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Item 1. Financial Statements

2022-05-26 compared with 2022-02-24 · 381 added, 236 removed, 641 unchanged (49% of the section changed)

2 unchanged sentences

STATEMENTS OF CONSOLIDATED INCOME

For the Three Months Ended January 30, 2022 and January 31, 2021

For the Three Months Ended May 1, 2022 and May 2, 2021

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

11 unchanged sentences

Equity in income of unconsolidated affiliates

Net loss attributable to noncontrolling interests

Net Income Attributable to Deere & Company

Per Share Data

Dividends declared

Dividends paid

Average Shares Outstanding

See Condensed Notes to Interim Consolidated Financial Statements.

DEERE & COMPANY

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

For the Three Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars) Unaudited

Other Comprehensive Income (Loss), Net of Income Taxes

Retirement benefits adjustment

Cumulative translation adjustment

Unrealized gain on derivatives

Unrealized loss on debt securities

Other Comprehensive Income (Loss), Net of Income Taxes

Comprehensive Income of Consolidated Group

Comprehensive loss attributable to noncontrolling interests

Comprehensive Income Attributable to Deere & Company

See Condensed Notes to Interim Consolidated Financial Statements.

DEERE & COMPANY

STATEMENTS OF CONSOLIDATED INCOME

For the Six Months Ended May 1, 2022 and May 2, 2021

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

Net Sales and Revenues

Finance and interest income

Costs and Expenses

Cost of sales

Research and development expenses

Selling, administrative and general expenses

Interest expense

Other operating expenses

Income of Consolidated Group before Income Taxes

Provision for income taxes

Income of Consolidated Group

Equity in income of unconsolidated affiliates

Net income attributable to noncontrolling interests

7 unchanged sentences

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

For the Three Months Ended January 30, 2022 and January 31, 2021

For the Six Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars) Unaudited

6 unchanged sentences

Comprehensive Income of Consolidated Group

Comprehensive income attributable to noncontrolling interests

Comprehensive income (loss) attributable to noncontrolling interests

Comprehensive Income Attributable to Deere & Company

5 unchanged sentences

Marketable securities

Receivables from unconsolidated affiliates

Trade accounts and notes receivable – net

4 unchanged sentences

Property and equipment – net

Investments in unconsolidated affiliates

Other intangible assets – net

4 unchanged sentences

Short-term securitization borrowings

Payables to unconsolidated affiliates

Accounts payable and accrued expenses

4 unchanged sentences

Commitments and contingencies (Note 15)

Redeemable noncontrolling interest (Note 19)

Stockholders’ Equity

Common stock, $ 1 par value (issued shares at

January 30, 2022 – 536,431,204 )

May 1, 2022 – 536,431,204 )

Common stock in treasury

8 unchanged sentences

STATEMENTS OF CONSOLIDATED CASH FLOWS

For the Three Months Ended January 30, 2022 and January 31, 2021

For the Six Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars) Unaudited

5 unchanged sentences

Share-based compensation expense

Gain on remeasurement of previously held equity investment

Undistributed earnings of unconsolidated affiliates

8 unchanged sentences

Collections of receivables (excluding receivables related to sales)

Proceeds from maturities and sales of marketable securities

Proceeds from sales of equipment on operating leases

1 unchanged sentence

Acquisitions of businesses, net of cash acquired

Purchases of marketable securities

Purchases of property and equipment

1 unchanged sentence

Collateral on derivatives – net

Net cash provided by investing activities

Net cash used for investing activities

Cash Flows from Financing Activities

Decrease in total short-term borrowings

Increase in total short-term borrowings

Proceeds from long-term borrowings

5 unchanged sentences

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

Net Decrease in Cash, Cash Equivalents, and Restricted Cash

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

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

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

Components of cash, cash equivalents, and restricted cash

Cash and cash equivalents

Restricted cash (Other assets)

Total cash, cash equivalents, and restricted cash

See Condensed Notes to Interim Consolidated Financial Statements.

1 unchanged sentence

STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Three Months Ended January 30, 2022 and January 31, 2021

For the Three and Six Months Ended May 1, 2022 and May 2, 2021

(In millions of dollars) Unaudited

4 unchanged sentences

Noncontrolling

Income (Loss)

Three Months Ended May 2, 2021

Balance January 31, 2021

Other comprehensive income

Repurchases of common stock

Treasury shares reissued

Dividends declared

Stock options and other

Balance May 2, 2021

Six Months Ended May 2, 2021

Balance November 1, 2020

5 unchanged sentences

Stock options and other

Balance May 2, 2021

Three Months Ended May 1, 2022

Balance January 30, 2022

Acquisitions (see Note 19)

Net income (loss)

Other comprehensive loss

Repurchases of common stock

Treasury shares reissued

Dividends declared

Stock options and other

Balance May 1, 2022

Six Months Ended May 1, 2022

Balance October 31, 2021

Acquisitions (see Note 19)

Net income (loss)

Other comprehensive loss

3 unchanged sentences

Stock options and other

Balance January 30, 2022

Balance May 1, 2022

See Condensed Notes to Interim Consolidated Financial Statements.

4 unchanged sentences

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.

Equipment Operations – Represents the enterprise without financial services (FS), while including the Company’s production and precision agriculture operations (PPA), small agriculture and turf operations (SAT), construction and forestry operations (CF), and other corporate assets, liabilities, revenues, and expenses not reflected within financial services.

