What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-26 compared with 2022-02-24 · 253 added, 230 removed, 248 unchanged (66% of the section changed)

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The information in the following discussion is presented in a format that includes information grouped as consolidated, equipment operations, and financial services.

The Company also views its operations as consisting of two geographic areas:

and Canada and outside the U.S.

The Company’s operating segments consist of production and precision agriculture, small agriculture and turf, construction and forestry, and financial services.

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Industry sales of large agricultural machinery in the U.S.

and Canada are forecasted to be up 20 percent.

and Canada are expected to be up about 20 percent.

Industry sales of turf and utility equipment in the U.S.

and Canada are expected to be flat.

Industry sales of agricultural machinery in Europe are forecasted to be about 5 percent higher.

In South America, industry sales of tractors and combines are projected to increase 5 to 10 percent.

Asia industry sales of agricultural machinery are forecasted to be flat.

Industry sales of agricultural machinery in Europe are forecast to be up about 5 percent.

In South America, industry sales of tractors and combines are projected to be up about 10 percent.

Asia industry sales of agricultural machinery are forecast to be down moderately.

Construction equipment industry sales in the U.S.

and Canada for 2022 are expected to increase 5 to 10 percent, while compact construction equipment industry sales in the U.S.

and Canada are anticipated to be flat to up about 5 percent.

Forestry global industry equipment sales are expected to be 10 to 15 percent higher.

Global industry roadbuilding equipment sales are forecasted to be up 5 to 10 percent.

Net income for the Company’s financial services operations is expected to be slightly lower than fiscal year 2021 due to a higher provision for credit losses, lower gains on operating lease residual values, and higher selling, general, and administrative expenses.

and Canada for 2022 are expected to increase about 10 percent, while compact construction equipment industry sales in the U.S.

and Canada are anticipated to be flat to up 5 percent.

Forestry global industry equipment sales are expected to be flat to up 5 percent.

Global industry roadbuilding equipment sales are forecasted to be flat to up 5 percent.

Net income for the Company’s financial services operations is expected to be slightly lower than fiscal year 2021 due to a higher provision for credit losses and higher selling, administrative, and general expenses.

These factors are expected to be partially offset by income earned on a higher average portfolio.

Items of concern include global and regional political conditions, economic and trade policies, uncertainty of the effectiveness of governmental and private sector actions to address the ongoing pandemic, capital market disruptions, changes in demand and pricing for new and used equipment, and the other items discussed in the “Safe Harbor Statement” below.

Items of concern include global and regional political conditions, economic and trade policies, inflationary pressures, the ongoing pandemic, capital market disruptions, changes in demand and pricing for new and used equipment, and the other items discussed in the “Forward-Looking Statements” below.

Significant fluctuations in foreign currency exchange rates, volatility in the price of many commodities, and supply chain disruptions could also impact the Company’s results.

The Company’s first quarter performance was noteworthy given production issues following the delayed ratification of the UAW contract in late November as well as persistent challenges posed by the supply chain and pandemic.

These factors contributed to higher production costs.

Demand for agriculture and construction equipment is expected to continue to benefit from strong fundamentals.

The Company continues to work closely with key suppliers to manage through the dynamic environment and enable the Company’s dealers and customers to deliver food production and critical infrastructure.

The Company remains committed, above all else, to safeguarding the health and well-being of its employees.

The Company’s second quarter results reflect strong demand while enduring supply chain pressures continue to impact production levels and delivery schedules.

The Company’s employees, suppliers, and dealers are working to address these challenges.

The demand for agricultural equipment is expected to benefit from positive fundamentals despite availability concerns and inflationary pressures affecting customers’ input costs.

The Company’s smart industrial operating model and recently announced financial and sustainability goals (Leap Ambitions) are focused on helping customers manage higher costs and increasingly scarce inputs, while improving agricultural yields, through the use of the Company’s integrated technologies.

Impact of Events in Russia / Ukraine

The recent events in Russia / Ukraine have impacted the safety, welfare, and well-being of the Company’s employees in the region.

The Company’s top priority is to support and maintain close communication with its affected teams, providing necessary resources when possible.

The Company has suspended shipments of machines and service parts to Russia.

These events are impacting business continuity, liquidity, and asset values for the Company’s operations in Russia / Ukraine (see Note 20).

2022 Compared with 2021

Three Months Ended

Six Months Ended

Deere & Company

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Diluted earnings per share

In the first quarter of 2022, the Company incurred UAW ratification bonus costs of $90 million.

See Note 20 for more information on special items impacting both periods.

Three Months Ended

Equipment Operations

(In millions of dollars)

Operating profit

Price realization

Currency translation

Price realization

Currency translation

The discussion of net sales and operating profit is included in the Business Segment Results below.

Results for the second quarter of 2022 and year-to-date periods of 2022 and 2021 were impacted by special items.

See Note 20 for more information on special items impacting the presented periods.

The discussion on net sales and operating profit is included in the Business Segment Results below.

Three Months Ended

Six Months Ended

Deere & Company

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Provision for income taxes

The cost of sales ratio increased due to higher production costs, partially offset by price realization.

Research and development expenses were higher due to continued focus on developing and incorporating technology solutions.

Other operating expenses decreased primarily as a result of reduced depreciation of equipment on operating leases and lower retirement benefit costs (see Note 7).

The provision for income taxes was lower as a result of reduced pretax income.

