Item 2. Management’s Discussion and Analysis
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
Organization
The Company generates net sales 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. These operations (collectively known as the “equipment 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 provides credit services, which finance sales and leases of equipment by John Deere dealers. In addition, the financial services segment provides wholesale financing to dealers of the foregoing equipment, finances retail revolving charge accounts, and offers extended equipment warranties.
Smart Industrial Operating Model and Leap Ambitions
The Company’s Smart Industrial operating model is focused on making significant investments, strengthening the Company’s capabilities in digital, automation, autonomy, and alternative propulsion technologies. These technologies are intended to increase worksite efficiency, improve yields, lower input costs, and ease labor constraints. The Company’s Leap Ambitions are goals designed to boost economic value and sustainability for the Company’s customers. The Company anticipates opportunities in this area, as the Company and its customers have a vested interest in sustainable practices.
In February 2023, the Company released its 2022 Sustainability Report, available at JohnDeere.com/sustainability. This report identifies important progress on the Company’s Leap Ambitions in fiscal year 2022. The information in our 2022 Sustainability Report is not incorporated by reference into, and does not form a part of, this Form 10-Q.
Trends and Economic Conditions
Industry Trends for Fiscal Year 2023 – Industry sales of large agricultural machinery in the U.S. and Canada for 2023 are forecasted to increase 5 to 10 percent compared to 2022. Industry sales of small agricultural and turf equipment in the U.S. and Canada are expected to be down about 5 percent in 2023. Industry sales of agricultural machinery in Europe are forecasted to be flat to up 5 percent, while South American industry sales of tractors and combines are expected to be flat to up 5 percent in 2023. Asia industry sales are forecasted to be down moderately in 2023. On an industry basis, North American construction equipment and compact construction equipment sales are both expected to be flat to up 5 percent in 2023. Global forestry and global roadbuilding industry sales are each expected to be flat.
Company Trends – Customers’ demand for integration of technology into equipment is a market trend underlying the Company’s Smart Industrial operating model and Leap Ambitions framework. Customers have sought to improve profitability, productivity, and sustainability through technology. The Company’s approach to technology involves hardware and software, guidance, connectivity and digital solutions, automation and machine intelligence, autonomy, and alternative propulsion technologies. This technology is incorporated into products within each of the Company’s operating segments.
Customers continue to adopt technology integrated in the John Deere portfolio of “smart” machines, systems, and solutions. The Company expects this trend to persist for the foreseeable future.
Demand for the Company’s equipment remains strong, as order books are full through a majority of 2023. Agricultural fundamentals are expected to remain solid into 2023, and retail demand will comprise most of 2023 sales. The North American retail customer fleet age of combines and large tractors remains above average, and dealer inventories are historically low due to the manufacturing and supply chain constraints over the past few years. The Company expects the replenishment of dealer stock inventory to occur in 2024. Crop prices remain favorable to our customers in part due to low stock-to-use ratios for key grains. The Company expects to sell more large agricultural equipment in 2023 than 2022 in North America, Europe, and South America. Demand for small agricultural equipment remains stable, while turf and utility equipment product sales are expected to be lower due to the overall U.S. economic conditions. Construction equipment markets are forecasted to be steady. Rental fleets replenishment, the energy industry, and U.S. infrastructure spend are expected to offset moderation in residential
26
home construction. Roadbuilding demand remains strongest in the U.S., largely offset by softening demand in Europe and parts of Asia. Net income for the Company’s financial services operations is expected to be lower than fiscal year 2022 due to less-favorable financing spreads as a result of heightened interest rates, higher selling, administrative and general expenses, and lower gains on operating-lease dispositions, partially offset by higher average portfolio balances.
Additional Trends – The Company experienced supply chain disruptions and inflationary pressures in 2022. These trends continued into 2023. While these are two distinct issues and discussed separately below, their impact may be intertwined.
Supply chain disruptions impacted many aspects of the business, including parts availability, increased production costs, and higher inventory levels. Past due deliveries from suppliers were at elevated levels during 2022. Although past due deliveries remain elevated, the Company experienced improvement during the first quarter of 2023. The reduction in supply chain disruptions contributed to higher levels of production. The Company implemented the following mitigation efforts to minimize the impact of supply chain disruptions on its ability to meet customer demand:
• Worked with the supply base to obtain allocations and improve on-time deliveries of parts.
• Multi-sourced some parts and materials.
• Provided resources to suppliers to address constraints.
• Entered into long-term contracts for some critical components.
• Utilized alternative freight carriers to expedite delivery.
While supply chain disruptions are expected to persist into 2023, the Company is working diligently to secure the parts and components that customers need to deliver essential food and infrastructure more profitably and sustainably. Although the Company experienced some improvement in this area during the first quarter of 2023, concerns remain and this issue could impact our ability to meet customer demand in the remainder of 2023.
Inflation has continued to be a pervasive feature in 2023, increasing the cost of purchased components, energy, salaries, and wages. Higher costs due to general business inflation were offset by price realization, which mitigated the impact of inflation on the Company’s operating results. The Company expects inflation to continue in 2023 resulting in higher costs. If customers are unwilling to accept increases in cost of John Deere products, or the Company is otherwise unable to offset increases in production costs, inflation could have an adverse effect on the Company’s operations and financial condition.
Central bank policy interest rates increased in the first quarter of 2023 and are projected to continue to increase during 2023 but at a moderating pace compared to 2022. Most retail receivables are fixed rate, while wholesale financing receivables are floating rate. The Company has both fixed and floating rate borrowings. The Company manages the risk of interest rate fluctuations by balancing the types and amounts of its funding sources to its financing receivable and equipment on operating lease portfolios. Accordingly, the Company enters into interest rate swap agreements to manage its interest rate exposure. Historically, rising interest rates impact the Company’s borrowings sooner than the benefit is realized from the financing receivable and equipment on operating lease portfolios. As a result, the Company’s financial services operations experienced $53 million (after-tax) of less favorable financing spreads in the first quarter of 2023 compared to 2022. The Company expects spread compression to persist during 2023.
Supply chain disruptions, inflationary pressures, and rising interest rates are driven by factors outside of the Company’s control, and as a result, the Company cannot reasonably foresee when these conditions will subside.
Items of Concern and Uncertainties – Other items of concern include global and regional political conditions, economic and trade policies, imposition of new or retaliatory tariffs against certain countries or covering certain products, post-pandemic effects, capital market disruptions, changes in demand and pricing for new and used equipment, significant fluctuations in foreign currency exchange rates, and volatility in the prices of many commodities. These items could impact the Company’s results. The Company is making investments in technology and in strengthening its capabilities in digital, automation, autonomy, and alternative propulsion technologies. As with most technology investments, marketplace adoption and monetization of these features holds an elevated level of uncertainty.
27
2023 Compared with 2022
Three Months Ended
Deere & Company
January 29
January 30
(In millions of dollars, except per share amounts)
2023
2022
Net sales and revenues
$
12,652
$
9,569
Net income attributable to Deere & Company
1,959
903
Diluted earnings per share
6.55
2.92
Net income in the first quarter of 2022 was impacted by special items. See Note 20 for additional details. The discussion of net sales and operating profit is included in the Business Segment Results below.
An explanation of the cost of sales to net sales ratio and other significant statement of consolidated income changes follows:
Three Months Ended
Deere & Company
January 29
January 30
(In millions of dollars)
2023
2022
% Change
Cost of sales to net sales
69.6%
78.5%
Other income
$
256
$
238
+8
Research and development expenses
495
402
+23
Selling, administrative and general expenses
952
781
+22
Other operating expenses
299
311
-4
Provision for income taxes
537
250
+115
The cost of sales ratio decreased due to price realization, partially offset by higher production costs. Inefficiencies due to the delayed ratification of the UAW labor agreement and contract-ratification bonus costs affected the prior period cost of sales ratio (see Note 20). Research and development expenses were higher due to continued focus on developing and incorporating technology solutions. Selling, administrative and general expenses increased mostly due to higher employee pay driven by inflationary conditions and profit-sharing incentives. The provision for income taxes was higher as a result of higher pretax income.
28
Business Segment Results
For the equipment operations, higher production costs were mostly due to elevated cost of purchased components, energy, salaries, and wages.
Three Months Ended
Production and Precision Agriculture
January 29
January 30
(In millions of dollars)
2023
2022
% Change
Net sales
$
5,198
$
3,356
+55
Operating profit
1,208
296
+308
Operating margin
23.2%
8.8%
Price realization
+22
Currency translation
-1
Production and precision agriculture sales increased for the quarter as a result of higher shipment volumes (primarily in the U.S., Canada, and Latin America) and price realization in most end markets. Operating profit improved primarily due to price realization and improved shipment volume / mix as a result of improved supply chain conditions. These items were partially offset by higher production costs and increased selling, administrative and general expenses and research and development expenses. The UAW contract-ratification bonus costs affected the prior period.
29
Three Months Ended
Small Agriculture and Turf
January 29
January 30
(In millions of dollars)
2023
2022
% Change
Net sales
$
3,001
$
2,631
+14
Operating profit
447
371
+20
Operating margin
14.9%
14.1%
Price realization
+11
Currency translation
-4
Small agriculture and turf sales increased for the quarter due to price realization in most end markets and higher shipment volumes (primarily in the U.S., Canada, India, and Mexico), partially offset by the negative effects of foreign currency translation mostly due to a stronger U.S. dollar. Operating profit improved primarily as a result of price realization and improved shipment volumes due to improved supply chain conditions. These items were partially offset by higher production costs, increased selling, administrative and general expenses and research and development expenses, and the unfavorable effects of foreign currency exchange.
30
Three Months Ended
Construction and Forestry
January 29
January 30
(In millions of dollars)
2023
2022
% Change
Net sales
$
3,203
$
2,544
+26
Operating profit
625
272
+130
Operating margin
19.5%
10.7%
Price realization
+13
Currency translation
-3
Construction and forestry sales moved higher for the quarter primarily due to higher shipment volumes (primarily in the U.S. and Brazil) and price realization, partially offset by the negative effects of foreign currency translation from a stronger U.S. dollar. Operating profit improved due to price realization and improved shipment volumes as a result of improved supply chain conditions, partially offset by higher production costs. The UAW contract-ratification bonus costs affected the prior period.
Three Months Ended
Financial Services
January 29
January 30
(In millions of dollars)
2023
2022
% Change
Revenue (including intercompany)
$
1,244
$
916
+36
Interest expense
442
158
+180
Net income
185
231
-20
The average balance of receivables and leases financed was 15 percent higher in the first three months of 2023, compared with the same period last year. Revenue also increased due to higher average financing rates. Interest expense increased in the first quarter of 2023 as a result of higher average borrowing rates and higher average borrowings. Net income for the quarter decreased mainly due to less favorable financing spreads as a result of heightened interest rates, higher selling, administrative and general expenses, and lower gains on operating lease dispositions, 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. There have been no material changes to these policies.
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CAPITAL RESOURCES AND LIQUIDITY
Sources of Liquidity, Key Metrics and Balance Sheet Data
The Company has access to most global markets at a reasonable cost. 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 closely monitors its liquidity sources against the cash requirements and expects to have sufficient sources of global funding and liquidity to meet its funding needs in the short term (next 12 months) and long term (beyond 12 months). 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 typically subject to seasonal variations in financing requirements for inventories and certain receivables from dealers. However, the patterns of seasonality in inventory have been affected by increases in production rates and supply chain disruptions experienced during fiscal year 2022, which continue to impact inventory levels during 2023. The financial services operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios.
Key metrics are provided in the following table, in millions of dollars:
January 29
October 30
January 30
2023
2022
2022
Cash, cash equivalents, and marketable securities
$
4,828
$
5,508
$
5,207
Trade accounts and notes receivable – net
7,609
6,410
4,855
Ratio to prior 12 month’s net sales
15%
13%
12%
Inventories
10,056
8,495
7,935
Ratio to prior 12 month’s cost of sales
27%
24%
26%
Unused credit lines
1,581
3,284
5,865
Financial Services:
Ratio of interest-bearing debt to stockholder’s equity
8.2 to 1
8.5 to 1
7.4 to 1
The reduction in unused credit lines in 2023 compared to both prior periods relates to an increase in commercial paper outstanding to support working capital requirements. The Company forecasts higher operating cash flows in 2023 driven by an increase in net income adjusted for non-cash provisions and a favorable change in working capital.
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.
Cash Flows
Three Months Ended
(In millions of dollars)
January 29, 2023
January 30, 2022
Net cash used for operating activities
$
(1,246)
$
(2,553)
Net cash provided by investing activities
760
648
Net cash used for financing activities
(339)
(1,577)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
62
(74)
Net decrease in cash, cash equivalents, and restricted cash
$
(763)
$
(3,556)
Cash outflows from consolidated operating activities in the first three months of 2023 were $1,246 million. This resulted mainly from a working capital change, partially offset by net income adjusted for non-cash provisions. Cash inflows from investing activities were $760 million in the first three months of this year. The primary drivers were collections of receivables (excluding receivables related to sales) exceeding the cost of receivables acquired and a change in collateral on derivatives – net, partially offset by purchases of property and equipment. Cash outflows from financing activities were $339 million in the first three months of 2023. Cash, cash equivalents, and restricted cash decreased by $763 million during the first three months of this year.
Trade Accounts and Notes Receivable – Trade accounts and notes receivable arise from sales of goods to customers. Trade receivables increased by $1,199 million during the first three months of 2023, mostly due to a seasonal increase. These receivables increased $2,754 million, compared to a year ago, due to higher shipment volumes. The
32
percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent at each of January 29, 2023, October 30, 2022, and January 30, 2022.
Financing Receivables and Equipment on Operating Leases – Financing receivables and equipment on operating leases 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 decreased by $720 million during the first quarter of 2023, primarily due to seasonal payments, and increased by $5,142 million in the past 12 months, due to strong retail sales. Total acquisition volumes of financing receivables and equipment on operating leases were 31 percent higher in the first three months of 2023, compared with the same period last year, as volumes of wholesale notes, operating leases, retail notes, and revolving charge accounts were higher, while finance leases were lower compared to January 30, 2022.
Inventories – Inventories increased by $1,561 million during the first three months, primarily due to a seasonal increase. Inventories increased $2,121 million, compared to a year ago, due to higher forecasted shipment volumes and supply chain disruptions, partially offset by the effect of foreign currency translation. A majority of these inventories are valued on the last-in, first-out (LIFO) method.
Property and Equipment – Property and equipment cash expenditures in the first three months of 2023 were $315 million, compared with $193 million in the same period last year. Capital expenditures in 2023 are estimated to be approximately $1,400 million.
Accounts Payable and Accrued Expenses – Decreased by $1,714 million in the first three months of 2023, primarily due to a decrease in accrued expenses associated with dealer sales discounts, employee benefits, and derivative liabilities. Accounts payable and accrued expenses increased $2,457 million compared to a year ago, due to an increase in accrued expenses associated with derivative liabilities, accrued taxes, and employee benefits, and an increase in accounts payable associated with trade payables.
Borrowings – Total external borrowings increased by $2,165 million in the first three months of 2023 and increased $6,754 million compared to a year ago, generally corresponding with the level of the receivable and the lease portfolio, as well as other working capital requirements.
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 2022 with an expiration in November 2023 and increased the total capacity or “financing limit” from $1,000 million to $1,500 million. At January 29, 2023, $786 million of securitization borrowings were 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 three months of 2023, the financial services operations retired $849 million of retail note securitization borrowings, which are presented in “Increase (decrease) in total short-term borrowings.”
Lines of Credit – The Company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled $8,327 million at January 29, 2023, $1,581 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 considered to constitute utilization. Included in the total credit lines at January 29, 2023 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 Capital Corporation and other parts of the Company to maintain certain performance metrics and liquidity targets. The Company expects to extend the terms of these credit facilities. All of these requirements of the credit agreements have been met during the periods included in the financial statements.
Debt Ratings – To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company’s securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell, or hold Company securities. A credit rating agency may change or withdraw ratings based on its assessment of the Company’s current and future ability to meet interest and principal repayment obligations. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets. The senior long-term and short-term debt ratings and
33
outlook currently assigned to unsecured Company securities by the rating agencies engaged by the Company are as follows:
Senior
Long-Term
Short-Term
Outlook
Fitch Ratings
A+
F1
Stable
Moody’s Investors Service, Inc.
A2
Prime-1
Positive
Standard & Poor’s
A
A-1
Stable
Forward-Looking Statements
Certain statements contained herein, including in the section entitled “Overview” relating to future events, expectations, and trends constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 and involve factors that are subject to change, assumptions, risks, and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect all lines of the Company’s operations generally while others could more heavily affect a particular line of business.
Forward-looking statements are based on currently available information and current assumptions, expectations, and projections about future events 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. Many factors could cause actual results to differ materially from these forward-looking statements. Among these factors are risks related to:
● changes in U.S. and international laws, regulations, and policies relating to trade, spending, taxing, banking, monetary, environmental (including climate change and engine emission), and farming policies;
● political, economic, and social instability of the geographies in which the Company operates;
● wars and other conflicts, including the current conflict between Russia and Ukraine, and natural disasters;
● adverse macroeconomic conditions, including unemployment, inflation, rising interest rates, changes in consumer practices due to slower economic growth or possible recession, and liquidity constraints;
● growth and sustainability of non-food uses for crops (including ethanol and biodiesel production);
● the Company’s ability to execute business strategies, including the Company’s Smart Industrial operating model, Leap Ambitions, and mergers and acquisitions;
● the ability to understand and meet its customers’ changing expectations and demand for John Deere products;
● accurately forecasting customer demand for products and services and adequately managing inventory;
● changes to governmental communications channels (radio frequency technology);
● gaps or limitations in rural broadband coverage, capacity, and speed needed to support technology solutions;
● the Company’s ability to adapt in highly competitive markets;
● dealer practices and their ability to manage distribution of John Deere products and support and service precision technology solutions;
● changes in climate patterns and unfavorable weather events;
● higher interest rates and currency fluctuations which could adversely affect the U.S. dollar, customer confidence, access to capital, and demand for our products;
● changes in the Company’s credit ratings, and failure to comply with financial covenants in credit agreements could impact access to funding;
● availability and price of raw materials, components, and whole goods;
● delays or disruptions in the Company’s supply chain;
● labor relations and contracts, including work stoppages and other disruptions;
● the ability to attract, develop, engage, and retain qualified personnel;
● security breaches, cybersecurity attacks, technology failures, and other disruptions to the information technology infrastructure of the Company and its products;
● loss of or challenges to intellectual property rights;
● compliance with evolving U.S. and foreign laws, including economic sanctions, data privacy, and environmental laws and regulations;
● legislation introduced or enacted that could affect the Company’s business model and intellectual property, such as so-called right to repair or right to modify legislation;
● investigations, claims, lawsuits, or other legal proceedings;
● events that damage the Company’s reputation or brand;
● world grain stocks, available farm acres, soil conditions, harvest yields, prices for commodities and livestock, input costs (e.g., fertilizer), and availability of transport for crops; and
● housing starts and supply, real estate and housing prices, levels of public and non-residential construction, and infrastructure investment.
34
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 our Annual Report on Form 10-K).
Supplemental Consolidating Information
The supplemental consolidating data presented on the subsequent pages is presented for informational purposes. The equipment operations represents the enterprise without financial services. The equipment operations includes the Company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services. Transactions between the equipment operations and financial services have been eliminated to arrive at the consolidated financial statements.
The equipment operations and financial services participate in different industries. The equipment operations primarily generate earnings and cash flows by manufacturing and selling equipment, service parts, and technology solutions to dealers and retail customers. Financial services finances sales and leases by dealers of new and used equipment that is largely manufactured by the Company. Those earnings and cash flows generally are the difference between the finance income received from customer payments less interest expense, and depreciation on equipment subject to an operating lease. The two businesses are capitalized differently and have separate performance metrics. The supplemental consolidating data is also used by management due to these differences.
35
DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA
STATEMENTS OF INCOME
For the Three Months Ended January 29, 2023 and January 30, 2022
(In millions of dollars) Unaudited
EQUIPMENT
FINANCIAL
OPERATIONS
SERVICES
ELIMINATIONS
CONSOLIDATED
2023
2022
2023
2022
2023
2022
2023
2022
Net Sales and Revenues
Net sales
$
11,402
$
8,531
$
11,402
$
8,531
Finance and interest income
114
34
$
1,067
$
829
$
(187)
$
(63)
994
800
1
Other income
234
217
177
87
(155)
(66)
256
238
2, 3
Total
11,750
8,782
1,244
916
(342)
(129)
12,652
9,569
Costs and Expenses
Cost of sales
7,940
6,696
(6)
(1)
7,934
6,695
4
Research and development expenses
495
402
495
402
Selling, administrative and general expenses
783
657
172
126
(3)
(2)
952
781
4
Interest expense
101
90
442
158
(64)
(19)
479
229
5
Interest compensation to Financial Services
123
44
(123)
(44)
5
Other operating expenses
53
39
392
335
(146)
(63)
299
311
6, 7
Total
9,495
7,928
1,006
619
(342)
(129)
10,159
8,418
Income before Income Taxes
2,255
854
238
297
2,493
1,151
Provision for income taxes
483
182
54
68
537
250
Income after Income Taxes
1,772
672
184
229
1,956
901
Equity in income of unconsolidated affiliates
1
1
2
1
3
Net Income
1,772
673
185
231
1,957
904
Less: Net income (loss) attributable to noncontrolling interests
(2)
1
(2)
1
Net Income Attributable to Deere & Company
$
1,774
$
672
$
185
$
231
$
1,959
$
903
1 Elimination of financial services’ interest income earned from equipment operations.
2 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases.
3 Elimination of financial services’ income related to intercompany guarantees of investments in certain international markets and intercompany service revenue.
4 Elimination of intercompany service fees.
5 Elimination of equipment operations’ interest expense to financial services.
6 Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.
7 Elimination of equipment operations’ expense related to intercompany guarantees of investments in certain international markets and intercompany service expenses.
36
DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
CONDENSED BALANCE SHEETS
(In millions of dollars) Unaudited
EQUIPMENT
FINANCIAL
OPERATIONS
SERVICES
ELIMINATIONS
CONSOLIDATED
Jan 29
Oct 30
Jan 30
Jan 29
Oct 30
Jan 30
Jan 29
Oct 30
Jan 30
Jan 29
Oct 30
Jan 30
2023
2022
2022
2023
2022
2022
2023
2022
2022
2023
2022
2022
Assets
Cash and cash equivalents
$
2,665
$
3,767
$
3,596
$
1,311
$
1,007
$
876
$
3,976
$
4,774
$
4,472
Marketable securities
18
61
2
834
673
733
852
734
735
Receivables from Financial Services
5,348
6,569
5,307
$
(5,348)
$
(6,569)
$
(5,307)
8
Trade accounts and notes receivable – net
1,342
1,273
996
7,827
6,434
4,843
(1,560)
(1,297)
(984)
7,609
6,410
4,855
9
Financing receivables – net
51
47
56
36,831
36,587
33,135
36,882
36,634
33,191
Financing receivables securitized – net
9
5,089
5,936
3,507
5,089
5,936
3,516
Other receivables
1,583
1,670
1,818
489
832
153
(80)
(10)
(35)
1,992
2,492
1,936
9
Equipment on operating leases – net
6,502
6,623
6,624
6,502
6,623
6,624
Inventories
10,056
8,495
7,935
10,056
8,495
7,935
Property and equipment – net
6,178
6,021
5,629
34
35
36
6,212
6,056
5,665
Goodwill
3,891
3,687
3,192
3,891
3,687
3,192
Other intangible assets – net
1,255
1,218
1,209
1,255
1,218
1,209
Retirement benefits
3,728
3,666
3,095
67
66
65
(2)
(2)
(2)
3,793
3,730
3,158
10
Deferred income taxes
1,015
940
1,095
53
45
50
(154)
(161)
(222)
914
824
923
11
Other assets
1,936
1,794
1,730
684
626
477
(23)
(3)
(4)
2,597
2,417
2,203
9
Total Assets
$
39,066
$
39,208
$
35,669
$
59,721
$
58,864
$
50,499
$
(7,167)
$
(8,042)
$
(6,554)
$
91,620
$
90,030
$
79,614
Liabilities and Stockholders’ Equity
Liabilities
Short-term borrowings
$
969
$
1,040
$
1,516
$
13,160
$
11,552
$
9,474
$
14,129
$
12,592
$
10,990
Short-term securitization borrowings
8
4,864
5,711
3,474
4,864
5,711
3,482
Payables to Equipment Operations
5,348
6,569
5,307
$
(5,348)
$
(6,569)
$
(5,307)
8
Accounts payable and accrued expenses
11,819
12,962
9,704
2,952
3,170
1,970
(1,663)
(1,310)
(1,023)
13,108
14,822
10,651
9
Deferred income taxes
404
380
425
269
276
353
(154)
(161)
(222)
519
495
556
11
Long-term borrowings
8,155
7,917
8,760
26,916
25,679
24,078
35,071
33,596
32,838
Retirement benefits and other liabilities
2,384
2,351
3,182
111
108
109
(2)
(2)
(2)
2,493
2,457
3,289
10
Total liabilities
23,731
24,650
23,595
53,620
53,065
44,765
(7,167)
(8,042)
(6,554)
70,184
69,673
61,806
Commitments and contingencies (Note 16)
Redeemable noncontrolling interest
100
92
100
92
Stockholders’ Equity
Total Deere & Company stockholders’ equity
21,332
20,262
17,804
6,101
5,799
5,734
(6,101)
(5,799)
(5,734)
21,332
20,262
17,804
12
Noncontrolling interests
4
3
4
4
3
4
Financial Services’ equity
(6,101)
(5,799)
(5,734)
6,101
5,799
5,734
12
Adjusted total stockholders’ equity
15,235
14,466
12,074
6,101
5,799
5,734
21,336
20,265
17,808
Total Liabilities and Stockholders’ Equity
$
39,066
$
39,208
$
35,669
$
59,721
$
58,864
$
50,499
$
(7,167)
$
(8,042)
$
(6,554)
$
91,620
$
90,030
$
79,614
8 Elimination of receivables / payables between equipment operations and financial services.
9 Primarily reclassification of sales incentive accruals on receivables sold to financial services.
10 Reclassification of net pension assets / liabilities.
11 Reclassification of deferred tax assets / liabilities in the same taxing jurisdictions.
12 Elimination of financial services’ equity.
37
DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
STATEMENTS OF CASH FLOWS
For the Three Months Ended January 29, 2023 and January 30, 2022
(In millions of dollars) Unaudited
EQUIPMENT
FINANCIAL
OPERATIONS
SERVICES
ELIMINATIONS
CONSOLIDATED
2023
2022
2023
2022
2023
2022
2023
2022
Cash Flows from Operating Activities
Net income
$
1,772
$
673
$
185
$
231
$
1,957
$
904
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision (credit) for credit losses
1
(2)
(131)
2
(130)
Provision for depreciation and amortization
279
257
252
266
$
(37)
$
(37)
494
486
13
Share-based compensation expense
23
18
23
18
14
Distributed earnings of Financial Services
3
42
(3)
(42)
15
Provision (credit) for deferred income taxes
(39)
223
(17)
(13)
(56)
210
Changes in assets and liabilities:
Trade, notes, and financing receivables related to sales
(23)
158
(992)
(264)
(1,015)
(106)
16, 18, 19
Inventories
(1,254)
(1,277)
(25)
(20)
(1,279)
(1,297)
17
Accounts payable and accrued expenses
(1,458)
(1,346)
145
(66)
(264)
(142)
(1,577)
(1,554)
18
Accrued income taxes payable/receivable
192
(192)
7
8
199
(184)
Retirement benefits
(49)
(1,012)
1
2
(48)
(1,010)
Other
17
(12)
163
(19)
6
11
186
(20)
13, 14, 17
Net cash provided by (used for) operating activities
(559)
(2,488)
605
411
(1,292)
(476)
(1,246)
(2,553)
Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)
7,495
6,845
(297)
(410)
7,198
6,435
16
Proceeds from sales of equipment on operating leases
497
479
497
479
Cost of receivables acquired (excluding receivables related to sales)
(6,375)
(5,719)
53
116
(6,322)
(5,603)
16
Acquisitions of businesses, net of cash acquired
(24)
(24)
Purchases of property and equipment
(315)
(193)
(315)
(193)
Cost of equipment on operating leases acquired
(531)
(419)
34
28
(497)
(391)
17
Increase in trade and wholesale receivables
(1,499)
(684)
1,499
684
16
Collateral on derivatives – net
4
345
(17)
345
(13)
Other
(9)
(22)
(137)
(36)
16
(146)
(42)
19
Net cash provided by (used for) investing activities
(324)
(235)
(205)
449
1,289
434
760
648
Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings
(136)
123
833
(1,141)
697
(1,018)
Change in intercompany receivables/payables
1,469
150
(1,469)
(150)
Proceeds from long-term borrowings
1
18
2,504
2,335
2,505
2,353
Payments of long-term borrowings
(124)
(1,925)
(1,816)
(1,925)
(1,940)
Proceeds from issuance of common stock
21
11
21
11
Repurchases of common stock
(1,257)
(623)
(1,257)
(623)
Dividends paid
(341)
(327)
(3)
(42)
3
42
(341)
(327)
15
Other
(27)
(22)
(12)
(11)
(39)
(33)
Net cash used for financing activities
(270)
(794)
(72)
(825)
3
42
(339)
(1,577)
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash
48
(75)
14
1
62
(74)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
(1,105)
(3,592)
342
36
(763)
(3,556)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
3,781
7,200
1,160
925
4,941
8,125
Cash, Cash Equivalents, and Restricted Cash at End of Period
$
2,676
$
3,608
$
1,502
$
961
$
4,178
$
4,569
Components of cash, cash equivalents, and restricted cash
Cash and cash equivalents
$
2,665
$
3,596
$
1,311
$
876
$
3,976
$
4,472
Restricted cash (Other assets)
11
12
191
85
202
97
Total cash, cash equivalents, and restricted cash
$
2,676
$
3,608
$
1,502
$
961
$
4,178
$
4,569
13 Elimination of depreciation on leases related to inventory transferred to equipment on operating leases.
14 Reclassification of share-based compensation expense.
15 Elimination of dividends from financial services to the equipment operations, which are included in the equipment operations’ operating activities.
16 Primarily reclassification of receivables related to the sale of equipment.
17 Reclassification of direct lease agreements with retail customers.
18 Reclassification of sales incentive accruals on receivables sold to financial services.
19 Elimination and reclassification of the effects of financial services partial financing of the construction and forestry retail locations sales and subsequent collection of those amounts.
38
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the Company’s most recently filed Annual Report on Form 10-K (Part II, Item 7A). There has been no material change in this information.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.