

10,527

 

10,112

 

9,072

Deferred income taxes

533

 

519

 

475

Long-term borrowings

33,346

 

32,734

 

34,324

Retirement benefits and other liabilities

5,305

 

5,413

 

5,680

Total liabilities

63,883

 

62,147

 

65,461

Commitments and contingencies (Note 18)

Stockholders’ Equity

Common stock, $1 par value (issued shares at
May 2, 2021 – 536,431,204)

4,999

 

4,895

 

4,713

Common stock in treasury

(19,052)

 

(18,065)

 

(17,690)

Retained earnings

34,105

 

31,646

 

30,556

Accumulated other comprehensive income (loss)

(4,960)

 

(5,539)

 

(5,715)

Total Deere & Company stockholders’ equity

15,092

 

12,937

 

11,864

Noncontrolling interests

4

 

7

 

1

Total stockholders’ equity

15,096

 

12,944

 

11,865

Total Liabilities and Stockholders’ Equity

$

78,979

$

75,091

$

77,326

See Condensed Notes to Interim Consolidated Financial Statements.

6

DEERE & COMPANY

STATEMENT OF CONSOLIDATED CASH FLOWS

For the Six Months Ended May 2, 2021 and May 3, 2020

(In millions of dollars) Unaudited

    

2021

    

2020

 

Cash Flows from Operating Activities

              

              

Net income

 

$

3,014

$

1,184

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

Provision (credit) for credit losses

(24)

 

107

Provision for depreciation and amortization

1,054

 

1,067

Impairment charges

50

 

114

Share-based compensation expense

45

 

48

Undistributed earnings of unconsolidated affiliates

11

 

(8)

Credit for deferred income taxes

(213)

 

(61)

Changes in assets and liabilities:

Trade, notes, and financing receivables related to sales

(1,124)

 

(491)

Inventories

(1,193)

 

(496)

Accounts payable and accrued expenses

318

 

(707)

Accrued income taxes payable/receivable

54

 

(173)

Retirement benefits

(5)

 

58

Other

(201)

 

134

Net cash provided by operating activities

1,786

 

776

Cash Flows from Investing Activities

Collections of receivables (excluding receivables related to sales)

10,367

 

9,624

Proceeds from maturities and sales of marketable securities

47

 

39

Proceeds from sales of equipment on operating leases

1,011

 

898

Cost of receivables acquired (excluding receivables related to sales)

(11,359)

 

(9,367)

Acquisitions of businesses, net of cash acquired

(19)

 

Purchases of marketable securities

(74)

 

(71)

Purchases of property and equipment

(320)

 

(441)

Cost of equipment on operating leases acquired

(764)

 

(960)

Collateral on derivatives – net

(255)

319

Other

(21)

 

(11)

Net cash provided by (used for) investing activities

(1,387)

 

30

Cash Flows from Financing Activities

Increase in total short-term borrowings

212

 

1,138

Proceeds from long-term borrowings

3,967

 

7,275

Payments of long-term borrowings

(3,157)

 

(3,315)

Proceeds from issuance of common stock

116

 

70

Repurchases of common stock

(1,044)

 

(263)

Dividends paid

(480)

 

(481)

Other

(55)

 

(81)

Net cash provided by (used for) financing activities

(441)

 

4,343

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

151

 

(102)

Net Increase in Cash, Cash Equivalents, and Restricted Cash

109

5,047

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

7,172

 

3,956

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

$

7,281

$

9,003

See Condensed Notes to Interim Consolidated Financial Statements.

7

DEERE & COMPANY

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Three and Six Months Ended May 2, 2021 and May 3, 2020

(In millions of dollars) Unaudited

Total Stockholders’ Equity

Deere & Company Stockholders

 

Accumulated

Total

Other

Redeemable

Stockholders’

Common

Treasury

Retained

Comprehensive

Noncontrolling

Noncontrolling

  

Equity

  

Stock

  

Stock

  

Earnings

  

Income (Loss)

  

Interests

  

  

Interest

 

 

Three Months Ended May 3, 2020

Balance February 2, 2020

   

$

11,930

$

4,675

$

(17,549)

$

30,129

$

(5,329)

$

4

$

14

Net income

 

666

666

Other comprehensive loss

 

(386)

(386)

Repurchases of common stock

 

(149)

(149)

Treasury shares reissued

 

8

8

Dividends declared

 

(241)

(238)

(3)

Noncontrolling interest redemption (Note 22)

(14)

Stock options and other

 

37

38

(1)

Balance May 3, 2020

$

11,865

$

4,713

$

(17,690)

$

30,556

$

(5,715)

$

1

Six Months Ended May 3, 2020

 

 

Balance November 3, 2019

   

$

11,417

$

4,642

$

(17,474)

$

29,852

$

(5,607)

$

4

$

14

 

Net income

 

1,183

1,182

1

1

Other comprehensive loss

 

(108)

(108)

Repurchases of common stock

 

(263)

(263)

Treasury shares reissued

 

47

47

Dividends declared

 

(480)

(477)

(3)

(1)

Noncontrolling interest redemption (Note 22)

(14)

Stock options and other

 

69

71

(1)

(1)

Balance May 3, 2020

$

11,865

$

4,713

$

(17,690)

$

30,556

$

(5,715)

$

1

Three Months Ended May 2, 2021

Balance January 31, 2021

$

14,086

$

4,942

$

(18,377)

$

32,596

$

(5,078)