The cost of sales to net sales ratio increased in the second quarter and the first six months of fiscal 2022 primarily due to higher production costs partially offset by price realization.

Other income increased in both periods due to a non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture.

Research and development expenses were higher for both periods due to continued focus on developing and incorporating technology solutions.

Selling, administrative, and general expenses increased in the second quarter and the first six months primarily due to a higher provision for credit losses, including higher reserves due to the events in Russia / Ukraine.

Other operating expenses decreased in the first six months primarily due to lower depreciation of equipment on operating leases and lower retirement benefit costs.

The provision for income taxes decreased in both periods due in part to a final U.S.

tax regulation resulting in the release of a foreign tax credit valuation allowance.

Business Segment Results

Three Months Ended

Six Months Ended

Production and Precision Agriculture

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Operating margin

Production and precision agriculture sales for the quarter increased due to price realization and higher shipment volumes.

Operating profit declined primarily due to higher production costs and an unfavorable sales mix.

These items were partially offset by price realization and higher shipment volumes.

Affecting the most recent quarter was the UAW contract ratification bonus, while the prior period was affected by a favorable indirect tax ruling in Brazil.

Price realization

Currency translation

Production and precision agriculture sales increased for the quarter due to price realization and higher shipment volumes.

Operating profit rose primarily due to price realization and higher shipment volumes / sales mix.

These items were partially offset by higher production costs, higher research and development and selling, administrative, and general expenses, and impairments related to events in Russia / Ukraine.

Sales for the first six months increased mainly as a result of price realization and higher shipment volumes.

Operating profit for the first six months decreased primarily resulting from higher production costs, higher research and development and selling, administrative, and general expenses, the UAW contract ratification bonus, and the impact of impairments related to events in Russia / Ukraine.

Partially offsetting these factors were price realization and higher shipment volumes / sales mix.

The prior year was also impacted by a favorable indirect tax ruling in Brazil.

Three Months Ended

Six Months Ended

Small Agriculture and Turf

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Operating margin

Small agriculture and turf sales for the quarter improved as price realization more than offset lower shipment volumes.

Operating profit decreased primarily due to higher production costs and lower sales / unfavorable sales mix.

Price realization

Currency translation

Small agriculture and turf sales for the quarter increased due to price realization partially offset by the unfavorable impact of currency translation.

Operating profit decreased primarily due to higher production costs, a less favorable sales mix, and higher selling, administrative, and general and research and development expenses.

These items were partially offset by price realization.

Sales for the first six months increased mainly as a result of price realization partially offset by the unfavorable impact of currency translation.

Operating profit for the first six months decreased primarily resulting from higher production costs, a less favorable sales mix, and higher selling, administrative, and general and research and development expenses.

Partially offsetting these factors was price realization.

Three Months Ended

Six Months Ended

Construction and Forestry

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Operating margin

Construction and forestry sales moved higher for the quarter primarily due to price realization and higher shipment volumes.

Last year Wirtgen’s one-month reporting lag was eliminated resulting in four months of Wirtgen activity in the first quarter of 2021, which increased “Net sales” by $270 million.

Operating profit was higher mainly due to price realization, partially offset by higher production costs and lower sales / unfavorable sales mix.

The current period was impacted by the UAW contract ratification bonus.

Results last year included impairment of long-lived assets.

Price realization

Currency translation

Construction and forestry sales moved higher for the quarter primarily due to price realization and higher shipment volumes, partially offset by the unfavorable impact of currency translation.

Operating profit increased due to a non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture and price realization.

These items were partially offset by higher production costs, impairments related to the events in Russia / Ukraine, and a less favorable product mix.

The segment’s six-month sales also increased due to price realization partially offset by the unfavorable impact of currency translation.

The first six-month’s operating profit moved higher mainly due to price realization and a non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture, partially offset by higher production costs.

Three Months Ended

Six Months Ended

Financial Services

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Interest expense

While the average balance of receivables and leases financed was 6 percent higher in the first three months of 2022, compared with the same period last year, revenue decreased due to lower average interest rates.

Interest expense decreased 16 percent in the first quarter of 2022 as a result of lower average borrowing rates.

Net income increased due to income earned on higher average portfolio balances and improvement on operating lease residual values.

While the average balance of receivables and leases financed was 6 percent higher in the second quarter and the first six months of 2022 compared with the same periods last year, revenues decreased slightly due to lower financing rates.

Gains on operating lease dispositions also benefited revenue in both periods.

Interest expense decreased in the second quarter and first six months of 2022 primarily as a result of non-designated derivative gains and lower average borrowing rates.

Net income decreased for the quarter mainly due to higher reserves for credit losses related to the events in Russia / Ukraine, partially offset by income earned on a higher average portfolio.

Results for the first six months increased slightly due to income earned on higher average portfolio balances and an improvement on operating lease residual values, partially offset by higher reserves for credit losses related to the events in Russia / Ukraine.

Both periods of the prior year also benefited from a favorable adjustment to the provision for credit losses.

Critical Accounting Estimates

See the Company’s critical accounting estimates discussed in the Management’s Discussion and Analysis of the most recently filed Annual Report on Form 10-K.

There have been no material changes to these policies.

There have been no material changes to these estimates.

CAPITAL RESOURCES AND LIQUIDITY

The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the Company’s consolidated totals, equipment operations, and financial services operations.

