What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-29 compared with 2023-08-31 · 231 added, 253 removed, 179 unchanged (73% of the section changed)

1 unchanged sentence

RESULTS OF OPERATIONS

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.

All amounts are presented in millions of dollars unless otherwise specified.

Deere & Company is a global leader in the production of agricultural, turf, construction, and forestry equipment and solutions.

John Deere Financial provides financing for John Deere equipment, parts, services, and other input costs customers need to run their operations.

Our operations are managed through the production and precision agriculture (PPA), small agriculture and turf (SAT), construction and forestry (CF), and financial services operating segments.

References to “equipment operations” include PPA, SAT, and CF, while references to “agriculture and turf” include both PPA and SAT.

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.

We announced the Smart Industrial Operating Model in 2020.

This operating model is based on three focus areas:

Production systems:

A strategic alignment of products and solutions around our customers’ operations.

Technology stack:

Investments in technology, as well as research and development, that deliver intelligent solutions to our customers through digital capabilities, automation, autonomy, and alternative power technologies.

Lifecycle solutions:

The integration of our aftermarket and support capabilities to more effectively manage customer equipment, service, and technology needs across the full lifetime of a John Deere product.

Our Leap Ambitions were launched in 2022.

These ambitions are designed to boost economic value and sustainability for our customers.

The ambitions align across our customers’ production systems seeking to optimize their operations to deliver better outcomes with fewer resources.

In January 2024, we released our 2023 Business Impact Report, available at JohnDeere.com/sustainability.

This report identifies important progress on our Leap Ambitions in fiscal year 2023.

The information in our 2023 Business Impact Report is not incorporated by reference into, and does not form a part of, this Quarterly Report on 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 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.

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

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 .

2023 Compared with 2022

Industry Sales Outlook for Fiscal Year 2024

Agriculture and Turf

Construction and Forestry

Company Trends – Customers seek to improve profitability, productivity, and sustainability through technology.

Integration of technology into equipment is a persistent market trend.

Our Smart Industrial Operating Model and Leap Ambitions are intended to capitalize on this market trend.

These technologies are incorporated into products within each of our operating segments.

We expect this trend to persist for the foreseeable future.

The investments in these technologies and in establishing a Solutions as a Service business model might increase our operating costs and may decrease operating margins during the transition period.

In the first quarter of 2024, we announced an agreement with SpaceX to expand machine connectivity for our customers in rural areas through satellite communication.

Company Outlook for 2024

Production volumes are expected to decline in 2024 as demand moderates to more normal levels.

Agriculture and Turf Outlook for 2024

● We expect large and small agricultural equipment sales to be down from 2023 levels in North America, Europe, and South America.

● Sales of compact utility tractors continue to be lower as the industry works to bring down inventory levels, while demand for turf products has stabilized.

● We continue to produce at levels in line with retail demand in North America.

To manage inventory in Europe and Brazil, we are producing at levels below retail demand.

● Agricultural fundamentals are expected to moderate in 2024 due to lower commodity prices and elevated interest rates, offset by resilient farm balance sheets and lower input costs.

equipment fleet age is above 20-year averages for both tractors and combines.

● The dairy and livestock sector continues to benefit from elevated cattle and hay prices.

● Commodity markets remain disrupted in Central and Eastern Europe due to the Russia/Ukraine war.

Western Europe equipment demand is moderately impacted by uncertainty related to current cash crop receipts, agriculture policy changes, and high interest rates.

● Demand in Brazil is expected to moderate due to adverse weather conditions and high interest rates.

● Industry sales in Asia are forecasted to be down moderately.

Construction and Forestry Outlook for 2024

● Construction equipment industry sales are forecasted to be down from 2023 levels.

● Benefits from increasing U.S.

infrastructure spending, elevated manufacturing investment levels, and improving single family housing starts are expected to partially offset moderation in office and retail construction.

● Roadbuilding demand remains strong in the U.S., largely offset by softening demand in Europe.

Financial Services Outlook for 2024

Up moderately

+ Nonrecurring prior period special items

+ Higher average portfolio

(-) Financing spreads

(-) Provision for credit losses

Additional Trends

Agricultural Market Business Cycle.

The agricultural market is affected by various factors including commodity prices, acreage planted, crop yields, and government policies.

These factors affect farmers’ income and may result in lower demand for equipment.

We may experience any of the following effects during unfavorable market conditions:

lower net sales, higher sales discounts, higher receivable write-offs, or losses on equipment on operating leases.

A potential benefit is that customers may invest in integrated technology solutions and precision agriculture to lower input costs and improve margins.

Interest Rates.

Central bank policy interest rates increased in 2023 and have remained elevated.

Increased rates impacted us in several ways, primarily affecting the financing spreads for the financial services operations and demand for our products.

The market for our products is negatively impacted by higher interest rates.