$

3

Net income

1,790

1,790

Other comprehensive income

118

118

Repurchases of common stock

(692)

(692)

Treasury shares reissued

17

17

Dividends declared

(282)

(282)

Stock options and other

59

57

1

1

Balance May 2, 2021

$

15,096

$

4,999

$

(19,052)

$

34,105

$

(4,960)

$

4

Six Months Ended May 2, 2021

��

Balance November 1, 2020

$

12,944

$

4,895

$

(18,065)

$

31,646

$

(5,539)

$

7

ASU No. 2016-13 adoption (Note 3)

(35)

(35)

Net income

3,014

3,013

1

Other comprehensive income

579

579

Repurchases of common stock

(1,044)

(1,044)

Treasury shares reissued

57

57

Dividends declared

(520)

(520)

Stock options and other

101

104

1

(4)

Balance May 2, 2021

$

15,096

$

4,999

$

(19,052)

$

34,105

$

(4,960)

$

4

See Condensed Notes to Interim Consolidated Financial Statements.

8

Condensed Notes to Interim Consolidated Financial Statements (Unaudited)

(1)  Organization and Consolidation

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

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

Equipment Operations – Represents the enterprise without financial services, while including 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.

Financial ServicesIncludes primarily the Company’s financing operations.

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 second quarter ends for fiscal year 2021 and 2020 were May 2, 2021 and May 3, 2020, respectively. Both second quarters contained 13 weeks, while both year-to-date periods contained 26 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 one additional month of Wirtgen activity in the first quarter and the year-to-date period. 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 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 $13 million at May 2, 2021, November 1, 2020, and May 3, 2020, 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 the disclosures are adequate to present fairly the financial position, results of operations, and cash flows at the dates and for the periods presented. It is suggested these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. The COVID pandemic has resulted in uncertainties in the Company’s business, which may result in actual results differing from those estimates.

9

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 $267 million and $254 million in the first six months of 2021 and 2020, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $40 million and $46 million at May 2, 2021 and May 3, 2020, respectively.

The Company’s restricted cash held at May 2, 2021, November 1, 2020, May 3, 2020, and November 3, 2019 was as follows in millions of dollars:

May 2 

November 1

May 3 

November 3

2021

2020

2020

2019

Equipment operations

$

12

$

11

$

11

$

21

Financial services

87

95

92

78

Total

$

99

$

106

$

103

$

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 2021, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes Accounting Standards Codification (ASC) 326, Financial Instruments - Credit Losses. This ASU was adopted using a modified-retrospective approach. The ASU, along with related 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.

The Company holds deposits from dealers (dealer deposits), which are recorded in “Accounts payable and accrued liabilities” to absorb certain credit losses. Prior to adopting this ASU, the allowance for credit losses was estimated on probable credit losses incurred after consideration of recoveries from dealer deposits. The ASU considers dealer deposits and certain credit insurance contracts as freestanding credit enhancements. As a result, after adoption, credit losses recovered from dealer deposits and certain credit insurance contracts are presented in “Other income” and no longer as part of the allowance 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.

The effects of adopting the ASU on the consolidated balance sheet were as 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

10

Note 11 contains additional disclosures as well as the Company’s updated allowance for credit losses accounting policy.

The Company also adopted the following standards in 2021, none of which had a material effect on the Company’s consolidated financial statements:

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 following standards in future periods, none of which are expected to have a material effect on the Company’s consolidated financial statements:

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

 

   

(4)  Revenue Recognition

The Company’s revenue by primary geographical market, major product line, and timing of revenue recognition was as follows in millions of dollars:

Three Months Ended May 2, 2021

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographical markets:

             

             

United States

$

2,211

$

1,838

$

1,481

$

608

$

6,138

Canada

252

144

320

 

153

 

869

Western Europe

589

738

514

 

26

 

1,867

Central Europe and CIS

531

160

209

 

9

 

909

Latin America

700

103

220

 

60

 

1,083

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

319

444

393

36

1,192

Total

$

4,602

$

3,427

$

3,137

$

892

$

12,058

Major product lines:

             

             

Production agriculture

$

4,466

$

4,466

Small agriculture

$

2,417

 

 

2,417

Turf

898

 

 

898

Construction

$

1,232

 

 

1,232

Compact construction

396

396

Roadbuilding

1,066

 

 

1,066

Forestry

343

 

 

343

Financial products

12

10

5

$

892

 

919

Other

124

102

95

 

 

321

Total

$

4,602

$

3,427

$

3,137

$

892

$

12,058

Timing of revenue recognition:

             

             

Revenue recognized at a point in time

$

4,562

$

3,412

$

3,114

$

26

$

11,114

Revenue recognized over time

40

15

23

866

944

Total

$

4,602

$

3,427

$

3,137

$

892

$

12,058

11

    

Six Months Ended May 2, 2021

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographical markets:

United States

$

3,820

$

3,261

$

2,683

$

1,206

$

10,970

Canada

364

223

508

 

307

 

1,402

Western Europe

1,038

1,224

953

 

50

 

3,265

Central Europe and CIS

692

244

387

 

18

 

1,341

Latin America

1,213

180

390

 

119

 

1,902

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

623

845

746

76

2,290

Total

$

7,750

$

5,977

$

5,667

$

1,776

$

21,170

Major product lines:

             

             

Production agriculture

$

7,478

$

7,478

Small agriculture

$

4,228

 

 

4,228

Turf

1,549

 

 

1,549

Construction

$

2,119

 

 

