2021
Annual Report
John Deere delivered exceptional results in fiscal year 2021.
Strong market conditions and healthy demand for our products drove
higher sales and profits. Despite ongoing pandemic and supply chain
challenges, our employees and dealers around the world kept each other
safe, our factories open, and our customers running.
Net sales and revenues rose 24 percent to $44.02 billion. Net income
for the year more than doubled to $5.96 billion. Deere also delivered
outstanding returns to investors.
NET SALES & REVENUES
$44.02
BILLION
$44,024
$35,540
$39,258
2021
2020
2019
$5,963
NET INCOME
(attributable to Deere & Company)
$3,253
$2,751
$5.96
BILLION
SHAREHOLDER
VALUE ADDED*
$5.13
BILLION
2021
2020
2019**
$5,128
$1,679
$1,641
2021
2020
2019
The amounts shown in the charts above represent millions of dollars.
*SVA, referred to throughout this report, is a non-GAAP fi nancial measure. See page 16, and related footnotes, for further details.
**Net income in 2019 was positively affected by $68 million due to discrete income tax adjustments related to U.S. tax reform.
2
On the cover:
9RX Tractors are the perfect combination of power, performance, and
intelligence all wrapped up in a 4-track machine. With more engine
horsepower (390 - 640hp) and effi cient engine technology,
these tractors help boost productivity.
CHAIRMAN & CEO LETTER
STRONG MARKETS,
SOUND STRATEGY
PACE RECORD YEAR
In any number of ways, 2021 was a year of dramatic
achievement. It was a year in which John Deere reported
outstanding financial results while facing major supply-chain
issues and the lingering effects of a global pandemic.
Among our accomplishments, we kept our operations
running, employees safe, and customers served. We added
to our innovative product line by introducing new models
featuring the latest technology and advanced features.
The business model launched in 2020 yielded impressive
results. And we made further investments to help our
operations be more profitable, more focused,
and more sustainable.
Demand for products of most types and sizes, across virtually
all businesses and regions, was at its strongest level in many
years. Sales and earnings were the highest in company
history, and profitability in relation to sales was the best in
modern times.
Net income for fiscal 2021 rose to $5.96 billion, versus
$2.75 billion in the prior year. Net sales and revenues rose
24 percent to $44.02 billion. The company’s financial
performance allowed it to make further investments
in advanced products, technologies, and growth-
oriented projects. For the year, Deere devoted $2.5 billion to
research and development and capital expenditures.
Additionally,$3.6 billion was returned to investors through
dividends and share repurchases. The quarterly dividend rate
on Deere stock was increased twice during the year by a total
of 38 percent, while shareholders realized a total return of 53
percent on their investment.
Late in the year, Deere’s UAW-represented employees
went on strike, affecting operations at many U.S. factories.
The fi ve-week work stoppage was resolved with ratifi cation
of a contract that we believe serves the interests of all
parties. Other operations, including all those outside the
U.S., were not signifi cantly affected and critical customer
needs continued to be met.
Unless indicated otherwise, all capitalized names of products and services
are trademarks or service marks of Deere & Company.
3
Chairman and
CEO John May
CHAIRMAN & CEO LETTER
DIVISION PERFORMANCE MOVES HIGHER
A reflection of healthy markets and the broad appeal of
John Deere products, sales for all three of our equipment
divisions jumped by 27 percent.
Operating profit for our largest business – Production &
Precision Agriculture – rose 69 percent to $3.33 billion.
The division benefited from the success of new products
such as large tractors, sprayers, and combines.
Customers continued to respond positively to products
featuring the latest in high-value precision technologies.
Profit for Small Agriculture & Turf more than
doubled to $2.05 billion, also reflecting positive
consumer sentiment and the success of new
products. Notably, Small Ag & Turf
had the highest return on assets
of any Deere business.
Construction & Forestry operations established new
highs in sales and profit, benefiting from vibrant
markets for earthmoving, forestry, and roadbuilding
equipment. Helping the division were higher sales
of utility and production loaders, dump trucks,
and compact equipment.
Deere’s fi nancial-services unit made a substantial
contribution to company earnings with net income
rising 56 percent to $881 million. Roughly half of the
new equipment sold by our dealers in 2021 was fi nanced
by the company. Credit quality remained strong, and
the loan and lease portfolio fi nished the year near
$50 billion.
4
6R Series tractors have set standards
for performance and precision ag
technology. The new generation
of 6R Series tractors features 14
models ranging from 110 to 250 hp.
The new CH9 Series sugar cane harvester boosts productivity
by harvesting two rows of cane simultaneously.
STRATEGY MAKING IMPACT
Based on Deere’s performance over the past year and momentum
being built for the future, it’s clear our smart industrial strategy
is off to a strong start and working as designed. Not only has our
company achieved higher profit and profitability based in large
part on changes driven by the new strategy, we also gained
customers and made further technological breakthroughs.
As the strategy’s centerpiece, operations were reorganized
by production systems rather than by discrete products and
regions. This is helping us gain a richer understanding of how
our customers work. We also combined our technology resources
under a chief technology officer, adding speed and efficiency
to the development of innovations and products. Our focus on
lifecycle solutions led to higher parts sales – which increased to
$7.8 billion – and is keeping customers connected with their
SKILLFULLY MANAGING YEAR’S CHALLENGES
In the face of the ongoing threat of the coronavirus pandemic,
Deere employees continued their efforts to make sure our
factories and parts centers kept running and our dealers and
customers got the products and services needed to maintain
their operations. Within our facilities, we continued with the
decisive steps initiated in 2020 to ensure healthful conditions.
Many employees assigned to office locations continued
working remotely.
Although a shortage of parts and components was a persistent
issue, we worked closely with suppliers to keep our production
lines moving and avoid widespread factory interruptions.
At the same time, our dealer channel remained operational and
continued to serve customers, making wide use of our digital
tools. Remote diagnostic sessions between customers and dealers
increased more than 35 percent.
To ensure Deere remains an employer of choice, the company
announced enhancements in compensation, benefits, and work
arrangements taking effect in 2022 for salaried personnel.
What’s more, the collective-bargaining agreement approved by
our UAW-represented employees is widely viewed as setting
a new standard for wage roles in our industries.
New 9500 and 9600 self-propelled forage harvesters feature
a powerful HarvestMotion 18.0L engine that improves the
harvesting process and forage quality.
New Z500 Series ZTrak mowers put a new spin on cutting grass.
The mowers offer innovative roll-over protection and improved
comfort and styling, as well as increased performance.
5
CHAIRMAN & CEO LETTER
dealers. Further, by lowering structural costs, the smart
industrial redesign process has had a major impact on profit
margins, which shot to 17 percent (operating profit/net sales)
last year.
