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 April 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 April 28, 2024, 275,570,318 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 and Six Months Ended April 28, 2024 and April 30, 2023
(In millions of dollars and shares except per share amounts) Unaudited
Three Months Ended
Six Months Ended
2024
2023
Net Sales and Revenues
Net sales
$
13,610
16,079
24,097
27,481
Finance and interest income
1,387
1,079
2,746
2,073
Other income
238
229
577
484
Total
15,235
17,387
27,420
30,038
Costs and Expenses
Cost of sales
9,157
10,730
16,357
18,663
Research and development expenses
565
547
1,098
1,043
Selling, administrative and general expenses
1,265
1,330
2,330
2,283
Interest expense
836
569
1,638
1,049
Other operating expenses
295
363
664
660
12,118
13,539
22,087
23,698
Income of Consolidated Group before Income Taxes
3,117
3,848
5,333
6,340
Provision for income taxes
751
991
1,220
1,528
Income of Consolidated Group
2,366
2,857
4,113
4,812
Equity in income of unconsolidated affiliates
2
3
Net Income
2,368
2,859
4,116
4,815
Less: Net loss attributable to noncontrolling interests
(2)
(1)
(5)
(4)
Net Income Attributable to Deere & Company
2,370
2,860
4,121
4,819
Per Share Data
Basic
8.56
9.69
14.80
16.26
Diluted
8.53
9.65
14.74
16.18
Dividends declared
1.47
1.25
2.94
2.45
Dividends paid
1.20
2.82
2.33
Average Shares Outstanding
276.8
295.1
278.4
296.3
277.9
296.5
279.5
297.8
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
(87)
(247)
(108)
(258)
Cumulative translation adjustment
(217)
100
57
781
Unrealized gain (loss) on derivatives
8
(18)
(7)
(31)
Unrealized gain (loss) on debt securities
(12)
1
26
(308)
(166)
(57)
518
Comprehensive Income of Consolidated Group
2,060
2,693
4,059
Less: Comprehensive income (loss) attributable to noncontrolling interests
(3)
6
Comprehensive Income Attributable to Deere & Company
2,063
2,692
4,063
5,327
CONDENSED CONSOLIDATED BALANCE SHEETS
April 28
October 29
April 30
Assets
Cash and cash equivalents
5,553
7,458
5,267
Marketable securities
1,094
946
856
Trade accounts and notes receivable – net
8,880
7,739
9,971
Financing receivables – net
45,278
43,673
38,954
Financing receivables securitized – net
7,262
7,335
5,659
Other receivables
2,535
2,623
2,593
Equipment on operating leases – net
6,965
6,917
6,524
Inventories
8,443
8,160
9,713
Property and equipment – net
7,034
6,879
6,288
Goodwill
3,936
3,900
3,963
Other intangible assets – net
1,064
1,133
1,222
Retirement benefits
3,056
3,007
3,519
Deferred income taxes
1,936
1,814
1,308
Other assets
2,592
2,503
2,510
Total Assets
105,628
104,087
98,347
Liabilities and Stockholders’ Equity
Liabilities
Short-term borrowings
17,699
17,939
17,109
Short-term securitization borrowings
6,976
6,995
5,379
Accounts payable and accrued expenses
14,609
16,130
14,716
491
520
511
Long-term borrowings
40,962
38,477
35,611
Retirement benefits and other liabilities
2,105
2,140
2,520
Total liabilities
82,842
82,201
75,846
Commitments and contingencies (Note 16)
Redeemable noncontrolling interest
98
97
102
Stockholders’ Equity
Common stock, $1 par value (issued shares at April 28, 2024 – 536,431,204)
5,391
5,303
5,227
Common stock in treasury
(33,764)
(31,335)
(26,630)
Retained earnings
54,228
50,931
46,336
Accumulated other comprehensive income (loss)
(3,171)
(3,114)
(2,538)
Total Deere & Company stockholders’ equity
22,684
21,785
22,395
Noncontrolling interests
4
Total stockholders’ equity
22,688
21,789
22,399
Total Liabilities and Stockholders’ Equity
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Six Months Ended April 28, 2024 and April 30, 2023
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision (credit) for credit losses
131
(89)
Provision for depreciation and amortization
1,045
995
Other non-cash adjustments (Note 21)
173
Share-based compensation expense
104
54
Credit for deferred income taxes
(120)
(377)
Changes in assets and liabilities:
Receivables related to sales
(2,469)
(4,407)
(409)
(982)
(1,300)
(313)
Accrued income taxes payable/receivable
(29)
(96)
(208)
(68)
Other
83
148
Net cash provided by (used for) operating activities
944
(147)
Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)
13,703
12,593
Proceeds from maturities and sales of marketable securities
200
Proceeds from sales of equipment on operating leases
1,011
993
Cost of receivables acquired (excluding receivables related to sales)
(14,091)
(13,451)
Purchases of marketable securities
(432)
(188)
Purchases of property and equipment
(719)
(584)
Cost of equipment on operating leases acquired
(1,369)
(1,229)
Collateral on derivatives – net
96
367
(69)
(93)
Net cash used for investing activities
(1,670)
(1,494)
Cash Flows from Financing Activities
Net proceeds in short-term borrowings (original maturities three months or less)
58
3,992
Proceeds from borrowings issued (original maturities greater than three months)
10,189
4,868
Payments of borrowings (original maturities greater than three months)
(8,139)
(3,567)
Repurchases of common stock
(2,422)
(2,546)
(796)
(697)
(52)
(33)
Net cash provided by (used for) financing activities
(1,162)
2,017
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash
70
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
(1,893)
446
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
7,620
4,941
Cash, Cash Equivalents, and Restricted Cash at End of Period
5,727
5,387
Components of Cash, Cash Equivalents, and Restricted Cash
Restricted cash (Other assets)
174
120
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
Three Months Ended April 30, 2023
Balance January 29, 2023
21,336
5,191
(25,333)
43,846
(2,372)
Net income (loss)
2,861
Other comprehensive income (loss)
(1,301)
Treasury shares reissued
(370)
(369)
Share based awards and other
35
36
Balance April 30, 2023
Six Months Ended April 30, 2023
Balance October 30, 2022
20,265
5,165
(24,094)
42,247
(3,056)
92
4,820
Other comprehensive income
10
(2,558)
22
(726)
(725)
62
Three Months Ended April 28, 2024
Balance January 28, 2024
22,079
5,335
(32,663)
52,266
(2,863)
2,371
Other comprehensive loss
(1,105)
(407)
(406)
56
Balance April 28, 2024
Six Months Ended April 28, 2024
Balance October 29, 2023
4,122
(6)
(2,445)
16
(819)
(818)
82
88
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 second quarter ends for fiscal year 2024 and 2023 were April 28, 2024 and April 30, 2023, respectively. Both second quarters contained 13 weeks, while both year-to-date periods contained 26 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 PROnouncements
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 Pronouncements
We closely monitor all Accounting Standard Updates (ASUs) issued by the Financial Accounting Standards Board (FASB) and other authoritative guidance.
Accounting Pronouncements Adopted
We adopted the following standards in 2024, none of which had a material effect on our consolidated financial statements.
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 Pronouncements to be Adopted
In March 2024, the SEC adopted rules to enhance and standardize climate-related disclosures in annual reports and registration statements. The new rules will be effective for our annual reporting periods beginning in fiscal year 2026. In April 2024, the SEC stayed implementation of the climate-related disclosure requirements pending completion of legal challenges. We are monitoring these developments while assessing the effect of these rules on our related disclosures.
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.
7
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
(3) Revenue Recognition
Our net sales and revenues by primary geographic market, major product line, and timing of revenue recognition follow:
Production & Precision Ag
Small Ag & Turf
Construction & Forestry
Financial Services
Primary geographic markets:
United States
3,881
1,842
2,500
996
9,219
Canada
600
167
242
175
1,184
Western Europe
659
688
470
40
1,857
Central Europe and CIS
275
80
91
454
Latin America
850
103
334
122
1,409
Asia, Africa, Oceania, and Middle East
414
373
271
1,112
6,679
3,253
3,908
1,395
Major product lines:
Production agriculture
6,507
Small agriculture
2,098
Turf
1,017
Construction
1,736
Compact construction
695
Roadbuilding
1,080
Forestry
Financial products
39
32
17
1,483
133
106
109
348
Revenue recognized:
At a point in time
6,609
3,213
3,882
13,739
Over time
1,360
1,496
6,602
3,187
4,596
1,965
16,350
986
285
452
347
2,070
1,162
1,205
831
3,278
153
185
808
1,669
201
590
252
2,712
849
714
529
110
2,202
11,722
5,745
7,183
2,770
11,298
3,816
1,666
3,220
1,321
1,843
563
99
2,962
325
205
731
11,564
5,669
7,126
24,421
158
76
2,708
2,999
4,058
2,241
2,561
766
9,626
546
189
302
1,190
758
888
492
31
2,169
393
212
90
703
1,543
388
2,238
614
469
335
43
1,461
7,912
4,200
4,168
1,107
7,733
2,952
1,099
1,813
663
1,134
429
29
20
12
1,168
150
129
117
396
7,861
4,171
4,146
27
16,205
51
1,182
9
6,686
3,906
4,461
1,479
16,532
906
303
2,121
1,259
1,452
857
60
3,628
595
165
1,115
2,780
357
727
4,065
989
869
635
84
2,577
13,215
7,254
7,422
2,147
12,845
5,146
1,818
3,295
1,136
1,952
785
38
25
2,270
310
791
13,109
7,200
7,375
50
27,734
47
2,097
2,304
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 $1,911, $1,697, and $1,622 at April 28, 2024, October 29, 2023, and April 30, 2023, respectively. The contract liability is reduced as the revenue is recognized. During the three months ended April 28, 2024 and April 30, 2023, $128 and $129, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year. During the six months ended April 28, 2024 and April 30, 2023, $358 and $343, 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 $1,633 at April 28, 2024. The estimated revenue to be recognized by fiscal year follows: remainder of 2024 – $297, 2025 – $438, 2026 – $352, 2027 – $224, 2028 – $137, 2029 – $97, and later years – $88. 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:
(953)
(845)
(647)
(2,094)
(2,151)
(1,813)
(15)
(8)
(10)
(109)
(110)
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
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)
21
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense
(16)
(13)
Net unrealized gain (loss) on derivatives
Unrealized gain (loss) on debt securities:
Unrealized holding gain (loss)
Net unrealized gain (loss) on debt securities
Retirement benefits adjustment:
Net actuarial gain (loss)
(83)
Reclassification to Other operating expenses through amortization of:
Actuarial (gain) loss
(11)
Prior service (credit) cost
Settlements
Net unrealized gain (loss) on retirement benefits adjustment
(115)
28
Total other comprehensive income (loss)
(335)
18
15
(27)
(22)
(9)
Reclassification of realized (gain) loss – Other income
(126)
30
(36)
(26)
13
(143)
(100)
11
(19)
(23)
(349)
(266)
(20)
(323)
(248)
771
(34)
(39)
33
(350)
(267)
(41)
19
14
(336)
78
89
(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:
Net income attributable to Deere & Company
Average shares outstanding
Basic per share
Effect of dilutive stock options and restricted stock awards
1.1
1.4
1.5
Total potential shares outstanding
Diluted per share
Shares excluded from EPS calculation, as antidilutive
.4
.2
.3
.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
64
115
124
Interest cost
138
134
274
267
Expected return on plan assets
(241)
(220)
(482)
Amortization of actuarial gain
Amortization of prior service cost
Net (benefit) cost
(40)
(81)
OPEB:
44
45
87
(54)
(58)
(14)
(30)
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 six months of 2024, we contributed and expect to contribute the following amounts to our pension and OPEB plans.
Pensions
OPEB
Contributed
46
Expected contributions remainder of the year
(7) Segment DATA
Information relating to operations by operating segment follows:
%
Change
Net sales and revenues:
Production & precision ag net sales
6,581
7,822
-16
11,430
13,021
-12
Small ag & turf net sales
3,185
4,145
-23
5,610
7,146
-21
Construction & forestry net sales
3,844
4,112
-7
7,057
7,314
-4
Financial services revenues
+26
+29
Other revenues
230
+14
553
410
+35
Total net sales and revenues
-9
Operating profit:
Production & precision ag
1,650
2,170
-24
2,695
3,378
-20
Small ag & turf
571
-33
897
1,296
-31
Construction & forestry
668
838
1,234
1,463
Financial services
209
41
+410
466
279
+67
Total operating profit
3,098
3,898
5,292
6,416
-18
Reconciling items
23
(47)
49
Income taxes
(751)
(991)
(1,220)
(1,528)
-17
-14
Intersegment sales and revenues:
-13
+17
-75
-71
193
190
+2
370
395
-6
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:
9,026
8,734
9,504
4,421
4,348
4,743
7,337
7,139
7,299
73,834
70,732
65,233
Corporate
11,010
13,134
11,568
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:
April 28, 2024
2022
2021
2020
Prior
Years
Revolving Charge Accounts
Retail customer receivables:
Agriculture and turf
Current
7,393
11,869
6,934
3,987
1,682
696
3,662
36,223
30-59 days past due
55
269
60-89 days past due
90+ days past due
Non-performing
63
375
Construction and forestry
1,619
2,415
1,514
744
207
79
107
6,685
61
159
34
72
85
264
Total retail customer receivables
9,091
14,712
8,763
4,921
1,973
833
3,887
44,180
October 29, 2023
2019
PriorYears
15,191
8,430
5,120
2,334
853
280
4,526
36,734
75
255
2,927
1,961
1,084
353
119
6,557
127
42
214
18,340
10,705
6,421
2,791
987
341
4,698
44,283
April 30, 2023
6,718
10,947
6,435
3,155
1,305
619
3,621
32,800
194
24
74
222
1,442
2,434
1,490
557
169
6,254
65
71
8,190
13,624
8,163
3,869
1,570
743
3,783
39,942
The credit quality analysis of wholesale receivables by year of origination was as follows:
Revolving
Wholesale receivables:
441
322
6,565
7,384
30+ days past due
1,118
Total wholesale receivables
490
337
7,683
8,590
631
93
160
5,175
6,085
712
654
236
5,887
6,922
265
198
3,653
4,170
638
680
204
4,291
4,851
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
177
195
Provision
Write-offs
(59)
Recoveries
Translation adjustments
End of period balance
172
197
(102)
Financing receivables:
40,293
52,770
140
157
180
299
Provision transferred to held for sale
(142)
Provision (credit) subtotal
(97)
(37)
(55)
36,159
44,793
The allowance for credit losses increased in the second quarter and first six months of 2024, primarily due to higher expected losses on the agricultural receivable portfolio as a result of elevated delinquencies and a decline in market conditions.
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). Excluding the portfolio in Russia, the allowance for credit losses increased in the second quarter and the first six months of 2023 primarily due to higher portfolio balances and higher expected losses on turf and construction financing receivables.
Write-offs by year of origination were as follows:
Prior Years
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 second quarter and the six months ended April 28, 2024 were $36 and $53, respectively, of which $48 were current, $3 were 30-59 days past due, and $2 were non-performing. These modifications represented 0.07 and 0.10 percent of our financing receivable portfolio for the same periods, respectively.
Defaults and subsequent write-offs of loans modified in the prior twelve months were not significant during the second quarter and the first six months of 2024. In addition, at April 28, 2024, commitments to provide additional financing to these customers were not significant.
(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)
7,289
7,357
5,674
Allowance for credit losses
Other assets (primarily restricted cash)
164
152
Total restricted securitized assets
7,426
7,487
5,774
Accrued interest on borrowings
Total liabilities related to restricted securitized assets
6,988
7,008
(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
3,851
4,080
4,647
Work-in-process
1,127
1,010
1,262
Finished goods and parts
5,979
5,435
Total FIFO value
10,957
10,525
12,344
Excess of FIFO over LIFO
2,514
2,365
2,631
(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.
Production &
Small Ag
Precision Ag
& Turf
& Forestry
Goodwill at October 30, 2022
646
318
2,723
3,687
Acquisition
235
Goodwill at April 30, 2023
705
326
2,932
Goodwill at October 29, 2023
702
2,835
Goodwill at April 28, 2024
364
2,869
The components of other intangible assets were as follows:
Customer lists and relationships
505
501
525
Technology, patents, trademarks, and other
1,404
1,397
Total at cost
1,909
1,888
1,922
Less accumulated amortization:
213
632
560
507
Total accumulated amortization
845
755
700
The amortization of other intangible assets in the second quarter and the first six months of 2024 was $41 and $83, and for the second quarter and the first six months of 2023 was $45 and $84, respectively. The estimated amortization expense for the next five years is as follows: remainder of 2024 – $89, 2025 – $144, 2026 – $120, 2027 – $119, 2028 – $86, and 2029 – $73.
(12) Short-Term Borrowings
Short-term borrowings were as follows:
Commercial paper
7,675
9,100
9,184
Notes payable to banks
434
483
284
Finance lease obligations due within one year
Long-term borrowings due within one year
9,560
8,331
7,618
(13) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
Accounts payable:
Trade payables
2,968
3,467
3,680
Dividends payable
409
371
Operating lease liabilities
270
281
294
Deposits withheld from dealers and merchants
163
Payables to unconsolidated affiliates
184
Accrued expenses:
Employee benefits
1,550
2,152
1,475
Product warranties
1,566
1,610
1,562
Accrued taxes
1,453
1,558
1,691
Derivative liabilities
1,005
1,130
Dealer sales discounts
1,243
605
Extended warranty premium
1,110
1,021
949
Unearned revenue (contractual liability)
801
676
673
Unearned operating lease revenue
451
Accrued interest
513
354
Parts return liability
404
392
376
1,180
Amounts are presented net of eliminations, which primarily consist of dealer sales incentives with a right of set-off against trade receivables of $2,650 at April 28, 2024, $2,228 at October 29, 2023, and $1,979 at April 30, 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
5.375% notes due 2029
500
3.10% notes due 2030
8.10% debentures due 2030
250
7.125% notes due 2031
300
3.90% notes due 2042
1,250
2.875% notes due 2049
3.75% notes due 2050
Euro notes:
1.85% notes due 2028 (€600 principal)
644
634
662
2.20% notes due 2032 (€600 principal)
1.65% notes due 2039 (€650 principal)
697
687
717
Serial issuances
Medium-term notes
32,859
29,638
26,734
Other notes and finance lease obligations
1,708
1,769
1,707
Less debt issuance costs and debt discounts
(140)
(135)
(121)
Medium-term notes due through 2034 are primarily offered by prospectus and issued at fixed and variable rates. The principal balances of the medium-term notes were $34,002, $30,902, and $27,428, at April 28, 2024, October 29, 2023, and April 30, 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
37
Operating lease revenues
343
321
682
642
Variable lease revenues
Total lease revenues
782
732
(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:
1,589
1,444
1,427
Warranty claims paid
(324)
(274)
(634)
(536)
New product warranty accruals
386
591
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 April 28, 2024, the notional value of these guarantees was $146. We may repossess the equipment collateralizing the receivables. At April 28, 2024, the accrued losses under these agreements were not material.
We also had other miscellaneous contingent liabilities and guarantees totaling approximately $140 at April 28, 2024. The accrued liability for these contingencies was $20 at April 28, 2024.
At April 28, 2024, we had commitments of approximately $560 for the construction and acquisition of property and equipment. Also, at April 28, 2024, we had restricted assets of $225, classified as “Other assets.”
We are subject to various unresolved legal actions. The accrued losses on these matters were not material at April 28, 2024. 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
44,741
42,777
38,337
7,063
7,056
5,494
6,935
6,921
5,271
9,434
8,156
7,461
40,882
40,059
38,428
36,873
35,571
34,802
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
Marketable securities:
International equity securities
International mutual funds securities
101
U.S. equity fund
86
U.S. fixed income fund
U.S. government debt securities
263
Total Level 1 marketable securities
391
266
Level 2
Corporate debt securities
244
International debt securities
Mortgage-backed securities
168
Municipal debt securities
67
123
141
Total Level 2 marketable securities
Other assets - Derivatives
191
292
Accounts payable and accrued expenses - Derivatives
Level 3
Accounts payable and accrued expenses - Deferred consideration
186
The mortgage-backed securities are primarily issued by U.S. government-sponsored enterprises.
The contractual maturities of debt securities at April 28, 2024 follow:
Amortized
Fair
Cost
Value
Due in one year or less
Due after one through five years
293
254
Due after five through 10 years
421
Due after 10 years
192
Debt securities
1,109
966
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
2,700
1,500
2,250
Fair value hedges:
13,664
884
12,691
970
10,943
Not designated as hedging instruments:
12,869
112
13,853
11,956
171
Foreign exchange contracts
7,582
8,117
9,163
Cross-currency interest rate contracts
211
176
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
286
2,565
12,434
(879)
7,616
(264)
11,660
(976)
7,144
(288)
1,213
10,334
(562)
5,657
(132)
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
(448)
(104)
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
59
(21)
Foreign exchange contracts - Other operating expenses
Total not designated
(155)
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 April 28, 2024, October 29, 2023, and April 30, 2023, was $967, $1,076, and $716, respectively. In accordance with the limits established in these agreements, we posted $562, $659, and $308 of cash collateral at April 28, 2024, October 29, 2023, and April 30, 2023, respectively. In addition, we paid $8 of collateral that was outstanding at April 28, 2024, October 29, 2023, and April 30, 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 collateral follows:
Gross Amounts
Netting
Recognized
Arrangements
Collateral
Net Amount
350
(152)
(659)
319
(168)
170
282
(19) Share-Based Awards
We are authorized to grant shares for stock options and restricted stock units. The outstanding shares authorized were 15.0 million at April 28, 2024. 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 April 28, 2024, options for 1.8 million shares were outstanding with a weighted-average exercise price of $220.99 per share.
During the six months ended April 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
376.98
Performance/service-based
52
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) Disposition
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) Special Item
In the second quarter of 2023, we corrected the accounting treatment for financing incentives offered to John Deere dealers, which impacted the timing of expense recognition and the presentation of incentive costs in the consolidated financial statements. The cumulative effect of this correction, $173 pretax ($135 after-tax), was recorded in the second quarter of 2023 in “Selling, administrative and general expenses” by financial services. Prior period results were not restated, as the adjustment was considered immaterial to our financial statements.
(22) Subsequent Events
In May 2024, we entered into a retail note securitization transaction, resulting in $319 of secured borrowings.
On May 29, 2024, a quarterly dividend of $1.47 per share was declared at the Board of Directors meeting, payable on August 8, 2024, to stockholders of record on June 28, 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.
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. Our progress is demonstrated, in part, by the growing use of the John Deere Operations Center (our digital operations management system) engaging more agricultural acres globally. Engaged acres give us a foundational understanding of customer utilization of John Deere technology. The investments in these technologies and establishing a Solutions as a Service business model may increase our operating costs and decrease operating margins during the transition period.
Company Outlook for 2024
Production volumes are expected to continue to decline during the remainder of 2024 due to demand shifts amid challenges in the global agricultural and turf sectors coupled with proactive production and inventory management while the construction industry remains relatively stable.
Agriculture and Turf Outlook for 2024
Construction and Forestry Outlook for 2024
Financial Services Outlook for 2024
Up moderately
+ Higher average portfolio
Favorable
+ Nonrecurring prior period special item
(-) Provision for credit losses
Unfavorable
(-) Financing spreads
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, and 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 affect 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 $35 (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 both the quarter and year-to-date periods 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:
Cost of sales to net sales
67.3%
66.7%
67.9%
(+) Price realization
(+) Inbound freight
(–) Overhead spending
+4
+19
Higher for the first six months due to investment income earned on international mutual funds securities.
+3
+5
Higher due to continued focus on developing and incorporating technology solutions.
-5
Lower in the second quarter as the prior period was impacted by the cumulative correction of the accounting treatment for financing incentives offered to John Deere dealers of $173 pretax ($135 after-tax). Excluding the impact of this item, selling, administrative and general expenses have increased for both periods mostly due to a higher provision for credit losses and higher employee pay driven by inflationary conditions and profit sharing incentives.
+47
+56
Increased for both periods primarily due to higher average borrowing rates and higher average borrowings.
-19
+1
Lower in the second quarter due to higher pension benefits (see Note 6) and lower foreign exchange losses.
Decreased for both periods as a result of lower pretax income.
Business Segment Results – 2024 Compared with 2023
Production and Precision Agriculture
Operating profit
Operating margin
25.1%
27.7%
23.6%
25.9%
Price realization
Currency translation impact on Net sales
Production and precision agriculture sales decreased for the quarter as a result of lower shipment volumes (primarily in Brazil, the U.S., and Europe), driven by softened demand. This was partially offset by price realization in the U.S. and Canada. Operating profit decreased primarily due to lower shipment volumes and higher production costs, partially offset by price realization.
Production & Precision Agriculture Operating Profit
Second Quarter 2024 Compared to Second Quarter 2023
Sales for the first six months decreased as a result of lower shipment volumes (primarily in Brazil, the U.S., and Europe), partially offset by price realization in the U.S. and Canada. Operating profit for the first six months decreased due to lower sales volume, higher selling, administrative, and general expenses and research and development expenses, partially offset by price realization.
First Six Months 2024 Compared to First Six Months 2023
Small Agriculture and Turf
17.9%
20.5%
16.0%
18.1%
Small agriculture and turf sales decreased for the quarter due to lower shipment volumes (primarily in the U.S., Europe, and Mexico), partially offset by price realization in the U.S. Operating profit decreased due to lower shipment volumes, partially offset by price realization.
Small Agriculture & Turf Operating Profit
Sales for the first six months decreased as a result of lower shipment volumes (primarily in the U.S., Europe, and Mexico), partially offset by price realization. Operating profit for the first six months decreased primarily as a result of lower sales volumes, higher selling, administrative, and general expenses and research and development expenses, and higher warranty expenses. These items were partially offset by price realization, favorable mix, and lower production costs.
17.4%
20.4%
17.5%
20.0%
Construction and forestry sales decreased for the quarter due to lower worldwide shipment volumes. Operating profit decreased due to lower sales volumes and increased selling, administrative, and general expenses and research and development expenses.
Construction & Forestry Operating Profit
The segment’s six-month sales decreased due to lower shipment volumes in all major regions outside the U.S., partially offset by price realization and the favorable impact of currency translation. The first six-month’s operating profit decreased due to lower sales volumes, higher selling, administrative, and general expenses and research and development expenses, increased production costs, and the unfavorable impact of currency translation. These factors were partially offset by price realization.
Revenue (including intercompany)
1,588
1,297
+22
3,140
2,542
+24
780
540
+44
1,542
983
+57
162
+479
+75
The average balance of receivables and leases financed was 16 percent higher in the second quarter of 2024 and 18 percent higher in the first six months of 2024 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 borrowings and higher average borrowing rates. Financial services net income in both periods increased due to income earned on higher average portfolio balances, partially offset by a higher provision for credit losses and less favorable financing spreads. The results of both periods were also affected by a correction of the accounting treatment for financing incentives offered to John Deere dealers. The cumulative effect of this correction, $173 pretax ($135 after-tax), was recorded in the second quarter of 2023.
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
6,647
8,404
6,123
Ratio to prior 12 month’s net sales
17%
14%
18%
Ratio to prior 12 month’s cost of sales
24%
22%
25%
Unused credit lines
2,787
841
Financial Services:
Ratio of interest-bearing debt to stockholder’s equity
8.7 to 1
8.4 to 1
8.0 to 1
In the first half of 2024, we invested $177 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 in 2024 compared to both prior periods relates to a decrease in commercial paper outstanding.
We are forecasting lower operating cash flows in 2024 compared to 2023 driven by a decrease in net income adjusted for non-cash provisions and a reduction in accrued expenses.
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 increase (decrease) in cash, cash equivalents, and restricted cash
Cash inflows from consolidated operating activities in the first six months of 2024 were $944. This resulted mainly from net income adjusted for non-cash provisions, partially offset by a working capital change. Included in the working capital change was a cash outflow of $1,300 from accounts payable and accrued expenses due to a higher profit sharing payout in the first quarter of 2024 based on strong fiscal year 2023 results, lower accrued expenses related to dealer sales discounts, and less trade payables consistent with our forecasted decrease in production. Cash outflows from investing activities were $1,670 in the first six months of this year. The primary drivers were purchases of property and equipment and growth in the retail customer receivable portfolio and equipment on operating leases. Cash outflows from financing activities were $1,162 in the first six months of 2024, as cash returned to shareholders was partially offset by higher external borrowings. Cash returned to shareholders was $3,218 in the first six months of 2024. Cash, cash equivalents, and restricted cash decreased $1,893 during the first six months of 2024.
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 $1,141 during the first six months of 2024, primarily due to a seasonal increase. These receivables decreased $1,091, compared to a year ago, due to lower sales volumes. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 2 percent at April 28, 2024, 1 percent at October 29, 2023, and 1 percent at April 30, 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 increased $1,580 during the first six months of 2024 and increased $8,368 in the past 12 months due to higher dealer inventory levels and elevated sales of new and used retail inventory. Total acquisition volumes of financing receivables and equipment on operating leases were 16 percent higher in the first six months of 2024, compared with the same period last year, as volumes of wholesale notes, retail notes, financing leases, and operating leases were higher, while revolving charge accounts were flat compared to April 30, 2023.
Inventories. Inventories increased by $283 during the first six months of 2024, primarily due to a seasonal increase. Inventories decreased by $1,270 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 six months of 2024 were $719 compared with $584 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 $1,521 in the first six months of 2024, primarily due to a decrease in accrued expenses associated with dealer sales discounts and employee benefits, and decreased accounts payable associated with trade payables. Accounts payable and accrued expenses decreased $107 compared to a year ago due to a decrease in accounts payable associated with trade payables, partially offset by an increase in accrued expenses associated with derivative liabilities, extended warranty liabilities, and accrued interest.
Borrowings. Total external borrowings increased by $2,226 in the first six months of 2024 and increased $7,538 compared to a year ago, generally corresponding with the level of the receivable and lease portfolios, 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 April 28, 2024, $1,434 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 six months of 2024, the financial services operations issued $1,880 and retired $1,900 of retail note securitization borrowings, which are presented in “Net proceeds in 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 $10,934 at April 28, 2024, $2,787 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 April 28, 2024 was a 364-day credit facility agreement of $5,000 expiring in the second quarter of 2025. In addition, total credit lines included long-term credit facility agreements of $2,750 expiring in the second quarter of 2028 and $2,750 expiring in the second quarter of 2029. These credit agreements require Capital Corporation and other parts of our business to maintain certain performance metrics and liquidity targets. All requirements in the credit agreements have been met during the periods included in the financial statements.
Debt Ratings. To access public debt capital markets, 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 equipment operations. 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
For the Three Months Ended April 28, 2024 and April 30, 2023
Unaudited
EQUIPMENT
FINANCIAL
OPERATIONS
SERVICES
ELIMINATIONS
CONSOLIDATED
121
1,206
(238)
1
2, 3
13,937
16,385
(290)
(295)
9,164
10,737
4
1,007
935
260
397
114
(74)
Interest compensation to Financial Services
(180)
(174)
316
(43)
(38)
3, 5
11,031
12,581
1,377
1,253
Income before Income Taxes
2,906
3,804
974
Income after Income Taxes
2,206
2,830
2,831
2,208
2,832
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)
234
2,929
2,274
(468)
(435)
487
417
268
(201)
24,869
28,132
(589)
(636)
16,371
18,675
1,882
1,719
453
223
(127)
(138)
297
(341)
(297)
137
675
707
(184)
20,006
22,075
2,670
2,259
4,863
6,057
283
1,117
1,455
73
3,746
4,602
210
4,603
3,751
4,607
CONDENSED BALANCE SHEETS
Apr 28
Oct 29
Apr 30
3,800
5,720
3,587
1,753
1,738
1,680
842
Receivables from Financial Services
4,480
4,516
5,899
(4,480)
(4,516)
(5,899)
6
1,320
10,263
8,687
10,422
(2,703)
(2,268)
(2,013)
7
45,198
43,609
38,900
5,658
1,822
2,201
760
481
6,999
6,843
2,980
2,936
3,450
77
69
8
2,210
2,133
1,355
68
(345)
(387)
(106)
9
1,948
504
559
564
(17)
39,387
40,590
41,236
(7,593)
(7,235)
(8,122)
1,055
1,230
1,755
16,644
16,709
15,354
Payables to Equipment Operations
13,771
14,862
13,759
3,605
3,599
3,074
(2,767)
(2,331)
(2,117)
402
415
455
215
6,575
7,210
7,310
34,387
31,267
28,301
1,995
2,032
2,410
111
23,817
25,786
25,636
66,618
63,650
58,332
7,216
7,082
6,901
(7,216)
(7,082)
(6,901)
10
Financial Services’ equity
Adjusted total stockholders’ equity
15,472
14,707
15,498
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
608
509
(72)
(70)
11
12
Distributed earnings of Financial Services
247
13
(304)
(46)
(73)
(255)
(2,411)
(4,152)
14, 16
(300)
(910)
15
(1,012)
161
147
243
(717)
16
(205)
(67)
(71)
11, 12, 15
3,031
3,766
1,154
1,065
(3,241)
(4,978)
14,175
13,169
(472)
(576)
14
142
(14,238)
(13,584)
(226)
(206)
(167)
(718)
(583)
(1,516)
(1,327)
Decrease (increase) in investment in Financial Services
(799)
799
17
Increase in trade and wholesale receivables
(5,310)
3,171
5,310
(119)
(944)
(1,460)
(3,710)
(5,799)
2,984
5,765
Net proceeds (payments) in short-term borrowings (original maturities three months or less)
(225)
(131)
4,217
Change in intercompany receivables/payables
932
(932)
10,155
4,827
(7,127)
(3,520)
Capital investment from Equipment Operations
(25)
(28)
(4,003)
(2,547)
2,584
5,351
257
(787)
(1,916)
(179)
625
5,755
3,781
1,865
1,160
3,839
3,602
1,785
135
105
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 April 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 second 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 second 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
Average Price
Programs (1)
Plans or Programs (1)
Period
(thousands)
Per Share
(millions)
Jan 29 to Feb 25
383.61
28.6
Feb 26 to Mar 24
374.48
27.3
Mar 25 to Apr 28
404.58
26.8
2,884
Sales of Unregistered Securities
During the second quarter of 2024, we issued 4,500 deferred stock units under the Deere & Company Nonemployee Director Stock Ownership Plan (“NEDSOP”) to our non-employee directors for their service on our Board of Directors. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service as described in the plan. Deferred stock units and shares of common stock issued under the NEDSOP 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.
During the second quarter of 2024, we distributed 4,399 shares of common stock to a participant account under the 2012 and 2022 NEDSOP.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
Director and Executive Officer Trading Arrangements
On February 26, 2024, Cory J. Reed, President, Worldwide Agriculture & Turf Division, Production and Precision Ag, Sales & Marketing Regions of the Americas and Australia adopted a trading plan intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The plan covers the exercise of 13,370 employee stock options and the related sale of such shares. The plan expires on December 24, 2024.
On March 5, 2024, Rajesh Kalathur, President, John Deere Financial, and Chief Information Officer adopted a trading plan intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The plan covers the exercise of 24,580 employee stock options and the related sale of such shares. The plan expires on August 29, 2025.
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*)
10.1
364-Day Credit Agreement, dated March 25, 2024, among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, and J.P. Morgan Securities LLC, as Sustainability Structuring Agent
10.2
2028 Credit Agreement, dated March 25, 2024, among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, and J.P. Morgan Securities LLC, as Sustainability Structuring Agent
10.3
2029 Credit Agreement, dated March 25, 2024, among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, and J.P. Morgan Securities LLC, as Sustainability Structuring Agent
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.
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:
May 30, 2024
By:
/s/ Joshua A. Jepsen
Joshua A. JepsenSenior Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)