2,119

Compact construction

742

742

Roadbuilding

1,976

 

 

1,976

Forestry

633

 

633

Financial products

28

20

12

$

1,776

 

1,836

Other

244

180

185

 

 

609

Total

$

7,750

$

5,977

$

5,667

$

1,776

$

21,170

Timing of revenue recognition:

             

             

Revenue recognized at a point in time

$

7,668

$

5,946

$

5,614

$

50

$

19,278

Revenue recognized over time

82

31

53

1,726

1,892

Total

$

7,750

$

5,977

$

5,667

$

1,776

$

21,170

Three Months Ended May 3, 2020

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographical markets:

             

             

United States

$

1,841

$

1,540

$

1,263

$

604

$

5,248

Canada

177

89

166

 

151

 

583

Western Europe

540

571

358

22

 

1,491

Central Europe and CIS

258

80

140

8

 

486

Latin America

394

64

135

60

 

653

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

221

290

251

30

792

Total

$

3,431

$

2,634

$

2,313

$

875

$

9,253

Major product lines:

             

             

Production agriculture

$

3,280

$

3,280

Small agriculture

$

1,771

 

 

1,771

Turf

806

 

 

806

Construction

$

877

 

 

877

Compact construction

339

339

Roadbuilding

723

 

 

723

Forestry

254

 

 

254

Financial products

13

8

6

$

875

 

902

Other

138

49

114

 

 

301

Total

$

3,431

$

2,634

$

2,313

$

875

$

9,253

Timing of revenue recognition:

             

             

Revenue recognized at a point in time

$

3,396

$

2,620

$

2,287

$

26

$

8,329

Revenue recognized over time

35

14

26

849

924

Total

$

3,431

$

2,634

$

2,313

$

875

$

9,253

12

Six Months Ended May 3, 2020

    

Production & Precision Ag

    

Small Ag & Turf

    

Construction
& Forestry

    

Financial
Services

    

Total

Primary geographical markets:

United States

$

3,276

$

2,605

$

2,283

$

1,247

$

9,411

Canada

261

143

338

307

 

1,049

Western Europe

905

984

697

44

 

2,630

Central Europe and CIS

389

169

299

18

 

875

Latin America

778

135

294

126

 

1,333

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

410

605

507

64

1,586

Total

$

6,019

$

4,641

$

4,418

$

1,806

$

16,884

Major product lines:

             

             

Production agriculture

$

5,706

$

5,706

Small agriculture

$

3,249

 

3,249

Turf

1,274

 

1,274

Construction

$

1,718

 

1,718

Compact construction

627

627

Roadbuilding

1,328

 

1,328

Forestry

528

 

528

Financial products

34

14

13

$

1,806

 

1,867

Other

279

104

204

 

587

Total

$

6,019

$

4,641

$

4,418

$

1,806

$

16,884

Timing of revenue recognition:

             

             

Revenue recognized at a point in time

$

5,941

$

4,615

$

4,366

$

52

$

14,974

Revenue recognized over time

78

26

52

1,754

1,910

Total

$

6,019

$

4,641

$

4,418

$

1,806

$

16,884

Following is a description of the Company’s major product lines:

Production agriculture – Includes net sales of large and certain mid-size tractors and associated attachments, combines, cotton pickers, cotton strippers, and sugarcane harvesters, 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 mid-size and utility tractors, 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, golf course equipment, utility vehicles, and commercial mowing equipment, along with a broad line of associated implements, other outdoor power products, and related 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.

13

Other – Includes sales of components to other equipment manufacturers that are included in “Net sales”; and revenue earned over time from precision guidance, telematics, and other information enabled solutions, revenue from service performed at Company owned dealerships and service centers, gains on disposition of property and businesses, trademark licensing revenue, and other miscellaneous revenue items that are included in “Other income.”

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 18, was $1,249 million, $1,090 million, and $1,077 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively. The contract liability is reduced as the revenue is recognized. During the three months ended May 2, 2021 and May 3, 2020, $111 million and $97 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year. During the six months ended May 2, 2021 and May 3, 2020, $335 million and $278 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 May 2, 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 $962 million at May 2, 2021. The estimated revenue to be recognized by fiscal year follows in millions of dollars: remainder of 2021 - $199, 2022 - $318, 2023 - $224, 2024 - $130, 2025 - $58, 2026 - $30 and later years - $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, and to a much lesser extent in 2021, 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 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 since the beginning of the pandemic that remained outstanding at May 2, 2021 was not material.

(5)Other Comprehensive Income Items

The after-tax changes in accumulated other comprehensive income (loss) was as follows in millions of dollars:

    

    

    

    

    

Total

 

Unrealized

Unrealized

Accumulated

Retirement

Cumulative

Gain (Loss)

Gain (Loss)

Other

Benefits

Translation

on

on

Comprehensive

Adjustment

Adjustment

Derivatives

Debt Securities

Income (Loss)

Balance November 3, 2019

$

(3,915)

$

(1,651)

 

$

(60)

$

19

$

(5,607)

Other comprehensive income (loss) items before reclassification

 

186

(398)

(13)

11

 

(214)

Amounts reclassified from accumulated other comprehensive income

 

101

5

 

106

Net current period other comprehensive income (loss)

 

287

 

(398)

 

(8)

 

11

 

(108)

Balance May 3, 2020

$

(3,628)

$

(2,049)

$

(68)

$

30

$

(5,715)

Balance November 1, 2020

$

(3,918)

$

(1,596)

$

(58)

$

33

$

(5,539)

Other comprehensive income (loss) items before reclassification

31

433

(15)

449

Amounts reclassified from accumulated other comprehensive income

123

7

130

Net current period other comprehensive income (loss)

154

433

7

(15)

579

Balance May 2, 2021

$

(3,764)

 

$

(1,163)

 

$

(51)

 

$

18

 

$

(4,960)

14

Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, in millions of dollars. Retirement benefits adjustment reclassifications for actuarial gain (loss), prior service (credit) cost, and settlements are included in net periodic pension and other postretirement benefit costs (see Note 8).

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Three Months Ended May 2, 2021

Amount

Credit

Amount

 

Cumulative translation adjustment

$

37

$

37

Unrealized gain (loss) on derivatives:

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

4

$

(1)

3

Net unrealized gain (loss) on derivatives

4

(1)

3

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

(14)

1

(13)

Net unrealized gain (loss) on debt securities

(14)

1

(13)

Retirement benefits adjustment:

Net actuarial gain (loss)

41

(9)

32

Reclassification to Other operating expenses through amortization of:

Actuarial (gain) loss

72

(19)

53

Prior service (credit) cost

2

2

Settlements

5

(1)

4

Net unrealized gain (loss) on retirement benefits adjustment

120

(29)

91

Total other comprehensive income (loss)

 

$

147

$

(29)

$

118

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Six Months Ended May 2, 2021

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

431

$

2

$

433

Unrealized gain (loss) on derivatives:

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

9

(2)

7

Net unrealized gain (loss) on derivatives

9

(2)

7

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

(17)

2

(15)

Net unrealized gain (loss) on debt securities

(17)

2

(15)

Retirement benefits adjustment:

Net actuarial gain (loss)

40

(9)

31

Reclassification to Other operating expenses through amortization of:

Actuarial (gain) loss

142

(36)

106

Prior service (credit) cost

4

(1)

3

Settlements

18

(4)

14

Net unrealized gain (loss) on retirement benefits adjustment

204

(50)

154

Total other comprehensive income (loss)

 

$

627

$

(48)

$

579

15

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Three Months Ended May 3, 2020

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

(441)

$

(441)

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

(15)

$

3

(12)

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

4

4

Net unrealized gain (loss) on derivatives

(11)

3

(8)

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

8

(2)

6

Net unrealized gain (loss) on debt securities

8

(2)

6

Retirement benefits adjustment:

Net actuarial gain (loss)

1

(1)

Reclassification to Other operating expenses through amortization of:

Actuarial (gain) loss

69

(17)

52

Prior service (credit) cost

2

2

Settlements

3

3

Net unrealized gain (loss) on retirement benefits adjustment

75

(18)

57

Total other comprehensive income (loss)

 

$

(369)

$

(17)

$

(386)

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Six Months Ended May 3, 2020

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

(398)

 

$

(398)

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

(17)

$

4

(13)

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

6

(1)

5

Net unrealized gain (loss) on derivatives

(11)

3

(8)

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

14

(3)

11

Net unrealized gain (loss) on debt securities

14

(3)

11

Retirement benefits adjustment:

Net actuarial gain (loss)

247

(61)

186

Reclassification to Other operating expenses through amortization of:

Actuarial (gain) loss

138

(45)

93

Prior service (credit) cost

4

(1)

3

Settlements

6

(1)

5

Net unrealized gain (loss) on retirement benefits adjustment

395

(108)

287

Total other comprehensive income (loss)

 

$

(108)

$

(108)

   

(6)Dividends Declared and Paid

Dividends declared and paid on a per share basis were as follows:

Three Months Ended 

Six Months Ended 

 

May 2 

May 3 

May 2 

May 3 

 

2021

2020

2021

2020

 

Dividends declared

    

$

.90

    

$

.76

    

$

1.66

    

$

1.52

Dividends paid

$

.76

$

.76

$

1.52

$

1.52

 

16

(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 

Six Months Ended

 

May 2 

May 3 

May 2 

May 3 

 

2021

2020

2021

2020

 

Net income attributable to Deere & Company

    

$

1,790

    

$

666

    

$

3,013

    

$

1,182

Average shares outstanding

312.8

 

313.2

313.1

 

313.3

Basic per share

$

5.72

$

2.13

$

9.62

$

3.77

Average shares outstanding

312.8

 

313.2

313.1

 

313.3

Effect of dilutive share-based compensation

2.4

 

3.0

2.5

 

3.4

Total potential shares outstanding

315.2

 

316.2

315.6

 

316.7

Diluted per share

$

5.68

$

2.11

$

9.55

$

3.73

During the second quarter and first six months of 2021, 0 shares were antidilutive. During the second quarter and first six months of 2020, 1.0 million shares and .6 million shares, respectively, were excluded from the above per share computation because the incremental shares would have been antidilutive.