During the year, Deere made a number of investments in
support of its strategy. Included was the purchase of a
technology startup that specializes in adding autonomous
features to existing machines and an investment in a new
company dedicated to clean-engine technology. Deere also
acquired a company whose advanced software helps farmers
measure profit at the field level.
In another strategic action, the company announced the end
of its 30-year joint venture with Hitachi for the manufacture
of hydraulic excavators. As a result, Deere will take full
ownership of factories in the U.S. (North Carolina), Brazil,
and Canada. The move is expected to strengthen Deere’s
position in the excavator market and improve the financial
performance of that part of our business.
In the coming year, the company plans to build on the
smart industrial strategy by putting more focus on vehicle
automation and autonomy, electrification, connectivity,
and sustainability.
SETTING PACE IN INNOVATION
A Deere hallmark, product innovation made further strides
in 2021 and earned additional recognition. A noted group
of U.S. agricultural and biological engineers honored
six products for their innovative design including our
The new AutoPath precision ag application is helping farmers
more accurately document and follow the right path
throughout the season.
high-capacity X9 combine, new two-row sugar cane
harvester, and an intelligent liquid-fertilizer system that
cuts down on chemical use. In addition, the John Deere X9
combine was recognized in the robotics category at the
2021 Consumer Electronics Show and saluted for innovative
design by two leading international design firms.
During the year, Deere introduced two new self-propelled
forage harvesters, powered by a new 18-liter John Deere
engine. Other products making their debut included a line of
more productive, fuel-efficient cotton harvesters, updated
midsize and four-wheel-drive tractors, and a series of zero-
turn commercial mowers that highlighted the company’s
25th anniversary of offering zero-turn products.
Precision agriculture made further strides as more customers
embraced its productivity-enhancing benefits. Sales grew
for popular features that guide machines in the field and
plant seeds and apply chemicals with exceptional accuracy.
The first sprayers using camera technology to distinguish
weeds from fallow ground came to market, resulting in far
See & Spray Select advanced spraying technology changes the game in
application with its introduction on R400 and 600 Series sprayers. This
spraying technology helps farmers minimize input costs by spraying only
weeds when they are detected, applying up to 70% less herbicide on average.
6
less herbicide consumption. The John Deere Operations Center
gained further popularity with customers, ending the year
with more than 300 million acres of production
data worldwide.
During the year, precision-technology features were
added to compact track loaders and excavators, allowing
operators to complete jobs with greater speed and precision.
Also, enhancements were made to the company’s largest
dozers that improve durability and performance. The Wirtgen
roadbuilding unit launched new crushers.
RESPONSIBLE CITIZENSHIP A DEERE TRADITION
Wherever we operate, Deere is dedicated to sharing
with others and being a responsible corporate citizen.
Charitable contributions from the company and its
foundation reached $42.5 million in 2021, a 16-percent
increase over the prior year. Significant donations were
made to groups that promote youth leadership and career
success through agricultural education, strengthen support
of black farmers, and expand sustainable agricultural
practices in Brazil.
The Deere Foundation announced plans to invest $200
million over the next decade in initiatives supporting the
company’s values and higher purpose, with approximately
half of that amount directed to families and youth in Deere’s
home communities. Deere typically supplements foundation
giving and is committed to making charitable contributions
equal to one percent of net income over time.
As in past years, Deere employees supported their
communities through extensive volunteer efforts,
logging some 124,000 volunteer hours in 2021, a slight
increase over the prior year.
Several developments highlighted our commitment to a
fairer, more equitable society and diversity and inclusion.
Among them, Deere continued its support of the LEAP
coalition, a group that primarily helps black farmers secure
clear title to their land. LEAP has received wide public
recognition and is one of the company’s highest-profile efforts
in support of racial equity. In another example, Deere issued
$600 million of debt in a transaction managed by minority,
female, and veteran-owned firms. It is believed to be only the
second time a U.S. company has used diverse underwriters
exclusively on a corporate bond sale.
Wirtgen Group machines deliver a complete end-to-end roadbuilding solution.
As part of a paving “train,” these machines – Wirtgen CR-series cold recycler,
Vögele asphalt paver and Hamm roller – are capable of in-place cold recycling
of road pavements in a single pass. This process cuts down on the amount of
material used and transported, lowering CO² emissions, and contributes to
reduced costs and construction times.
7
CHAIRMAN & CEO LETTER
The 333 SmartGrade compact track loader is the fi rst compact
machine to feature fully integrated 3D grade-control technology.
It touts more power and increased lift height, reach, stability,
and breakout force - for more productivity and uptime, at a
lower operating cost.
a winning formula in the smart industrial strategy. By taking
our performance to new levels, it means great things for our
customers, employees, investors, and others who have a stake
in our well-being. And these benefi ts are likely to extend many
years into the future.
As a fi nal word, we pay tribute to our more than 75, 000
employees and others throughout the world whose efforts
made 2021 such a successful year. To them all, we express
heartfelt thanks.
On behalf of the John Deere team,
Chairman & Chief Executive Offi cer
December 16, 2021
Deere earned further accolades in 2021 for its record of
responsible citizenship. Fast Company magazine recognized
Deere's work with small farmers with an award for corporate
social responsibility. For a fourth time, Deere was honored for
social innovation by the American Innovation Index Awards,
which focuses on corporate activities and products benefi ting
society. Deere also appeared in prominent listings of best
employers, won recognition for having one of the world's
most valuable brands, and was cited for a 14th time for its
commitment to advancing business integrity.
EMBRACING A PROMISING FUTURE
LLooking ahead, we believe 2022 holds a great deal of promise.
Agricultural fundamentals are positive, customer confi dence
is running high, and infrastructure spending is set to rise.
These factors are fueling further optimism in the agricultural
and construction sectors. Deere's performance also should
benefi t from a more effi cient organizational structure and
more-focused business lineup. At the same time, supply-
chain pressures are expected to remain a challenge and the
coronavirus is becoming a chronic issue.
All in all, my optimism about Deere's future has never burned
brighter. We're part of a great company that does great
things. Market conditions rarely have been better, and our
product lineup has never been stronger. What's more, we have
8
THE POWER OF ENGAGED ACRES
Customers utilize Deere’s precision ag digital tools in record numbers
Brock Kent is navigating his Deere R4044 sprayer across
the rows of field corn situated on the rolling hills of his
northern Illinois farm.
He turns on the new AutoPath feature on his 4600
CommandCenter display that is connected to his John Deere
Operations Center account, and the sprayer glides across
the field, seamlessly following guidance lines created
from a map of crop row lines generated at planting.
The guidance lines help streamline all in-field passes
such as spraying, nutrient application, and harvesting.
Like Kent, thousands of farmers around the world tapped
into the benefits of John Deere’s digital precision ag
tools, like AutoPath, in 2021. During the year, customers
engaged with a record 315 million acres globally using the
Operations Center – Deere’s digital farm-management tool.
Engaged acres is one of the foundational measures
of customers’ use of the Operations Center. It reflects
the number of unique acres with at least one operation
pass documented in the Operations Center in the past
12 months.
Customers who engage with the Operations Center
can visualize the outcomes of their decisions and track
progress over time. They can access information anytime,
anywhere, and share it with advisors such as seed or
fertilizer suppliers. This can lead to better decisions –
and potentially more profitable, sustainable, and
efficient production.
“What I’m most excited about is that while we’ve been
working on our precision ag suite of products for well
over 20 years, we’re just scratching the surface of what
is possible,” says Deanna Kovar, Deere’s vice president of
Production and Precision Ag, about the company’s goal of
boosting customers’ productivity through precision
ag technologies.
“We continue to drive amazing value for our customers,
our company, and the industry as we create a digital
ag platform, connected to hundreds of thousands of
machines, that helps farmers all over the world farm
even better,” Kovar adds.
During the year, customers engaged
with a record 315 million acres globally
using the John Deere Operations Center —
Deere’s digital farm-management tool.
9
JOHN DEERE TODAY
For more than 180 years, John Deere has led the way in developing innovative
solutions to help our customers become more efficient and sustainable.
Today, our team of 75,600 global employees use their creativity each day
to solve some of the world’s biggest problems.
CONSTRUCTION
& FORESTRY
29%
SMALL AG & TURF
30%
LATIN AMERICA
10%
EUROPE & CIS
22%
S ALE S BY
SEGMENT
PRODUCTION &
PRECISION AG
41%
ASIA, AFRICA, AUSTRALIA,
NEW ZEALAND & MIDDLE EAST
11%
S ALE S BY
MA JOR
MARKE TS
U.S. & CANADA
57%
100+
LOCATIONS GLOBALLY
75,600
FULL-TIME EMPLOYEES
48%
CONSOLIDATED NET SALES
AND REVENUES OUTSIDE
THE UNITED STATES
#88
FORTUNE 100 COMPANIES
10
BOLD BUSINESS REQUIRES BOLD CITIZENSHIP
John Deere’s legacy of developing innovative products and
solutions for our customers is inextricably tied to the vitality
of our local and global communities. To that end, we believe
that a bold business strategy must work in cooperation with
a bold citizenship strategy. By investing in our communities,
we aim to help lives leap forward.
Further, the John Deere Foundation is committing at least
$200 million over the next 10 years to advance the lives and
livelihoods of three main groups of stakeholders:
SMALLHOLDER OR RESOURCE-CONSTRAINED FARMERS
We’ll invest $50 million in smallholder farmers throughout
the world to bolster their capacity to earn a living, feed a
growing population, reduce inequality, and protect the world
around us. The positive impact that farmers can make on
the world around them is on full display in the foundation’s
project with PYXERA Global in Nigeria, Rayuwa. The project
was selected for Fast Company’s World Changing Ideas
Award in the category of Social Responsibility in May 2021.
YOUTH AND FAMILY IN HOME COMMUNITIES
We’ll invest another $100 million in the families and youth
who live, work, and learn in John Deere’s home communities
to ensure inclusive and equitable access to resources and
educational opportunities critical for human dignity and
self-sufficiency. For example, in 2021, the foundation
increased access to safe and affordable housing in Waterloo,
Iowa, through a $2 million grant to Iowa Heartland Habitat
for Humanity®. To address food insecurity, the foundation
committed $1.7 million to River Bend Food Bank in the
Quad-Cities area, the equivalent of 8.5 million meals.
OUR EMPLOYEES
Finally, we’ll invest another $50 million in John Deere’s
extraordinary workforce to further mobilize and build on
their enormous volunteer talents and generosity. We believe
that by actively engaging in citizenship, our employees can
strengthen their communities and improve lives around the
world. In fact, in 2021, the foundation provided more than
$4.7 million to match employee volunteerism and giving.
In 2021, the John Deere Foundation contributed nearly
$20 million across all three groups of stakeholders to help
life leap forward.
John Deere and its foundation made
$42.5 million in total civic investments
in fiscal year 2021, up from $36.7 million
in 2020.
11
BUSINESS HIGHLIGHTS
2021 AWARDS AND RECOGNITIONS
333G SMARTGRADE COMPACT TRACK LOADER
Heavy Equipment Guide magazine selects the 333G SmartGrade
Compact Track Loader as part of its Top Introductions for
construction equipment and technology innovations.
X9 COMBINE
The X9 Combine earns an innovation award (robotics
category) from the 2021 Consumer Electronics Show. The X9
also receives design awards from the iF World Design Guide
and Red Dot Design competitions.
WORLD’S MOST ETHICAL COMPANIES
Ethisphere Institute names Deere & Company one of the 2021
World’s Most Ethical Companies. This honor is reserved for a
select number of companies with a commitment to advancing
business integrity.
MOST ADMIRED COMPANIES
Fortune magazine recognizes John Deere on its Most
Admired Companies list as the #1 company in the category
of Construction and Farm Machinery.
HONORING DIVERSE DIRECTORS
Two Deere board members and a company executive were
listed in Savoy magazine’s Most Influential Black Corporate
Directors for 2021. Recognized were Deere directors
Sheila Talton and Dmitri Stockton as well as Marc Howze,
Deere’s Group President, Lifecycle Solutions and Chief
Administrative Officer.
SOCIAL RESPONSIBILITY AWARD
Deere is selected as a winner of Fast Company’s World
Changing Ideas Awards in the category of social
responsibility for its work with Nigerian farmers through
the Rayuwa project.
INVESTING IN TECHNOLOGY
Strategic investments include the purchase of Bear Flag
Robotics, a technology startup that specializes in adding
autonomous features to existing machines. Also, Deere
invests in ClearFlame Engine Technologies, dedicated to
the development of clean-engine technology, and acquires
Harvest Profit, whose advanced software helps farmers
measure profit at the field level.
AE50 AWARDS FOR INNOVATION
American Society of Agricultural and Biological Engineers
(ASABE) recognizes Deere for innovation in engineering and
technology with six awards for products, ranging from CH950
Cane Harvester to a new Folding Cornhead.
12
$5.96B
Net income more than doubles
to $5.96 billion, versus $2.75
in 2020.
NET INCOME
$5.13B
Enterprise SVA increases 205%
to $5.13 billion, up from $1.68
billion in 2020.*
SVA
$3.6B
DIVIDENDS &
REPURCHASES
Company returns $3.6 billion to
investors through dividends and
share repurchases.
OPERATING PROFIT AND
SHAREHOLDER VALUE ADDED ( SVA)*
(
EQUIPMENT OPERATIONS
2021
2020
2019
Operating Profit
SVA
$6,868
$4,703
$3,721
$3,559
$1,606 $1,604
PRODUCTION & PRECISION AG
2021
Operating Profit
SVA
$3,334
$2,456
2020
$1,969
$1,140
2019
$1,729
$891
SMALL AG & TURF
Operating Profit
SVA
2021
$2,045
$1,559
2020
$1,000
$522
2019
$777
$261
CONSTRUCTION & FORESTRY
2021
Operating Profit
SVA
$1,489
$688
2020
$590
$(56)
2019
$1,215
$452
FINANCIAL SERVICES
Operating Profit
SVA
2021
$1,144
$425
2020
$746
$73
2019
$694
$37
The amounts shown above are presented in millions of dollars.
*SVA, referred to throughout this report, is a non-GAAP financial measure.
See page 16 for details.
DDeere leadership team shown at Deere & Company headquarters in Moline, Illinois.
From left: Cory J. Reed, Markwart von Pentz, Jahmy J. Hindman, John C. May, Marc A. Howze,
JJohn H. Stone, Ryan DD. Campbell, Mary K.W. JJones, and Rajesh Kalathur
John C. May (24)
Chairman & Chief Executive Offi cer
Ryan D. Campbell (14)
Senior Vice President and Chief Financial Offi cer
Jahmy J. Hindman (25)
Chief Technology Offi cer
Marc A. Howze (20)
Group President, Lifecycle Solutions & Chief
Administrative Offi cer
Mary K.W. Jones (24)
Senior Vice President, General Counsel and Worldwide
Public Affairs
John H. Stone (18)
President, Worldwide Construction & Forestry and
Power Systems
Rajesh Kalathur (25)
President, John Deere Financial, and Chief
Information Offi cer
Cory J. Reed (23)
President, Worldwide Agriculture & Turf Division,
Production & Precision Ag, Sales & Marketing Regions
of the Americas and Australia
Markwart von Pentz (31)
President, Worldwide Agriculture & Turf Division,
Small Ag & Turf, Sales & Marketing Regions of Europe,
CIS, Asia and Africa
Titles and years of service (in parentheses)
as of January 1, 2022
S
E
N
I
O
R
L
E
A
D
E
R
S
H
I
P
13
S
R
O
T
C
E
R
I
D
F
O
D
R
A
O
B
14
John C. May (2)
Chairman & Chief Executive officer, Deere & Company
Gregory R. Page (8)
Chairman, Corteva, Inc.
Agricultural seeds, crop protection products, and digital solutions
Leanne G. Caret (Effective Nov. 1, 2021)
Executive Vice President, The Boeing Company and President and Chief Executive officer,
Boeing Defense, Space & Security (since 2016)
Aircraft, defense, intelligence and satellite systems and services, and related financing
Sherry M. Smith (10)
Former Executive Vice President and Chief Financial officer, SuperValu Inc.
Retail and wholesale grocery and retail general merchandise products
Tamara A. Erwin (1)
Executive Vice President and Group Chief Executive officer, Verizon Business Group
Communications, information and entertainment products and services
Alan C. Heuberger (5)
Senior Investment Manager, Cascade Asset Management Company (formerly BMGI)
Private investment management
Dmitri L. Stockton (6)
Retired Special Advisor to Chairman and Retired Senior Vice President, General
Electric Company
Power and water, aviation, oil and gas, healthcare, appliances and lighting, energy
management, transportation, and financial services
Former Chairman, President, and Chief Executive officer, GE Asset Management Inc.
Global investments
Sheila G. Talton (6)
President and Chief Executive officer, Gray Matter Analytics
Healthcare analytics for healthcare providers, payers, and pharma companies
Charles O. Holliday, Jr. (12)
Retired Chairman and Chief Executive officer, DuPont, and former Chairman,
Royal Dutch Shell plc
Oil and natural gas exploration, refining, and product sales
Dipak C. Jain (19)
President (Europe), China Europe International Business School
International graduate business school
Michael O. Johanns (6)
Retired U.S. Senator from Nebraska and former U.S. Secretary of Agriculture
Clayton M. Jones (14)
Retired Chairman and Chief Executive officer, Rockwell Collins, Inc.
Aviation electronics and communications
From left to right: Dipak C. Jain, Clayton M. Jones, Charles O. Holliday, Jr., Tamara A. Erwin, John C. May, Gregory R. Page, Sheila G. Talton, Leanne G. Caret,
Alan C. Heuberger, Michael O. Johanns, Sherry M. Smith, Dmitri L. Stockton
Figures in parentheses represent complete years of board service through January 1, 2022.
7-YEAR CUMULATIVE TOTAL RETURN
Deere Compared to S&P 500 Index and S&P 500 Construction & Heavy Trucks Index
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
2014
2015
2016
2017
2018
2019
2020
2021
Deere & Company
S&P Construction & Heavy Trucks
S&P 500
The graph compares the cumulative
total returns of Deere & Company,
the S&P 500 Construction & Heavy
Trucks Index, and the S&P 500 Stock
Index over a seven-year period.
It assumes $100 was invested on
October 31, 2014, and that dividends
were reinvested. Deere & Company
stock price at October 31, 2021,
was $342.31. The Standard & Poor’s
500 Construction & Heavy Trucks
Index is made up of Caterpillar (CAT),
Cummins (CMI), Paccar (PCAR),
and Wabtec (WAB). The stock
performance shown in the graph is
not intended to forecast and does
not necessarily indicate future
price performance.
Deere & Company
S&P 500 Con & Heavy Trucks
2014
$100.00
$100.00
2015
$93.75
$73.92
2016
2017
2018
2019
2020
2021
$107.92
$168.47
$171.08
$230.92
$301.63
$462.01
$87.82
$135.68
$118.22
$145.91
$144.14
$166.81
$168.81
$183.01
$210.98
$261.55
S&P 500
$100.00
$105.20
$109.94
$135.93
Copyright© 2021 Standard & Poor’s, a division of S&P Global. All rights reserved.
SHAREHOLDER INFORMATION
ANNUAL MEETING
As part of our precautions regarding the coronavirus
and to support the health and well-being of our
shareholders, the 2022 Annual Meeting of
Shareholders (the “Annual Meeting”) will be held
exclusively online on Wednesday, February 23, 2022,
at 10 a.m. Central Standard Time. There will not be a
physical location for the Annual Meeting, and you
will not be able to attend the meeting in person. To
be admitted to the Annual Meeting at www.
virtualshareholdermeeting.com/DE2022
enter the 16-digit control number on your proxy
card, voting instruction form, or Notice of Internet
Availability.
, you must
TRANSFER AGENT & REGISTRAR
Send all correspondence, including address changes
and certifi cates for transfer, as well as inquiries
concerning lost, stolen, or destroyed stock
certifi cates or dividend checks, to:
Deere & Company
c/o Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
Phone toll-free: 800-268-7369 (inside U.S., U.S.
territories, and Canada).
From outside the U.S., U.S. territories, and Canada,
call: 720-399-2074
Hearing impaired: 855-627-5080
Email: shareholder@broadridge.com
www.shareholder.broadridge.com/DE
DIVIDEND REINVESTMENT
& DIRECT PURCHASE PLAN
Investors may purchase initial Deere & Company
shares and automatically reinvest dividends through
the Broadridge Direct Stock Purchase Plan.
Optional monthly cash investments may be made
automatically through electronic debits.
For inquiries about existing reinvestment accounts,
call 800-268-7369 or write to:
Deere & Company
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
SHAREHOLDER RELATIONS
Deere & Company welcomes your comments:
Deere & Company
Shareholder Relations Department
One John Deere Place
Moline, IL 61265-8098
Phone: (309) 765-4491 Fax: (309) 765-4663
www.JohnDeere.com/Investors
INVESTOR RELATIONS
Securities analysts, portfolio managers, and
representatives of financial institutions may contact:
Deere Investor Relations
Deere & Company
One John Deere Place
Moline, IL 61265-8098
Phone: 309-765-4491
Email: DeereIR@JohnDeere.com
www.JohnDeere.com/Investors
STOCK EXCHANGES
Deere & Company common stock is listed on the
New York Stock Exchange under the ticker symbol DE.
FORM 10-K
The Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available
online or upon written request to Deere & Company
Shareholder Relations.
AUDITORS
Deloitte & Touche LLP
Chicago, Illinois
1515
SVA: FOCUSING ON GROWTH AND SUSTAINABLE PERFORMANCE
Shareholder Value Added (SVA) - essentially, the difference between operating profi t and the pretax cost of capital - is a metric
used by John Deere to evaluate business results and measure sustainable performance. To arrive at SVA, each equipment segment is
assessed a pretax cost of assets - generally 12% of average identifi able operating assets with inventory at standard cost (believed to
more closely approximate the current cost of inventory and the company's related investment). The fi nancial services segment is
assessed a cost of average equity - approximately 13% pretax. The amount of SVA is determined by deducting the asset or equity
charge from operating profi t.
Additional information on these metrics and their relationship to amounts presented in accordance with U.S. GAAP can be found at our website,
www.JohnDeere.com/Investors. Note: Some totals may vary due to rounding.
To create and grow SVA, Deere equipment
operations are targeting an operating
return on average operating assets (OROA)
of 30% at mid-cycle sales volumes and
equally ambitious returns at other points in
the cycle. (For purposes of this calculation,
operating assets are average identifi able
assets during the year with inventories
valued at standard cost.)
2021
39737
,
EQUIPMENT OPERATIONS
Dollars in Millions
Net Sales
Net Sales - excluding Roadbuilding
Average Identifi able Assets
*
With Inventories at LIFO
With Inventories at LIFO - excluding Roadbuilding
With Inventories at Standard Cost
With Inventories at Standard Cost - excluding Roadbuilding
Operating Profi t
Operating Profi t - excluding Roadbuilding
Percent of Net Sales**
Operating Return on Assets**
With Inventories at LIFO **
With Inventories at Standard Cost**
SVA Cost of Assets
SVA**
**
16,680
18 045
,
6 868
,
41%
38%
-2 165
,
4 703
,
17%
SMALL AGRICULTURE & TURF
Dollars in Millions
Net Sales
Average Identifi able Assets
*
With Inventories at LIFO
With Inventories at Standard Cost
Operating Profi t
Percent of Net Sales
Operating Return on Assets
With Inventories at LIFO
With Inventories at Standard Cost
SVA Cost of Assets
SVA
FINANCIAL SERVICES
Dollars in Millions
Net Income Attributable to Deere & Company
Average Equity
Return on Equity
Operating Profi t
Cost of Equity
SVA
2021
11 860
,
3 625
,
4 047
,
2 045
,
17%
56%
51%
-486
1, 559
2021
881
,
5 497
16%
,
1 144
-719
425
2020
,
31 272
28 348
,
16,593
12 599
,
,
18 010
,
14 016
3 559
,
3 289
,
12%
26%
24%
,
-1 683
1 606
,
2020
9 ,363
3 536
,
3 979
,
1 000
,
11%
28%
25%
-478
522
2020
566
,
5 099
11%
746
-673
73
PRODUCTION & PRECISION AGRICULTURE
Dollars in Millions
Net Sales
Average Identifi able Assets
*
With Inventories at LIFO
With Inventories at Standard Cost
Operating Profi t
Percent of Net Sales
Operating Return on Assets
With Inventories at LIFO
With Inventories at Standard Cost
SVA Cost of Assets
SVA
2021
16 509
,
,
6 640
7,321
,
3 334
20%
50%
46%
-878
2 456
,
2021
11 ,368
CONSTRUCTION & FORESTRY
Dollars in Millions
Net Sales
Net Sales - excluding Roadbuilding
*
Average Identifi able Assets
With Inventories at LIFO
With Inventories at LIFO - excluding Roadbuilding
With Inventories at Standard Cost
With Inventories at Standard Cost - excluding Roadbuilding
Operating Profi t
Operating Profi t - excluding Roadbuilding
Percent of Net Sales
**
Operating Return on Assets**
With Inventories at LIFO**
With Inventories at Standard Cost
SVA Cost of Assets**
SVA **
**
13%
23%
22%
-801
688
,
6 415
,
6 677
1, 489
2020
12 962
,
,
6 194
6 901
,
1 969
,
15%
32%
29%
-829
1 ,140
2020
,
8 947
,
6 023
,
6 863
,
2 869
,
7130
,
3 136
590
320
5%
11%
10%
-376
-56
Financial Services SVA is
calculated on a pretax basis.
Table of Contents
17 Management's Discussion and Analysis
34 Reports of Management and Independent
Registered Public Accounting Firm
37 Consolidated Financial Statements
42 Notes to Consolidated Financial Statements
** At the beginning of fi scal year 2021, the company reclassifi ed goodwill from the equipment operations segments' identifi able assets to corporate assets. Operating return on assets (OROA)
and SVA exclude the impact of goodwill. Prior period segment information has been recast for a consistent presentation.
77 Selected Financial Data
**** Beginning in fi scal year 2021, the results and assets related to the Wirtgen Group (Wirtgen/Roadbuilding) are included in the calculation of OROA and SVA. Due to integration efforts,
the 2020 information did not include Wirtgen's results and assets. Prior period information was not recast for this change, which is consistent with the company's internal presentation.
)
(
16
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) is intended to
promote understanding of the financial condition and results of
operations. The MD&A is provided as a supplement to, and should
be read in conjunction with, the consolidated financial statements
and the accompanying Notes to Consolidated Financial Statements
(Part II, Item 8 of this Form 10-K).
RESULTS OF OPERATIONS FOR THE YEARS ENDED
ESULTS OF OPERATIONS FOR THE YEARS ENDED
R
OCTOBER 31, 2021, NOVEMBER 1, 2020, AND NOVEMBER 3, 2019
OCTOBER 31, 2021, NOVEMBER 1, 2020, AND NOVEMBER 3, 2019
OVERVIEW
OVERVIEW
Organization
Organization
The company’s equipment operations generate revenues and cash
primarily from the sale of equipment to John Deere dealers and
distributors. The equipment operations manufacture and
distribute a full line of agricultural equipment; a variety of
commercial and consumer equipment; and a broad range of
equipment for construction, roadbuilding, and forestry. The
company’s financial services primarily provide credit services,
which mainly finance sales and leases of equipment by John Deere
dealers and trade receivables purchased from the equipment
operations. In addition, financial services offers extended
equipment warranties. The information in the following discussion
is presented in a format that includes information grouped as
consolidated, equipment operations, and financial services. The
equipment operations represents the enterprise without financial
services. The equipment operations includes the company’s
production and precision agriculture operations, small agriculture
and turf operations, construction and forestry operations, and
other corporate assets, liabilities, revenues, and expenses not
reflected within financial services. The company also views its
operations as consisting of two geographic areas: the U.S. and
Canada, and outside the U.S. and Canada. The company’s
operating segments consist of production and precision
agriculture, small agriculture and turf, construction and forestry,
and financial services.
Trends and Economic Conditions
Trends and Economic Conditions
The company’s production and precision agriculture equipment
and small agriculture and turf equipment sales both increased 27
percent in 2021. Industry sales of large agricultural machinery in the
U.S. and Canada for 2022 are forecasted to increase approximately
15 percent compared to 2021. Industry sales of small agricultural
and turf equipment in the U.S. and Canada are expected to be flat
in 2022. Industry sales of agricultural machinery in Europe are
estimated to be about 5 percent higher. South American industry
sales of tractors and combines are expected to be roughly 5
percent higher in 2022. Asia industry sales are forecasted to be
nearly the same in 2022 as in 2021. The company’s construction and
forestry sales increased 27 percent in 2021. On an industry basis,
North American construction equipment and compact
construction equipment sales are both expected to be 5 to 10
percent higher in 2022. Global forestry industry sales are projected
to increase 10 to 15 percent. The company’s financial services
operations for the full year 2022 are expected to experience
slightly lower results due to a higher provision for credit losses,
lower gains on operating lease residual values, and higher selling,
general and administrative expenses. These factors are expected
to be partially offset by income earned on a higher average
portfolio.
Items of concern that could affect the company’s results of
operations and liquidity and capital resources include uncertainty
of the effectiveness of governmental and private sector actions to
address COVID, supply of critical parts and components, trade
agreements, the uncertainty of the results of monetary and fiscal
policies, the impact of elevated levels of sovereign and state debt,
capital market disruptions, changes in demand and pricing for new
and used equipment, geopolitical events, and the other items
discussed in the “Safe Harbor Statement” below. Significant
fluctuations in foreign currency exchange rates and volatility in the
price of many commodities could also impact the company’s
results. The future financial effects of COVID continue to be
unknown due to many factors. As a result of these uncertainties,
predicting the company’s forecasted financial performance is
subject to many assumptions.
The UAW, the union representing the majority of the company’s
production and maintenance employees in the U.S., initiated a
strike on October 14, 2021. This resulted in a work stoppage
affecting employees at 14 U.S. facilities. The work stoppage
continued through the approval of a new six-year collective
bargaining agreement on November 17, 2021. The company’s
operations during the remainder of the fourth quarter were
adversely affected by the work stoppage, which reduced
production and shipments.
The company’s 2021 full-year performance reflects strong end-
market demand and the ability of the company’s dedicated
employees, dealers, and suppliers throughout the world, who have
helped safely maintain operations, manage supply chain
challenges, and continue to serve customers throughout the
COVID pandemic. Demand for farm and construction equipment is
expected to continue to benefit from positive fundamentals,
including favorable crop prices, economic growth, and increased
investment in infrastructure. While supply-chain pressures are
expected to persist into at least the early part of fiscal year 2022,
the company is working closely with key suppliers to secure the
parts and components that customers need in order to deliver
essential food and infrastructure more profitably and sustainably.
COVID Effects, Actions, and Recent Developments
COVID Effects, Actions, and Recent Developments
During 2020 and to a lesser extent in 2021, the effects of COVID
and the related actions of governments and other authorities to
contain COVID have affected and continue to affect the
company’s operations, results, cash flows, and forecasts.
The U.S. government and many other governments in countries
where the company operates have designated the company an
essential critical infrastructure business. This designation allows
the company to operate in support of its customers to the extent
possible.
The company’s first priority in addressing the effects of COVID
continues to be the health, safety, and overall welfare of its
17
employees. The company effectively activated previously
established business continuity plans and proactively implemented
health and safety measures at its operations around the world.
The company broadened its supply base to minimize the impact of
potential supply chain disruptions on its ability to meet customer
demand. The company has experienced shortages of critical parts
and components, which caused challenges and production
disruptions. The company continues to monitor the situation and
work closely with suppliers.
The company continued to work closely with customers in 2021 in
connection with short-term payment relief on obligations owed to
the company. Financing receivables and operating leases granted
relief since the beginning of the pandemic that remained
outstanding at October 31, 2021 represented about 3 percent and
about 2 percent of the respective portfolio balances. The trade
receivables granted relief that remained outstanding at October
31, 2021 were not material. Additional information is presented in
Notes 13 and 25.
2021 COMPARED WITH 2020
2021 COMPARED WITH 2020
CONSOLIDATED RESULTS
CONSOLIDATED RESULTS
Deere & Company
Deere & Company
(In millions of dollars, except pershare amounts)
Net sales and revenues ........................... $ 44,024 $
Net income attributable to Deere & Company
Diluted earnings per share.......................
5,963
18.99
2021
2021
2020
2020
35,540
2,751
8.69
Net income in 2020 was negatively affected by impairment charges
and employee-separation costs of $458 million after-tax (see
Notes 4 and 5). In addition, net income in 2020 was less favorably
affected by discrete adjustments to the provision for income taxes.
Equipment Operations
Equipment Operations
(In millions of dollars)
Worldwide:
2200221 1
22002200
% % CChhaanngge e
Net sales ................................... $ 39,737
Operating profit..........................
6,868
Net income ................................
5,082
Price realization ..........................
Currency translation ....................
$
31,272
3,559
2,185
U.S. and Canada:
Net sales ................................... $ 22,476
Price realization ..........................
Currency translation ....................
$ 17,954
Outside U.S. and Canada:
Net sales ................................... $
Price realization ..........................
Currency translation ....................
17,261
$
13,318
+27
+93
+133
+6
+2
+25
+5
+1
+30
+8
+4
The discussion on net sales and operating profit is included in the
Business Segment and Geographic Area Results below.
