What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-09-01 compared with 2022-05-26 · 163 added, 205 removed, 296 unchanged (55% of the section changed)

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RESULTS OF OPERATIONS

The Company’s equipment operations generate revenues and cash primarily from the sale of equipment to John Deere dealers and distributors.

The equipment operations manufacture and distribute a full line of agricultural equipment;

The Company generates net sales primarily from the sale of equipment to John Deere dealers and distributors.

The Company manufactures and distributes a full line of agricultural equipment;

a variety of commercial and consumer equipment;

and a broad range of equipment for construction, roadbuilding, and forestry.

The Company’s financial services primarily provide credit services, which mainly finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the equipment operations.

In addition, financial services offers extended equipment warranties.

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

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

These operations are managed through the production and precision agriculture, small agriculture and turf, and construction and forestry operating segments.

The Company’s financial services segment primarily provides credit services, which mainly finance sales and leases of equipment by John Deere dealers.

Trends and Economic Conditions for Fiscal Year 2022

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and Canada are expected to be up about 15 percent.

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

Industry sales of small agriculture and turf equipment in the U.S.

and Canada are expected 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.

Industry sales of agricultural machinery in Europe are forecast to be flat.

In South America, industry sales of tractors and combines are projected to be up about 10 to 15 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 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.

and Canada 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 down 5 percent.

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

Global roadbuilding equipment industry 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, less-favorable financing spreads, 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, 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 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.

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

The Company’s third quarter results reflect increased factory output and shipments to customers while supply chain pressures endure.

Also during the third quarter, the Company experienced higher costs and production inefficiencies from these supply chain pressures.

The Company is confident favorable conditions will continue into fiscal year 2023 based on strong underlying fundamentals and customer responses to early-order programs.

The Company’s factories and suppliers are also preparing for higher levels of customer demand in 2023.

Additionally, the Company believes the smart industrial operating model and recently announced leap ambitions will create value for customers through the Company’s advanced technologies and solutions.

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 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.

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Three Months Ended

Six Months Ended

Nine Months Ended

Deere & Company

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Diluted earnings per share

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.

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

More information on these special items is provided in Note 20.

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

Three Months Ended

Six Months Ended

Nine Months Ended

Deere & Company

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Provision for income taxes

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.

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

Other income decreased in the third quarter due to a prior period gain on sale of a closed factory in China.

Other income increased in the first nine months 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.

Selling, administrative, and general expenses increased in the third quarter and the first nine months primarily due to a higher provision for credit losses, including higher reserves due to the events in Russia / Ukraine, as well as a higher merit pay increase due to inflationary conditions.

Other operating expenses decreased in the third quarter and the first nine months primarily due to lower depreciation of equipment on operating leases, while lower retirement benefit costs impacted the first nine months.

The provision for income taxes increased in the third quarter due to higher pretax income and unfavorable discrete income-tax adjustments.

Business Segment Results

Three Months Ended

Six Months Ended

Nine Months Ended

Production and Precision Agriculture

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Currency translation

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

Production and precision agriculture sales increased for the quarter due to higher shipment volumes and price realization, partially offset by the unfavorable impact of currency translation.

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.

These items were partially offset by higher production costs, higher selling, administrative, and general expenses, increased research and development expenses, and the unfavorable effects of foreign currency exchange.

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

Operating profit for the first nine months increased primarily resulting from price realization, higher sales volume / mix, and the favorable effects of foreign currency exchange.

Partially offsetting these factors were 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.

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

Three Months Ended

Six Months Ended

Nine Months Ended

Small Agriculture and Turf

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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.

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

Operating profit decreased primarily due to higher production costs, higher selling, administrative, and general expenses, increased research and development expenses, and the unfavorable effects of foreign currency exchange.

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

Results for the prior period included a gain on the sale of a closed factory in China that had produced small agricultural equipment.

Sales for the first nine months increased mainly as a result of price realization and higher shipment volumes, partially offset by the unfavorable impact of currency translation.

Operating profit for the first nine months decreased primarily resulting from higher production costs and higher selling, administrative, and general and research and development expenses.

Partially offsetting these factors was price realization.

Results for the prior period included a gain on the sale of a closed factory in China that had produced small agricultural equipment.

Three Months Ended

Six Months Ended

Nine Months Ended

Construction and Forestry

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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.

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

Operating profit increased due to price realization, partially offset by higher production costs.

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

The first nine-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 and unfavorable product mix.

Three Months Ended

Six Months Ended

Nine 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 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.

While the average balance of receivables financed increased 9 percent in the third quarter and 8 percent in the first nine months of 2022 compared with the same periods last year, revenues increased 2 percent in the third quarter and were unchanged in the first nine months.

Lower operating lease revenue partially offset the higher average receivable balances in both periods.

Interest expense increased in the third quarter due to higher average borrowing rates and higher average borrowings.

Interest expense decreased in the first nine months of 2022 primarily as a result of non-designated derivative gains, partially offset by higher average borrowings.

Net income decreased for the quarter mainly due to unfavorable discrete income-tax adjustments, a higher provision for credit losses, and lower gains on operating lease residual values.

These items were partially offset by income earned on a higher average portfolio.

Results for the first nine months decreased slightly due to a higher provision for credit losses, partially offset by income earned on higher average portfolio balances.

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.

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

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 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 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;

Sources of Liquidity, including Key Metrics and Balance Sheet Data

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 bank lines of credit.

The Company operates in multiple industries, which have different funding requirements.

The production and precision agriculture, small agriculture and turf, and construction and forestry segments are capital intensive and are subject to seasonal variations in financing requirements for inventories and certain receivables from dealers.

The financial services operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios.

The key metrics are provided in the following table, in millions of dollars:

Cash, cash equivalents, and marketable securities

Trade accounts and notes receivable – net

Ratio to prior 12 month’s net sales

Ratio to prior 12 month’s cost of sales

Unused credit lines

Financial Services:

Ratio of interest-bearing debt to stockholder’s equity

Due to the uncertainties around the COVID-19 pandemic, the Company temporarily increased its cash, cash equivalents, and marketable securities target beginning in March 2020.

The reduction in unused credit lines compared to both prior periods relates to an increase in commercial paper outstanding to fund growth in the receivable portfolio.

The Company expects to generate excess operating cash flows in 2022, as evidenced by the common stock dividend increase declared on May 25, 2022, and $2,477 million of share repurchases during the first nine months of 2022.

As the underlying fundamentals remain strong in the Company’s operating segments, the Company expects to generate long-term cash flows.

There have been no material changes to the contractual and other cash requirements identified in the Company’s most recently issued Annual Report on Form 10-K.

Nine Months Ended

July 31, 2022

August 1, 2021

Net cash provided by operating activities

Net cash used for investing activities

Net cash provided by (used for) financing activities

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents, and restricted cash

Cash inflows from operating activities in the first nine months of 2022 were $418 million.

This resulted mainly from net income adjusted for non-cash provisions, partially offset by a working capital change and a $1,000 million voluntary contribution to a U.S.

Cash outflows from investing activities were $4,430 million in the first nine months of 2022.

The primary drivers were growth in the retail customer receivable portfolio;

purchases of property and equipment;

acquisitions of businesses, net of cash acquired;

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.

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.

Cash inflows from financing activities were $515 million in the first nine months of 2022, as higher external borrowings of $3,970 million were mainly offset by repurchases of common stock and dividends paid.

Cash, cash equivalents, and restricted cash decreased $3,640 million during the first nine months of this year as the Company lowered its targeted cash balance, as previously noted.

Cash and Marketable Securities Held by Foreign Subsidiaries .

The total cash and cash equivalents and marketable securities held by foreign subsidiaries was $2,713 million, $5,817 million, and $5,690 million at July 31, 2022, October 31, 2021, and August 1, 2021, respectively.

During the first nine months of 2022, the Company’s foreign subsidiaries returned $4,460 million of cash and cash equivalents to the U.S.

Trade Accounts and Notes Receivable.

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

Trade receivables increased $2,488 million during the first nine 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 $1,428 million, compared to a year ago, primarily due to higher overall demand partially offset by the effect of foreign currency translation.

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

Financing Receivables and Equipment on Operating Leases .

These receivables and leases primarily consist of retail notes originated in connection with financing of new and used equipment, operating leases, revolving charge accounts, sales-type and direct financing leases, and wholesale notes.

Financing receivables and equipment on operating leases increased $1,305 million during the first nine months of 2022 and increased $2,919 million in the past 12 months primarily due to higher equipment sales.

Total acquisition volumes of financing receivables and equipment on operating leases were 2 percent higher in the first nine months of 2022, compared with the same period last year, as volumes of revolving charge accounts, retail notes, and operating leases were higher, while volumes of financing leases and wholesale notes were lower.

Inventories .

Inventories increased by $2,340 million during the first nine months of 2022 and increased by $2,711 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.

Property and Equipment .

Property and equipment cash expenditures in the first nine months of 2022 were $596 million, compared with $492 million in the same period last year.

Capital expenditures in 2022 are estimated to be approximately $1,100 million.

Total external borrowings have changed generally corresponding with the level of the receivable and the lease portfolio, as well as the level of cash and cash equivalents.

John Deere Capital Corporation (Capital Corporation), a U.S.

financial services subsidiary, 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, 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 July 31, 2022, $891 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 nine months of 2022, the Company issued $2,669 million and retired $2,343 million of retail note securitization borrowings, which are presented in Increase in total short-term borrowings on the statements of consolidated cash flows.

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 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.

Lines of Credit .

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

Worldwide lines of credit totaled $8,568 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.

Worldwide lines of credit totaled $8,427 million at July 31, 2022, $1,957 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 July 31, 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 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.

These credit agreements require Capital Corporation and other parts of the Company to maintain certain performance metrics and liquidity targets.

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

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Standard & Poor’s

Trade Accounts and Notes Receivable.

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

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 at May 1, 2022, 1 percent at October 31, 2021, and 2 percent at May 2, 2021.

Equipment Operations

The Company’s equipment businesses are capital intensive and are subject to seasonal variations in financing requirements for inventories and certain receivables from dealers.

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

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 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 $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 $10,057 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.

Financial Services

The financial services operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios.

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

During the first 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 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.

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

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.

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.

Subsequent Events

On August 16, 2022, the U.S.

federal government enacted the Inflation Reduction Act of 2022.

The bill contains numerous tax provisions, including a 15 percent corporate minimum tax.

The Company has not yet completed its analysis of the newly enacted tax legislation.

At this point, however, this legislation is not expected to have a material impact on the Company’s financial statements.

On August 31, 2022, the Company’s Board of Directors declared a quarterly dividend of $1.13 per share payable November 8, 2022 to stockholders of record on September 30, 2022.

Forward-Looking Statements

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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.

Forward-looking statements are based on currently available information and current assumptions, expectations, and projections about future events and should not be relied upon.

Except as required by law, the Company expressly disclaims any 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).

“Risk Factors” of the Company’s most recent Annual Report on Form 10-K and 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;

All of the Company’s businesses and their results are affected by general global macroeconomic conditions, including but not limited to inflation, including rising costs for materials used in our production, slower growth or recession, higher interest rates and currency fluctuations which could adversely affect the U.S.

dollar and customer confidence, and customer access to capital and overall demand for our products;

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

shipping delays;

government spending and taxing;

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

changing interest rates;

inflation and deflation rates;

changes in weather and climate patterns;

the political and social stability of the global markets in which the Company operates;

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

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

the political and social stability of the markets in which the Company operates;

the effects of, or response to, 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-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 purchase decisions, financing and repayment practices, and the number and size of customer delinquencies and defaults.

The sustainability of economic recovery from COVID-19 remains unclear and significant volatility could continue for a prolonged period.

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 our access to or terms of future funding, which could reduce the Company’s earnings and cash flows.

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

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

actions by central banks;

actions by financial and securities regulators;

Additional factors that could materially affect the Company’s operations, financial condition, and results include changes in governmental trade, banking, monetary, and fiscal policies, including policies and tariffs for the benefit of certain industries or sectors;

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;

changes in labor and immigration regulations;

changes to GPS radio frequency bands and their permitted uses;

changes to accounting standards;

changes in tax rates, estimates, laws, and regulations and Company actions related thereto;

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

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

and compliance with U.S.

changes to and compliance with economic sanctions and export controls laws and regulations (including those in place for Russia);

and compliance with evolving U.S.

and foreign laws when expanding to new markets and otherwise.

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security breaches with respect to the Company’s products;

production, design, and technological innovations and difficulties, including capacity and supply constraints and prices;

the loss of or challenges to intellectual property rights, whether through theft, infringement, counterfeiting, or otherwise;

the loss of or challenges to intellectual property rights;

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

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;

introduction of legislation that could affect the Company’s business model and intellectual property, such as right to repair or right to modify;

introduction of legislation that could affect the Company’s business model and intellectual property, such as so-called right to repair or right to modify legislation;

events that damage the Company’s reputation or brand;

significant investigations, claims, lawsuits, or other legal proceedings;

start-up of new plants and products;

the success of new product initiatives or business strategies;

changes in customer product preferences and sales mix;

the success or failure of new product initiatives or business strategies;

changes in product preferences, sales mix, and take rates of products and life cycle solutions;

gaps or limitations in rural broadband coverage, capacity, and speed needed to support technology solutions;

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changes in demand and pricing for used equipment and resulting impacts on lease residual values;

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

labor relations and contracts, including work stoppages and other disruptions;

changes in the ability to attract, develop, engage, and retain qualified personnel;

acquisitions and divestitures of businesses;

greater-than-anticipated transaction costs;

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;

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;

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;

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

and the integration of acquired businesses.

Production & Precision Agriculture and Small Agriculture & Turf Operations

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

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prices for commodities and livestock;

crop and livestock production expenses;

availability of fertilizer;

availability and cost 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);

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changes in government farm programs and policies;

international reaction to such programs;

changes in and effects of crop insurance programs;

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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;

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

labor supply;

consumer borrowing patterns;

consumer purchasing preferences;

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Construction and Forestry

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

real estate and housing prices;

Factors affecting the Company’s construction and forestry equipment operations include real estate and housing prices;

the number of housing starts;

interest rates;

commodity prices such as oil and gas;

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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.

The liquidity and ongoing profitability of John Deere Capital Corporation and the Company’s other financial services subsidiaries depend on timely access to capital 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.

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STATEMENTS OF INCOME

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

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

(In millions of dollars) Unaudited

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Income after Income Taxes

Equity in income of unconsolidated affiliates

Net loss attributable to noncontrolling interests

Equity in income (loss) of unconsolidated affiliates

Net income attributable to noncontrolling interests

Net Income Attributable to Deere & Company

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STATEMENTS OF INCOME

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

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STATEMENTS OF 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

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Retirement benefits

Net cash provided by (used for) operating activities

Net cash provided by operating activities

Cash Flows from Investing Activities

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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 2. Management’s Discussion and Analysis