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Item 1. Financial Statements

2022-09-01 compared with 2022-05-26 · 189 added, 201 removed, 821 unchanged (32% of the section changed)

2 unchanged sentences

STATEMENTS OF CONSOLIDATED INCOME

For the Three 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 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

For the Three and Nine Months Ended July 31, 2022 and August 1, 2021

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

Three Months Ended

Nine Months Ended

Net Sales and Revenues

19 unchanged sentences

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

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

For the Three and Nine Months Ended July 31, 2022 and August 1, 2021

(In millions of dollars) Unaudited

Three Months Ended

Nine Months Ended

Other Comprehensive Income (Loss), Net of Income Taxes

1 unchanged sentence

Cumulative translation adjustment

Unrealized gain on derivatives

Unrealized loss on debt securities

Unrealized gain (loss) on derivatives

Unrealized gain (loss) on debt securities

Other Comprehensive Income (Loss), Net of Income Taxes

29 unchanged sentences

Common stock, $ 1 par value (issued shares at

May 1, 2022 – 536,431,204 )

July 31, 2022 – 536,431,204 )

Common stock in treasury

8 unchanged sentences

STATEMENTS OF CONSOLIDATED CASH FLOWS

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

For the Nine Months Ended July 31, 2022 and August 1, 2021

(In millions of dollars) Unaudited

Cash Flows from Operating Activities

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

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

Provision (credit) for credit losses

4 unchanged sentences

Undistributed earnings of unconsolidated affiliates

Provision (credit) for deferred income taxes

Credit for deferred income taxes

Changes in assets and liabilities:

3 unchanged sentences

Retirement benefits

Net cash provided by (used for) operating activities

Net cash provided by operating activities

Cash Flows from Investing Activities

14 unchanged sentences

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

9 unchanged sentences

STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

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

For the Three and Nine Months Ended July 31, 2022 and August 1, 2021

(In millions of dollars) Unaudited

6 unchanged sentences

Income (Loss)

Three Months Ended May 2, 2021

Balance January 31, 2021

Other comprehensive income

Three Months Ended August 1, 2021

Balance May 2, 2021

Other comprehensive loss

Repurchases of common stock

2 unchanged sentences

Stock options and other

Balance May 2, 2021

Six Months Ended May 2, 2021

Balance August 1, 2021

Nine Months Ended August 1, 2021

Balance November 1, 2020

5 unchanged sentences

Stock options and other

Balance August 1, 2021

Three Months Ended July 31, 2022

Balance May 1, 2022

Three Months Ended May 1, 2022

Balance January 30, 2022

Acquisitions (see Note 19)

Net income (loss)

Other comprehensive loss

3 unchanged sentences

Stock options and other

Balance May 1, 2022

Six Months Ended May 1, 2022

Balance July 31, 2022

Nine Months Ended July 31, 2022

Balance October 31, 2021

6 unchanged sentences

Stock options and other

Balance May 1, 2022

Balance July 31, 2022

See Condensed Notes to Interim Consolidated Financial Statements.

1 unchanged sentence

(1) Organization and Consolidation

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

Consolidated – Represents the consolidation of the equipment operations and financial services.

References to “Deere & Company” or “the Company” refer to the entire enterprise.

Equipment Operations – Represents the enterprise without financial services (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).

Deere & Company has been developing innovative solutions to help our customers become more profitable for 185 years.

References to Deere & Company, John Deere, Deere, or the Company include our consolidated subsidiaries, including our consolidated variable interest entities (VIEs).

The Company is managed through the following operating segments:

production and precision agriculture (PPA), small agriculture and turf (SAT), construction and forestry (CF), and financial services (FS).

References to agriculture and turf include both production and precision agriculture and small agriculture and turf.

The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period.

The second quarter ends for fiscal year 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.

The third quarter ends for fiscal year 2022 and 2021 were July 31, 2022 and August 1, 2021, respectively.

Both third quarters contained 13 weeks, while both year-to-date periods contained 39 weeks.

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

5 unchanged sentences

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 consolidates certain VIEs related to retail note securitizations (see Note 9).

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

17 unchanged sentences

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

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

As of July 31, 2022 and October 31, 2021, the remaining consigned inventory was $ 26 million and $ 150 million, respectively.

New Accounting Standards

3 unchanged sentences

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 May 1, 2022

Three Months Ended July 31, 2022

Production & Precision Ag

13 unchanged sentences

At a point in time

Six Months Ended May 1, 2022

Nine Months Ended July 31, 2022

Production & Precision Ag

13 unchanged sentences

At a point in time

Three Months Ended May 2, 2021

Three Months Ended August 1, 2021

Production & Precision Ag

13 unchanged sentences

At a point in time

Six Months Ended May 2, 2021

Nine Months Ended August 1, 2021

Production & Precision Ag

16 unchanged sentences

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 deferred revenue received, but not recognized in revenue, including extended warranty premiums also shown in Note 15, was $ 1,424 million, $ 1,344 million, and $ 1,259 million at July 31, 2022, October 31, 2021, and August 1, 2021, respectively.

The contract liability is reduced as the revenue is recognized.

During the three months ended 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.

During the three months ended July 31, 2022 and August 1, 2021, $ 93 million and $ 108 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year.

During the nine months ended July 31, 2022 and August 1, 2021, $ 488 million and $ 442 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year.

The amount of unsatisfied performance obligations for contracts with an original duration greater than one year is $ 1,167 million at July 31, 2022.

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

10 unchanged sentences

Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, in millions of dollars.

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

Three Months Ended May 1, 2022

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

Three Months Ended July 31, 2022

Cumulative translation adjustment

6 unchanged sentences

Unrealized holding gain (loss)

Reclassification of realized (gain) loss – Other income

Net unrealized gain (loss) on debt securities

4 unchanged sentences

Prior service (credit) cost

Settlements/curtailment

Net unrealized gain (loss) on retirement benefits adjustment

Total other comprehensive income (loss)

Six Months Ended May 1, 2022

Nine Months Ended July 31, 2022

Cumulative translation adjustment

1 unchanged sentence

Unrealized hedging gain (loss)

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

Net unrealized gain (loss) on derivatives

1 unchanged sentence

Unrealized holding gain (loss)

Reclassification of realized (gain) loss – Other income

Net unrealized gain (loss) on debt securities

Retirement benefits adjustment:

Net actuarial gain (loss)

Net actuarial gain (loss) and prior service (cost)

Reclassification to Other operating expenses through amortization of:

1 unchanged sentence

Prior service (credit) cost

Settlements/curtailment

Net unrealized gain (loss) on retirement benefits adjustment

Total other comprehensive income (loss)

Three Months Ended May 2, 2021

Three Months Ended August 1, 2021

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)

Six Months Ended May 2, 2021

Nine Months Ended August 1, 2021

Cumulative translation adjustment

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

Reclassification of realized (gain) loss to:

14 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Net income attributable to Deere & Company

5 unchanged sentences

Diluted per share

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.

During both the third quarter and first nine months of 2022, .2 million shares were excluded from the computation because the incremental shares would have been antidilutive.

(6) Pension and Other Postretirement Benefits

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Interest cost

2 unchanged sentences

Amortization of prior service cost

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

Settlements/curtailment

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

Three Months Ended

Six Months Ended

Nine Months Ended

Interest cost

2 unchanged sentences

Amortization of prior service credit

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.

2 unchanged sentences

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 with $ 35 million negatively impacting operating profit in 2022.

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

During the third quarter of 2022 , the Company remeasured the U.S.

hourly pension plan when 10 percent of active, eligible employees elected to freeze their defined benefit pension plan benefit for an enhanced defined contribution benefit.

The remeasurement resulted in a $ 34 million curtailment loss, while the impact to the plan’s funded status was not material.

During the first nine months of 2022, the Company contributed $ 67 million to its pension plans and $ 1,109 million to its OPEB plans.

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

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.

The Company presently anticipates contributing an additional $ 16 million to its pension plans and $ 28 million to its OPEB plans during the remainder of 2022.

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

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Net sales and revenues:

35 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:

July 31, 2022

Revolving Charge Accounts

25 unchanged sentences

Total retail customer receivables

August 1, 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:

July 31, 2022

Wholesale receivables:

15 unchanged sentences

Total wholesale receivables

August 1, 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 May 1, 2022

Three Months Ended July 31, 2022

Beginning of period balance

Provision (credit)

Translation adjustments

End of period balance

Six Months Ended May 1, 2022

Nine Months Ended July 31, 2022

Beginning of period balance

4 unchanged sentences

End of period balance

Three Months Ended May 2, 2021

Three Months Ended August 1, 2021

Beginning of period balance

Provision (credit)

End of period balance

Six Months Ended May 2, 2021

Nine Months Ended August 1, 2021

Beginning of period balance

5 unchanged sentences

End of period balance

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.

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

As part of the allowance setting process, the Company continues to monitor the economy, including potential impacts of inflation, commodity prices, and interest rates on portfolio performance and adjustments to the allowance are incorporated, as necessary.

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

These modifications may include a reduction of the stated interest rate, an extension of the maturity date, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest.

During the first 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.

During the first nine months of 2022, the Company identified 230 receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $ 10 million pre-modification and $ 9 million post-modification.

During the first nine months of 2021, the Company identified 304 receivable contracts, primarily retail notes, as troubled debt

restructurings with aggregate balances of $ 12 million pre-modification and $ 10 million post-modification.

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

At July 31, 2022, the Company had no commitments to lend to borrowers whose accounts were modified in troubled debt restructurings.

(9) Securitization of Financing Receivables

24 unchanged sentences

Translation adjustments

Goodwill at May 2, 2021

Goodwill at August 1, 2021

Goodwill at October 31, 2021

Translation adjustments

Goodwill at May 1, 2022

Goodwill at July 31, 2022

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

14 unchanged sentences

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 amortization of other intangible assets in the third quarter and the first nine months of 2022 was $ 42 million and $ 104 million, and for 2021 was $ 27 million and $ 89 million, respectively.

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

remainder of 2022 – $ 62 , 2023 – $ 164 , 2024 – $ 160 , 2025 – $ 133 , 2026 – $ 113 , and 2027 – $ 112 .

(12) Total Short-Term Borrowings

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

Equipment Operations

Notes payable to banks

Finance lease obligations due within one year

Long-term borrowings due within one year

Financial Services

(12) Short-Term Borrowings

Short-term borrowings were as follows in millions of dollars:

Commercial paper

Notes payable to banks

Finance lease obligations due within one year

Long-term borrowings due within one year

Short-term borrowings

Short-term securitization borrowings

Equipment Operations

Financial Services

Total short-term borrowings

(13) Long-Term Borrowings

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

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

Equipment Operations

Underwritten term debt

dollar notes and debentures:

2.75 % notes due 2025

6.55 % debentures due 2028

11 unchanged sentences

1.65 % notes due 2039 (€ 650 principal)

Finance lease obligations and other notes

Less debt issuance costs and debt discounts

Financial Services

Notes and debentures:

Serial issuances

Medium-term notes (principal as of:

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

July 31, 2022 - $ 22,983 , October 31, 2021 - $ 22,647 , August 1, 2021 - $ 21,892 )

Other notes and finance lease obligations

Less debt issuance costs and debt discounts

Long-term borrowings

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.

Medium-term notes serially due 2023 through 2032 are primarily offered by prospectus and issued at fixed and variable rates.

These notes are presented in the table above with fair value adjustments related to interest rate swaps.

All outstanding notes and debentures are senior unsecured borrowings and generally rank equally with each other.

In April 2022, the Company issued $ 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.

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

July 31, 2022

August 1, 2021

July 31, 2022

August 1, 2021

Sales-type and direct finance lease revenues

2 unchanged sentences

Total lease revenues

Variable lease revenues reported above primarily relate to separately invoiced property taxes on leased equipment in certain markets, late fees, and excess use and damage fees.

Excess use and damage fees are reported in other income on the statements of consolidated income.

Excess use and damage fees were $ 1 million and $ 2 million for the third quarter and first nine months ended July 31, 2022, respectively, compared with $ 2 million and $ 5 million for the same periods last year, respectively.

(15) Commitments and Contingencies

2 unchanged sentences

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.

These unamortized extended warranty premiums (deferred revenue) included in the following table totaled $ 839 million and $ 709 million at July 31, 2022 and August 1, 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

Nine Months Ended

Beginning of period balance

4 unchanged sentences

End of period balance

At May 1, 2022, the Company had approximately $ 352 million of guarantees issued primarily to banks outside the U.S.

At July 31, 2022, the Company had approximately $ 330 million of guarantees issued primarily to banks outside the U.S.

and Canada related to third-party receivables for the retail financing of John Deere equipment.

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

At 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.

At July 31, 2022, the Company had accrued losses of $ 4 million under these agreements.

The maximum remaining term of the receivables guaranteed at July 31, 2022 was approximately six years .

At July 31, 2022, the Company had commitments of $ 468 million for the construction and acquisition of property and equipment.

Also, at July 31, 2022, the Company had restricted assets of $ 77 million, classified as Other assets.

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

The Company also had other miscellaneous contingent liabilities totaling approximately $ 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.

The Company also had other miscellaneous contingent liabilities totaling approximately $ 90 million at July 31, 2022.

The accrued liability for these contingencies was not material at July 31, 2022.

The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements.

13 unchanged sentences

Long-term borrowings exclude finance lease liabilities.

July 31, 2022

October 31, 2021

August 1, 2021

Financing receivables – net

1 unchanged sentence

Short-term securitization borrowings

Equipment operations

Financial services

Long-term borrowings due within one year

Equipment operations

Financial services

Long-term borrowings

Equipment operations

Financial services

Fair value measurements above were Level 3 for all financing receivables, Level 3 for equipment operations short-term securitization borrowings, and Level 2 for all other borrowings.

Fair value measurements above were Level 3 for all financing receivables and Level 2 for all borrowings.

Fair values of the financing receivables that were issued long-term were based on the discounted values of their related cash flows at interest rates currently being offered by the Company for similar financing receivables.

17 unchanged sentences

Accounts payable and accrued expenses – Deferred consideration

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

The contractual maturities of debt securities at July 31, 2022 in millions of dollars are shown below.

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

2 unchanged sentences

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.

Unrealized losses of debt securities at July 31, 2022 were not recognized in income due to the ability and intent to hold to maturity.

Due in one year or less

5 unchanged sentences

Fair value, nonrecurring Level 3 measurements from impairments, excluding financing receivables with specific allowances which were not significant, were as follows in millions of dollars.

Property and equipment – net and Other assets fair value for October 31, 2021 represents the fair value assessment at January 31, 2021.

Property and equipment – net and Other assets fair values for October 31, 2021 represent the fair value assessments at January 31, 2021.

Three Months Ended

Six Months Ended

Nine Months Ended

Property and equipment – net

14 unchanged sentences

It is the Company’s policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading.

The Company’s financial services operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities.

The Company’s financial services operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to

diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities.

The Company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling, and financing in currencies other than the functional currencies.

In addition, the Company has interest rate and foreign currency exposures at certain equipment operations units for sales incentive programs.

In addition, the Company has interest rate and foreign currency exposures for sales incentive programs.

All derivatives are recorded at fair value on the balance sheet.

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

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

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

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

4 unchanged sentences

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 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.

The total notional amounts of the receive-variable/pay-fixed interest rate contracts at July 31, 2022, October 31, 2021, and August 1, 2021 were $ 2,350 million, $ 2,700 million, and $ 1,750 million, respectively.

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

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.

The amount of gain recorded in OCI at July 31, 2022 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is approximately $ 31 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.

1 unchanged sentence

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 May 1, 2022, October 31, 2021, and May 2, 2021 were $ 8,655 million, $ 8,043 million, and $ 8,340 million, respectively.

The total notional amounts of the receive-fixed/pay-variable interest rate contracts at July 31, 2022, October 31, 2021, and August 1, 2021 were $ 8,303 million, $ 8,043 million, and $ 8,658 million, respectively.

The fair value gains or losses on these contracts were generally offset by fair value gains or losses on the hedged items (fixed-rate borrowings) with both items recorded in interest expense.

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

Value Hedging Adjustments Included in

the Carrying Amount

Relationships

Long-term borrowings due within one year

Fair value hedging adjustments are included in the carrying amount of the hedged item.

Active Hedging Relationships

Discontinued Hedging Relationships

Carrying Amount

Cumulative Fair Value

Carrying Amount of

Cumulative Fair Value

of Hedged Item

Hedging Amount

Formerly Hedged Item

Hedging Amount

July 31, 2022

Short-term borrowings

Long-term borrowings

October 31, 2021

Long-term borrowings due within one year

Short-term borrowings

Long-term borrowings

Long-term borrowings due within one year

August 1, 2021

Short-term borrowings

Long-term borrowings

Long-term borrowings due within one year are presented in short-term borrowings.

Derivatives Not Designated as Hedging Instruments

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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 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 total notional amounts of these interest rate swaps at July 31, 2022, October 31, 2021, and August 1, 2021 were $ 9,880 million, $ 10,848 million, and $ 9,195 million, the foreign exchange contracts were $ 7,457 million, $ 7,584 million, and $ 6,328 million, and the cross-currency interest rate contracts were $ 276 million, $ 238 million, and $ 197 million, respectively.

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

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Three Months Ended

Six Months Ended

Nine Months Ended

Fair Value Hedges:

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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 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.

The aggregate fair value of all derivatives with

credit-risk-related contingent features that were in a net liability position at July 31, 2022, October 31, 2021, and August 1, 2021, was $ 518 million, $ 135 million, and $ 87 million, respectively.

In accordance with the limits established in these agreements, the Company posted $ 238 million of cash collateral at July 31, 2022.

The Company posted no cash collateral in accordance with the limits established in those agreements at either October 31, 2021 or August 1, 2021.

In addition, the Company paid $ 8 million of cash collateral that was outstanding at July 31, 2022, October 31, 2021, and August 1, 2021 to participate in an international futures market to hedge currency exposure, not included in the table below.

Derivatives are recorded without offsetting for netting arrangements or collateral.

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Gross Amounts

July 31, 2022

Gross Amounts

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Gross Amounts

August 1, 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 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.

At July 31, 2022, options for 2.1 million shares were outstanding with a weighted-average exercise price of $ 152.12 per share.

The Company also granted 165 thousand restricted stock units to employees and non-employee directors in the first nine months of 2022, of which 128 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 $ 346.46 per unit based on the market price of a share of underlying common stock.

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

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

At July 31, 2022, the Company was authorized to grant an additional 17.3 million shares under the equity incentive plan.

(19) Acquisitions

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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:

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 July 31, 2022 follows:

Trade accounts and notes receivable

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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 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:

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

At July 31, 2022, the net present value of the deferred consideration was approximately $ 252 million, subject to changes in market conditions, developments in the Company’s product offerings, and sourcing changes.

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

The fair value of the previously held equity investment created a non-cash gain of $ 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.

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

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

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

Following the acquisition, Net sales will only include the sale of 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:

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

The preliminary fair values assigned to the assets and liabilities of the acquired factories in millions of dollars, which are based on information as of the acquisition date and available at July 31, 2022, follows:

Other receivables

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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.

In the first nine months of the year, the Company acquired AgriSync Inc.

(AgriSync), a technology service provider;

an 80 percent stake in both SureFire Ag Systems, Inc.

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

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

and LGT, LLC (Light), which specializes in depth sensing and camera-based perception for autonomous vehicles.

The combined cost of the acquisitions was $ 124 million, net of cash acquired of $ 3 million.

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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.

The identifiable intangible assets were related to trade name, technology, and customer relationships with a weighted average amortization period of 7 years .

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

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

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

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.

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

(20) S pecial Items

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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.

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

The Company manufactures and markets equipment in Russia / Ukraine, and provides financial services in Russia.

As of July 31, 2022, the Company’s net exposure in Russia / Ukraine was approximately $ 436 million.

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

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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

During the third quarter of 2022, the Company initiated a voluntary employee-separation program, updated reserves on assets, and reassessed accruals for contractual uncertainties.

The Russian government has imposed certain restrictions on companies’ abilities to repatriate or remit cash from their Russian-based operations to locations outside of Russia.

Cash in excess of what is required to fund operations in Russia has been reclassified as restricted and recorded in Other assets.

The Company continues to closely monitor all financial risks to its operations in the region.

A summary of the reserves, impairments, voluntary-separation costs, and contingent liabilities recorded in the first nine months of 2022 follows in millions of dollars:

Nine Months Ended July 31, 2022

2022 Expense:

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

Voluntary-separation program – Cost of sales

Voluntary-separation program – SA&G expenses

Contingent liabilities – Other operating expenses

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2021 Special Items

In the third quarter of 2021, the Company sold a closed factory that previously produced small agricultural equipment in China, resulting in a $ 27 million pretax gain.

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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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:

The following table summarizes the operating profit impact, in millions of dollars, of the special items recorded for the three months and nine months ended July 31, 2022 and August 1, 2021:

2022 Expense (benefit):

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2021 Expense (benefit):

Gain on sale – Other income

Long-lived asset impairments – Cost of sales

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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