(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

Six Months Ended

 

May 2 

May 3 

May 2 

May 3 

 

2021

2020

2021

2020

 

Service cost

    

$

83

    

$

77

    

$

168

    

$

161

Interest cost

69

 

87

138

 

174

Expected return on plan assets

(200)

 

(204)

(400)

 

(409)

Amortization of actuarial loss

65

 

62

128

 

124

Amortization of prior service cost

3

 

3

6

 

6

Settlements

5

 

3

18

 

6

Net cost

$

25

$

28

$

58

$

62

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

 

Three Months Ended

Six Months Ended

 

May 2 

May 3 

May 2 

May 3 

 

2021

2020

2021

2020

 

Service cost

    

$

12

    

$

12

    

$

24

    

$

24

Interest cost

25

 

35

51

 

72

Expected return on plan assets

(20)

 

(12)

(39)

 

(24)

Amortization of actuarial loss

7

 

7

14

 

14

Amortization of prior service credit

(1)

 

(1)

(2)

 

(2)

Curtailments

21

Net cost

$

23

$

41

$

48

$

105

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

17

In the first quarter of 2020, the Company remeasured the U.S. salary OPEB health care plans due to the U.S. voluntary employee-separation program (see Note 22), which resulted in a $21 million curtailment loss.

During the first six months of 2021, the Company contributed approximately $68 million to its pension plans and $85 million to its OPEB plans. The Company presently anticipates contributing an additional $33 million to its pension plans and $757 million to its OPEB plans during the remainder of fiscal year 2021. The anticipated OPEB contributions include a voluntary $700 million in the fourth quarter to a U.S. plan, which will increase plan assets. The pension and OPEB contributions exceeding the voluntary amount primarily include direct benefit payments from Company funds.

(9)  Income Taxes

The Company’s unrecognized tax benefits at May 2, 2021, November 1, 2020, and May 3, 2020 were $751 million, $668 million, and $610 million, respectively. The liability at May 2, 2021, November 1, 2020, and May 3, 2020 consisted of approximately $189 million, $134 million, and $145 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 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

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 four reportable segments.

18

Worldwide net sales and revenues, operating profit, and identifiable assets by segment were as follows in millions of dollars. 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 to net income are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, pension and OPEB benefit costs excluding the service cost component, and net income attributable to noncontrolling interests.

 

Three Months Ended 

Six Months Ended 

 

 

May 2 

May 3 

%

May 2 

May 3 

%

 

  2021   

  2020   

Change

   2021   

   2020   

Change

 

Net sales and revenues:

 

 

  

    

  

    

  

  

    

  

    

Production & precision ag net sales

 

$

4,529

$

3,365

+35

 

$

7,599

$

5,872

+29

Small ag & turf net sales

3,390

2,603

+30

5,904

4,583

+29

Construction & forestry net sales

3,079

 

2,256

+36

5,546

 

4,299

+29

Financial services revenues

892

 

875

+2

1,776

 

1,806

-2

Other revenues

168

 

154

+9

345

 

324

+6

Total net sales and revenues

 

$

12,058

$

9,253

+30

 

$

21,170

$

16,884

+25

Operating profit:

Production & precision ag

 

$

1,007

$

568

+77

 

$

1,651

$

786

+110

Small ag & turf

648

226

+187

1,117

381

+193

Construction & forestry

489

 

96

+409

756

 

189

+300

Financial services

295

 

75

+293

553

 

254

+118

Total operating profit

2,439

 

965

+153

4,077

 

1,610

+153

Reconciling items

(119)

 

(54)

+120

(226)

 

(133)

+70

Income taxes

(530)

 

(245)

+116

(838)

 

(295)

+184

Net income attributable to Deere & Company

 

$

1,790

$

666

+169

 

$

3,013

$

1,182

+155

Intersegment sales and revenues:

Production & precision ag net sales

 

$

7

$

7

 

$

13

$

14

-7

Small ag & turf net sales

4

1

+300

8

1

+700

Construction & forestry net sales

 

Financial services

62

 

93

-33

112

 

159

-30

Outside the U.S. and Canada:

Net sales and revenues

 

$

5,051

$

3,422

+48

 

$

8,798

$

6,424

+37

Operating profit

1,003

 

232

+332

1,633

 

533

+206

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.

 

    

May 2 

    

November 1

May 3 

 

2021

2020

2020

 

Identifiable assets:

Production & precision ag

 

$

6,602

$

5,708

$

6,328

Small ag & turf

3,605

3,266

3,485

Construction & forestry

6,500

 

6,322

 

6,984

Financial services

50,849

 

48,719

 

48,664

Corporate

11,423

 

11,076

 

11,865

Total assets

 

$

78,979

$

75,091

$

77,326

 

19

(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 from the customer is written off to the allowance for credit losses. Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.

Due to the economic effects of COVID, the Company provided short-term payment 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 since the beginning of the pandemic that remained outstanding at May 2, 2021 represented approximately 4 percent of the financing receivables balance. The majority of financing receivables granted short-term relief 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 retail notes, financing leases, and revolving charge accounts (collectively, customer receivables), was as follows in millions of dollars at May 2, 2021:

Year of Origination

2021

2020

2019

2018

2017

Prior

Revolving Charge Accounts

Total

Customer receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

Agriculture and turf

Current

$

6,017

$

8,375

$

4,436

$

2,402

$

1,136

$

494

$

3,221

$

26,081

30-59 days past due

20

64

41

19

10

5

20

179

60-89 days past due

5

34

18

9

4

2

5

77

90+ days past due

1

1

2

Non-performing

2

51

69

54

29

33

16

254

Construction and forestry

Current

1,568

2,077

1,106

454

118

22

81

5,426

30-59 days past due

21

43

35

14

5

1

3

122

60-89 days past due

6

13

12

7

3

1

1

43

90+ days past due

2

10

5

6

3

26

Non-performing

1

38

37

22

11

7

1

117

Total customer receivables

$

7,640

$

10,697

$

5,765

$

2,987

$

1,322

$

568

$

3,348

$

32,327

20

The credit quality analysis of customer receivables was as follows in millions of dollars at November 1, 2020 and May 3, 2020:

November 1, 2020

May 3, 2020

Retail Notes & Financing Leases

Revolving Charge Accounts

Total

Retail Notes & Financing Leases

Revolving Charge Accounts

Total

Customer receivables:

Agriculture and turf

Current

$

21,597

$

3,787

$

25,384

$

19,178

$

3,282

$

22,460

30-59 days past due

135

13

148

215

32

247

60-89 days past due

64

4

68

103

13

116

90+ days past due

2

2

3

3

Non-performing

263

6

269

310

42

352

Construction and forestry

Current

4,859

88

4,947

4,169

78

4,247

30-59 days past due

111

2

113

174

4

178

60-89 days past due

55

1

56

58

2

60

90+ days past due

14

14

18

18

Non-performing

106

1

107

176

1

177

Total customer receivables

$

27,206

$

3,902

$

31,108

$

24,404

$

3,454

$

27,858

The credit quality analysis of wholesale receivables was as follows in millions of dollars at May 2, 2021:

Year of Origination

2021

2020

2019

2018

2017

Prior

Revolving

Total

Wholesale receivables:

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

    

Agriculture and turf

Current

$

191

$

144

$

55

$

13

$

4

$

1

$

2,146

$

2,554

30-59 days past due

60-89 days past due

90+ days past due

Non-performing

22

22

Construction and forestry

Current

5

10

15

1

1

3

341

376

30-59 days past due

60-89 days past due

90+ days past due

Non-performing

Total wholesale receivables

$

196

$

154

$

92

$

14

$

5

$

4

$

2,487

$

2,952

The credit quality analysis of wholesale receivables was as follows in millions of dollars at November 1, 2020 and May 3, 2020:

November 1

May 3

2020

2020

Wholesale receivables:

Agriculture and turf

Current

$

3,010

$

3,704

30-59 days past due

60-89 days past due

90+ days past due

Non-performing

47

62

Construction and forestry

Current

472

510

30-59 days past due

60-89 days past due

90+ days past due

Non-performing

2

Total wholesale receivables

$

3,529

$

4,278

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

21

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. Non-performing financing receivables are included in the estimate of expected credit losses.

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 follows in millions of dollars during the periods:

 

Retail Notes

Revolving

& Financing

Charge

Wholesale

Leases

Accounts

Receivables

Total

Three Months Ended May 2, 2021

Allowance:

    

 

    

    

 

    

    

 

    

    

 

Beginning of period balance

 

$

180

 

$

24

$

7

$

211

Provision (credit)

(17)

(6)

(23)

Write-offs

(15)

(9)

(24)

Recoveries

4

10

14

End of period balance

 

$

152

 

$

19

$

7

$

178

Six Months Ended May 2, 2021

Allowance:

    

Beginning of period balance

 

$

133

 

$

43

$

8

$

184

ASU No. 2016-13 adoption

44

(13)

31

Provision (credit)

(13)

(16)

(1)

(30)

Write-offs

(23)

(14)

(37)

Recoveries

10

19

29

Translation adjustments

1

1

End of period balance

 

$

152

 

$

19

$

7

$

178

Financing receivables:

End of period balance

 

$

28,979

 

$

3,348

$

2,952

$

35,279

   

 

Retail Notes

Revolving

 

& Financing

Charge

Wholesale

 

Leases

Accounts

Receivables

Total

Three Months Ended May 3, 2020

Allowance:

    

    

    

    

    

    

    

    

Beginning of period balance

$

106

 

$

40

$

11

$

157

Provision

 

65

20

 

85

Write-offs

 

(26)

(23)

 

(49)

Recoveries

 

3

6

 

9

Translation adjustments

 

(7)

 

(7)

End of period balance

$

141

$

43

$

11

$

195

Six Months Ended May 3, 2020

Allowance:

    

 

    

    

 

    

    

 

        

    

Beginning of period balance

$

107

 

$

40

$

3

$

150

Provision

 

82

18

6

 

106

Write-offs

 

(45)

(29)

 

(74)

Recoveries

 

6

14

 

20

Translation adjustments

(9)

2

 

(7)

End of period balance

$

141

$

43

$

11

$

195

Financing receivables:

End of period balance

$

24,404

 

$

3,454

$

4,278

$

32,136

22

The allowance for credit losses on financing receivables decreased $33 million in the second quarter of 2021, primarily due to lower expected losses on retail notes and financing leases in the construction and forestry market and better than expected performance of accounts granted payment relief due to the economic effects of COVID. The allowance for credit losses on revolving charge accounts also decreased in the second quarter of 2021, reflecting strong payment performance due to continued improvement in the agricultural market. For the first six months of 2021, the allowance for credit losses on financing receivables decreased slightly, as the reductions noted above were largely offset by the impact of adopting ASU No. 2016-13.

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 date, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During the first six months of 2021, the Company identified 199 receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $8 million pre-modification and $7 million post-modification. During the first six months of 2020, there were 259 receivable contracts, primarily wholesale receivables in Argentina, identified as troubled debt restructurings with aggregate balances of $94 million pre-modification and $83 million post-modification. The short-term payment relief related to COVID, mentioned earlier, did not meet the definition of a troubled debt restructuring. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At May 3, 2021, the Company had 0 commitments to lend to borrowers whose accounts were modified in troubled debt restructurings.

(12)  Securitization of Financing Receivables

The Company, as a part of its overall funding strategy, periodically transfers certain financing receivables (retail notes) into VIEs that are special purpose entities (SPEs), or non-VIE banking operations, as part of its asset-backed securities programs (securitizations). The structure of these transactions is such that the transfer of the retail notes 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 $2,875 million, $2,898 million, and $3,017 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively. The liabilities (short-term securitization borrowings and accrued interest) of these SPEs totaled $2,833 million, $2,856 million, and $2,977 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively. The credit holders of these SPEs do not have legal recourse to the Company’s general credit.

23

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 $397 million, $576 million, and $542 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively. The liabilities (short-term securitization borrowings and accrued interest) were $383 million, $554 million, and $515 million at May 2, 2021, November 1, 2020, and May 3, 2020, 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 $926 million, $1,327 million, and $1,221 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively. The liabilities (short-term securitization borrowings and accrued interest) related to these conduits were $893 million, $1,275 million, and $1,154 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively.

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:

 

    

May 2 

 

2021

Carrying value of liabilities

 

$

893

Maximum exposure to loss

926

The total assets of unconsolidated VIEs related to securitizations were approximately $35 billion at May 2, 2021.

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

 

    

May 2 

    

November 1

    

May 3 

 

2021

2020

2020

 

Financing receivables securitized (retail notes)

 

$

4,122

$

4,716

$

4,703

Allowance for credit losses

(15)

 

(13)

 

(18)

Other assets

91

 

98

 

95

Total restricted securitized assets

 

$

4,198

$

4,801

$

4,780

The components of consolidated secured borrowings and other liabilities related to securitizations were as follows in millions of dollars:

 

    

May 2 

    

November 1

    

May 3 

 

2021

2020

2020

 

Short-term securitization borrowings

 

$

4,106

$

4,682

$

4,640

Accrued interest on borrowings

3

 

3

 

6

Total liabilities related to restricted securitized assets

 

$

4,109

$

4,685

$

4,646

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 May 2, 2021, the maximum remaining term of all securitized retail notes was approximately six years.

24

(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:

    

May 2 

    

November 1

    

May 3 

 

2021

2020

2020

 

Raw materials and supplies

 

$

2,469

$

1,995

$

2,394

Work-in-process

967

 

648

 

722

Finished goods and parts

4,334

 

4,006

 

4,646

Total FIFO value

7,770

 

6,649

 

7,762

Less adjustment to LIFO value

1,728

 

1,650

 

1,591

Inventories

 

$

6,042

$

4,999

$

6,171

(14)  Goodwill and Other Intangible AssetsNet

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

 

    

Production &

    

Small Ag

    

Construction

    

 

Precision Ag

& Turf

& Forestry

Total

 

Goodwill at November 3, 2019

$

310

$

264

$

2,343

$

2,917

Translation adjustments and other

 

(5)

 

(4)

9

Goodwill at May 3, 2020

$

305

$

260

$

2,352

$

2,917

Goodwill at November 1, 2020

$

333

$

268

$

2,480

$

3,081

Acquisition

12

12

Translation adjustments and other

10

(2)

89

97

Goodwill at May 2, 2021

$

355

$

266

$

2,569

$

3,190

There were 0 accumulated goodwill impairment losses in the reported periods.

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

 

    

May 2 

    

November 1

    

May 3 

 

2021

2020

2020

 

Amortized intangible assets:

Customer lists and relationships

$

549

$

535

$

509

Technology, patents, trademarks, and other

1,097

 

1,056

 

1,006

Total at cost

1,646

 

1,591

 

1,515

Less accumulated amortization:

 

 

Customer lists and relationships

136

113

93

Technology, patents, trademarks, and other

323

274

234

Total accumulated amortization

459

387

327

Amortized intangible assets, net

1,187

1,204

1,188

Unamortized intangible assets:

In-process research and development

123

123

123

Other intangible assets – net

$

1,310

$

1,327

$

1,311

The amortization of other intangible assets in the second quarter and the first six months of 2021 was $27 million and $62 million, and for 2020 was $26 million and $51 million, respectively. The estimated amortization expense for the next five years is as follows in millions of dollars: remainder of 2021 – $55, 2022 – $109, 2023 – $107, 2024 – $103, 2025 – $100, and 2026 –$98.

  

25

(15)  Total Short-Term Borrowings

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

May 2 

November 1

May 3 

    

2021

    

2020

    

2020

Equipment Operations

              

              

              

Commercial paper

$

466

Notes payable to banks

$

122

$

192

439

Finance lease obligations due within one year

24

21

13

Long-term borrowings due within one year

 

206

 

79

 

480

Total

 

352

 

292

 

1,398

Financial Services

Commercial paper

 

2,259

 

1,238

 

2,958

Notes payable to banks

 

89

 

182

 

236

Long-term borrowings due within one year

 

7,211

 

6,870

 

6,587

Total

 

9,559

 

8,290

 

9,781

Short-term borrowings

 

9,911

 

8,582

 

11,179

Short-term securitization borrowings

              

              

              

Equipment Operations

14

26

37

Financial Services

4,092

4,656

4,603

Total

4,106

4,682

4,640

Total short-term borrowings

 

$

14,017

 

$

13,264

 

$

15,819

   

   

(16)  Long-Term Borrowings

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

May 2 

November 1

May 3 

  

2021

  

2020

  

2020

Equipment Operations

               

               

               

U.S. dollar notes and debentures:

8½% debentures due 2022

$

105

$

105

2.60% notes due 2022

$

1,000

 

1,000

 

1,000

2.75% notes due 2025

700

700

700

6.55% debentures due 2028

 

200

 

200

 

200

5.375% notes due 2029

 

500

 

500

 

500

3.10% notes due 2030

700

700

700

8.10% debentures due 2030

 

250

 

250

 

250

7.125% notes due 2031

 

300

 

300

 

300

3.90% notes due 2042

 

1,250

 

1,250

 

1,250

2.875% notes due 2049

500

500

500

3.75% notes due 2050

850

850

850

Euro notes:

.5% notes due 2023 (€500 principal)

606

584

548

1.375% notes due 2024 (€800 principal)

969

934

876

1.85% notes due 2028 (€600 principal)

727

700

657

2.20% notes due 2032 (€600 principal)

727

700

657

1.65% notes due 2039 (€650 principal)

788

759

712

Finance lease obligations and other notes

 

115

 

153

 

204

Less debt issuance costs and debt discounts

58

61

62

Total

 

10,124

 

10,124

 

9,947

Financial Services

  

  

  

Notes and debentures:

Medium-term notes: (principal as of: May 2, 2021 - $21,800, November 1, 2020 - $20,996, May 3, 2020 - $22,565)

 

22,161

21,661

23,326

Other notes

 

1,121

 

1,003

 

1,111

Less debt issuance costs and debt discounts

60

54

60

Total

 

23,222

 

22,610

 

24,377

Long-term borrowings

 

$

33,346

$

32,734

$

34,324

 

   

26

(17)  Leases

Lessee

Operating and finance lease right of use assets and liabilities were as follows in millions of dollars:

May 2 

November 1

May 3 

2021

2020

2020

Operating leases:

Other assets

$

345

$

324

$

341

Accounts payable and accrued expenses

328

305

319

Finance leases:

Property and equipment - net

$

73

$

63

$

43

Short-term borrowings

$

24

$

21

$

13

Long-term borrowings

45

39

26

Total finance lease liabilities

$

69

$

60

$

39

Right of use assets obtained in exchange for lease liabilities were as follows in millions of dollars:

Six Months Ended

May 2, 2021

May 3, 2020

Operating leases

$

71

$

10

Finance leases

23

18

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. Operating leases are reported in “Equipment on operating leases - net” on the consolidated balance sheet.

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

Three Months Ended

Six Months Ended

May 2, 2021

May 3, 2020

May 2, 2021

May 3, 2020

Sales-type and direct financing lease revenues

$

34

$

32

$

70

$

68

Operating lease revenues

358

369

721

743

Variable lease revenues

6

6

12

11

Total lease revenues

$

398

$

407

$

803

$

822

The Company estimates the residual values for operating leases at lease inception based on several factors, including lease term, expected hours of usage, historical wholesale sale prices, return experience, intended use 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 its operating lease assets for impairment when events or circumstances necessitate. In the second quarter of 2020, the Company recorded impairment losses on operating leases of $22 million due to higher expected equipment return rates and lower estimated values of used construction equipment. Operating lease impairments are recorded in “Other operating expenses.”

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. In the second quarter of 2020, the Company recorded impairment losses on matured operating lease inventory of $10 million due to lower estimated values of used construction equipment. These impairment losses are included in “Other operating expenses.”

Due to the significant, negative effects of COVID, the Company provided short-term payment relief to lessees during 2020, and to a much lesser extent in 2021. The relief, 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 granted relief since the beginning of the pandemic that remained outstanding at May 2, 2021 represented approximately 3 percent of the Company’s operating lease portfolio.

27

(18)  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 $681 million and $602 million at May 2, 2021 and May 3, 2020, respectively.

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

 

Three Months Ended

Six Months Ended

 

May 2 

May 3 

May 2 

May 3 

 

2021

2020

2021

2020

 

Beginning of period balance

    

$

1,803

    

$

1,792

    

$

1,743

    

$

1,800

Payments

(202)

 

(223)

(417)

 

(453)

Amortization of premiums received

(65)

 

(51)

(128)

 

(110)

Accruals for warranties

248

 

210

495

 

432

Premiums received

90

 

69

163

 

134

Foreign exchange

2

 

(30)

20

 

(36)

End of period balance

$

1,876

$

1,767

$

1,876

$

1,767

At May 2, 2021, the Company had approximately $384 million of guarantees issued primarily to banks outside the U.S. and Canada related to third-party receivables for the retail financing of John Deere equipment. The Company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At May 2, 2021, the Company had accrued losses of approximately $16 million under these agreements. The maximum remaining term of the receivables guaranteed at May 2, 2021 was approximately six years.

At May 2, 2021, the Company had commitments of approximately $246 million for the construction and acquisition of property and equipment. Also, at May 2, 2021, the Company had restricted assets of $70 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 $60 million at May 2, 2021. The accrued liability for these contingencies was not material at May 2, 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.

(19)  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.

28

The fair values of financial instruments that do not approximate the carrying values were as follows in millions of dollars. Long-term borrowings exclude finance lease liabilities (see Note 17).

 

May 2, 2021

November 1, 2020

May 3, 2020

 

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

 

Financing receivables – net:

   

   

   

Equipment operations

$

99

$

94

$

105

$

103

$

118

$

111

Financial services

30,895

31,071

29,645

29,838

   

27,138

27,317

Total

$

30,994

$

31,165

$

29,750

$

29,941

$

27,256

$

27,428

Financing receivables securitized – net: