UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 28, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file no: 1-4121
DEERE & COMPANY
(Exact name of registrant as specified in its charter)
Delaware(State of incorporation)
36-2382580(IRS employer identification no.)
One John Deere Place
Moline, Illinois 61265
(Address of principal executive offices)
Telephone Number: (309) 765-8000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common stock, $1 par value
DE
New York Stock Exchange
6.55% Debentures Due 2028
DE28
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
At January 28, 2024, 278,358,210 shares of common stock, $1 par value, of the registrant were outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF CONSOLIDATED INCOME
For the Three Months Ended January 28, 2024 and January 29, 2023
(In millions of dollars and shares except per share amounts) Unaudited
2024
2023
Net Sales and Revenues
Net sales
$
10,486
11,402
Finance and interest income
1,360
994
Other income
339
256
Total
12,185
12,652
Costs and Expenses
Cost of sales
7,200
7,934
Research and development expenses
533
495
Selling, administrative and general expenses
1,066
952
Interest expense
802
479
Other operating expenses
369
299
9,970
10,159
Income of Consolidated Group before Income Taxes
2,215
2,493
Provision for income taxes
469
537
Income of Consolidated Group
1,746
1,956
Equity in income of unconsolidated affiliates
2
1
Net Income
1,748
1,957
Less: Net loss attributable to noncontrolling interests
(3)
(2)
Net Income Attributable to Deere & Company
1,751
1,959
Per Share Data
Basic
6.25
6.58
Diluted
6.23
6.55
Dividends declared
1.47
1.20
Dividends paid
1.35
1.13
Average Shares Outstanding
279.9
297.6
281.1
299.1
See Condensed Notes to Interim Consolidated Financial Statements.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(In millions of dollars) Unaudited
Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment
(21)
(11)
Cumulative translation adjustment
274
681
Unrealized loss on derivatives
(15)
(13)
Unrealized gain on debt securities
13
27
Other Comprehensive Income, Net of Income Taxes
251
684
Comprehensive Income of Consolidated Group
1,999
2,641
Less: Comprehensive income (loss) attributable to noncontrolling interests
6
Comprehensive Income Attributable to Deere & Company
2,001
2,635
3
CONDENSED CONSOLIDATED BALANCE SHEETS
January 28
October 29
January 29
Assets
Cash and cash equivalents
5,137
7,458
3,976
Marketable securities
1,136
946
852
Trade accounts and notes receivable – net
7,795
7,739
7,609
Financing receivables – net
43,708
43,673
36,882
Financing receivables securitized – net
6,400
7,335
5,089
Other receivables
2,017
2,623
1,992
Equipment on operating leases – net
6,751
6,917
6,502
Inventories
8,937
8,160
10,056
Property and equipment – net
6,914
6,879
6,212
Goodwill
3,966
3,900
3,891
Other intangible assets – net
1,112
1,133
1,255
Retirement benefits
3,087
3,007
3,793
Deferred income taxes
1,833
1,814
914
Other assets
2,578
2,503
2,597
Total Assets
101,371
104,087
91,620
Liabilities and Stockholders’ Equity
Liabilities
Short-term borrowings
17,117
17,939
14,129
Short-term securitization borrowings
6,116
6,995
4,864
Accounts payable and accrued expenses
13,361
16,130
13,108
550
520
519
Long-term borrowings
39,933
38,477
35,071
Retirement benefits and other liabilities
2,115
2,140
Total liabilities
79,192
82,201
70,184
Commitments and contingencies (Note 16)
Redeemable noncontrolling interest
100
97
Stockholders’ Equity
Common stock, $1 par value (issued shares at January 28, 2024 – 536,431,204)
5,335
5,303
5,191
Common stock in treasury
(32,663)
(31,335)
(25,333)
Retained earnings
52,266
50,931
43,846
Accumulated other comprehensive income (loss)
(2,863)
(3,114)
(2,372)
Total Deere & Company stockholders’ equity
22,075
21,785
21,332
Noncontrolling interests
4
Total stockholders’ equity
22,079
21,789
21,336
Total Liabilities and Stockholders’ Equity
STATEMENTS OF CONSOLIDATED CASH FLOWS
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash used for operating activities:
Provision (credit) for credit losses
31
(130)
Provision for depreciation and amortization
494
Share-based compensation expense
46
23
Provision (credit) for deferred income taxes
(56)
Changes in assets and liabilities:
Receivables related to sales
(277)
(1,015)
(723)
(1,279)
(2,327)
(1,577)
Accrued income taxes payable/receivable
183
199
(129)
(48)
Other
(7)
186
Net cash used for operating activities
(908)
(1,246)
Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)
7,752
7,198
Proceeds from sales of equipment on operating leases
506
497
Cost of receivables acquired (excluding receivables related to sales)
(6,447)
(6,322)
Purchases of property and equipment
(362)
(315)
Cost of equipment on operating leases acquired
(454)
(497)
Collateral on derivatives – net
310
345
(88)
(146)
Net cash provided by investing activities
1,217
760
Cash Flows from Financing Activities
Net proceeds (payments) in short-term borrowings (original maturities three months or less)
(2,951)
697
Proceeds from borrowings issued (original maturities greater than three months)
5,287
2,505
Payments of borrowings (original maturities greater than three months)
(3,237)
(1,925)
Repurchases of common stock
(1,328)
(1,257)
(386)
(341)
(30)
(18)
Net cash used for financing activities
(2,645)
(339)
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash
16
62
Net Decrease in Cash, Cash Equivalents, and Restricted Cash
(2,320)
(763)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
7,620
4,941
Cash, Cash Equivalents, and Restricted Cash at End of Period
5,300
4,178
Components of Cash, Cash Equivalents, and Restricted Cash
Restricted cash (Other assets)
163
202
Total Cash, Cash Equivalents, and Restricted Cash
5
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY
Total Stockholders’ Equity
Deere & Company Stockholders
Accumulated
Redeemable
Stockholders’
Common
Treasury
Retained
Comprehensive
Noncontrolling
Equity
Stock
Earnings
Income (Loss)
Interests
Interest
Balance October 30, 2022
20,265
5,165
(24,094)
42,247
(3,056)
92
Net income (loss)
1,960
Other comprehensive income
8
Treasury shares reissued
18
(356)
Share based awards and other
22
26
(4)
Balance January 29, 2023
Balance October 29, 2023
1,752
(1,340)
12
(411)
32
(5)
(1)
Balance January 28, 2024
Condensed Notes to Interim Consolidated Financial Statements (Unaudited)
(1) Organization and Consolidation
Deere & Company has been developing innovative solutions to help its customers become more profitable for more than 185 years. References to “Deere & Company,” “John Deere,” “we,” “us,” or “our” include our consolidated subsidiaries. We manage our business through the following operating segments: production and precision agriculture (PPA), small agriculture and turf (SAT), construction and forestry (CF), and financial services (FS). References to “agriculture and turf” include both PPA and SAT.
We use a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The first quarter ends for fiscal year 2024 and 2023 were January 28, 2024 and January 29, 2023, respectively. Both periods contained 13 weeks. Unless otherwise stated, references to particular years, quarters, or months refer to our fiscal years generally ending in October and the associated periods in those fiscal years.
All amounts are presented in millions of dollars, unless otherwise specified.
(2) Summary of Significant Accounting Policies and New Accounting Standards
Quarterly Financial Statements
The interim consolidated financial statements of Deere & Company have been prepared by us, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted as permitted by such rules and regulations. All normal recurring adjustments have been included. Management believes the disclosures are adequate to present fairly the financial position, results of operations, and cash flows at the dates and for the periods presented. It is suggested these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in our latest Annual Report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.
Use of Estimates in Financial Statements
Certain accounting policies require management to make estimates and assumptions in determining the amounts reflected in the financial statements and related disclosures. Actual results could differ from those estimates.
New Accounting Standards
We closely monitor all Accounting Standard Updates (ASUs) issued by the Financial Accounting Standards Board (FASB) and other authoritative guidance. We adopted the following standards in 2024, none of which had a material effect on our consolidated financial statements.
Accounting Standards Adopted
2022-04 — Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations
2022-02 — Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
2022-01 — Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method
2021-08 — Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
Accounting Standards to be Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and cash taxes paid both in the U.S. and foreign jurisdictions. The effective date of the ASU is fiscal year 2026. We are assessing the effect of this update on our related disclosures.
We will also adopt the following standards in future periods, none of which are expected to have a material effect on our consolidated financial statements.
2023-07 — Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
2023-06 — Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative
2023-05 — Business Combinations – Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement
2022-03 — Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
7
(3) Revenue Recognition
Our net sales and revenues by primary geographic market, major product line, and timing of revenue recognition follow:
Three Months Ended January 28, 2024
Production & Precision Ag
Small Ag & Turf
Construction & Forestry
Financial Services
Primary geographic markets:
United States
2,721
1,345
2,095
970
7,131
Canada
386
118
210
172
886
Western Europe
503
517
361
40
1,421
Central Europe and CIS
179
73
94
354
Latin America
819
98
130
1,303
Asia, Africa, Oceania, and Middle East
435
341
258
56
1,090
5,043
2,492
3,274
1,376
Major product lines:
Production agriculture
4,791
Small agriculture
1,718
Turf
649
Construction
1,483
Compact construction
626
Roadbuilding
763
Forestry
292
Financial products
60
1,480
192
99
383
Revenue recognized:
At a point in time
4,955
2,456
3,243
28
10,682
Over time
88
36
1,348
1,503
Three Months Ended January 29, 2023
2,628
1,665
1,901
713
6,907
360
146
275
150
931
501
564
365
29
1,459
123
75
412
1,237
156
95
1,827
375
400
300
41
1,116
3,054
3,255
1,040
5,112
2,194
719
473
818
356
1,102
160
112
395
5,248
3,029
3,230
11,530
55
25
1,017
1,122
We invoice in advance of recognizing the sale of certain products and the revenue for certain services. These relate to extended warranty premiums, advance payments for future equipment sales, and subscription and service revenue related to precision guidance, telematic services, and other information enabled solutions. These advanced customer payments are presented as deferred revenue, a contract liability, in “Accounts payable and accrued expenses.” The deferred revenue received, but not recognized in revenue, was $1,747, $1,697, and $1,502 at January 28, 2024, October 29, 2023, and January 29, 2023, respectively. The contract liability is reduced as the revenue is recognized. During the three months ended January 28, 2024 and January 29, 2023, $230 and $215, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year.
The amount of unsatisfied performance obligations for contracts with an original duration greater than one year was $1,531 at January 28, 2024. The estimated revenue to be recognized by fiscal year follows: remainder of 2024 – $373, 2025 – $409, 2026 – $304, 2027 – $179, 2028 – $108, 2029 – $74, and later years – $84. As permitted, we elected only to disclose remaining performance obligations with an original contract duration greater than one year. The contracts with an expected duration of one year or less are for sales to dealers and retail customers for equipment, service parts, repair services, and certain telematics services.
(4) Other Comprehensive Income Items
The after-tax components of accumulated other comprehensive income (loss) follow:
(866)
(845)
(400)
(1,877)
(2,151)
(1,913)
Unrealized gain (loss) on derivatives
(23)
(8)
Unrealized loss on debt securities
(97)
(110)
(67)
Total accumulated other comprehensive income (loss)
The following tables reflect amounts recorded in other comprehensive income (loss), as well as reclassifications out of other comprehensive income (loss).
Before
Tax
After
(Expense)
Amount
Credit
273
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)
(6)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense
(9)
Net unrealized gain (loss) on derivatives
(19)
Unrealized gain (loss) on debt securities:
Unrealized holding gain (loss)
Reclassification of realized (gain) loss – Other income
Net unrealized gain (loss) on debt securities
9
Retirement benefits adjustment:
Net actuarial gain (loss)
(17)
Reclassification to Other operating expenses through amortization of:
Actuarial (gain) loss
(20)
Prior service (credit) cost
Net unrealized gain (loss) on retirement benefits adjustment
(28)
Total other comprehensive income (loss)
235
669
(12)
(16)
34
674
10
(5) Earnings Per Share
A reconciliation of basic and diluted net income per share attributable to Deere & Company follows in millions, except per share amounts:
Three Months Ended
Net income attributable to Deere & Company
Average shares outstanding
Basic per share
Effect of dilutive stock options and restricted stock awards
1.2
1.5
Total potential shares outstanding
Diluted per share
Shares excluded from EPS calculation, as antidilutive
.2
.1
(6) Pension and Other Postretirement Benefits
We have several funded and unfunded defined benefit pension plans and other postretirement benefit (OPEB) plans. These plans cover U.S. employees and certain foreign employees. The components of net periodic pension and OPEB (benefit) cost consisted of the following:
Pensions
Service cost
58
Interest cost
136
133
Expected return on plan assets
(241)
(212)
Amortization of actuarial gain
Amortization of prior service cost
Net benefit
(41)
(14)
OPEB
43
(27)
(29)
Amortization of prior service credit
Net cost
The components of net periodic pension and OPEB (benefit) cost excluding the service cost component are included in the line item “Other operating expenses.”
During the first three months of 2024, we contributed and expect to contribute the following amounts to our pension and OPEB plans:
Contributed
24
106
Expected contributions remainder of the year
61
In December 2023, we contributed $60 to a U.S. non-union Voluntary Employees’ Beneficiary Association trust, which is included in the OPEB contributed amount. The contribution will be used to fund salary postretirement health care benefits during the remainder of 2024.
11
(7) Segment Data
Information relating to operations by operating segment follows.
%
Change
Net sales and revenues:
Production & precision ag net sales
4,849
5,198
-7
Small ag & turf net sales
2,425
3,001
-19
Construction & forestry net sales
3,212
3,203
Financial services revenues
+32
Other revenues
323
+54
Total net sales and revenues
-4
Operating profit:
Production & precision ag
1,045
1,208
-13
Small ag & turf
326
447
-27
Construction & forestry
566
625
-9
Financial services
257
238
+8
Total operating profit
2,518
Reconciling items
(22)
Income taxes
(469)
(537)
-11
Intersegment sales and revenues:
+60
-67
176
204
-14
Operating profit for PPA, SAT, and CF is income from continuing operations before corporate expenses, certain external interest expenses, certain foreign exchange gains and losses, and income taxes. Operating profit of financial services includes the effect of interest expense and foreign exchange gains and losses. Reconciling items to net income are primarily corporate expenses, certain interest income and expenses, certain foreign exchange gains and losses, pension and OPEB benefit (cost) amounts excluding the service cost component, equity in income of unconsolidated affiliates, and net income attributable to noncontrolling interests.
Identifiable operating assets were as follows:
9,059
8,734
9,393
4,426
4,348
4,893
7,371
7,139
7,232
69,900
70,732
59,721
Corporate
10,615
13,134
10,381
Total assets
(8) Financing Receivables
We monitor the credit quality of financing receivables based on delinquency status, defined as follows:
The credit quality analysis of retail notes, financing leases, and revolving charge accounts (collectively, retail customer receivables) by year of origination was as follows:
January 28, 2024
2022
2021
2020
Prior Years
Revolving Charge Accounts
Retail customer receivables:
Agriculture and turf
Current
3,248
13,626
7,731
4,577
2,032
2,798
34,943
30-59 days past due
122
66
47
71
344
60-89 days past due
50
15
120
90+ days past due
Non-performing
49
42
297
Construction and forestry
803
2,698
1,743
911
276
109
101
6,641
169
20
70
67
86
48
233
Total retail customer receivables
4,066
16,712
9,816
5,707
2,409
1,114
3,006
42,830
October 29, 2023
2019
15,191
8,430
5,120
2,334
853
280
4,526
36,734
39
21
87
30
78
33
255
2,927
1,961
1,084
353
84
119
6,557
127
19
14
54
80
214
18,340
10,705
6,421
2,791
987
4,698
44,283
January 29, 2023
2,939
12,435
7,228
3,660
1,600
823
2,753
31,438
44
219
76
208
2,692
1,702
224
6,155
52
158
17
3,618
15,296
9,147
4,547
1,912
1,080
2,902
38,502
The credit quality analysis of wholesale receivables by year of origination was as follows:
Revolving
Wholesale receivables:
266
463
68
5,757
6,564
30+ days past due
863
907
Total wholesale receivables
272
478
72
6,620
7,473
631
93
5,175
6,085
712
836
654
236
5,887
6,922
115
285
2,654
3,128
459
500
3,113
3,629
An analysis of the allowance for credit losses and investment in financing receivables follows:
Retail Notes
& Financing
Charge
Wholesale
Leases
Accounts
Receivables
Allowance:
Beginning of period balance
197
Provision (credit)
35
Write-offs
(31)
(42)
Recoveries
Translation adjustments
End of period balance
177
195
Financing receivables:
39,824
50,303
325
Provision transferred to held for sale
(142)
(127)
(131)
(25)
140
35,600
42,131
The allowance for credit losses remained generally flat in the first quarter of 2024. In the first quarter of 2023, we determined that the financial services business in Russia met the held for sale criteria. The financing receivables in Russia were reclassified to “Other assets.” The associated allowance for credit losses was reversed and a valuation allowance for the assets held for sale was recorded. These operations were sold in the second quarter of 2023 (see Note 20).
Write-offs by year of origination were as follows:
Modifications
We occasionally grant contractual modifications to customers experiencing financial difficulties. Before offering a modification, we evaluate the ability of the customer to meet the modified payment terms. Modifications offered include payment deferrals, term extensions, or a combination thereof. Finance charges continue to accrue during the deferral or extension period. Our allowance for credit losses incorporates historical loss information, including the effects of loan modifications with customers. Therefore, additional adjustments to the allowance are generally not recorded upon modification of a loan.
The ending amortized cost of modified loans with borrowers experiencing financial difficulty during the three months ended January 28, 2024 were $17, of which $16 were current and $1 were non-performing. These modifications represented 0.03 percent of our financing receivable portfolio at January 28, 2024.
Defaults and subsequent write-offs of loans modified in the prior twelve months were not significant during the three months ended January 28, 2024. In addition, at January 28, 2024, we had no commitments to provide additional financing to these customers.
(9) Securitization of Financing Receivables
Our funding strategy includes receivable securitizations, which allows us to receive cash for financing receivables immediately. While these securitization programs are administered in various forms, they are accomplished in the following basic steps:
As part of step 1, these receivables are legally isolated from the claims of our general creditors. This ensures cash receipts from the financing receivables are accessible to pay back securitization program investors. The structure of these transactions does not meet the accounting criteria for a sale of receivables. As a result, they are accounted for as a secured borrowing. The receivables and borrowings remain on our balance sheet and are separately reported as “Financing receivables securitized – net” and “Short-term securitization borrowings,” respectively.
The components of securitization programs were as follows:
Financing receivables securitized (retail notes)
6,418
7,357
5,102
Allowance for credit losses
Other assets (primarily restricted cash)
152
Total restricted securitized assets
6,540
7,487
5,186
Accrued interest on borrowings
Total liabilities related to restricted securitized assets
6,126
7,008
4,870
(10) Inventories
A majority of inventories owned by us are valued at cost on the “last-in, first-out” (LIFO) basis. If all inventories had been valued on a “first-in, first-out” (FIFO) basis, the estimated inventories by major classification would have been as follows:
Raw materials and supplies
4,117
4,080
4,975
Work-in-process
1,223
1,010
1,478
Finished goods and parts
6,146
5,435
6,347
Total FIFO value
11,486
10,525
12,800
Excess of FIFO over LIFO
2,549
2,365
2,744
(11) Goodwill and Other Intangible Assets – Net
The changes in amounts of goodwill by operating segments were as follows. There were no accumulated goodwill impairment losses.
Small Ag
& Turf
Goodwill at October 30, 2022
646
318
2,723
3,687
182
Goodwill at January 29, 2023
661
2,905
Goodwill at October 29, 2023
702
363
2,835
Goodwill at January 28, 2024
706
2,895
The components of other intangible assets were as follows:
Customer lists and relationships
509
522
Technology, patents, trademarks, and other
1,412
1,387
Total at cost
1,921
1,888
1,909
Less accumulated amortization:
207
184
602
560
470
Total accumulated amortization
809
755
The amortization of other intangible assets in the first quarter of 2024 and 2023 was $42 and $39, respectively. The estimated amortization expense for the next five years is as follows: remainder of 2024 – $131, 2025 – $144, 2026 – $121, 2027 – $119, 2028 – $87, and 2029 – $74.
(12) Short-Term Borrowings
Short-term borrowings were as follows:
Commercial paper
8,378
9,100
6,425
Notes payable to banks
483
303
Finance lease obligations due within one year
Long-term borrowings due within one year
8,402
8,331
7,378
(13) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
Accounts payable:
Trade payables
3,184
3,467
3,616
Dividends payable
413
388
358
Operating lease liabilities
293
281
305
Deposits withheld from dealers and merchants
153
Payables to unconsolidated affiliates
Accrued expenses:
Employee benefits
1,107
2,152
1,015
Product warranties
1,589
1,610
1,444
Accrued taxes
1,364
1,558
1,336
Derivative liabilities
744
1,130
891
Dealer sales discounts
243
1,243
Extended warranty premium
1,047
1,021
901
Unearned revenue (contractual liability)
700
676
601
Unearned operating lease revenue
456
451
406
Accrued interest
502
434
371
1,377
1,397
1,289
Amounts are presented net of eliminations, which primarily consist of dealer sales incentives with a right of set-off against trade receivables of $2,410 at January 28, 2024, $2,228 at October 29, 2023, and $1,540 at January 29, 2023. Other eliminations were made for accrued taxes and other accrued expenses.
(14) Long-Term Borrowings
Long-term borrowings consisted of:
Underwritten term debt
U.S. dollar notes and debentures:
2.75% notes due 2025
6.55% debentures due 2028
200
5.375% notes due 2029
3.10% notes due 2030
8.10% debentures due 2030
250
7.125% notes due 2031
3.90% notes due 2042
1,250
2.875% notes due 2049
3.75% notes due 2050
850
Euro notes:
1.375% notes due 2024 (€800 principal)
871
1.85% notes due 2028 (€600 principal)
651
634
653
2.20% notes due 2032 (€600 principal)
1.65% notes due 2039 (€650 principal)
705
687
708
Serial issuances:
Medium-term notes
31,001
29,638
25,618
Other notes and finance lease obligations
1,810
1,769
1,440
Less debt issuance costs and debt discounts
(135)
(122)
Medium-term notes due through 2033 are primarily offered by prospectus and issued at fixed and variable rates. The principal balances of the medium-term notes were $31,808, $30,902, and $26,367 at January 28, 2024, October 29, 2023, and January 29, 2023, respectively. All outstanding notes and debentures are senior unsecured borrowings and rank equally with each other.
(15) Leases - Lessor
We lease equipment manufactured or sold by us through John Deere Financial. Sales-type and direct financing leases are reported in “Financing receivables – net.” Operating leases are reported in “Equipment on operating leases – net.”
Lease revenues earned by us follow:
Sales-type and direct finance lease revenues
Operating lease revenues
321
Variable lease revenues
Total lease revenues
390
368
(16) Commitments and Contingencies
A standard warranty is provided as assurance that the equipment will function as intended. The standard warranty period varies by product and region. At the time a sale is recognized, we record an estimate of future warranty costs based on historical claims rate experience and estimated population under warranty.
The reconciliation of the changes in the warranty liability follows:
1,427
Warranty claims paid
(309)
(262)
New product warranty accruals
Foreign exchange
The costs for extended warranty programs are recognized as incurred.
In certain international markets, we provide guarantees to banks for the retail financing of John Deere equipment. At January 28, 2024, the notional value of these guarantees was $166. We may repossess the equipment collateralizing the receivables. At January 28, 2024, the accrued losses under these agreements were not material.
We also had other miscellaneous contingent liabilities and guarantees totaling approximately $115 at January 28, 2024. The accrued liability for these contingencies was not material at January 28, 2024.
At January 28, 2024, we had commitments of $597 for the construction and acquisition of property and equipment. Also, at January 28, 2024, we had restricted assets of $214, classified as “Other assets.”
We are subject to various unresolved legal actions. The accrued losses on these matters are not material. We believe the reasonably possible range of losses for these unresolved legal actions would not have a material effect on our financial statements. The most prevalent legal claims relate to product liability (including asbestos-related liability), retail credit, employment, patent, trademark, and antitrust matters.
(17) Fair Value Measurements
The fair values of financial instruments that do not approximate the carrying values were as follows. Long-term borrowings exclude finance lease liabilities.
CarryingValue
FairValue
43,236
42,777
35,894
6,225
7,056
4,869
6,104
6,921
4,785
8,283
8,156
7,220
39,878
39,321
38,428
36,873
35,035
34,149
Fair value measurements above were Level 3 for all financing receivables and Level 2 for all borrowings.
Fair values of the financing receivables that were issued long-term were based on the discounted values of their related cash flows at interest rates currently being offered by us for similar financing receivables. The fair values of the remaining financing receivables approximated the carrying amounts.
Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or on the discounted values of their related cash flows at current market interest rates.
Assets and liabilities measured at fair value on a recurring basis follow, excluding our cash equivalents, which were carried at a cost that approximates fair value and consisted of money market funds and time deposits.
Level 1:
International equity securities
International mutual funds securities
57
U.S. equity fund
105
U.S. fixed income fund
U.S. government debt securities
64
Total Level 1 marketable securities
475
270
Level 2:
Corporate debt securities
220
244
209
International debt securities
Mortgage-backed securities
161
185
157
Municipal debt securities
69
124
141
Total Level 2 marketable securities
582
Other assets – Derivatives
253
Accounts payable and accrued expenses – Derivatives
Level 3:
Accounts payable and accrued expenses – Deferred consideration
225
The mortgage-backed securities are primarily issued by U.S. government sponsored enterprises.
The contractual maturities of debt securities at January 28, 2024 follow:
Amortized
Fair
Cost
Value
Due in one year or less
Due after one through five years
242
194
Due after five through 10 years
421
398
Due after 10 years
189
Debt securities
935
Actual maturities may differ from contractual maturities because some securities may be called or prepaid. Mortgage-backed securities contain prepayment provisions and are not categorized by contractual maturity.
The following is a description of the valuation methodologies we use to measure certain financial instruments on the balance sheets at fair value:
Marketable securities – The portfolio of investments is valued on a market approach (matrix pricing model) in which all significant inputs are observable or can be derived from or corroborated by observable market data such as interest rates, yield curves, volatilities, credit risk, and prepayment speeds. Funds are valued using the fund’s net asset value, based on the fair value of the underlying securities. International debt securities are valued using quoted prices for identical assets in inactive markets.
Derivatives – Our derivative financial instruments consist of interest rate contracts (swaps), foreign currency exchange contracts (futures, forwards, and swaps), and cross-currency interest rate contracts (swaps). The portfolio is valued based on an income approach (discounted cash flow) using market observable inputs, including swap curves and both forward and spot exchange rates for currencies.
Financing receivables – Specific reserve impairments are based on the fair value of the collateral, which is measured using a market approach (appraisal values or realizable values).
(18) Derivative Instruments
Fair values of our derivative instruments and the associated notional amounts were as follows. Assets are recorded in “Other assets,” while liabilities are recorded in “Accounts payable and accrued expenses.”
Fair Value
Notional
Cash flow hedges:
Interest rate contracts
2,200
1,500
45
1,950
Fair value hedges:
12,633
592
12,691
10,802
678
Not designated as hedging instruments:
14,200
129
82
13,853
11,147
188
Foreign exchange contracts
7,856
53
8,117
9,304
110
Cross-currency interest rate contracts
234
The amounts recorded in the consolidated balance sheets related to borrowings designated in fair value hedging relationships were as follows. Fair value hedging adjustments are included in the carrying amount of the hedged item.
Active Hedging Relationships
Discontinued Hedging Relationships
Carrying Amount
Cumulative Fair Value
Carrying Amount of
of Hedged Item
Hedging Amount
Formerly Hedged Item
288
11,745
7,711
(270)
11,660
(976)
7,144
(288)
1,915
10,088
(666)
5,506
(83)
The classification and gains (losses) including accrued interest expense related to derivative instruments on the statements of consolidated income consisted of the following:
Fair Value Hedges
Interest rate contracts - Interest expense
239
Cash Flow Hedges
Recognized in OCI:
Interest rate contracts - OCI (pretax)
Reclassified from OCI:
Not Designated as Hedges
Interest rate contracts - Net sales
Foreign exchange contracts - Net sales
Foreign exchange contracts - Cost of sales
Foreign exchange contracts - Other operating expenses
(181)
Total not designated
(215)
(151)
Certain of our derivative agreements contain credit support provisions that may require us to post collateral based on the size of the net liability positions and credit ratings. The aggregate fair value of all derivatives with credit-risk-related contingent features that were in a net liability position at January 28, 2024, October 29, 2023, and January 29, 2023 was $691, $1,076, and $781, respectively. In accordance with the limits established in these agreements, we posted $368, $659, and $349 of cash collateral at January 28, 2024, October 29, 2023, and January 29, 2023, respectively. In addition, we paid $8 of collateral that was outstanding at January 28, 2024, October 29, 2023, and January 29, 2023 to participate in an international futures market to hedge currency exposure, not included in the table below.
Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities related to netting arrangements and any collateral received or paid follows:
Gross Amounts
Netting
Recognized
Arrangements
Collateral
Net Amount
(112)
(368)
264
(152)
(659)
319
(162)
(47)
151
(349)
380
(19) Share-Based Awards
At January 28, 2024, we were authorized to grant an additional 15.0 million shares related to stock options and restricted stock units. In December 2023, we granted stock options to employees for the purchase of 216 thousand shares of common stock at an exercise price of $377.01 per share and a binomial lattice model fair value of $98.04 per share at the grant date. At January 28, 2024, options for 1.9 million shares were outstanding with a weighted-average exercise price of $214.88 per share.
During the three months ended January 28, 2024, the restricted stock units (RSUs) granted in thousands of shares and the weighted-average grant date fair values, using the closing price of our common stock on the grant date, in dollars follow:
Grant Date
Shares
Service-based
377.04
Performance/service-based
360.53
Market/service-based
370.87
In December 2023, we granted market/service-based RSUs. The vesting period for the market/service-based RSUs is three years and dividend equivalents are not earned during the vesting period. The market/service-based RSUs are subject to a market related metric based on total shareholder return, compared to a benchmark group of companies, and award common stock in a range of zero to 200 percent for each unit granted based on the level of the metric achieved. The fair value of the market/service based RSUs was determined using a Monte Carlo model.
(20) Special Item
In January 2023, we reached an agreement to sell our financial services business in Russia (registered in Russia as a leasing company). We reversed the allowance for credit losses and recorded a valuation allowance on the assets held for sale in “Selling, administrative and general expenses.” In March 2023, we sold our financial services business in Russia to Insight Investment Group. The total proceeds, net of restricted cash sold, were $36. The operations were included in the financial services operating segment through the date of sale. At the disposal date, the total assets were $31, consisting primarily of financing receivables, the total liabilities were $5, and the cumulative translation loss was $10. We did not incur additional gains or losses upon disposition.
(21) Subsequent Events
In February 2024, we entered into a retail note securitization transaction, resulting in $529 of secured borrowings.
On February 28, 2024, a quarterly dividend of $1.47 per share was declared at the Board of Directors meeting, payable on May 8, 2024, to stockholders of record on March 29, 2024.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
All amounts are presented in millions of dollars unless otherwise specified.
OVERVIEW
Organization
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
We announced the Smart Industrial Operating Model in 2020. This operating model is based on three focus areas:
(a)
Production systems: A strategic alignment of products and solutions around our customers’ operations.
(b)
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.
(c)
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 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
Construction and Forestry Outlook for 2024
Financial Services Outlook for 2024
Up moderately
+ Nonrecurring prior period special items
Favorable
+ Higher average portfolio
(-) Financing spreads
Unfavorable
(-) 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:
consolidated results – 2024 Compared with 2023
Deere & Company
(In millions of dollars, except per share amounts)
Net sales and revenues
Diluted earnings per share
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:
% Change
Cost of sales to net sales
68.7%
69.6%
(+) Price realization
Higher due to investment income earned on international mutual funds securities.
Higher due to continued focus on developing and incorporating technology solutions.
+12
Increased mostly due to higher employee pay driven by inflationary conditions and profit-sharing incentives.
+67
Increased primarily due to higher average borrowing rates and higher average borrowings.
+23
Increased due to higher foreign exchange losses.
Decreased as a result of lower pretax income.
Business Segment Results – 2024 compared with 2023
Production and Precision Agriculture
Operating profit
Operating margin
21.6%
23.2%
Price realization
+4
Currency translation impact on Net sales
+1
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
Small Agriculture and Turf
13.4%
14.9%
+3
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
17.6%
19.5%
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
Revenue (including intercompany)
1,552
1,244
+25
762
442
+72
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 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 – 2024 compared with 2023
We have access to global markets at a reasonable cost. Sources of liquidity include:
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:
Cash, cash equivalents, and marketable securities
6,273
8,404
4,828
Ratio to prior 12 month’s net sales
14%
15%
Ratio to prior 12 month’s cost of sales
24%
22%
27%
Unused credit lines
1,577
841
1,581
Financial Services:
Ratio of interest-bearing debt to stockholder’s equity
8.3 to 1
8.4 to 1
8.2 to 1
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.
Cash Flows
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
Net decrease in cash, cash equivalents, and restricted cash
Cash outflows from consolidated operating activities in the first three months of 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 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 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 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, 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, 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:
Senior
Long-Term
Short-Term
Outlook
Fitch Ratings
A+
F1
Stable
Moody’s Investors Service, Inc.
A1
Prime-1
Standard & Poor’s
A
A-1
FORWARD-LOOKING STATEMENTS
Certain statements contained herein, including in the section entitled “Overview” relating to future events, expectations, and trends constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 and involve factors that are subject to change, assumptions, risks, and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect all lines of 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, 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:
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 DATA
The supplemental consolidating data presented on the subsequent pages is presented for informational purposes. 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.
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. The two businesses are capitalized differently and have separate performance metrics. The supplemental consolidating data is also used by management due to these differences.
STATEMENTS OF INCOME
Unaudited
EQUIPMENT
FINANCIAL
OPERATIONS
SERVICES
ELIMINATIONS
CONSOLIDATED
114
1,433
1,067
(230)
(187)
1
289
(69)
(155)
2, 3
10,932
11,750
(299)
(342)
7,207
7,940
4
876
783
108
(68)
(64)
Interest compensation to Financial Services
162
(123)
90
392
(60)
3, 5
8,976
9,495
1,293
1,006
Income before Income Taxes
2,255
259
416
Income after Income Taxes
1,540
1,772
206
1,541
1,544
1,774
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 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 financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
CONDENSED BALANCE SHEETS
Jan 28
Oct 29
Jan 29
5,720
2,665
1,670
1,738
1,311
147
104
989
842
834
Receivables from Financial Services
4,296
4,516
5,348
(4,296)
(4,516)
(5,348)
6
1,093
1,320
1,342
9,167
8,687
7,827
(2,465)
(2,268)
(1,560)
7
51
43,636
43,609
36,831
1,515
1,813
1,583
559
869
489
(57)
(59)
(80)
6,843
6,178
3,013
2,936
3,728
8
2,133
(372)
(387)
(154)
9
2,058
1,948
1,936
546
(26)
38,688
40,590
39,066
(7,217)
(7,235)
(7,167)
1,203
1,230
969
15,914
16,709
13,160
Payables to Equipment Operations
12,677
14,862
11,819
3,232
3,599
2,952
(2,548)
(2,331)
(1,663)
452
404
444
455
269
7,270
7,210
8,155
32,663
31,267
26,916
2,006
2,384
111
23,634
25,786
23,731
62,775
63,650
53,620
7,125
7,082
6,101
(7,125)
(7,082)
(6,101)
10
Financial Services’ equity
Adjusted total stockholders’ equity
14,954
14,707
15,235
6 Elimination of receivables / payables between equipment operations and financial services.
7 Primarily reclassification of sales incentive accruals on receivables sold to financial services.
8 Reclassification of net pension assets / liabilities.
9 Reclassification of deferred tax assets / liabilities in the same taxing jurisdictions.
10 Elimination of financial services’ equity.
STATEMENTS OF CASH FLOWS
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
302
279
254
252
(36)
(37)
11
12
Distributed earnings of Financial Services
(233)
13
(39)
(486)
(992)
14, 16
(687)
(1,254)
15
(2,155)
(1,458)
145
(197)
(264)
16
165
(49)
(46)
11, 12, 15
Net cash provided by (used for) operating activities
(519)
(559)
575
605
(964)
(1,292)
8,007
7,495
(255)
(297)
14
(6,513)
(6,375)
(503)
(531)
Decrease in investment in Financial Services
(10)
17
Increase in trade and wholesale receivables
(871)
(1,499)
1,499
(98)
(137)
Net cash provided by (used for) investing activities
(324)
838
(205)
721
(136)
(3,029)
833
Change in intercompany receivables/payables
1,469
(1,469)
5,276
2,504
(40)
(3,197)
Capital investment from Equipment Operations
(1,399)
(1,489)
(72)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
(2,249)
(1,105)
(71)
342
5,755
3,781
1,865
1,160
3,506
2,676
1,794
1,502
191
11 Elimination of depreciation on leases related to inventory transferred to equipment on operating leases.
12 Reclassification of share-based compensation expense.
13 Elimination of dividends from financial services to the equipment operations, which are included in the equipment operations’ operating activities.
14 Primarily reclassification of receivables related to the sale of equipment.
15 Reclassification of direct lease agreements with retail customers.
16 Reclassification of sales incentive accruals on receivables sold to financial services.
17 Elimination of change in investment from equipment operations to financial services.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See our most recently filed Annual Report on Form 10-K (Part II, Item 7A). There have been no material changes in this information.
Item 4. CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) were effective as of January 28, 2024, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act. During the first quarter of 2024, there were no changes that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to various unresolved legal actions which arise in the normal course of our business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, trademark, and antitrust matters. We believe the reasonably possible range of losses for these unresolved legal actions would not have a material effect on our consolidated financial statements.
Item 1A. Risk Factors
See our most recently filed Annual Report on Form 10-K (Part I, Item 1A). There have been no material changes in this information. The risks described in the Annual Report on Form 10-K, and the “Forward-Looking Statements” in this report, are not the only risks we face. Additional risks and uncertainties may also materially affect our business, financial condition, or operating results. One should not consider the risk factors to be a complete discussion of risks, uncertainties, and assumptions.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Purchases of our common stock during the first quarter of 2024 were as follows:
Total Number of
Shares Purchased as
Maximum Number of
Part of Publicly
Shares that May Yet Be
Announced Plans or
Purchased under the
Purchased (2)
Average Price
Programs (1)
Plans or Programs (1)
Period
(thousands)
Per Share
(millions)
Oct 30 to Nov 26
1,178
377.57
31.8
Nov 27 to Dec 24
1,296
372.25
1,259
30.7
Dec 25 to Jan 28
1,050
393.54
29.6
3,524
3,487
37
Sales of Unregistered Securities
During the first quarter of 2024, we distributed 1,333 deferred stock awards to a participant account under the 2012 Deere & Company Nonemployee Director Stock Ownership Plan. The deferred stock awards converted to shares of common stock on a one-for-one basis. Deferred stock units and shares of common stock issued under the 2012 Deere & Company Nonemployee Director Stock Ownership Plan are exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of the SEC’s Regulation D thereunder.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Director and Executive Officer Trading Arrangements
Item 6. Exhibits
Certain instruments relating to long-term borrowings constituting less than 10 percent of the registrant’s total assets are not filed as exhibits herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant will furnish copies of such instruments to the Commission upon request of the Commission.
3.1
Certificate of Incorporation (Exhibit 3.1 to Form 10-Q of registrant for the quarter ended July 28, 2019, Securities and Exchange Commission File Number 1-4121*)
3.2
Bylaws, as amended (Exhibit 3.2 to Form 10-Q of registrant for the quarter ended July 30, 2023, Securities and Exchange Commission File Number 1-4121*)
31.1
Rule 13a-14(a)/15d-14(a) Certification
31.2
Section 1350 Certifications (furnished herewith)
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Incorporated by reference.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date:
February 29, 2024
By:
/s/ Joshua A. Jepsen
Joshua A. JepsenSenior Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)