Cash outflows from consolidated operating activities in the first three months of 2022 were $2,553 million.

Cash outflows from consolidated operating activities in the first six months of 2022 were $1,762 million.

This resulted mainly from a working capital change and a $1,000 million voluntary contribution to a U.S.

These were partially offset by net income adjusted for non-cash provisions.

Cash inflows from investing activities were $648 million in the first three months of this year.

The primary driver was collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired, partially offset by purchases of property and equipment.

Cash outflows from financing activities were $1,577 million in the first three months of 2022.

Cash, cash equivalents, and restricted cash decreased $3,556 million during the first three months of this year.

In February 2022, the Company acquired majority ownership in Kreisel Electric, Inc., a battery technology provider based in Austria.

The initial cash outlay was €239 million, which was financed from cash on hand (see Note 21).

Additional cash requirements anticipated in the remainder of 2022 include the dissolution of the joint venture agreement between the Company and Hitachi Construction Machinery Co., Ltd.

In connection with the termination, the Company will purchase all of Hitachi’s shares in the relevant joint venture manufacturing entities and receive certain intellectual property rights.

The initial cash consideration consists of $275 million for the shares and an intellectual property license.

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.

This consideration will be paid out of cash on hand.

Positive cash flows from consolidated operating activities in the first three months of 2021 were $143 million.

This resulted primarily from net income adjusted for non-cash provisions partially offset by changes in working capital.

Cash inflows from investing activities were $579 million in the first three months of 2021, largely due to collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired.

This was partially offset by purchases of property and equipment.

Negative cash flows from financing activities were $933 million in the first three months of 2021.

Cash, cash equivalents, and restricted cash decreased $108 million during the first three months of 2021.

Cash outflows from investing activities were $1,888 million in the first six months of 2022.

The primary driver was the cost of receivables and equipment on operating leases acquired exceeding collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases;

acquisition of businesses, net of cash acquired;

purchases of property and equipment;

and a change in collateral on derivatives – net.

Cash outflows from financing activities were $386 million in the first six months of 2022.

Cash, cash equivalents, and restricted cash decreased $4,146 million during the first six months of this year.

Positive cash flows from consolidated operating activities in the first six months of 2021 were $1,786 million.

This resulted primarily from net income adjusted for non-cash provisions and a change in net accrued income taxes payable/receivable, partially offset by changes in working capital.

Cash outflows from investing activities were $1,387 million in the first six months of 2021, primarily due to the cost of receivables and equipment on operating leases acquired exceeding collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases, purchases of property and equipment, and a change in collateral on derivatives – net.

Negative cash flows from financing activities were $441 million in the first six months of 2021.

Cash, cash equivalents, and restricted cash increased $109 million during the first six months of 2021.

The Company has access to most global markets at a reasonable cost and expects to have sufficient sources of global funding and liquidity to meet its funding needs in the short term and long term.

Sources of liquidity for the Company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets), and committed and uncommitted bank lines of credit.

The Company’s commercial paper outstanding at January 30, 2022, October 31, 2021, and January 31, 2021 was $2,135 million, $2,230 million, and $1,346 million, respectively, while the total cash, cash equivalents, and marketable securities position was $5,207 million, $8,745 million, and $7,629 million, respectively.

The total cash, cash equivalents, and marketable securities held by foreign subsidiaries was $3,047 million, $5,817 million, and $4,956 million at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

The Company’s commercial paper outstanding at May 1, 2022, October 31, 2021, and May 2, 2021 was $3,403 million, $2,230 million, and $2,259 million, respectively.

The total cash, cash equivalents, and marketable securities position was $4,560 million, $8,745 million, and $7,850 million, respectively.

The total cash and cash equivalents and marketable securities held by foreign subsidiaries was $2,606 million, $5,817 million, and $4,972 million at May 1, 2022, October 31, 2021, and May 2, 2021, respectively.

During the first quarter of 2022, the Company’s foreign subsidiaries returned $3,500 million of cash and cash equivalents to the U.S.

In May 2022, the Company’s foreign subsidiaries returned $848 million of cash and cash equivalents to the U.S.

Lines of Credit .

The Company also has access to bank lines of credit with various banks throughout the world.

Worldwide lines of credit totaled $8,519 million at January 30, 2022, $5,865 million of which were unused.

For the purpose of computing unused credit lines, commercial paper and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, were primarily considered to constitute utilization.

Included in the total credit lines at January 30, 2022 was a 364-day credit facility agreement of $3,000 million, expiring in fiscal April 2022.

In addition, total credit lines included long-term credit facility agreements of $2,500 million, expiring in fiscal April 2025, and $2,500 million, expiring in fiscal March 2026.

The Company expects to extend the terms of these credit facilities.

Worldwide lines of credit totaled $8,568 million at May 1, 2022, $4,608 million of which were unused.

purpose of computing unused credit lines, commercial paper, and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, were primarily considered to constitute utilization.

Included in the total credit lines at May 1, 2022 was a 364-day credit facility agreement of $3,000 million expiring in the second quarter of 2023.

In addition, total credit lines included long-term credit facility agreements of $2,500 million expiring in the second quarter of 2026 and $2,500 million expiring in the second quarter of 2027.

These credit agreements require John Deere Capital Corporation (Capital Corporation) to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholder’s equity excluding accumulated other comprehensive income (loss)) at not more than 11 to 1 at the end of any fiscal quarter.

The credit agreements also require the equipment operations to maintain a ratio of total debt to total capital (total debt and stockholders’ equity excluding accumulated other comprehensive income (loss)) of 65 percent or less at the end of each fiscal quarter.

Under this provision, the Company’s excess equity capacity and retained earnings balance free of restriction at January 30, 2022 was $15,452 million.

Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $28,697 million at January 30, 2022.

All of these requirements of the credit agreements have been met during the periods included in the financial statements.

Under this provision, the Company’s excess equity capacity and retained earnings balance free of restriction at May 1, 2022 was $16,783 million.

Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $31,169 million at May 1, 2022.

All of these credit agreement requirements have been met during the periods included in the financial statements.

Debt Ratings .

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Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets.

The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company securities by the rating agencies engaged by the Company are as follows:

The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company debt securities by the rating agencies engaged by the Company are as follows:

Fitch Ratings

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Trade accounts and notes receivable primarily arise from sales of goods to independent dealers.

Trade receivables increased $647 million during the first three months of 2022, mostly due to a seasonal increase.

These receivables decreased $182 million, compared to a year ago.

The ratios of trade accounts and notes receivable to the last 12 months’ net sales were 12 percent at January 30, 2022, compared to 11 percent at October 31, 2021 and 15 percent at January 31, 2021.

Trade receivables increased $2,050 million during the first six months of 2022, primarily due to a seasonal increase and higher overall demand, partially offset by the effect of foreign currency translation.

These receivables increased $100 million, compared to a year ago.

The ratios of trade accounts and notes receivable to the last 12 months’ net sales were 15 percent at May 1, 2022, compared to 11 percent at October 31, 2021 and 17 percent at May 2, 2021.

Production and precision agriculture trade receivables decreased $6 million, small agriculture and turf trade receivables decreased $83 million, and construction and forestry trade receivables increased $189 million, compared to a year ago.

The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent, 1 percent, and 3 percent at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent at May 1, 2022, 1 percent at October 31, 2021, and 2 percent at May 2, 2021.

Equipment Operations

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Funds provided from operations are supplemented by external financing sources as needed.

Cash used for operating activities of the equipment operations, including intercompany cash flows, in the first three months of 2022 was $2,488 million.

This resulted largely from a change in working capital and a $1,000 million voluntary contribution to a U.S.

OPEB plan exceeding cash inflows from net income adjusted for non-cash provisions.

Cash, cash equivalents, and restricted cash decreased $3,592 million in the first three months of 2022.

Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first three months of 2021 was $348 million.

Cash inflows from net income adjusted for non-cash provisions were partially offset by changes in working capital.

Cash, cash equivalents, and restricted cash decreased $71 million in the first three months of 2021.

Trade receivables held by the equipment operations decreased $159 million during the first three months of 2022 and increased $96 million from a year ago.

Cash used for operating activities of the equipment operations, including intercompany cash flows, in the first six months of 2022 was $646 million.

This resulted primarily from a working capital change and a $1,000 million voluntary contribution to a U.S.

Partially offsetting these operating cash outflows were cash inflows from net income adjusted for non-cash provisions.

Cash used for financing activities was $2,401 million in the first six months of 2022 primarily due to repurchases of common stock of $1,226 million, dividends paid of $649 million, and a decrease in borrowings of $549 million.

Cash, cash equivalents, and restricted cash decreased $4,018 million in the first six months of 2022.

Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first six months of 2021 was $2,507 million.

This resulted primarily from cash inflows from net income adjusted for non-cash provisions, partially offset by a change in working capital.

Cash used for financing activities was $2,118 million in the first six months of 2021 primarily due to repurchases of common stock of $1,044 million, a decrease

in borrowings of $676 million, and dividends paid of $480 million.

Cash, cash equivalents, and restricted cash increased $138 million in the first six months of 2021.

Trade receivables held by the equipment operations increased $203 million during the first six months of 2022 and increased $133 million from a year ago.

The equipment operations sell a significant portion of their trade receivables to financial services.

See the previous consolidated discussion of trade receivables.

Inventories increased by $1,154 million during the first three months, primarily due to a seasonal increase.

Inventories increased $1,979 million, compared to a year ago, due to higher forecasted shipment volumes and a raw material build-up related to the UAW work stoppage, partially offset by the effect of foreign currency translation.

Inventories increased by $2,249 million during the first six months of 2022 and increased by $2,988 million compared to a year ago.

The higher levels in both periods are due to increased overall demand and the impact of supply chain disruptions, partially offset by foreign currency translation.

A majority of these inventories are valued on the last-in, first-out (LIFO) method.

Total interest-bearing debt, excluding finance lease liabilities, of the equipment operations was $10,229 million at January 30, 2022, compared with $10,373 million at October 31, 2021 and $10,494 million at January 31, 2021.

The ratios of debt to total capital (total interest-bearing debt and stockholders’ equity) were 36 percent, 36 percent, and 43 percent at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

Property and equipment cash expenditures for the equipment operations in the first three months of 2022 were $193 million, compared with $154 million in the same period last year.

Total interest-bearing debt, excluding finance lease liabilities, of the equipment operations was $10,057 million at May 1, 2022, compared with $10,373 million at October 31, 2021 and $10,421 million at May 2, 2021.

The ratios of debt to total capital (total interest-bearing debt and Deere & Company’s stockholders’ equity) were 35 percent, 36 percent, and 41 percent at May 1, 2022, October 31, 2021, and May 2, 2021, respectively.

Property and equipment cash expenditures for the equipment operations in the first six months of 2022 were $345 million, compared with $319 million in the same period last year.

Capital expenditures for the equipment operations in 2022 are estimated to be approximately $1,175 million.

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Their primary sources of funds for this purpose are a combination of commercial paper, term debt, securitization of retail notes, equity capital, and borrowings from Deere & Company.

During the first three months of 2022 and 2021, the cash provided by operating and investing activities was used for financing activities.

Cash, cash equivalents, and restricted cash increased $36 million in the first three months of 2022 and decreased $37 million in the first three months of 2021.

During the first six months of 2022 and 2021, the cash provided by operating and financing activities was used for investing activities.

Cash, cash equivalents, and restricted cash decreased $128 million in the first six months of 2022 and decreased $29 million in the first six months of 2021.

Receivables and leases held by the financial services operations consist of retail notes originated in connection with financing of new and used equipment, operating leases, trade receivables, revolving charge accounts, sales-type and direct financing leases, and wholesale notes.

Trade and financing receivables and equipment on operating leases decreased $1,149 million during the first quarter of 2022, primarily due to seasonal payments, and increased $2,490 million in the past 12 months.

Total acquisition volumes of receivables (excluding trade and wholesale) and leases were 3 percent higher in the first three months of 2022, compared with the same period last year, as volumes of operating and finance leases, retail notes, and revolving charge accounts were higher compared to January 31, 2021.

Total external interest-bearing debt of the financial services operations was $37,026 million at January 30, 2022, compared with $37,978 million at October 31, 2021 and $35,415 million at January 31, 2021.

Total external borrowings have generally changed corresponding with the level of receivable and lease portfolio, the level of cash and cash equivalents, the change in payables owed to Deere & Company, and the change in investment from Deere & Company.

The financial services operations’ ratio of interest-bearing debt to stockholder’s equity was 7.4 to 1 at January 30, 2022, compared with 7.8 to 1 at October 31, 2021 and 7.6 to 1 at January 31, 2021.

Trade and financing receivables and equipment on operating leases increased $1,389 million during the first six months of 2022 and increased $2,330 million in the past 12 months primarily due to higher sales.

Total acquisition volumes of receivables (excluding trade and wholesale) and leases were 1 percent higher in the first six months of 2022, compared with the same period last year, as volumes of revolving charge accounts were higher, while volumes of retail notes, financing leases, and operating leases were lower.

The amount of total trade receivables and wholesale notes increased compared to October 31, 2021 and decreased compared to May 2, 2021.

Total external interest-bearing debt of the financial services operations was $38,751 million at May 1, 2022, compared with $37,978 million at October 31, 2021 and $36,873 million at May 2, 2021.

Total external borrowings have changed generally corresponding with the level of receivable and lease portfolio, the level of cash and cash equivalents, the change in payables owed to Deere & Company, and the change in investment from Deere & Company.

The financial services operations’ ratio of interest-bearing debt, including intercompany debt, to stockholder’s equity was 7.8 to 1 at May 1, 2022, compared with 7.8 to 1 at October 31, 2021 and 7.7 to 1 at May 2, 2021.

The long-term portion of payables due to Deere & Company was $716 million at May 1, 2022 and $584 million at October 31, 2021.

Capital Corporation has a revolving warehouse facility to utilize bank conduit facilities to securitize retail notes (see Note 9).

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

As a result of the reduced capacity, 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.

In the first three months of 2022, the financial services operations retired $1,123 million of retail note securitization borrowings, which are presented in “Increase (decrease) in total short-term borrowings.” In addition, during the first three months of 2022, the financial services operations issued $2,335 million and retired $1,816 million of long-term borrowings, which were primarily medium-term notes.

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

Statements under “ Overview ” and other forward-looking statements herein that relate to future events, expectations, and trends involve factors that are subject to change, and assumptions, risks, and uncertainties that could cause actual results to differ materially.

Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the Company’s businesses.

The Company’s agricultural equipment businesses are subject to a number of uncertainties, including certain factors that affect farmers’ confidence and financial condition.

These factors include demand for agricultural products;

world grain stocks;

weather conditions and the effects of climate change;

soil conditions;

harvest yields;

prices for commodities and livestock;

crop and livestock production expenses;

availability of transport for crops (including as a result of reduced state and local transportation budgets);

trade restrictions and tariffs (e.g., China);

global trade agreements;

the level of farm product exports (including concerns about genetically modified organisms);

the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production);

real estate values;

available acreage for farming;

land ownership policies of governments;

changes in government farm programs and policies;

international reaction to such programs;

changes in and effects of crop insurance programs;

changes in environmental regulations and their impact on farming practices;

animal diseases (e.g., African swine fever) and their effects on poultry, beef, and pork consumption and prices and on livestock feed demand;

crop pests and diseases;

and the impact of the COVID pandemic on the agricultural industry including demand for, and production and exports of, agricultural products, and commodity prices.

The production and precision agriculture business is dependent on agricultural conditions, and relies in part on hardware and software, guidance, connectivity and digital solutions, and automation and machine intelligence.

Many factors contribute to the Company’s precision agriculture sales and results, including the impact to customers’ profitability and/or sustainability outcomes;

the rate of adoption and use by customers;

availability of technological innovations;

speed of research and development;

effectiveness of partnerships with third parties;

and the dealer channel’s ability to support and service precision technology solutions.

Factors affecting the Company’s small agriculture and turf equipment operations include agricultural conditions;

consumer confidence;

weather conditions and the effects of climate change;

customer profitability;

labor supply;

consumer borrowing patterns;

consumer purchasing preferences;

housing starts and supply;

infrastructure investment;

spending by municipalities and golf courses;

and consumable input costs.

Factors affecting the Company’s construction and forestry equipment operations include consumer spending patterns;

real estate and housing prices;

the number of housing starts;

interest rates;

commodity prices such as oil and gas;

the levels of public and non-residential construction;

and investment in infrastructure.

Prices for pulp, paper, lumber, and structural panels affect sales of forestry equipment.

Many of the factors affecting the production and precision agriculture, small agriculture and turf, and construction and forestry segments have been and may continue to be impacted by global economic conditions, including those resulting from the COVID pandemic and responses to the pandemic taken by governments and other authorities.

All of the Company’s businesses and its results are affected by general economic conditions in the global markets and industries in which the Company operates;

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

At May 1, 2022, $760 million of securitization borrowings was outstanding under the facility.

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

In the first six months of 2022, the financial services operations issued $1,224 million and retired $1,818 million of retail note securitization borrowings, which are presented in Increase in total short-term borrowings on the statements of consolidated cash flows.

In addition, during the first six months of 2022, the financial services operations issued $4,243 million and retired $3,317 million of long-term borrowings, which were primarily medium-

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 by linking financing to the achievement of its ambitious and comprehensive environmental, social, and governance (ESG) targets.

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

Subsequent Event

On May 25, 2022, the Company’s Board of Directors declared a quarterly dividend of $1.13 per share payable August 8, 2022 to stockholders of record on June 30, 2022.

The new quarterly rate represents an additional 8 cents per share over the previous level, an increase of approximately 8 percent.

Forward-Looking Statements

Certain statements contained herein, including in the section entitled “ Overview ” relating to future events, expectations, and trends constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 and involve factors that are subject to change, assumptions, risks, and uncertainties that could cause actual results to differ materially.

Some of these risks and uncertainties could affect all lines of the Company’s operations, generally, while others could more heavily affect a particular line of business.

Forward-looking statements are based on currently available information and current assumptions, expectations, and projections about future events.

Except as required by law, the Company undertakes no obligation to update or revise its forward-looking statements.

Further information concerning the Company and its businesses, including factors that could materially affect the Company’s financial results, is included in the Company’s other filings with the SEC (including, but not limited to, the factors discussed in Item 1A.

“Risk Factors” of the Company’s most recent Annual Report on Form 10-K and the Company’s subsequent Quarterly Reports on Form 10-Q).

Factors Affecting All Lines of Business

All of the Company’s businesses and their results are affected by general economic conditions in the global markets and industries in which the Company operates;

customer confidence in general economic conditions;

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foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S.

interest rates (including the availability of interbank overnight rate reference rates);

changing interest rates;

inflation and deflation rates;

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the effects of, or response to, terrorism and security threats;

wars and other conflicts;

wars and other conflicts, including the current military conflict between Russia and Ukraine;

natural disasters;

and the spread of major epidemics or pandemics (including the COVID pandemic) and government and industry responses to such epidemics or pandemics, such as travel restrictions and extended shut downs of businesses.

Continued uncertainties related to the magnitude, duration, and persistent effects of the COVID pandemic may significantly adversely affect the Company’s business and outlook.

These uncertainties include, among other things:

the duration and impact of the resurgence in COVID cases in any country, state, or region;

the emergence, contagiousness, and threat of new and different strains of virus;

the availability, acceptance, and effectiveness of vaccines;

additional closures as mandated or otherwise made necessary by governmental authorities;

disruptions in the supply chain, including those caused by industry capacity constraints, material availability, and global logistics delays and constraints arising from, among other things, the transportation capacity of ocean shipping containers, and continued disruptions in the operations of one or more key suppliers, or the failure of any key suppliers;

an increasingly competitive labor market due to a sustained labor shortage or increased turnover caused by the COVID pandemic;

the Company’s ability to meet commitments to customers on a timely basis as a result of increased costs and supply and transportation challenges;

increased logistics costs;

additional operating costs due to continued remote working arrangements and other COVID - related challenges;

increased risk of cyber-attacks on network connections used in remote working arrangements;

increased privacy-related risks due to processing health-related personal information;

legal claims related to personal protective equipment designed, made, or provided by the Company or alleged exposure to COVID on Company premises;

absence of employees due to illness;

and the impact of the pandemic on the Company’s customers and dealers.

The sustainability of the economic recovery from the pandemic remains unclear and significant volatility could continue for a prolonged period.

These factors, and others that are currently unknown or considered immaterial, could materially and adversely affect our business, liquidity, results of operations, and financial position.

and the spread of major epidemics or pandemics (including the COVID-19 pandemic).

Significant changes in market liquidity conditions, changes in the Company’s credit ratings, and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the Company’s earnings and cash flows.

Financial market conditions could also negatively impact customer access to capital for purchases of the Company’s products and customer confidence and purchase decisions, financing and repayment practices, and the number and size of customer delinquencies and defaults.

A debt crisis in Europe, Latin America, or elsewhere could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, demand for equipment, and Company operations and results.

Financial market conditions could also negatively impact customer access to capital for purchases of the Company’s products and purchase decisions, financing and repayment practices, and the number and size of customer delinquencies and defaults.

A debt crisis in Europe, Latin America, or elsewhere could negatively impact currencies, global financial markets, funding sources and costs, asset and obligation values, customers, suppliers, and demand for equipment.

The Company’s investment management activities could be impaired by changes in the equity, bond, and other financial markets, which would negatively affect earnings.

Additional factors that could materially affect the Company’s operations, access to capital, expenses, and results include changes in, uncertainty surrounding, and the impact of governmental trade, banking, monetary, and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs, and other areas;

the potential default of the U.S.

federal government if Congress fails to pass a 2022 budget resolution;

governmental programs, policies, and tariffs for the benefit of certain industries or sectors;

sanctions in particular jurisdictions, including those imposed in connection with the military confrontation between Russia and Ukraine;

retaliatory actions to such changes in trade, banking, monetary, and fiscal policies;

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actions by financial and securities regulators;

actions by environmental, health, and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, noise, and the effects of climate change;

actions by environmental, health, and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, and the effects of climate change;

changes to GPS radio frequency bands or their permitted uses;

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changes to and compliance with privacy, banking, and other regulations;

to and compliance with economic sanctions and export controls laws and regulations;

compliance with U.S.

changes to and compliance with economic sanctions, or countersanctions, and export controls laws and regulations;

and compliance with U.S.

and foreign laws when expanding to new markets and otherwise.

and actions by other regulatory bodies.

Other factors that could materially affect the Company’s results include security breaches, cybersecurity attacks, technology failures, and other disruptions to the information technology infrastructure of the Company and its suppliers and dealers;

Other factors that could materially affect the Company’s results and operations include security breaches, cybersecurity attacks, technology failures, and other disruptions to the information technology infrastructure of the Company and its suppliers and dealers;

security breaches with respect to the Company’s products;

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the availability and prices of strategically sourced materials, components, and whole goods;

delays or disruptions in the Company’s supply chain or the loss of liquidity by suppliers;

disruptions of infrastructures that support communications, operations, or distribution;

delays or disruptions in the Company’s supply chain, including work stoppages or disputes by suppliers with their unionized labor;

the failure of customers, dealers, suppliers, or the Company to comply with laws, regulations, and Company policy pertaining to employment, human rights, health, safety, the environment, sanctions, export controls, anti-corruption, privacy and data protection, and other ethical business practices;

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greater-than-anticipated transaction costs;

the integration of new businesses;

the integration of acquired businesses;

the failure or delay in closing or realizing anticipated benefits of acquisitions, joint ventures, or divestitures;

the inability to deliver precision technology and agricultural solutions to customers;

the implementation of the smart industrial operating model and other organizational changes;

the failure to realize anticipated savings or benefits of cost reduction, productivity, or efficiency efforts;

difficulties related to the conversion and implementation of enterprise resource planning systems;

changes in Company-declared dividends and common stock issuances and repurchases;

changes in the level and funding of employee retirement benefits;

changes in market values of investment assets, compensation, retirement, discount, and mortality rates which impact retirement benefit costs;

and significant changes in health care costs.

The liquidity and ongoing profitability of John Deere Capital Corporation and the Company’s other financial services subsidiaries depend largely on timely access to capital in order to meet future cash flow requirements, and to fund operations, costs, and purchases of the Company’s products.

and the failure to realize anticipated savings or benefits of cost reduction, productivity, or efficiency efforts.

Uncertainties related to the continued effects of the COVID-19 pandemic have adversely affected and may continue to affect the Company’s business and outlook.

These uncertainties include, among other things:

the duration and impact of any resurgence in COVID-19;

and an increasingly competitive labor market due to a sustained labor shortage or increased turnover caused by the COVID-19 pandemic.

The sustainability of the economic recovery from the pandemic remains unclear and significant volatility could continue for a prolonged period.

Agricultural Equipment Operations

The Company’s agricultural equipment operations are subject to a number of uncertainties, including certain factors that affect farmers’ confidence and financial condition.

These factors include demand for agricultural products;

world grain stocks;

soil conditions;

harvest yields;

prices for commodities and livestock;

crop and livestock production expenses;

availability of fertilizer;

availability of transport for crops;

trade restrictions and tariffs;

global trade agreements;

the level of farm product exports;

the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production);

real estate values;

available acreage for farming;

changes in government farm programs and policies;

international reaction to such programs;

changes in and effects of crop insurance programs;

changes in environmental regulations and their impact on farming practices;

animal diseases and their effects on poultry, beef, and pork consumption and prices on livestock feed demand;

and crop pests and diseases.

Production and Precision Agriculture Operations

The production and precision agriculture operations rely in part on hardware and software, guidance, connectivity and digital solutions, and automation and machine intelligence.

Many factors contribute to the Company’s precision agriculture sales and results, including the impact to customers’ profitability and/or sustainability outcomes;

the rate of adoption and use by customers;

availability of technological innovations;

speed of research and development;

effectiveness of partnerships with third parties;

and the dealer channel’s ability to support and service precision technology solutions.

Small Agriculture and Turf Equipment

Factors affecting the Company’s small agriculture and turf equipment operations include customer profitability;

labor supply;

consumer borrowing patterns;

consumer purchasing preferences;

housing starts and supply;

infrastructure investment;

spending by municipalities and golf courses;

and consumable input costs.

Construction and Forestry

Factors affecting the Company’s construction and forestry equipment operations include consumer spending patterns;

real estate and housing prices;

the number of housing starts;

interest rates;

commodity prices such as oil and gas;

the levels of public and non-residential construction;

and investment in infrastructure.

Prices for pulp, paper, lumber, and structural panels affect sales of forestry equipment.

John Deere Financial

The liquidity and ongoing profitability of John Deere Capital Corporation and the Company’s other financial services subsidiaries depend on timely access to capital in order to meet future cash flow requirements, and to fund operations, costs, and purchases of the Company’s products.

If general economic conditions deteriorate or capital markets become more volatile, funding could be unavailable or insufficient.

Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses.

The Company’s forward-looking statements are based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies.

Such estimates and data are often revised.

The Company, except as required by law, undertakes no obligation to update or revise its forward-looking statements, whether as a result of new developments or otherwise.

Risk Factors of the Company’s most recent annual report on Form 10-K and the Company’s subsequent quarterly reports on Form 10-Q).

Supplemental Consolidating Information

The supplemental consolidating data presented on the subsequent pages is presented for informational purposes.

The equipment operations represents the enterprise without financial services.

The equipment operations includes the Company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services.

The equipment operations represent the enterprise without financial services.

The equipment operations include the Company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services.

Transactions between the equipment operations and financial services have been eliminated to arrive at the consolidated financial statements.

The equipment operations and financial services participate in different industries.

The equipment operations primarily generate earnings and cash flows by manufacturing and distributing equipment, service parts, and technology solutions to dealers and retail customers.

The equipment operations primarily generate earnings and cash flows by manufacturing and selling equipment, service parts, and technology solutions to dealers and retail customers.

Financial services primarily finances sales and leases by dealers of new and used equipment that is largely manufactured by the Company.

Those earnings and cash flows generally are the difference between the finance income received from customer payments less interest expense, and depreciation on equipment subject to an operating lease.

The two businesses are capitalized differently and have separate performance metrics.

These two businesses are capitalized differently and have separate performance metrics.

The supplemental consolidating data is also used by management due to these differences.

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STATEMENTS OF 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) Unaudited

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Equity in income of unconsolidated affiliates

Net loss attributable to noncontrolling interests

Net Income Attributable to Deere & Company

1 Elimination of financial services’ interest income earned from equipment operations.

2 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases.

3 Elimination of intercompany service fees.

4 Elimination of equipment operations’ interest expense to financial services.

5 Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.

DEERE & COMPANY

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

STATEMENTS OF INCOME

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

(In millions of dollars) 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

Interest compensation to Financial Services

Other operating expenses

Income before Income Taxes

Provision for income taxes

Income after Income Taxes

Equity in income of unconsolidated affiliates

Net income attributable to noncontrolling interests

Net Income Attributable to Deere & Company

1 The equipment operations represents the enterprise without financial services.

1 Elimination of financial services’ interest income earned from equipment operations.

3 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases (see Note 3).

2 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases.

3 Elimination of intercompany service fees.

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Marketable securities

Receivables from unconsolidated affiliates

Receivables from Financial Services

Trade accounts and notes receivable – net

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Property and equipment – net

Investments in unconsolidated affiliates

Other intangible assets – net

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Short-term securitization borrowings

Payables to unconsolidated affiliates

Payables to Equipment Operations

Accounts payable and accrued expenses

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Commitments and contingencies (Note 15)

Redeemable noncontrolling interest (Note 19)

Stockholders’ Equity

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Total Liabilities and Stockholders’ Equity

1 The equipment operations represents the enterprise without financial services.

6 Elimination of receivables / payables between equipment operations and financial services.

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STATEMENTS OF 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

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Share-based compensation expense

Gain on remeasurement of previously held equity investment

Undistributed earnings of unconsolidated affiliates

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Collections of receivables (excluding receivables related to sales)

Proceeds from maturities and sales of marketable securities

Proceeds from sales of equipment on operating leases

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Acquisitions of businesses, net of cash acquired

Purchases of marketable securities

Purchases of property and equipment

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Collateral on derivatives – net

Net cash provided by (used for) investing activities

Net cash used for investing activities

Cash Flows from Financing Activities

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Dividends paid

Net cash used for financing activities

Net cash provided by (used for) financing activities

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

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

1 The equipment operations represents the enterprise without financial services.

12 Elimination of depreciation on leases related to inventory transferred to equipment on operating leases (see Note 3).

Components of cash, cash equivalents, and restricted cash

Cash and cash equivalents

Restricted cash (Other assets)

Total cash, cash equivalents, and restricted cash

11 Elimination of depreciation on leases related to inventory transferred to equipment on operating leases.

12 Reclassification of share-based compensation expense.

14 Elimination of dividends from financial services to the equipment operations, which are included in the equipment operations net cash provided by operating activities.

13 Elimination of dividends from financial services to the equipment operations, which are included in the equipment operations’ operating activities, and capital investments in financial services from the equipment operations.

14 Primarily reclassification of receivables related to the sale of equipment.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the Company’s most recently filed annual on Form 10-K (Part II, Item 7A).

See the Company’s most recently filed Annual Report on Form 10-K (Part II, Item 7A).

There has been no material change in this information.

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 2. Management’s Discussion and Analysis