Financial Services – Represents the Company’s financing operations.

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 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 2022 and 2021 were January 30, 2022 and January 31, 2021, respectively.

Both periods contained 13 weeks.

The second quarter ends for fiscal year 2022 and 2021 were May 1, 2022 and May 2, 2021, respectively.

Both second quarters contained 13 weeks, while both year-to-date periods contained 26 weeks.

Unless otherwise stated, references to particular years or quarters refer to the Company’s fiscal years generally ending in October and the associated periods in those fiscal years.

Prior to fiscal year 2021, the operating results of the Wirtgen Group (Wirtgen) were incorporated into the Company’s consolidated financial statements on a one-month lag.

The reporting lag was eliminated resulting in four months of Wirtgen’s activity in the first quarter of 2021.

Prior to fiscal year 2021, the operating results of the Wirtgen Group (Wirtgen) were incorporated into the Company’s consolidated financial statements using a one-month lag period.

The reporting lag was eliminated resulting in one additional month of Wirtgen activity in both the first quarter and the year-to-date period of 2021.

The effect was an increase to Net sales of $ 270 million, which the Company considers immaterial to construction and forestry’s annual net sales.

Variable Interest Entities

As a result of recent acquisitions (see Note 19), the Company updated the presentation on the consolidated balance sheet to remove the following lines:

Receivables from unconsolidated affiliates, Investments in unconsolidated affiliates, and Payables to unconsolidated affiliates.

These balances are now immaterial to the Company’s consolidated balance sheet and have been reclassified into Other receivables, Other assets, and Accounts payable and accrued expenses, respectively.

The Company consolidates certain variable interest entities (VIEs) related to retail note securitizations (see Note 9).

The Company also has an interest in a joint venture that manufactures construction equipment in Indaiatuba, 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 $ 14 million, $ 9 million, and $ 7 million at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

On August 19, 2021, the Company announced the dissolution of the joint venture with Hitachi Construction Machinery Co., Ltd.

and the purchase of the shares in the relevant joint venture manufacturing entities including the above referenced factory in Indaiatuba, Brazil.

The transaction is expected to close in the second quarter of 2022, subject to the receipt of certain required regulatory approvals and satisfaction of certain other customary closing conditions.

(2) Summary of Significant Accounting Policies and New Accounting Standards

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For certain goods delivered to Canadian dealers prior to November 1, 2021, the dealer consignment terms already in place remain in effect.

As of January 30, 2022 and October 31, 2021, the remaining consigned inventory was $ 91 million and $ 150 million, respectively.

As of May 1, 2022 and October 31, 2021, the remaining consigned inventory was $ 46 million and $ 150 million, respectively.

New Accounting Standards

The Company closely monitors all Accounting Standard Updates (ASUs) issued by the Financial Accounting Standards Board and other authoritative guidance.

ASUs adopted in 2022 did not have a material impact on the Company’s financial statements, and ASUs to be adopted in future periods are not expected to have a material impact on the Company’s financial statements.

(3) 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 $ 20 million and $ 84 million in the first three months of 2022 and 2021, respectively.

The Company also had accounts payable related to purchases of property and equipment of $ 43 million and $ 39 million at January 30, 2022 and January 31, 2021, respectively.

The Company’s restricted cash was as follows in millions of dollars:

Equipment operations

Financial services

The restricted cash, recorded in “Other assets” in the consolidated balance sheet, primarily relates to securitizations of financing receivables (see Note 10).

ASUs adopted in 2022 did not have a material impact on the Company’s financial statements, and ASUs to be adopted in future periods are being evaluated and at this point are not expected to have a material impact on the Company’s financial statements .

(3) Revenue Recognition

The Company’s net sales and revenues by primary geographic market, major product line, and timing of revenue recognition in millions of dollars follow:

Three Months Ended January 30, 2022

Three Months Ended May 1, 2022

Production & Precision Ag

Small Ag & Turf

Construction & Forestry

Financial Services

Primary geographic markets:

11 unchanged sentences

At a point in time

Three Months Ended January 31, 2021

Six Months Ended May 1, 2022

Production & Precision Ag

Small Ag & Turf

Construction & Forestry

Financial Services

Primary geographic markets:

11 unchanged sentences

At a point in time

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, sugarcane harvesters, sugarcane loaders and pull behind scrapers, tillage, seeding, and application equipment, including sprayers and 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 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 retail customers, wholesale financing to dealers of John Deere equipment, and revolving charge accounts;

income from retail leases of John Deere equipment;

and revenue from extended warranties.

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.”

Three Months Ended May 2, 2021

Production & Precision Ag

Small Ag & Turf

Primary geographic markets:

United States

Western Europe

Central Europe and CIS

Latin America

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

Major product lines:

Production agriculture

Small agriculture

Compact construction

Financial products

Revenue recognized:

At a point in time

Six Months Ended May 2, 2021

Production & Precision Ag

Small Ag & Turf

Primary geographic markets:

United States

Western Europe

Central Europe and CIS

Latin America

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

Major product lines:

Production agriculture

Small agriculture

Compact construction

Financial products

Revenue recognized:

At a point in time

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 $ 1,348 million, $ 1,344 million, and $ 1,169 million at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

These advanced customer payments are presented as deferred revenue, a contract liability, in Accounts payable and accrued expenses in the consolidated balance sheets.

The deferred revenue received, but not recognized in revenue, including extended warranty premiums also shown in Note 15, was $ 1,423 million, $ 1,344 million, and $ 1,249 million at May 1, 2022, October 31, 2021, and May 2, 2021, respectively.

The contract liability is reduced as the revenue is recognized.

During the three months ended January 30, 2022 and January 31, 2021, $ 265 million and $ 223 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year.

The amount of unsatisfied performance obligations for contracts with an original duration greater than one year is $ 1,056 million at January 30, 2022.

The estimated revenue to be recognized by fiscal year in millions of dollars follows:

During the three months ended May 1, 2022 and May 2, 2021, $ 130 million and $ 111 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 1, 2022 and May 2, 2021, $ 395 million and $ 335 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year.

The amount of unsatisfied performance obligations for contracts with an original duration greater than one year is $ 1,116 million at May 1, 2022.

The estimated revenue to be recognized by fiscal year follows in millions of dollars:

remainder of 2022 - $ 173 , 2023 - $ 311 , 2024 - $ 260 , 2025 - $ 168 , 2026 - $ 87 , 2027 - $ 52 and later years - $ 65 .

6 unchanged sentences

Unrealized loss on derivatives

Unrealized gain on debt securities

Unrealized gain (loss) on debt securities

Total accumulated other comprehensive income (loss)

1 unchanged sentence

Retirement benefits adjustment reclassifications for actuarial gain (loss), prior service (credit) cost, and settlements are included in net periodic pension and other postretirement benefit costs (see Note 6).

Three Months Ended January 30, 2022

Three Months Ended May 1, 2022

Cumulative translation adjustment

14 unchanged sentences

Total other comprehensive income (loss)

Three Months Ended January 31, 2021

Six Months Ended May 1, 2022

Cumulative translation adjustment

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

Reclassification of realized (gain) loss to:

11 unchanged sentences

Total other comprehensive income (loss)

Three Months Ended May 2, 2021

Cumulative translation adjustment

Unrealized gain (loss) on derivatives:

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

Net unrealized gain (loss) on derivatives

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

Net unrealized gain (loss) on debt securities

Retirement benefits adjustment:

Net actuarial gain (loss)

Reclassification to Other operating expenses through amortization of:

Actuarial (gain) loss

Prior service (credit) cost

Net unrealized gain (loss) on retirement benefits adjustment

Total other comprehensive income (loss)

Six Months Ended May 2, 2021

Cumulative translation adjustment

Unrealized gain (loss) on derivatives:

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

Net unrealized gain (loss) on derivatives

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

Net unrealized gain (loss) on debt securities

Retirement benefits adjustment:

Net actuarial gain (loss)

Reclassification to Other operating expenses through amortization of:

Actuarial (gain) loss

Prior service (credit) cost

Net unrealized gain (loss) on retirement benefits adjustment

Total other comprehensive income (loss)

(5) Earnings Per Share

1 unchanged sentence

Three Months Ended

Six Months Ended

Net income attributable to Deere & Company

5 unchanged sentences

Diluted per share

During both the first quarter of 2022 and 2021, .1 million shares were excluded from the computation because the incremental shares would have been antidilutive.

During the second quarter and first six months of 2022, .2 million shares and .1 million shares, respectively, were excluded from the computation because the incremental shares would have been antidilutive.

During the second quarter and first six months of 2021, no shares were antidilutive.

(6) Pension and Other Postretirement Benefits

3 unchanged sentences

Three Months Ended

Six Months Ended

Interest cost

2 unchanged sentences

Amortization of prior service cost

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

The components of net periodic OPEB (benefit) cost consisted of the following in millions of dollars:

Three Months Ended

Six Months Ended

Interest cost

Expected return on plan assets

Amortization of actuarial loss

Amortization of actuarial (gain) loss

Amortization of prior service credit

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.

Overall pension and OPEB net costs decreased from the prior year due to reduced amortization of actuarial losses, partially offset by the impacts of the U.S.

hourly pension plan remeasurement.

Net (benefit) cost

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

On November 17, 2021, employees represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) approved a new collective bargaining agreement.

In the first quarter of 2022, the Company remeasured the U.S.

hourly pension plan due to the new collective bargaining agreement, which decreased the plan’s funded status by approximately $ 495 million and will increase pension expense in 2022 by nearly $ 80 million.

For the first quarter of 2022, the remeasurement increased pension expense by $ 14 million, with $ 6 million negatively impacting operating profit.

During the first three months of 2022, the Company contributed $ 18 million to its pension plans and $ 1,051 million to its OPEB plans.

During the first six months of 2022, the Company contributed $ 47 million to its pension plans and $ 1,085 million to its OPEB plans.

The OPEB contributions include a voluntary contribution of $ 1,000 million to a U.S.

plan made on November 30, 2021.

plan on November 30, 2021.

The Company presently anticipates contributing an additional $ 43 million to its pension plans and $ 50 million to its OPEB plans during the remainder of fiscal year 2022.

These pension and OPEB contributions primarily include direct benefit payments from Company funds.

The remaining pension and OPEB contributions are primarily direct benefit payments from Company funds.

(7) Segment Reporting

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 reconciling items and income taxes.

Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains and losses.

Reconciling items to net income are primarily corporate expenses, certain external interest expenses, certain foreign exchange gains and losses, pension and OPEB benefit costs excluding the service cost component, and net income attributable to noncontrolling interests.

Three Months Ended

Six Months Ended

Net sales and revenues:

18 unchanged sentences

Financial services revenues

Operating profit outside the U.S.

Production & precision ag

Small ag & turf

Construction & forestry

Financial services

Total operating profit outside the U.S.

Operating profit is income from continuing operations before reconciling items and income taxes.

Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains and losses.

Reconciling items to net income are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, pension and OPEB benefit costs excluding the service cost component, and net income attributable to noncontrolling interests.

Identifiable assets:

12 unchanged sentences

The credit quality analysis of retail notes, financing leases, and revolving charge accounts (collectively, retail customer receivables) by year of origination was as follows in millions of dollars:

January 30, 2022

Revolving Charge Accounts

25 unchanged sentences

Total retail customer receivables

January 31, 2021

Revolving Charge Accounts

12 unchanged sentences

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

January 30, 2022

Wholesale receivables:

15 unchanged sentences

Total wholesale receivables

January 31, 2021

Wholesale receivables:

7 unchanged sentences

An analysis of the allowance for credit losses and investment in financing receivables in millions of dollars during the periods follows:

Three Months Ended January 30, 2022

Three Months Ended May 1, 2022

Beginning of period balance

Translation adjustments

End of period balance

Six Months Ended May 1, 2022

Beginning of period balance

Provision (credit)

Translation adjustments

End of period balance

1 unchanged sentence

End of period balance

Three Months Ended January 31, 2021

Three Months Ended May 2, 2021

Beginning of period balance

Provision (credit)

End of period balance

Six Months Ended May 2, 2021

Beginning of period balance

2016-13 adoption

4 unchanged sentences

End of period balance

The allowance for credit losses on financing receivables decreased in the first quarter of 2022 led by a decrease in the revolving charge accounts.

This portfolio is benefiting from favorable agricultural market conditions driven by higher commodity prices and net farm income, which is contributing to stronger payment performance.

The allowance for credit losses increased in the second quarter and the first six months of 2022 mainly due to higher reserves related to the events in Russia / Ukraine and higher portfolio balances.

A troubled debt restructuring is the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties.

These modifications may include a reduction of the stated interest rate, an extension of the maturity 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 2022, the Company identified 108 receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $ 5 million pre-modification and $ 4 million post-modification.

During the first three months of 2021, there were 98 receivable contracts, primarily retail notes, identified as troubled debt restructurings with aggregate balances of $ 5 million pre-modification and post-modification .

During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off.

At January 30, 2022, the Company had no commitments to lend to borrowers whose accounts were modified in troubled debt restructurings.

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 2022, the Company identified 184 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 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 these same

periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off.

At May 1, 2022, the Company had no commitments to lend to borrowers whose accounts were modified in troubled debt restructurings.

(9) Securitization of Financing Receivables

3 unchanged sentences

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, which in turn issue debt to investors, or to non-VIE banking operations, which provide funding directly to the Company.

The funding provided by these third-parties results 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 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 $ 2,649 million, $ 3,094 million, and $ 2,425 million at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

The liabilities (short-term securitization borrowings and accrued interest) of these SPEs totaled $ 2,575 million, $ 3,024 million, and $ 2,403 million at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

The credit holders of these SPEs do not have legal recourse to the Company’s general credit.

The Company has a revolving warehouse facility to utilize bank conduit facilities to securitize retail notes, described further in the following paragraphs.

The facility was renewed in November 2021 with an expiration in November 2022 and a reduction of the total capacity or “financing limit” from $ 2,000 million to $ 1,000 million.

As a result of the reduced capacity, the Company repurchased $ 511 million of outstanding short-term securitization borrowings in November 2021, in addition to the normal payments collected on the retail notes.

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

Through the revolving warehouse facility, 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 $ 767 million, $ 1,176 million, and $ 1,120 million at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

The liabilities (short-term securitization borrowings and accrued interest) related to these conduits were $ 720 million, $ 1,113 million, and $ 1,097 million at January 30, 2022, October 31, 2021, and January 31, 2021, 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:

January 30, 2022

Carrying value of liabilities

Maximum exposure to loss

The total assets of the unconsolidated conduits related to securitizations were $ 14 billion at January 30, 2022.

In addition, through the revolving warehouse facility, the Company transfers retail notes to banks, which may elect to fund the retail notes through the use of their own funding sources.

These non-VIE banking operations are not consolidated since the Company does not have a controlling interest in them.

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 $ 200 million, $ 496 million, and $ 481 million at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

The liabilities (short-term securitization borrowings and accrued interest) were $ 188 million, $ 470 million, and $ 471 million at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

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

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

Financing receivables securitized (retail notes)

Allowance for credit losses

Other assets (primarily restricted cash)

Total restricted securitized assets

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

Short-term securitization borrowings

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Total liabilities related to restricted securitized assets

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 January 30, 2022, the maximum remaining term of all securitized retail notes was approximately six years .

(10) Inventories

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(11) Goodwill and Other Intangible Assets – Net

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

Production & Precision Ag

Small Ag & Turf

Construction & Forestry

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

Goodwill at November 1, 2020

Translation adjustments and other

Goodwill at January 31, 2021

Translation adjustments

Goodwill at May 2, 2021

Goodwill at October 31, 2021

Translation adjustments and other

Goodwill at January 30, 2022

Translation adjustments

Goodwill at May 1, 2022

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

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Total accumulated amortization

Amortized intangible assets

Amortized intangible assets, net

Unamortized intangible assets:

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Other intangible assets – net

The amortization of other intangible assets in the first quarter of 2022 and 2021 was $ 28 million and $ 34 million, respectively.

In September 2017, the Company acquired Blue River Technology’s in-process research and development related to machine learning technology to optimize the use of farm inputs.

Those research and development activities were completed, and the Company started amortizing the acquired technology in the second quarter of 2022.

The amortization of other intangible assets in the second quarter and the first six months of 2022 was $ 34 million and $ 62 million, and for 2021 was $ 27 million and $ 62 million, respectively.

The estimated amortization expense for the next five years is as follows in millions of dollars:

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

The financial services medium-term notes include fair value adjustments to interest rate swaps.

The financial services medium-term notes include fair value adjustments related to interest rate swaps.

Equipment Operations

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Notes and debentures:

Medium-term notes:

(principal as of:

January 30, 2022 - $ 22,896 , October 31, 2021 - $ 22,647 , January 31, 2021 - $ 20,978 )

Medium-term notes (principal as of:

May 1, 2022 - $ 23,247 , October 31, 2021 - $ 22,647 , May 2, 2021 - $ 21,800 )

Less debt issuance costs and debt discounts

Long-term borrowings

Operating and finance lease right of use assets and liabilities follow in millions of dollars:

Operating leases:

Accounts payable and accrued expenses

Finance leases:

Property and equipment – net

Short-term borrowings

Long-term borrowings

Total finance lease liabilities

In April 2022, the Company’s financial services operations issued $ 600 million of sustainability-linked medium-term notes with an initial interest rate of 3.35 percent, which are due in 2029.

This transaction supports the Company’s commitment to environmental sustainability.

Failure to meet the stated sustainability performance target will result in a 25 -basis point increase to the interest rate payable on the 2029 notes from and including April 2026.

(14) Leases - Lessor

The Company leases equipment manufactured or sold by the Company and a limited amount of non-John Deere equipment to retail customers through sales-type, direct financing, and operating leases.

Sales-type and direct financing leases are reported in “Financing receivables – net” on the consolidated balance sheet, while operating leases are reported in “Equipment on operating leases – net.”

Sales-type and direct financing leases are reported in Financing receivables - net on the consolidated balance sheets, while operating leases are reported in Equipment on operating leases - net.

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

Three Months Ended

January 30, 2022

January 31, 2021

Six Months Ended

Sales-type and direct finance lease revenues

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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 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 $ 781 million and $ 656 million at January 30, 2022 and January 31, 2021, respectively.

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

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 $ 809 million and $ 681 million at May 1, 2022 and May 2, 2021, 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

Beginning of period balance

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End of period balance

At January 30, 2022, the Company had $ 374 million of guarantees issued primarily to banks outside the U.S.

At May 1, 2022, the Company had approximately $ 352 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.

may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables.

At January 30, 2022, the Company had accrued losses of $ 5 million under these agreements.

The maximum remaining term of the receivables guaranteed at January 30, 2022 was approximately six years .

At January 30, 2022, the Company had commitments of $ 323 million for the construction and acquisition of property and equipment.

Also, at January 30, 2022, the Company had restricted assets of $ 64 million, classified as “Other assets.” See Note 10 for additional restricted assets associated with borrowings related to securitizations.

The Company also had other miscellaneous contingent liabilities totaling approximately $ 85 million at January 30, 2022.

The accrued liability for these contingencies was not material at January 30, 2022.

The Company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables.

At May 1, 2022, the Company had accrued losses of $ 4 million under these agreements.

The maximum remaining term of the receivables guaranteed at May 1, 2022 was approximately six years .

At May 1, 2022, the Company had commitments of $ 392 million for the construction and acquisition of property and equipment.

Also, at May 1, 2022, the Company had restricted assets of $ 69 million, classified as Other assets.

See Note 9 for additional restricted assets associated with borrowings related to securitizations.

The Company also had other miscellaneous contingent liabilities totaling approximately $ 75 million at May 1, 2022.

The accrued liability for these contingencies was not material at May 1, 2022.

The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, and trademark matters.

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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 15).

January 30, 2022

Long-term borrowings exclude finance lease liabilities.

October 31, 2021

January 31, 2021

Financing receivables – net

Equipment operations

Financial services

Financing receivables

securitized – net:

Equipment operations

Financial services

Financing receivables securitized – net

Short-term securitization borrowings:

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Total Level 2 marketable securities

Interest rate contracts

Foreign exchange contracts

Cross-currency interest rate contracts

Total Level 2 other assets

Accounts payable and accrued expenses

Interest rate contracts

Foreign exchange contracts

Cross-currency interest rate contracts

Total Level 2 accounts payable and accrued expenses

* Primarily issued by U.S.

government sponsored enterprises.

The contractual maturities of debt securities at January 30, 2022 in millions of dollars are shown below.

Accounts payable and accrued expenses – Deferred consideration

The contractual maturities of debt securities at May 1, 2022 in millions of dollars are shown below.

Actual maturities may differ from contractual maturities because some securities may be called or prepaid.

Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity.

Mortgage-backed securities were primarily issued by U.S.

government sponsored enterprises.

Unrealized losses of debt securities at May 1, 2022 were not recognized in income due to the ability and intent to hold to maturity.

Due in one year or less

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Three Months Ended

Six Months Ended

Property and equipment – net

Other intangible assets – net

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

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Inputs include a selection of realizable values.

Property and equipment - net – Impairments are recognized if fair value is lower than the carrying amount.

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 (see Note 20).

Inventories – The service parts inventory impairment was based on net realizable value, less reasonably predictable selling and disposal costs.

Property and equipment – net – The valuations were based on cost and market approaches.

The inputs include replacement cost estimates adjusted for physical deterioration and economic obsolescence.

Other intangible assets – net – The Company considered external valuations based on the Company’s probability weighted cash flow analysis.

Other assets – The impairments were measured at the fair value of the right of use operating lease asset.

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Cash collateral received or paid is not offset against the derivative fair values on the balance sheet.

The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.

The cash flows from these contracts were recorded in operating activities in the statements of consolidated cash flows.

Each derivative is designated as a cash flow hedge, a fair value hedge, or remains undesignated.

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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 30, 2022, October 31, 2021, and January 31, 2021 were $ 2,700 million, $ 2,700 million, and $ 2,350 million, respectively.

The total notional amounts of the receive-variable/pay-fixed interest rate contracts at May 1, 2022, October 31, 2021, and May 2, 2021 were $ 2,450 million, $ 2,700 million, and $ 1,850 million, respectively.

Fair value gains or losses on cash flow hedges were recorded in other comprehensive income (OCI) and are subsequently reclassified into interest expense in the same periods during which the hedged transactions affected earnings.

These amounts offset the effects of interest rate changes on the related borrowings.

The amount of loss recorded in OCI at January 30, 2022 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 $ 4 million after-tax.

The amount of gain recorded in OCI at May 1, 2022 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is approximately $ 23 million after-tax.

No gains or losses were reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur.

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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 30, 2022, October 31, 2021, and

January 31, 2021 were $ 8,307 million, $ 8,043 million, and $ 8,333 million, respectively.

The total notional amounts of the receive-fixed/pay-variable interest rate contracts at May 1, 2022, October 31, 2021, and May 2, 2021 were $ 8,655 million, $ 8,043 million, and $ 8,340 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.

The amounts recorded in the consolidated balance sheet related to borrowings designated in fair value hedging relationships in millions of dollars follow:

The amounts recorded in the consolidated balance sheet related to borrowings designated in fair value hedging relationships were as follows in millions of dollars:

Cumulative Increase (Decrease) of Fair

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Relationships

January 30, 2022

Long-term borrowings due within one year

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Long-term borrowings

January 31, 2021

Long-term borrowings due within one year

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These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures, primarily for certain borrowings, purchases or sales of inventory, and sales incentive programs.

The total notional amounts of these interest rate swaps at January 30, 2022, October 31, 2021, and January 31, 2021 were $ 10,210 million, $ 10,848 million, and $ 8,801 million, the foreign exchange contracts were $ 7,864 million, $ 7,584 million, and $ 5,478 million, and the cross-currency interest rate contracts were $ 303 million, $ 238 million, and $ 145 million, respectively.

The fair value gains or losses from derivatives not designated as hedging instruments were recorded in the statement of consolidated income, generally offsetting over time the exposure on the hedged item.

Fair values of derivative instruments in the condensed consolidated balance sheet in millions of dollars follow:

The total notional amounts of these interest rate swaps at May 1, 2022, October 31, 2021, and May 2, 2021 were $ 9,912 million, $ 10,848 million, and $ 8,694 million, the foreign exchange contracts were $ 7,640 million, $ 7,584 million, and $ 6,239 million, and the cross-currency interest rate contracts were $ 264 million, $ 238 million, and $ 151 million, respectively.

The fair value gains or losses from derivatives not designated as hedging instruments were recorded in the statements of consolidated income, generally offsetting over time the exposure on the hedged item.

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

Designated as hedging instruments:

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Total derivative liabilities

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:

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

Three Months Ended

Six Months Ended

Fair Value Hedges:

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Interest rate contracts - Interest expense *

Foreign exchange contracts - Net sales

Foreign exchange contracts - Cost of sales

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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 30, 2022, October 31, 2021, and January 31, 2021 was $ 213 million, $ 135 million, and $ 99 million, respectively.

In accordance with the limits established in these agreements, the Company posted $ 18 million of cash collateral at January 30, 2022.

The Company posted no cash collateral in accordance with the limits established in those agreements at either October 31, 2021 or January 31, 2021.

In addition, the Company paid $ 8 million of collateral either in cash or pledged securities that was outstanding at January 30, 2022, October 31, 2021, and January 31, 2021 to participate in an international futures market to hedge currency exposure, not included in the table below.

The aggregate fair value of all derivatives with credit-risk-related contingent features that were in a net liability position at May 1, 2022, October 31, 2021, and May 2, 2021, was $ 673 million, $ 135 million, and $ 136 million, respectively.

In accordance with the limits established in these agreements, the Company posted $ 254 million of cash collateral at May 1, 2022.

The Company posted no cash collateral in accordance with the limits established in those agreements at either October 31, 2021 or May 2, 2021.

In addition, the Company paid $ 8 million of cash collateral that was outstanding at May 1, 2022, October 31, 2021, and May 2, 2021 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:

The impact on the derivative assets and liabilities related to netting arrangements and any collateral received or paid was as follows in millions of dollars:

Gross Amounts

January 30, 2022

Gross Amounts

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Gross Amounts

January 31, 2021

(18) Stock Option and Restricted Stock Awards

In December 2021, the Company granted stock options to employees for the purchase of 197 thousand shares of common stock at an exercise price of $ 343.94 per share and a binomial lattice model fair value of $ 89.20 per share at the grant date.

At January 30, 2022, options for 2.6 million shares were outstanding with a weighted-average exercise price of $ 145.37 per share.

The Company also granted 154 thousand restricted stock units to employees in the first three months of 2022, of which 117 thousand are subject to service based only conditions and 37 thousand are subject to performance/service based conditions.

At May 1, 2022, options for 2.2 million shares were outstanding with a weighted-average exercise price of $ 152.99 per share.

The Company also granted 160 thousand restricted stock units to employees and non-employee directors in the first six months of 2022, of which 123 thousand are subject to service based only conditions and 37 thousand are subject to performance/service based conditions.

The weighted-average fair value of the service based only units at the grant date was $ 345.94 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 $ 331.47 per unit based on the market price of a share of underlying common stock excluding dividends.

At January 30, 2022, the Company was authorized to grant awards for an additional 17.1 million shares under the equity incentive plan.

At May 1, 2022, the Company was authorized to grant an additional 17.2 million shares under the equity incentive plan.

(19) Acquisitions

Kreisel Acquisition

On February 7, 2022, the Company acquired majority ownership in Kreisel Electric Inc.

(Kreisel), a pioneer in the development of immersion-cooled battery technology.

The Austrian company manufactures high-density, high-durability electric battery modules and packs for high-performance and off-highway applications and has created a battery-buffered, high-powered charging infrastructure platform.

The transaction includes a call option to purchase the remaining ownership interest in Kreisel in 2027.

The minority interest holders also have a put option that would require the Company to purchase the holder’s ownership interest in 2027.

The put and call options cannot be separated from the noncontrolling interest.

Due to the redemption features, the minority interest is classified as redeemable noncontrolling interest in the Company’s consolidated balance sheets.

The total cash purchase price was $ 276 million, consisting of $ 253 million for the acquired equity interests, $ 21 million to reduce the option price, and customary working capital adjustments, net of cash acquired.

The preliminary fair values assigned to the assets and liabilities of the acquired entity in millions of dollars, which is based on information as of the acquisition date and available at May 1, 2022 follows:

Trade accounts and notes receivable

Other receivables

Property and equipment

Other intangible assets

Accounts payable and accrued expenses

Deferred income taxes

Redeemable noncontrolling interest

The identifiable intangible assets were related to technology, trade name, and customer relationships with a weighted average amortization period of 12 years .

The goodwill is not deductible for income tax purposes.

Kreisel will be allocated amongst the Company’s production and precision agriculture, small agriculture and turf, and construction and forestry segments.

Acquisition of Excavator Factories

On February 28, 2022, the Company acquired full ownership of three former Deere-Hitachi joint venture factories and began new license and supply agreements with Hitachi Construction Machinery (Hitachi).

The two companies also ended their joint venture manufacturing and marketing agreements.

The former joint venture factories will continue to manufacture Deere-branded construction excavators and forestry equipment.

Through a new supply agreement with Hitachi, Deere will continue to offer a full portfolio of excavators.

Deere’s marketing arrangement for Hitachi-branded construction excavators and mining equipment in the Americas has ended with Hitachi assuming distribution and support of these products.

John Deere dealers may continue to support their existing field population of Hitachi-branded excavators.

With the completion of this acquisition, the Company now has complete control over its excavator design, product, and feature updates, making it possible to more rapidly respond to customer requirements and integrate excavators with other construction products in the John Deere product portfolio.

The Company can leverage technology developed for other product lines and

production systems across the enterprise and extend those advanced solutions to Deere-designed excavators, strengthening the entire product portfolio.

The total invested capital follows:

Cash consideration for factories

Cash consideration for license agreement

Deferred consideration

Total purchase price consideration

Cash obtained

Settlement of intercompany balances

Net purchase price consideration

Fair value of previously held equity investment

Total invested capital

The total purchase price consideration includes deferred consideration that will be paid as the Company purchases John Deere-branded excavators, components, and service parts from Hitachi under the new supply agreement with a duration that ranges from 5 to 30 years .

The deferred consideration represents the price increases under the new supply arrangement.

Excluding inflation adjustments, the price increases for products to be acquired by the Company from Hitachi are as much as 27 percent higher than the prior supply arrangement.

At May 1, 2022, the net present value of the deferred consideration was approximately $ 262 million, subject to changes in market conditions, developments in the Company’s product offerings, and sourcing changes.

The Company financed the acquisition and associated transaction expenses from cash on hand.

The fair value of the previously held equity investment created a non-cash gain of $ 326 million (pretax and after-tax ), which was recorded in Other income and included in the construction and forestry segment’s operating profit.

Prior to the acquisition, the Company purchased John Deere and Hitachi-branded excavators, components, and parts from the Deere-Hitachi joint venture factories for sale to John Deere dealers.

These purchases were included in Cost of sales, while the sale to John Deere dealers were included in Net sales.

Cost of sales also included profit-sharing payments to Hitachi in accordance with the previous marketing agreements.

Following the acquisition, Net sales will only include the sale of John Deere-branded excavators to John Deere dealers, while Cost of sales will reflect market pricing to purchase and manufacture excavators, as well as the related components and service parts.

The preliminary fair values assigned to the assets and liabilities of the acquired factories in millions of dollars, which is based on information as of the acquisition date and available at May 1, 2022 follows:

Other receivables

Property and equipment

Other intangible assets

Deferred income taxes

Accounts payable and accrued expenses

Long-term borrowings

Total liabilities

The identifiable intangible assets were related to technology with a 10-year amortization period.

The goodwill is not deductible for income tax purposes.

The excavator factories will be reported in the Company’s construction and forestry segment.

Other Acquisitions

In the first six months of the year, the Company acquired AgriSync Inc., a technology service provider;

an 80 percent stake in SureFire Ag Systems, Inc.

and SureFire Electronics, LLC, which design and manufacture liquid fertilizer application and spray tendering systems;

and a 40 percent equity method investment in GUSS Automation LLC, a pioneer in semi-autonomous orchard and vineyard sprayers.

The combined cost of the acquisitions was $ 109 million, net of cash acquired of $ 3 million.

The preliminary asset and liability fair values at the respective acquisition dates follow in millions of dollars:

Trade accounts and notes receivable

Property and equipment

Other intangible assets

Accounts payable and accrued expenses

Deferred income taxes

Total liabilities

Redeemable noncontrolling interest

The identifiable intangible assets related to trade name, technology, and customer relationships with a weighted average amortization period of 6 years .

AgriSync will be allocated amongst the Company’s production and precision agriculture, small agriculture and turf, and construction and forestry segments, while SureFire will be allocated to the production and precision agriculture segment.

GUSS Automation will be assigned to the small agriculture and turf segment.

For all acquisitions, the goodwill was the result of future cash flows and related fair value exceeding the fair value of the identified assets and liabilities.

The pro forma results of operations as if these acquisitions had occurred at the beginning of the current or comparative fiscal year would not differ significantly from the reported results.

(20) S pecial Items

2022 Special Items

Impact of events in Russia / Ukraine

The recent events in Russia / Ukraine have resulted in the Company suspending shipments of machines and service parts to Russia.

The Company has equipment operations in Russia / Ukraine, and financial services operations in Russia.

As of May 1, 2022, the Company's net exposure in Russia / Ukraine was approximately $ 454 million.

Net sales from the Company’s Russian operations represented 2 percent of consolidated annual net sales from 2017 to 2021.

The Ukraine operations were not material to the consolidated financial statements.

The suspension of shipments to Russia will reduce forecasted revenue for the region, which makes it probable future cash flows will not cover the carrying value of certain assets.

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

No significant reserves were established on trade receivables or complete goods inventory, as the Company continues to experience strong payment performance and requires prepayment of existing inventories.

However, the situation

is fluid, and the Company continues to closely monitor all financial and operational risks.

A summary of the reserves and impairments recorded in the second quarter of 2022 follows in millions of dollars:

Three Months Ended May 1, 2022

2022 Expense:

Inventory reserve – Cost of sales

Fixed asset impairment – Cost of sales

Intangible asset impairment – Cost of sales

Allowance for credit losses – Financing receivables – SA&G expenses

Contingent liabilities – Other operating expenses

Total Russia/Ukraine events pretax expense

Net tax impact

Total Russia/Ukraine events after-tax expense

Gain on Previously Held Equity Investment

On February 28, 2022, the Company acquired full ownership of three former Deere-Hitachi joint venture factories and began new license and supply agreements with Hitachi.

The fair value of the previous equity investment resulted in a non-cash gain of $ 326 million (pretax and after-tax ;

see Note 19).

UAW Collective Bargaining Agreement

On November 17, 2021, employees represented by the UAW approved a new collective bargaining agreement.

The agreement, which has a term of six years , covers the wages, hours, benefits, and other terms and conditions of employment for the Company’s UAW-represented employees at 14 U.S.

The labor agreement includes a lump sum ratification bonus payment of $ 8,500 per eligible employee, totaling $ 90 million, and an immediate wage increase of 10 percent plus further wage increases over the term of the

The lump sum payment was expensed in the first quarter of 2022.

3 unchanged sentences

hourly plan remeasurement.

2021 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 .

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These impairments were offset by a favorable indirect tax ruling in Brazil of $ 58 million pretax.

Production & Precision Ag

Small Ag & Turf

Construction & Forestry

2022 Expense:

See Note 16 for fair value measurement information.

The following table summarizes the operating profit impact, in millions of dollars, of the special items recorded for the three months and six months ended May 1, 2022 and May 2, 2021:

2022 Expense (benefit):

Gain on remeasurement of equity investment – Other income (see Note 19)

Total Russia/Ukraine events pretax expense

UAW ratification bonus – Cost of sales

Total expense (benefit)

2021 Expense (benefit):

2 unchanged sentences

Total expense (benefit)

Quarter over quarter change

See Note 17 for fair value measurement information.

(21) S ubsequent Events

On February 7, 2022, the Company acquired a majority ownership in Kreisel Electric, Inc.

(Kreisel), a battery technology provider based in Austria.

The transaction includes an option to purchase the remaining ownership interest in Kreisel in 2027.

The initial cash outlay was € 239 million, consisting of € 221 million in consideration for the acquired equity interests and € 18 million to reduce the option price.

The payment was financed from cash on hand, and will primarily be allocated to intangible assets and goodwill.

Kreisel will be allocated amongst the Company’s production and precision agriculture, small agriculture and turf, and construction and forestry segments.

On February 23, 2022, the Company’s Board of Directors declared a quarterly dividend of $ 1.05 per share payable May 9, 2022, to stockholders of record on March 31, 2022.

Period over period change

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements