What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-06-01 compared with 2023-02-23 · 182 added, 116 removed, 276 unchanged (52% of the section changed)

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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.

and Canada for 2023 are forecasted to increase approximately 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.

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 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.

On an industry basis, the U.S.

and Canada 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.

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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.

The Company’s approach to technology involves hardware and software;

guidance, connectivity and digital solutions;

automation and machine intelligence;

machine autonomy;

and alternative propulsion technologies.

This technology is incorporated into products within each of the Company’s operating segments.

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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.

Demand for the Company’s equipment remains strong, as order books are full throughout 2023.

Agricultural fundamentals are expected to remain solid through 2023, and retail demand will comprise most of 2023 sales.

The North American retail customer fleet age of combines and large tractors is historically high, and dealer inventories are low due to the manufacturing and supply chain constraints over the past few years.

The Company expects elevated demand to continue for the second half of the year as evidenced by retail customer orders that extend into 2024.

Crop prices remain favorable to our customers in part due to a stock-to-use ratio below the 10-year average for key grains.

The Company expects sales volume of large agricultural equipment to be greater in 2023 than 2022 in North America and Europe.

Sales volume for small agriculture and turf equipment is expected to be lower than 2022 due to lower demand for consumer-oriented products, partially offset by stronger demand for mid-sized equipment.

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

home construction.

infrastructure spending, industrial construction, and rental inventory restocking are expected to more than offset moderation in residential home and commercial real estate construction.

Importantly, construction equipment dealer inventory remains below historical averages.

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.

Net income for the Company’s financial services operations is expected to be lower than

fiscal year 2022 due to less-favorable financing spreads, the correction of the accounting treatment for financing incentives offered to John Deere dealers, unfavorable derivative market valuation adjustments, a higher provision for credit losses, higher selling, administrative and general expenses, and lower gains on operating-lease dispositions.

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

Additional Trends – Supply chain conditions have improved over 2022;

however, the Company continues to experience disruptions above historical norms.

Supply chain disruptions impacted many aspects of the business starting in 2022, 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:

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• 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 has experienced supply chain improvements in the second quarter of 2023.

The reduction in supply chain disruptions contributed to higher levels of production in the second quarter of 2023.

However, remaining constraints in the supply base will limit higher levels of production in the second half of the year.

As a result, the production schedules in 2023 will be more aligned with the customers’ seasonal use of the Company’s products, marking a return to historical seasonal production patterns.

Central bank policy interest rates increased in the first six months of 2023.

Most retail receivables are fixed rate, while wholesale financing receivables are variable rate.

The Company has both fixed and variable 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.

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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.

As a result, the Company’s financial services operations experienced $84 million (after-tax) of less favorable financing spreads in the first six months 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.

Recent banking sector events have resulted in increased liquidity considerations.

The Company’s deposits are well diversified, and as a result, the Company was not materially exposed to banks that have entered receivership or encountered liquidity issues.

These events have not changed the Company’s access to capital markets.

The Company continues to monitor counterparty exposure through regular reviews of various risk metrics and adjusting exposure limits as needed.

Supply chain disruptions, rising interest rates, and recent banking sector events are driven by factors outside of the Company’s control, and as a result, the Company cannot reasonably foresee when these conditions will subside.

Other Items of Concern and Uncertainties – Other items of concern include global and regional political conditions, failure to raise the U.S.

debt ceiling, 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.

As with most technology investments, marketplace adoption, monetization, and regulation of these features holds an elevated level of uncertainty .

2023 Compared with 2022

Three Months Ended

Six Months Ended

Deere & Company

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Diluted earnings per share

Net income in the first quarter of 2022 was impacted by special items.

Net sales and revenues increased for both the quarter and year-to-date periods due to higher shipment volumes and price realization.

See the Business Segment Results for additional details.

Net income in each of the periods presented were impacted by special items.

See Note 21 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

Six Months Ended

Deere & Company

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Provision for income taxes

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).

The cost of sales ratio improved in the second quarter and the first six months of fiscal 2023 due to price realization, partially offset by higher production costs.

The six months ended May 1, 2022 were also impacted by inefficiencies due to the delayed ratification of the UAW labor agreement and contract-ratification bonus costs (see Note 21).

Other income decreased compared to both prior periods due to a non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture recorded in 2022.

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.

Selling, administrative and general expenses increased mostly due to higher employee pay driven by inflationary conditions, profit-sharing incentives, commissions paid to dealers, as well as the cumulative correction of the accounting treatment for financing incentives offered to John Deere dealers.

The provision for income taxes was higher as a result of higher pretax income as well as the prior period exclusion of the Deere-Hitachi joint-venture remeasurement gain from tax-effected income.

Business Segment Results

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Three Months Ended

Six Months Ended

Production and Precision Agriculture

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Price realization

Currency translation

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.

Currency translation impact on Net sales

Production and precision agriculture sales increased for the quarter as a result of higher shipment volumes (primarily in the U.S., Brazil, Europe, and Canada) and price realization in most end markets.

Operating profit improved primarily due to price realization and improved sales volumes.

These items were partially offset by increased selling, administrative and general expenses and research and development expenses, higher production costs, and the unfavorable effects of foreign currency exchange mostly due to a stronger U.S.

Sales for the first six months increased as a result of higher shipment volumes (primarily in the U.S., Canada, Brazil, and Europe) and price realization.

Operating profit for the first six months increased primarily from price realization and higher sales volume.

Partially offsetting these factors were higher production costs, higher selling, administrative, and general expenses and research and development expenses, and the unfavorable effects of foreign currency exchange mostly due to a stronger U.S.

Three Months Ended

Six Months Ended

Small Agriculture and Turf

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Price realization

Currency translation

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.

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.

Currency translation impact on Net sales

Small agriculture and turf sales increased for the quarter due to price realization in most end markets and higher shipment volumes (primarily in Europe, Mexico, and China), partially offset by the negative effects of foreign currency translation.

Operating profit improved primarily as a result of price realization and improved sales volumes / mix.

Sales for the first six months increased mainly as a result of price realization and higher shipment volumes (primarily in Europe and Mexico), partially offset by the unfavorable impact of currency translation.

Operating profit for the first six months improved primarily as a result of price realization and improved sales volumes / mix.

These items were partially offset by higher production costs, higher selling, administrative, and general expenses and research and development expenses, and the unfavorable effects of foreign currency exchange mostly due to a stronger U.S.

Three Months Ended

Six Months Ended

Construction and Forestry

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Price realization

Currency translation

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.

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.

Currency translation impact on Net sales

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

Operating profit improved due to price realization and improved sales volumes / mix, partially offset by higher production costs, higher selling, administrative, and general expenses and research and development expenses.

Prior period results benefited from the non-cash gain on the remeasurement of previously held equity investment in the Deere-Hitachi joint venture.

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

The first six-month’s operating profit moved higher due to price realization and higher sales volumes, partially offset by higher production costs.

Prior period results benefitted from the non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture.

Three Months Ended

Six Months Ended

Financial Services

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Interest expense

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.

The average balance of receivables and leases financed was 18 percent higher in the second quarter of 2023, and 17 percent higher in the first six months of 2023 compared with the same periods last year.

Revenue also increased due to higher average financing rates in both periods.

Interest expense increased compared to both prior periods as a result of higher average borrowing rates and higher average borrowings.

Financial services net income for both periods decreased primarily due to less-favorable financing spreads and a higher provision for credit losses, partially offset by income earned on a higher average portfolio.

Net income for the first six months of the year was also impacted by unfavorable derivative market valuation adjustments.

Additionally impacting the results for both periods was a $135 million after-tax correction of the accounting treatment for financing incentives offered to John Deere dealers, which affected the timing of expense recognition and the presentation of incentive costs in the consolidated financial statements.

The accounting correction is unrelated to current market conditions or the credit quality of the financial services portfolio, which remains strong.

The allowance for credit losses, excluding the portfolio in Russia, was .40 percent of financing receivables as of April 30, 2023, compared with .42 percent as of May 1, 2022.

Critical Accounting Estimates

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Sources of Liquidity, Key Metrics and Balance Sheet Data

The Company has access to most global markets at a reasonable cost.

The Company has access to most global capital 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.

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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.

However, the patterns of seasonality in inventory have been affected by increases in production rates and supply chain disruptions experienced during fiscal year 2022.

Supply chain conditions have begun trending towards more normalized levels in 2023, though disruptions remain above historical performance.

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

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Ratio of interest-bearing debt to stockholder’s equity

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 reduction in unused credit lines in 2023 compared to both prior periods relates to an increase in commercial paper outstanding due to changes in receivables and funding mix.

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.

Three Months Ended

(In millions of dollars)

January 29, 2023

January 30, 2022

Cash Flows (in millions of dollars)

Six Months Ended

April 30, 2023

Net cash used for operating activities

Net cash provided by investing activities

Net cash used for financing 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 decrease in cash, cash equivalents, and restricted cash

Cash outflows from consolidated operating activities in the first three months of 2023 were $1,246 million.

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

Cash outflows from operating activities in the first six months of 2023 were $147 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.

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.

Cash outflows from investing activities were $1,494 million in the first six months of 2023.

The primary drivers were growth in the retail customer receivable portfolio and purchases of property and equipment.

Cash inflows from financing activities were $2,017 million in the first six months of 2023, as higher external borrowings of $5,293 million to support working capital requirements were offset by repurchases of common stock and dividends paid.

Cash, cash equivalents, and restricted cash increased $446 million during the first six months of 2023.

Trade Accounts and Notes Receivable.

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

Trade receivables increased $3,561 million during the first six months of 2023, primarily due to a seasonal increase and higher sales volumes, as well as the effect of foreign currency translation.

These receivables increased $3,713 million, compared to a year ago, primarily due to higher sales volumes.

The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent at each of April 30, 2023, October 30, 2022, and May 1, 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 increased $1,944 million during the first six months of 2023 and increased $6,514 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 six months of 2023, compared with the same period last year, as volumes of wholesale notes, retail notes, revolving charge accounts, operating leases, and finance leases were higher compared to May 1, 2022.

Inventories .

Inventories increased by $1,218 million during the first six months of 2023 and increased by $683 million compared to a year ago.

The increases were due to higher forecasted sales volumes and supply chain disruptions.

The effect of foreign currency translation also increased inventories during the first six months of 2023.

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.

Property and Equipment .

Property and equipment cash expenditures in the first six months of 2023 were $584 million, compared with $346 million in the same period last year.

Capital expenditures in 2023 are estimated to be approximately $1,500 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.

Accounts Payable and Accrued Expenses .

Accounts payable and accrued expenses decreased by $106 million in the first six months of 2023.

Accounts payable and accrued expenses increased $2,037 million compared to a year ago due to an increase in accrued expenses associated with accrued taxes, employee benefits, product warranties, and dealer sales discounts.

Total external borrowings have changed 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.

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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 April 30, 2023, $948 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 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.

In the first six months of 2023, the financial services operations issued $1,289 million and retired $1,622 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 $10,309 million at April 30, 2023, $785 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.

Included in the total credit lines at April 30, 2023 was a 364-day credit facility agreement of $5,000 million expiring in the second quarter of 2024.

In addition, total credit lines included long-term credit facility agreements of $2,500 million expiring in the second quarter of 2027 and $2,500 million expiring in the second quarter of 2028.

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.

All of the requirements in 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 debt 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.

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

The senior long-term and short-term debt ratings and

outlook currently assigned to unsecured Company securities by the rating agencies engaged by the Company are as follows:

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

Fitch Ratings

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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.

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.

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.

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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.

Many factors, risks, and uncertainties could cause actual results to differ materially from these forward-looking statements.

Among these factors are risks related to:

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● 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;

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

● 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;

● the 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 customers’ changing expectations and demand for John Deere products and solutions;

● accurately forecasting customer demand for products and services and adequately managing inventory;

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● 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;

● changes in climate patterns, unfavorable weather events and natural disasters;

● higher interest rates and currency fluctuations which could adversely affect the U.S.

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

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

● stress in the banking sector may have adverse impacts on vendors or customers as well as on the Company’s ability to access cash deposits;

● uncertainty related to prolonged negotiations regarding the U.S.

federal debt ceiling or the U.S.

government’s failure to raise the debt ceiling;

● changes in the Company’s credit ratings, and failure to comply with financial covenants in credit agreements could impact access to funding;

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● 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;

● world grain stocks, available farm acres, soil conditions, harvest yields, prices for commodities and livestock, input costs, and availability of transport for crops;

● housing starts and supply, real estate and housing prices, levels of public and non-residential construction, and infrastructure investment.

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).

“Risk Factors” of our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q).

There also may be other factors that we cannot anticipate or that are not described herein because we do not currently perceive them to be material.

Supplemental Consolidating Information

12 unchanged sentences

STATEMENTS OF INCOME

For the Three Months Ended January 29, 2023 and January 30, 2022

For the Three Months Ended April 30, 2023 and May 1, 2022

(In millions of dollars) Unaudited

12 unchanged sentences

Equity in income of unconsolidated affiliates

Net income (loss) attributable to noncontrolling interests

Net loss attributable to noncontrolling interests

Net Income Attributable to Deere & Company

8 unchanged sentences

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

STATEMENTS OF INCOME

For the Six Months Ended April 30, 2023 and May 1, 2022

(In millions of dollars) Unaudited

Net Sales and Revenues

Finance and interest income

Costs and Expenses

Cost of sales

Research and development expenses

Selling, administrative and general expenses

Interest expense

Interest compensation to Financial Services

Other operating expenses

Income before Income Taxes

Provision for income taxes

Income after Income Taxes

Equity in income of unconsolidated affiliates

Net loss attributable to noncontrolling interests

Net Income Attributable to Deere & Company

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

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

3 Elimination of 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.

DEERE & COMPANY

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

CONDENSED BALANCE SHEETS

37 unchanged sentences

STATEMENTS OF CASH FLOWS

For the Three Months Ended January 29, 2023 and January 30, 2022

For the Six Months Ended April 30, 2023 and May 1, 2022

(In millions of dollars) Unaudited

3 unchanged sentences

Provision for depreciation and amortization

Impairments and other adjustments

Share-based compensation expense

Gain on remeasurement of previously held equity investment

Distributed earnings of Financial Services

1 unchanged sentence

Changes in assets and liabilities:

Trade, notes, and financing receivables related to sales

Receivables related to sales

Accounts payable and accrued expenses

5 unchanged sentences

Proceeds from sales of equipment on operating leases

Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold

Cost of receivables acquired (excluding receivables related to sales)

2 unchanged sentences

Cost of equipment on operating leases acquired

Increase in investment in Financial Services

Increase in trade and wholesale receivables

Collateral on derivatives – net

Net cash provided by (used for) investing activities

Net cash used for investing activities

Cash Flows from Financing Activities

5 unchanged sentences

Repurchases of common stock

Capital investment from Equipment Operations

Dividends paid

Net cash used for financing activities

Net cash provided by (used for) financing activities

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

13 unchanged sentences

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.

20 Elimination of investment from equipment operations to financial services

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

2 unchanged sentences

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