We expect higher borrowing costs for our customers to primarily affect discretionary and residential product sales in 2024.

Most retail customer receivables are fixed rate.

Wholesale financing receivables generally are variable rate.

Both types of receivables are financed with fixed and floating rate borrowings.

We manage our exposure to interest rate fluctuations by matching our receivables with our funding sources.

We also enter into interest rate swap agreements to match our interest rate exposure.

Rising interest rates have historically impacted our borrowings sooner than the benefit is realized from receivable and lease portfolios.

As a result, our financial services operations experienced $27 (after-tax) less favorable financing spreads in 2024 compared to 2023.

We expect to continue experiencing spread compression in 2024, but at a moderating pace relative to spread compression experienced in 2023.

Higher interest rates are driven by factors outside of our control, and as a result we cannot reasonably foresee when this condition will subside.

Other Items of Concern and Uncertainties – Other items that could impact our results are:

● global and regional political conditions, including the ongoing war between Russia and Ukraine and the war between Israel and Hamas,

● economic, tax, and trade policies,

● new or retaliatory tariffs,

● capital market disruptions,

● foreign currency and capital control policies,

● regulations and legislation regarding right to repair,

● weather conditions,

● marketplace adoption and monetization of technologies we have invested in,

● our ability to strengthen our digital capabilities, automation, autonomy, and alternative power technologies,

● changes in demand and pricing for new and used equipment,

● significant fluctuations in foreign currency exchange rates,

● volatility in the prices of many commodities, and

● slower economic growth or recession.

consolidated results – 2024 Compared with 2023

Three Months Ended

Nine Months Ended

Deere & Company

3 unchanged sentences

Diluted earnings per share

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:

Net sales and revenues decreased for the quarter primarily due to lower sales volumes.

Net income and diluted EPS decreased driven by lower sales.

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 follow:

Three Months Ended

Nine Months Ended

Deere & Company

(In millions of dollars)

Cost of sales to net sales

(+) Price realization

Higher due to investment income earned on international mutual funds securities.

Research and development expenses

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.

Interest expense

Increased primarily due to higher average borrowing rates and higher average borrowings.

Other operating expenses

Increased due to higher foreign exchange losses.

Provision for income taxes

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.

Decreased as a result of lower pretax income.

Business Segment Results – 2024 compared with 2023

Three Months Ended

Nine Months Ended

Production and Precision Agriculture

(In millions of dollars)

Operating profit

2 unchanged sentences

Currency translation impact on Net sales

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.

Production and precision agriculture sales decreased for the quarter as a result of lower shipment volumes (primarily in Brazil, the U.S., Canada, and Europe), driven by moderating agriculture fundamentals.

This was partially offset by price realization in the U.S., Canada, and Europe due to inflation.

Operating profit decreased primarily due to lower shipment volumes and increased selling, administrative and general expenses and research and development expenses, partially offset by price realization.

Production & Precision Agriculture Operating Profit

First Quarter 2024 Compared to First Quarter 2023

Three Months Ended

Nine Months Ended

Small Agriculture and Turf

(In millions of dollars)

Operating profit

2 unchanged sentences

Currency translation impact on Net sales

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.

Small agriculture and turf sales decreased for the quarter due to lower shipment volumes (primarily in the U.S., Canada, Europe, and Mexico) driven by moderating market demand.

This was partially offset by price realization in the U.S., Canada, and Europe due to inflation.

Operating profit decreased primarily as a result of lower shipment volumes and increased selling, administrative and general expenses and research and development expenses.

These items were partially offset by price realization and lower production costs, driven by a decrease in material and freight costs.

Small Agriculture & Turf Operating Profit

First Quarter 2024 Compared to First Quarter 2023

Three Months Ended

Nine Months Ended

Construction and Forestry

(In millions of dollars)

Operating profit

2 unchanged sentences

Currency translation impact on Net sales

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.

Construction and forestry sales were flat for the quarter, with positive price realization in the U.S.

and Canada offset by lower shipment volumes.

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

These items were partially offset by price realization and a favorable sales mix.

Construction & Forestry Operating Profit

First Quarter 2024 Compared to First Quarter 2023

Three Months Ended

Nine Months Ended

Financial Services

(In millions of dollars)

Revenue (including intercompany)

Interest expense

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.

The average balance of receivables and leases financed was 19 percent higher in the first three months of 2024, compared with the same period last year.

Revenue also increased due to higher average financing rates.

Interest expense increased in the first quarter of 2024 as a result of higher average borrowing rates and higher average borrowings.

Net income for the quarter increased mainly due to income earned on higher average portfolio balances, partially offset by less favorable financing spreads as a result of higher interest rates.

Critical Accounting Estimates

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

See our 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.

CAPITAL RESOURCES AND LIQUIDITY – 2024 compared with 2023

We have access to global markets at a reasonable cost.

Sources of liquidity include:

● cash, cash equivalents, and marketable securities on hand,

● funds from operations,

● the issuance of commercial paper and term debt,

● the securitization of retail notes, and

● bank lines of credit.

We closely monitor our cash requirements.

Based on the available sources of liquidity, we expect to meet our funding needs in the short term (next 12 months) and long term (beyond 12 months).

We are forecasting lower operating cash flows in 2024 compared with 2023.

We operate in multiple industries, which have unique funding requirements.

The equipment operations are capital intensive.

Historically, these operations have been subject to seasonal variations in financing requirements for inventories and 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:

Key metrics are provided in the following table:

Cash, cash equivalents, and marketable securities

5 unchanged sentences

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 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.

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

Net cash used for investing activities

Net cash provided by financing activities

In the first quarter, we invested $128 in U.S.

dollar denominated bonds issued by the central bank of Argentina.

The bonds are recorded in “Marketable securities,” classified as “International debt securities.” These bonds can be held until maturity or sold in a secondary market outside of Argentina to settle intercompany debt (see note 17).

The increase in unused credit lines at January 28, 2024 compared to October 29, 2023 relates to a decrease in commercial paper outstanding generally corresponding with the level of receivable and lease portfolios.

We forecast lower operating cash flows in 2024 driven by a decrease in net income adjusted for non-cash provisions and an unfavorable change in working capital.

There have been no material changes to the contractual obligations and other cash requirements identified in our most recently filed Annual Report on Form 10-K.

Three Months Ended

Net cash used for operating activities

Net cash provided by investing activities

Net cash used for financing activities

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

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

Cash inflows from operating activities in the first nine months of 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.

Net decrease in cash, cash equivalents, and restricted cash

Cash outflows from consolidated operating activities in the first three months of 2024 were $908.

This resulted mainly from a working capital change, partially offset by net income adjusted for non-cash provisions.

Cash inflows from investing activities were $1,217 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 $2,645 in the first three months of 2024.

The increase in cash used for financing activities was due primarily to net payments of borrowings.

Cash returned to shareholders was $1,714 in the first three months of 2024.

Cash, cash equivalents, and restricted cash decreased $2,320 during the first three months of this year.

Key Metrics and Balance Sheet Changes

Trade Accounts and Notes Receivable – Trade accounts and notes receivable arise from sales of goods to customers.

Trade receivables increased by $56 during the first three months of 2024, mostly due to a seasonal increase.

These receivables increased $186, compared to a year ago, due to higher dealer inventory levels.

The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent at each of January 28, 2024, October 29, 2023, and January 29, 2023.

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 $1,066 during the first quarter of 2024, primarily due to seasonal payments, and increased $8,386 in the past 12 months, due to strong retail sales.

Total acquisition volumes of financing receivables and equipment on operating leases were 16 percent higher in the first three months of 2024, compared with the same period last year, as volumes of wholesale notes, retail notes, and financing leases were higher, while revolving charge accounts and operating leases were lower compared to the same period last year.

Inventories – Inventories increased by $777 during the first three months, primarily due to a seasonal increase.

Inventories decreased $1,119, compared to a year ago, due to lower forecasted shipment volumes.

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.

Total external borrowings have changed generally corresponding with the level of the receivable and the lease portfolio, as well as other working capital requirements.

Property and Equipment – Property and equipment cash expenditures in the first three months of 2024 were $362, compared with $315 in the same period last year.

Capital expenditures in 2024 are estimated to be approximately $1,900.

Accounts Payable and Accrued Expenses – Accounts payable and accrued expenses decreased by $2,769 in the first three months of 2024, primarily due to a decrease in accrued expenses associated with employee benefits, dealer sales discounts, and derivative liabilities.

Accounts payable and accrued expenses increased $253 compared to a year ago, due to an increase in accrued expenses associated with extended warranty premium, product warranties, and accrued interest, partially offset by a decrease in accounts payable associated with trade payables.

Borrowings – Total external borrowings decreased by $245 in the first three months of 2024 and increased $9,102 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 July 30, 2023, $1,415 million of securitization borrowings were outstanding under the facility.

The facility was renewed in November 2023 with an expiration in November 2024 and with an increase in the total capacity or “financing limit” from $1,500 to $2,000.

At January 28, 2024, $1,118 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 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.

In the first three months of 2024, the financial services operations retired $881 of retail note securitization borrowings, which are presented in “Net proceeds (payments) in total short-term borrowings (original maturities three months or less).”

Lines of Credit – We also have access to bank lines of credit with various banks throughout the world.

Worldwide lines of credit totaled $10,310 at January 28, 2024, $1,577 of which were unused.

For the purpose of computing unused credit lines, commercial paper, and short-term bank borrowings were considered to constitute utilization.

Included in the total credit lines at January 28, 2024 was a 364-day credit facility agreement of $5,000, expiring in the second quarter of 2024.

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

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

We expect to extend the terms of these credit facilities.

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.

Debt Ratings – To access public debt capital markets, we rely on credit rating agencies to assign short-term and long-term credit ratings to our 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 our securities.

A credit rating agency may change or withdraw ratings based on its assessment of our 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:

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 us 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.

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.

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 our 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.

Except as required by law, we expressly disclaim any obligation to update or revise our 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;

● changes and compliance with U.S., foreign, and international laws, regulations, and policies relating to trade, economic sanctions, data privacy, spending, taxing, banking, monetary, environmental (including climate change and engine emission), and farming policies;

● political, economic, and social instability of the geographies in which we operate, including the ongoing war between Russia and Ukraine and the war between Israel and Hamas;

● adverse macroeconomic conditions, including unemployment, inflation, rising interest rates, changes in consumer practices due to slower economic growth, and regional or global liquidity constraints;

● worldwide demand for food and different forms of renewable energy;

● the ability to execute business strategies, including our 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;

● the ability to integrate new technology, including automation and machine learning, and deliver precision technology, alternative power technologies, and solutions to customers, including through our Solutions as a Service business model;

● 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;

● the 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;

● governmental and other actions designed to address climate change in connection with a transition to a lower-carbon economy;

● 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;

● 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;

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

● availability and price of raw materials, components, and whole goods;

● delays or disruptions in our supply chain;

● our equipment fails to perform as expected, which could result in warranty claims, post-sales repairs or recalls, product liability litigation, and regulatory investigations;

● 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;

● security breaches, cybersecurity attacks, technology failures, and other disruptions to John Deere information technology infrastructure and products;

● loss of or challenges to intellectual property rights;

● legislation introduced or enacted that could affect our business model and intellectual property, such as right to repair legislation;

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

● events that damage the Company’s reputation or brand;

● events that damage our 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;

● 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).

Further information concerning us and our businesses, including factors that could materially affect our financial results, is included in our other filings with the SEC (including, but not limited to, the factors discussed in Item 1A.

“Risk Factors” of our most recent 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

SUPPLEMENTAL CONSOLIDATING DATA

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.

Equipment operations represents the enterprise without financial services.

Equipment operations includes 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.

Equipment operations and financial services participate in different industries.

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 us.

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.

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STATEMENTS OF INCOME

For the Three Months Ended July 30, 2023 and July 31, 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 (loss) of unconsolidated affiliates

Net income (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)

STATEMENTS OF INCOME

For the Nine Months Ended July 30, 2023 and July 31, 2022

(In millions of dollars) Unaudited

For the Three Months Ended January 28, 2024 and January 29, 2023

Net Sales and Revenues

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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

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

1 Elimination of intercompany interest income and expense.

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.

3 Elimination of income and expenses between equipment operations and financial services related to intercompany guarantees of investments in certain international markets and intercompany service revenues and expenses.

4 Elimination of intercompany service fees.

5 Elimination of equipment operations’ interest expense to financial services.

5 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

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CONDENSED BALANCE SHEETS

(In millions of dollars) Unaudited

Cash and cash equivalents

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STATEMENTS OF CASH FLOWS

For the Nine Months Ended July 30, 2023 and July 31, 2022

(In millions of dollars) Unaudited

For the Three Months Ended January 28, 2024 and January 29, 2023

Cash Flows from Operating Activities

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

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

Provision (credit) for credit losses

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

5 unchanged sentences

Retirement benefits

Net cash provided by operating activities

Net cash provided by (used for) operating activities

Cash Flows from Investing Activities

2 unchanged sentences

Cost of receivables acquired (excluding receivables related to sales)

Acquisitions of businesses, net of cash acquired

Purchases of property and equipment

Cost of equipment on operating leases acquired

Increase in investment in Financial Services

Decrease in investment in Financial Services

Increase in trade and wholesale receivables

Collateral on derivatives – net

Net cash used for investing activities

Net cash provided by (used for) investing activities

Cash Flows from Financing Activities

Increase (decrease) in total short-term borrowings

Net proceeds (payments) in short-term borrowings (original maturities three months or less)

Change in intercompany receivables/payables

Proceeds from long-term borrowings

Payments of long-term borrowings

Proceeds from borrowings issued (original maturities greater than three months)

Payments of borrowings (original maturities greater than three months)

Repurchases of common stock

1 unchanged sentence

Dividends paid

Net cash provided by (used for) financing activities

Net cash used for financing activities

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

12 unchanged sentences

16 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.

17 Elimination of change in investment from equipment operations to financial services.

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.

See our most recently filed Annual Report on Form 10-K (Part II, Item 7A).

There have been no material changes in this information.

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