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 digitalization, 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.
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 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 5 to 10 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 down 5 percent in 2023. Asia industry sales of agricultural machinery are forecasted to be down moderately in 2023 as volumes in India remain subdued. On an industry basis, U.S. and Canada construction, U.S. and Canada compact construction, and global roadbuilding equipment sales are expected to be flat to up 5 percent in 2023. Global forestry industry sales are expected to be flat to down 5 percent.
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. 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; machine 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 throughout 2023. Agricultural fundamentals are expected to remain solid through 2023 with farm net income in the U.S. and Canada expected to be near historical highs. Crop prices remain favorable to our customers in part due to weather conditions putting downward pressure on yields. The Company expects sales volume of large agricultural equipment to be greater in 2023 than 2022 in North America. Sales volume for small agriculture and turf equipment is expected to be lower compared to 2022 due to less demand for consumer-oriented products, partially offset by stronger demand for mid-sized equipment. Construction equipment markets are forecasted to be steady. Strong U.S. infrastructure spending, industrial construction, rental inventory restocking, and housing stabilization are expected to more than offset moderation in office and commercial real estate construction. Roadbuilding demand remains strongest in the U.S. and emerging markets in South America and India, largely offsetting flat fundamentals in Europe. Net income for the Company’s financial services operations is expected to be lower than fiscal year 2022 due to less-favorable financing spreads, a correction of the accounting treatment for financing incentives offered to John Deere dealers recorded in the second quarter of 2023, a higher provision for credit losses, higher selling, administrative and
28
general expenses, and lower gains on operating lease dispositions. These factors are expected to be partially offset by income earned on a higher average portfolio.
Additional Trends – The Company has experienced supply chain improvements over 2022 beginning in the second quarter of 2023. The reduction in supply chain disruptions contributed to higher levels of production compared to 2022. As a result, the production schedules in 2023 are more aligned with the customers’ seasonal use of the Company’s products, marking a return to historical seasonal production patterns. Additionally, supply chain improvements have contributed to meaningful reductions in production costs including premium freight and material costs. Supply chain disruptions impacted many aspects of the business in 2022, including receiving past due deliveries from suppliers, parts availability, increased production costs, and higher inventory levels.
Central bank policy interest rates increased in the first nine 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. 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 $133 million (after-tax) of less favorable financing spreads in the first nine months of 2023 compared to 2022. The Company expects spread compression to persist for the remainder of 2023.
Remaining supply chain disruptions 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.
Other 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, 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 digitalization, automation, autonomy, and alternative propulsion technologies. As with most technology investments, marketplace adoption, monetization, and regulation of these features holds an elevated level of uncertainty .
29
2023 Compared with 2022
Three Months Ended
Nine Months Ended
Deere & Company
July 30
July 31
%
July 30
July 31
%
(In millions of dollars, except per share amounts)
2023
2022
Change
2023
2022
Change
Net sales and revenues
$
15,801
$
14,102
+12
$
45,839
$
37,041
+24
Net income attributable to Deere & Company
2,978
1,884
+58
7,797
4,885
+60
Diluted earnings per share
10.20
6.16
26.35
15.88
Net sales and revenues increased for both the quarter and year-to-date periods primarily due to 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 on special items.
An explanation of the cost of sales to net sales ratio and other significant statement of consolidated income changes follows:
Three Months Ended
Nine Months Ended
Deere & Company
July 30
July 31
%
July 30
July 31
%
(In millions of dollars)
2023
2022
Change
2023
2022
Change
Cost of sales to net sales
67.4%
73.2%
67.7%
74.9%
Other income
$
264
$
256
+3
$
748
$
1,035
-28
Research and development expenses
528
481
+10
1,571
1,336
+18
Selling, administrative and general expenses
1,110
959
+16
3,392
2,672
+27
Other operating expenses
310
316
-2
971
954
+2
Provision for income taxes
636
654
-3
2,164
1,364
+59
The cost of sales ratio improved in the third quarter and the first nine months of fiscal 2023 due to price realization, partially offset by higher production costs. Other income decreased year-to-date 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. Additionally, the nine-month period was impacted by a cumulative correction of the accounting treatment for financing incentives offered to John Deere dealers and higher commissions paid to dealers. The provision for income taxes was lower in the third quarter of 2023 due to a favorable income tax ruling in Brazil, partially offset by the effect of higher pretax income. The provision for income taxes was higher in the first nine months as a result of higher pretax income and the prior period’s exclusion of the Deere-Hitachi joint-venture remeasurement gain from tax-effected income, which were partially offset by the favorable income tax ruling in Brazil.
Business Segment Results
For the equipment operations, higher production costs were mostly due to elevated cost of purchased components, energy, salaries, and wages.
30
Three Months Ended
Nine Months Ended
Production and Precision Agriculture
July 30
July 31
%
July 30
July 31
%
(In millions of dollars)
2023
2022
Change
2023
2022
Change
Net sales
$
6,806
$
6,096
+12
$
19,826
$
14,568
+36
Operating profit
1,782
1,293
+38
5,160
2,646
+95
Operating margin
26.2%
21.2%
26.0%
18.2%
Price realization
+12
+17
Currency translation impact on Net sales
+1
-1
Production and precision agriculture sales increased for the quarter as a result of price realization in most end markets. Operating profit rose due to price realization and improved shipment volumes / sales mix. 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.
Sales for the first nine months increased as a result of higher shipment volumes (primarily in the U.S., Canada, Europe, and Brazil) and price realization. Operating profit for the first nine 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. dollar.
31
Three Months Ended
Nine Months Ended
Small Agriculture and Turf
July 30
July 31
%
July 30
July 31
%
(In millions of dollars)
2023
2022
Change
2023
2022
Change
Net sales
$
3,739
$
3,635
+3
$
10,886
$
9,836
+11
Operating profit
732
552
+33
2,028
1,443
+41
Operating margin
19.6%
15.2%
18.6%
14.7%
Price realization
+9
+11
Currency translation impact on Net sales
-2
Small agriculture and turf sales increased for the quarter due to price realization in most end markets, partially offset by lower shipment volumes (primarily in the U.S.). Operating profit improved due to price realization, partially offset by higher production costs, lower shipment volumes, and increased selling, administrative and general expenses and research and development expenses.
Sales for the first nine 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 nine 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. dollar.
32
Three Months Ended
Nine Months Ended
Construction and Forestry
July 30
July 31
%
July 30
July 31
%
(In millions of dollars)
2023
2022
Change
2023
2022
Change
Net sales
$
3,739
$
3,269
+14
$
11,053
$
9,161
+21
Operating profit
716
514
+39
2,179
1,599
+36
Operating margin
19.1%
15.7%
19.7%
17.5%
Price realization
+10
+12
Currency translation impact on Net sales
-1
Construction and forestry sales moved higher for the quarter primarily due to price realization and higher shipment volumes (primarily in the U.S.). Operating profit rose 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 impact of foreign currency exchange.
The segment’s nine-month sales increased due to price realization and higher shipment volumes (primarily in the U.S.) partially offset by the unfavorable impact of currency translation. The first nine-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.
33
Three Months Ended
Nine Months Ended
Financial Services
July 30
July 31
%
July 30
July 31
%
(In millions of dollars)
2023
2022
Change
2023
2022
Change
Revenue (including intercompany)
$
1,445
$
984
+47
$
3,987
$
2,851
+40
Interest expense
622
223
+179
1,604
493
+225
Net income
216
209
+3
429
649
-34
The average balance of receivables and leases financed was 22 percent higher in the third quarter of 2023, and 18 percent higher in the first nine 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 in the third quarter of 2023 increased as a result of income earned on a higher average portfolio, partially offset by less-favorable financing spreads. Net income for the first nine months of 2023 decreased primarily due to a cumulative correction of the accounting treatment for financing incentives offered to John Deere dealers recorded in the second quarter, less-favorable financing spreads, and a higher provision for credit losses. These items were partially offset by income earned on a higher average portfolio. 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 .36 percent of financing receivables as of July 30, 2023, compared with .40 percent as of July 31, 2022.
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.
CAPITAL RESOURCES AND LIQUIDITY
Sources of Liquidity, Key Metrics and Balance Sheet Data
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. 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. 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:
July 30
October 30
July 31
2023
2022
2022
Cash, cash equivalents, and marketable securities
$
7,417
$
5,508
$
5,078
Trade accounts and notes receivable – net
9,297
6,410
6,696
Ratio to prior 12 month’s net sales
17%
13%
15%
Inventories
9,350
8,495
9,121
Ratio to prior 12 month’s cost of sales
24%
24%
28%
Unused credit lines
950
3,284
1,957
Financial Services:
Ratio of interest-bearing debt to stockholder’s equity
8.1 to 1
8.5 to 1
8.2 to 1
The reduction in unused credit lines in 2023 compared to both prior periods relates to an increase in commercial paper outstanding due to growth in financing 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.
34
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 (in millions of dollars)
Nine Months Ended
July 30, 2023
July 31, 2022
Net cash provided by operating activities
$
2,896
$
418
Net cash used for investing activities
(4,563)
(4,430)
Net cash provided by financing activities
3,379
515
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
125
(143)
Net increase (decrease) in cash, cash equivalents, and restricted cash
$
1,837
$
(3,640)
Cash inflows from operating activities in the first nine months of 2023 were $2,896 million. This resulted mainly from net income adjusted for non-cash provisions, partially offset by a working capital change and change in accrued income taxes payable. Cash outflows from investing activities were $4,563 million in the first nine 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 $3,379 million in the first nine months of 2023, as higher external borrowings to support working capital requirements and financing receivable growth were offset by repurchases of common stock and dividends paid. Cash, cash equivalents, and restricted cash increased $1,837 million during the first nine months of 2023.
Trade Accounts and Notes Receivable. Trade accounts and notes receivable arise from sales of goods to customers. Trade receivables increased $2,887 million during the first nine 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 $2,601 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 July 30, 2023, October 30, 2022, and July 31, 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 $5,819 million during the first nine months of 2023 and increased $8,261 million in the past 12 months due to strong retail sales. Total acquisition volumes of financing receivables and equipment on operating leases were 32 percent higher in the first nine 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 July 31, 2022.
Inventories . Inventories increased by $855 million during the first nine months of 2023 and increased by $229 million compared to a year ago. The increases were due to higher forecasted sales volumes. The effect of foreign currency translation also increased inventories during the first nine 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 nine months of 2023 were $887 million, compared with $596 million in the same period last year. Capital expenditures in 2023 are estimated to be approximately $1,650 million.
Accounts Payable and Accrued Expenses . Accounts payable and accrued expenses increased by $518 million in the first nine months of 2023. Accounts payable and accrued expenses increased $2,354 million compared to a year ago due to an increase in accrued expenses associated with employee benefits, accrued taxes, dealer sales discounts, and derivative liabilities.
Borrowings . 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. 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 July 30, 2023, $1,415 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.
35
In the first nine months of 2023, the financial services operations issued $3,207 million and retired $2,309 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 $10,352 million at July 30, 2023, $950 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 July 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. All 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. 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, reduced access to debt capital markets, and may adversely impact the Company’s liquidity. 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:
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. 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, risks, and uncertainties could cause actual results to differ materially from these forward-looking statements. Among these factors are risks related to:
● compliance with and 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 war between Russia and Ukraine;
● adverse macroeconomic conditions, including unemployment, inflation, rising interest rates, changes in consumer practices due to slower economic growth or possible recession, and regional or global liquidity constraints;
● growth and sustainability of non-food uses for crops (including ethanol and biodiesel production);
● 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;
● 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, 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 and solutions;
36
● changes in the Company’s credit ratings and any failure to comply with financial covenants in credit agreements could impact access to funding;
● availability and price of raw materials, components, whole goods, and used equipment;
● delays or disruptions in the Company’s supply chain;
● 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;
● 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, 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.
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 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
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 .
37
DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA
STATEMENTS OF INCOME
For the Three Months Ended July 30, 2023 and July 31, 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
$
14,284
$
13,000
$
14,284
$
13,000
Finance and interest income
210
60
$
1,335
$
905
$
(292)
$
(119)
1,253
846
1
Other income
222
228
110
79
(68)
(51)
264
256
2, 3
Total
14,716
13,288
1,445
984
(360)
(170)
15,801
14,102
Costs and Expenses
Cost of sales
9,630
9,512
(6)
(1)
9,624
9,511
4
Research and development expenses
528
481
528
481
Selling, administrative and general expenses
913
805
199
156
(2)
(2)
1,110
959
4
Interest expense
94
109
622
223
(93)
(36)
623
296
5
Interest compensation to Financial Services
199
83
(199)
(83)
5
Other operating expenses
34
47
336
317
(60)
(48)
310
316
6, 7
Total
11,398
11,037
1,157
696
(360)
(170)
12,195
11,563
Income before Income Taxes
3,318
2,251
288
288
3,606
2,539
Provision for income taxes
564
574
72
80
636
654
Income after Income Taxes
2,754
1,677
216
208
2,970
1,885
Equity in income (loss) of unconsolidated affiliates
2
(1)
1
2
Net Income
2,756
1,676
216
209
2,972
1,885
Less: Net income (loss) attributable to noncontrolling interests
(6)
1
(6)
1
Net Income Attributable to Deere & Company
$
2,762
$
1,675
$
216
$
209
$
2,978
$
1,884
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.
38
DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
STATEMENTS OF INCOME
For the Nine Months Ended July 30, 2023 and July 31, 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
$
41,765
$
33,565
$
41,765
$
33,565
Finance and interest income
444
131
$
3,609
$
2,580
$
(727)
$
(270)
3,326
2,441
1
Other income
639
1,028
378
271
(269)
(264)
748
1,035
2, 3
Total
42,848
34,724
3,987
2,851
(996)
(534)
45,839
37,041
Costs and Expenses
Cost of sales
28,306
25,126
(18)
(2)
28,288
25,124
4
Research and development expenses
1,571
1,336
1,571
1,336
Selling, administrative and general expenses
2,630
2,215
769
463
(7)
(6)
3,392
2,672
4
Interest expense
298
297
1,604
493
(231)
(77)
1,671
713
5
Interest compensation to Financial Services
496
189
(496)
(189)
5
Other operating expenses
172
186
1,043
1,028
(244)
(260)
971
954
6, 7
Total
33,473
29,349
3,416
1,984
(996)
(534)
35,893
30,799
Income before Income Taxes
9,375
5,375
571
867
9,946
6,242
Provision for income taxes
2,020
1,142
144
222
2,164
1,364
Income after Income Taxes
7,355
4,233
427
645
7,782
4,878
Equity in income of unconsolidated affiliates
3
4
2
4
5
8
Net Income
7,358
4,237
429
649
7,787
4,886
Less: Net income (loss) attributable to noncontrolling interests
(10)
1
(10)
1
Net Income Attributable to Deere & Company
$
7,368
$
4,236
$
429
$
649
$
7,797
$
4,885
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.
39
DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
CONDENSED BALANCE SHEETS
(In millions of dollars) Unaudited
EQUIPMENT
FINANCIAL
OPERATIONS
SERVICES
ELIMINATIONS
CONSOLIDATED
Jul 30
Oct 30
Jul 31
Jul 30
Oct 30
Jul 31
Jul 30
Oct 30
Jul 31
Jul 30
Oct 30
Jul 31
2023
2022
2022
2023
2022
2022
2023
2022
2022
2023
2022
2022
Assets
Cash and cash equivalents
$
4,858
$
3,767
$
3,540
$
1,718
$
1,007
$
819
$
6,576
$
4,774
$
4,359
Marketable securities
3
61
2
838
673
717
841
734
719
Receivables from Financial Services
5,312
6,569
5,055
$
(5,312)
$
(6,569)
$
(5,055)
8
Trade accounts and notes receivable – net
1,589
1,273
1,342
9,991
6,434
6,738
(2,283)
(1,297)
(1,384)
9,297
6,410
6,696
9
Financing receivables – net
60
47
45
41,242
36,587
35,011
41,302
36,634
35,056
Financing receivables securitized – net
2
7,001
5,936
5,139
7,001
5,936
5,141
Other receivables
2,599
1,670
1,676
599
832
371
(80)
(10)
(48)
3,118
2,492
1,999
9
Equipment on operating leases – net
6,709
6,623
6,554
6,709
6,623
6,554
Inventories
9,350
8,495
9,121
9,350
8,495
9,121
Property and equipment – net
6,385
6,021
5,630
33
35
36
6,418
6,056
5,666
Goodwill
3,994
3,687
3,754
3,994
3,687
3,754
Other intangible assets – net
1,199
1,218
1,281
1,199
1,218
1,281
Retirement benefits
3,503
3,666
3,062
71
66
65
(1)
(2)
(2)
3,573
3,730
3,125
10
Deferred income taxes
1,393
940
1,248
65
45
48
(98)
(161)
(186)
1,360
824
1,110
11
Other assets
2,083
1,794
1,727
583
626
510
(7)
(3)
(1)
2,659
2,417
2,236
9
Total Assets
$
42,328
$
39,208
$
37,485
$
68,850
$
58,864
$
56,008
$
(7,781)
$
(8,042)
$
(6,676)
$
103,397
$
90,030
$
86,817
Liabilities and Stockholders’ Equity
Liabilities
Short-term borrowings
$
1,773
$
1,040
$
471
$
15,370
$
11,552
$
13,705
$
17,143
$
12,592
$
14,176
Short-term securitization borrowings
2
6,608
5,711
4,918
6,608
5,711
4,920
Payables to Equipment Operations
5,312
6,569
5,055
$
(5,312)
$
(6,569)
$
(5,055)
8
Accounts payable and accrued expenses
14,403
12,962
11,925
3,307
3,170
2,494
(2,370)
(1,310)
(1,433)
15,340
14,822
12,986
9
Deferred income taxes
420
380
436
184
276
311
(98)
(161)
(186)
506
495
561
11
Long-term borrowings
7,299
7,917
8,481
30,813
25,679
23,651
38,112
33,596
32,132
Retirement benefits and other liabilities
2,423
2,351
2,799
114
108
114
(1)
(2)
(2)
2,536
2,457
2,911
10
Total liabilities
26,318
24,650
24,114
61,708
53,065
50,248
(7,781)
(8,042)
(6,676)
80,245
69,673
67,686
Commitments and contingencies (Note 16)
Redeemable noncontrolling interest
101
92
95
101
92
95
Stockholders’ Equity
Total Deere & Company stockholders’ equity
23,048
20,262
19,033
7,142
5,799
5,760
(7,142)
(5,799)
(5,760)
23,048
20,262
19,033
12
Noncontrolling interests
3
3
3
3
3
3
Financial Services’ equity
(7,142)
(5,799)
(5,760)
7,142
5,799
5,760
12
Adjusted total stockholders’ equity
15,909
14,466
13,276
7,142
5,799
5,760
23,051
20,265
19,036
Total Liabilities and Stockholders’ Equity
$
42,328
$
39,208
$
37,485
$
68,850
$
58,864
$
56,008
$
(7,781)
$
(8,042)
$
(6,676)
$
103,397
$
90,030
$
86,817
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.
40
DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
STATEMENTS OF CASH FLOWS
For the Nine Months Ended July 30, 2023 and July 31, 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
$
7,358
$
4,237
$
429
$
649
$
7,787
$
4,886
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for credit losses
3
(67)
62
(64)
62
Provision for depreciation and amortization
872
806
757
790
$
(102)
$
(153)
1,527
1,443
13
Impairments and other adjustments
81
173
173
81
Share-based compensation expense
112
64
112
64
14
Gain on remeasurement of previously held equity investment
(326)
(326)
Distributed earnings of Financial Services
31
368
(31)
(368)
15
Provision (credit) for deferred income taxes
(322)
44
(107)
(50)
(429)
(6)
Changes in assets and liabilities:
Receivables related to sales
(293)
(215)
(4,766)
(2,142)
(5,059)
(2,357)
16, 18, 19
Inventories
(534)
(2,415)
(129)
(111)
(663)
(2,526)
17
Accounts payable and accrued expenses
730
491
303
36
(986)
(542)
47
(15)
18
Accrued income taxes payable/receivable
(619)
52
24
30
(595)
82
Retirement benefits
(115)
(1,020)
(1)
6
(116)
(1,014)
Other
247
103
(15)
(108)
(56)
49
176
44
13, 14, 17
Net cash provided by operating activities
7,358
2,206
1,496
1,415
(5,958)
(3,203)
2,896
418
Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)
18,440
16,927
(848)
(1,153)
17,592
15,774
16
Proceeds from sales of equipment on operating leases
1,445
1,501
1,445
1,501
Cost of receivables acquired (excluding receivables related to sales)
(21,043)
(19,069)
329
491
(20,714)
(18,578)
16
Acquisitions of businesses, net of cash acquired
(82)
(488)
(82)
(488)
Purchases of property and equipment
(885)
(595)
(2)
(1)
(887)
(596)
Cost of equipment on operating leases acquired
(2,143)
(1,868)
175
151
(1,968)
(1,717)
17
Increase in investment in Financial Services
(811)
811
20
Increase in trade and wholesale receivables
(6,270)
(3,318)
6,270
3,318
16
Collateral on derivatives – net
5
240
(198)
240
(193)
Other
(79)
(87)
(111)
(74)
1
28
(189)
(133)
19
Net cash used for investing activities
(1,857)
(1,165)
(9,444)
(6,100)
6,738
2,835
(4,563)
(4,430)
Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings
(152)
58
5,192
4,209
5,040
4,267
Change in intercompany receivables/payables
1,476
70
(1,476)
(70)
Proceeds from long-term borrowings
60
137
9,912
6,144
9,972
6,281
Payments of long-term borrowings
(116)
(1,372)
(5,746)
(5,206)
(5,862)
(6,578)
Repurchases of common stock
(4,663)
(2,477)
(4,663)
(2,477)
Capital investment from Equipment Operations
811
(811)
20
Dividends paid
(1,065)
(971)
(31)
(368)
31
368
(1,065)
(971)
15
Other
4
16
(47)
(23)
(43)
(7)
Net cash provided by (used for) financing activities
(4,456)
(4,539)
8,615
4,686
(780)
368
3,379
515
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash
108
(148)
17
5
125
(143)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
1,153
(3,646)
684
6
1,837
(3,640)
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
$
4,934
$
3,554
$
1,844
$
931
$
6,778
$
4,485
Components of Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents
$
4,858
$
3,540
$
1,718
$
819
$
6,576
$
4,359
Restricted cash (Other assets)
76
14
126
112
202
126
Total Cash, Cash Equivalents, and Restricted Cash
$
4,934
$
3,554
$
1,844
$
931
$
6,778
$
4,485
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.
20 Elimination of investment from equipment operations to financial services.
41
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.