18
A discussion of the cost of sales to net sales ratio and other
significant statement of consolidated income changes follows:
Deere & Company
Deere & Company
(In millions of dollars)
Cost of sales to net sales ................
22002211
73.3%
22002200
% % CChhaannggee
75.7%
...........
Finance and interest income
Other income ...............................
Research and development expenses
Selling, administrative and
general expenses .......................
Interest expense ...........................
..............
Other operating expenses
$ 3,296
991
1,587
$ 3,450
818
1,644
3,383
993
1,343
3,477
1,247
1,612
-4
+21
-3
-3
-20
-17
The cost of sales to net sales ratio decreased compared to 2020
mainly due to price realization and the impact of impairments and
employee-separation expenses recorded in 2020 (see Note 5).
Finance and interest income reduced slightly in 2021 due to lower
average interest rates, largely offset by a higher average credit
portfolio. Other income increased primarily due to operating lease
disposition gains. Research and development expenses were lower
in 2021 largely due to employee-separation expenses incurred in
2020 (see Note 5) and organizational efficiencies. Selling,
administrative and general expenses decreased mostly due to
employee-separation expenses recorded in 2020 (see Note 5) and a
lower provision for credit losses, partially offset by higher incentive
compensation. Interest expense decreased in 2021 due to lower
average borrowing rates. Other operating expenses were lower
compared to 2020 largely due to lower retirement benefit costs,
reduced depreciation of equipment on operating leases, and the
impact of operating lease impairments recorded in 2020 (see
Note 5).
The company has several funded and unfunded defined benefit
pension plans and other postretirement benefit (OPEB) plans,
primarily health care and life insurance plans. The company’s costs
for these plans in 2021 were $197 million, compared with $341
million in 2020. The long-term expected return on plan assets,
which is reflected in these costs, was an expected gain of 5.9
percent in 2021 and 6.4 percent in 2020, or $876 million and $869
million, respectively. The actual return was a gain of $3,616 million
in 2021 and $1,177 million in 2020. In 2022, the expected return is
approximately 5.0 percent. The company’s costs under these plans
in 2022, including the pension expense related to the UAW
contract ratification and the expected gain on the voluntary OPEB
contribution (see Note 29), are expected to be consistent with
2021. See the discussion in “Critical Accounting Estimates” for more
information about pension and OPEB benefit obligations.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
The following discussion relates to operating results by reportable
segment and geographic area. Operating profit is income before
corporate expenses, certain external interest expense, certain
foreign exchange gains or losses, and income taxes. However, the
financial services segment operating profit includes the effect of
interest expense and foreign currency exchange gains or losses.
In fiscal year 2021, the company implemented a new operating
model and reporting structure. With this change, the company’s
agriculture and turf operations were divided into two new
segments: production and precision agriculture and small
agriculture and turf.
The production and precision agriculture segment defines,
develops, and delivers global equipment and technology solutions
to unlock customer value for production-scale growers of large
grains, small grains, cotton, and sugar. Main products include large
and certain mid-size tractors, combines, cotton pickers, sugarcane
harvesters and loaders, and soil preparation, seeding, application
and crop care equipment.
The small agriculture and turf segment defines, develops, and
delivers global equipment and technology solutions to unlock
customer value for dairy and livestock producers, high-value crop
producers, and turf and utility customers. The segment’s primary
products include certain mid-size and small tractors, as well as hay
and forage equipment, riding and commercial lawn equipment,
golf course equipment, and utility vehicles.
There were no reporting changes for the construction and forestry
and financial services segments. As a result, the company has four
reportable segments.
Worldwide Production and Precision Agriculture Operations
Worldwide Production and Precision Agriculture Operations
2200221 1
2200220 0
3,334
20.2%
% % CChhaannggee
+27
+69
(In millions of dollars)
Net sales........................................ $ 16,509 $ 12,962
Operating profit ..............................
1,969
............................
Operating margin
15.2%
Segment sales increased due to higher shipment volumes and price
realization. Operating profit benefitted from price realization, higher
shipment volumes / sales mix, and a favorable indirect tax ruling in
Brazil. These items were partially offset by higher production costs.
The prior year was also impacted by employee-separation program
expenses (see Note 5).
Worldwide Small Agriculture and Turf Operations
Worldwide Small Agriculture and Turf Operations
2021
2021
2020
2020
2,045
17.2%
% Change
% Change
+27
+105
(In millions of dollars)
Net sales ....................................... $ 11,860 $ 9,363
Operating profit .............................
1,000
............................
10.7%
Operating margin
Segment sales and operating profit were both higher in 2021 due
to higher shipment volumes / sales mix and price realization. The
operating profit improvement was partially offset by higher
production costs. Results for the current year were positively
impacted by a gain on the sale of a factory in China, while results
for the prior year were affected by impairments, closure costs, and
employee-separation expenses (see Note 5).
Worldwide Construction and Forestry Operations
Worldwide Construction and Forestry Operations
2020
2020
% Change
% Change
+27
+152
2021
2021
11,368 $ 8,947
590
1,489
6.6%
13.1%
(In millions of dollars)
Net sales ....................................... $
Operating profit .............................
Operating margin............................
Segment sales increased in 2021 primarily due to higher shipment
volumes and price realization. Operating profit increased mainly
due to positive shipment volumes / sales mix and price realization,
partially offset by higher production costs. The prior year was also
impacted by employee-separation program expenses and
impairments in certain fixed assets and unconsolidated affiliates
(see Note 5).
19
Worldwide Financial Services Operations
Worldwide Financial Services Operations
2021
2021
2020
2020
687
881
(In millions of dollars)
% Change
% Change
Revenue (including intercompany) .... $ 3,794 $ 3,867
-2
Interest expense ...........................
942
-27
Net income ..................................
566
+56
While the average balance of receivables and leases financed was 5
percent higher in 2021, revenue decreased due to lower average
interest rates. Interest expense decreased in 2021 as a result of
lower average borrowing rates. Net income in 2021 increased
mainly due to an improvement on operating lease residual values, a
lower provision for credit losses, more favorable financing spreads,
and income earned on a higher average portfolio.
2020 COMPARED WITH 2019
2020 COMPARED WITH 2019
CONSOLIDATED RESULTS
CONSOLIDATED RESULTS
22002200
35,540 $
2,751
8.69
Deere & Company
Deere & Company
(In millions of dollars, except per share amounts)
2200119 9
Net sales and revenues ............................ $
39,258
Net income attributable to Deere & Company
3,253
........................
Diluted earnings per share
10.15
Net income in 2020 was negatively affected by impairment charges
and employee-separation costs of $458 million after-tax (see
Notes 4 and 5). In 2019, the similar charges were $82 million. In
addition, the provision for income taxes was adversely affected by
non-deductible impairments and charges in 2020 and less
favorably affected by discrete adjustments in 2020 than in 2019.
-10
-4
-19
+3
-2
-11
+3
-9
+4
-4
Equipment Operations
Equipment Operations
(In millions of dollars)
Worldwide:
...................................
Net sales
Operating profit .........................
................................
Net income
..........................
Price realization
Currency translation (unfavorable)
2020
2020
2019
2019
% Change
% Change
$ 31,272 $ 34,886
3,721
2,714
3,559
2,185
U.S. and Canada:
Net sales................................... $ 17,954 $ 20,264
Price realization..........................
Outside U.S. and Canada:
...................................
Net sales
..........................
Price realization
Currency translation (unfavorable)
$
13,318 $ 14,622
The discussion of net sales and operating profit is included in the
following Business Segment and Geographic Area Results. The
equipment operations’ provision for income taxes and net income
were adversely affected by non-deductible impairments and
charges in 2020 and were less favorably affected by discrete
adjustments to the provision for income taxes in 2020 than in
2019.
A discussion of the cost of sales to net sales ratio and other
significant statement of consolidated income changes follows:
Deere & Company
Deere & Company
(In millions of dollars)
Cost of sales to net sales ................
Finance and interest income ...........
Other income ...............................
Research and development expenses
Selling, administrative and
general expenses .......................
Interest expense ...........................
operating expenses ..............
Other
2020
2020
75.7%
2019
2019
76.8%
% Change
% Change
$ 3,450 $ 3,493
879
1,783
818
1,644
3,477
1,247
1,612
3,551
1,466
1,578
-1
-7
-8
-2
-15
+2
The cost of sales to net sales ratio decreased compared to 2019
mainly due to price realization, improved production costs, and
lower warranty expenses, partially offset by impairments,
employee-separation expenses (see Note 5), and the unfavorable
Deere & Company in U.S. and Canada
Deere & Company in U.S. and Canada
2200221 1
2200220 0
4,774
18.5%
% % CChhaanngge e
+21
+72
(In millions of dollars)
Net sales and revenues ................... $ 25,829 $ 21,386
Operating profit ............................
2,775
..........................
Operating margin
13.0%
Net sales and revenues increased in 2021 due mostly to higher
shipment volumes / sales mix and price realization. The growth in
operating profit was due primarily to increased shipment volumes /
sales mix and price realization, partially offset by higher production
costs. Results in 2020 were negatively impacted by impairment
charges and employee-separation expenses.
Deere & Company outside U.S. and Canada
Deere & Company outside U.S. and Canada
2021
2021
3,238
17.8%
% Change
% Change
+29
+112
2020
2020
14,154
1,530
10.8%
(In millions of dollars)
Net sales and revenues ................... $ 18,195 $
Operating profit ............................
..........................
Operating margin
The net sales and revenue increase in 2021 compared to 2020 was
primarily the result of higher shipment volumes / sales mix, price
realization, and the favorable effects of currency translation.
Operating profit improvement was largely due to higher shipment
volumes / sales mix and price realization, partially offset by
increased production costs. Results in 2020 were negatively
impacted by impairment charges and employee-separation costs.
20
effects of foreign currency exchange. Finance and interest income
decreased slightly in 2020 due to lower average interest rates,
largely offset by a higher average credit portfolio. Other income
declined primarily due to lower service income compared to 2019.
Research and development expenses decreased compared to 2019
as a result of targeted project reductions related to COVID
spending adjustments. Selling, administrative and general
expenses decreased largely due to spending reductions and the
favorable effects of currency translation, mostly offset by
employee-separation expenses (see Note 5) and an increase in the
provision for credit losses. Interest expense decreased in 2020 due
to lower average borrowing rates, partially offset by higher
average borrowings. Other operating expenses increased
compared to 2019 largely due to increased depreciation of
equipment on operating leases, employee-separation expenses
(see Note 5), and a loss on sale of a business (see Note 4). These
items were mostly offset by lower impairments and reduced losses
on operating lease residual values and reduced service related
expenses.
The company has several funded and unfunded defined benefit
pension plans and OPEB plans, primarily health care and life
insurance plans. The company’s costs for these plans in 2020 were
$341 million, compared with $235 million in 2019. The returns on
plan assets were gains of $1,177 million in 2020 and $2,163 million
in 2019. Total company contributions to the plans were $951
million in 2020 and $518 million in 2019, which included voluntary
contributions and direct benefit payments. The voluntary
contributions to plan assets were $700 million in 2020 to a U.S.
OPEB plan, and $306 million in 2019, which included $300 million
to the same U.S. OPEB plan.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
Worldwide Production and Precision Agriculture Operations
Worldwide Production and Precision Agriculture Operations
(In millions of dollars)
Net sales...................................... $ 12,962 $ 13,364
Operating profit ............................
1,729
..........................
Operating margin
12.9%
1,969
15.2%
2020
2020
2019
2019
% Change
% Change
-3
+14
Segment sales decreased due to lower shipment volumes and the
unfavorable effects of currency translation, partially offset by
price realization. Operating profit increased largely due to price
realization, lower research and development expense, reduced
selling, administrative and general expenses, and lower warranty
expenses. These items were partially offset by lower shipment
volumes / mix, the unfavorable effects of currency exchange, and
employee-separation expenses.
Worldwide Small Agriculture and Turf Operations
Worldwide Small Agriculture and Turf Operations
(In millions of dollars)
Net sales...................................... $
Operating profit ............................
..........................
Operating margin
2019
2019
2020
2020
9,363 $ 10,302
777
1,000
7.5%
10.7%
% Change
% Change
-9
+29
Segment sales decreased due to lower shipment volumes, partially
offset by price realization. Operating profit improved due to price
realization, favorable production costs, lower selling,
administrative and general expenses, reduced research and
development expense, and lower warranty expense, partially
offset by lower shipment volumes / mix, employee-separation
expenses and impairments.
Worldwide Construction and Forestry Operations
Worldwide Construction and Forestry Operations
(In millions of dollars)
Net sales ..................................... $ 8,947 $
Operating profit ...........................
..........................
Operating margin
590
6.6%
20202020
% Change
% Change
-20
-51
20192019
11,220
1,215
10.8%
Segment sales decreased in 2020 primarily due to lower shipment
volumes and the unfavorable effect of currency translation,
partially offset by price realization. Operating profit declined
mainly due to lower shipment volumes / mix, employee-separation
expenses, impairments, and the unfavorable effects of currency
exchange. The reduction in operating profit was partially offset by
price realization, lower research and development expenses,
reduced selling, administrative and general expenses, and
improved production costs.
Worldwide Financial Services Operations
Worldwide Financial Services Operations
(In millions of dollars)
Revenue (including intercompany) ... $ 3,867 $ 3,969
Interest expense ...........................
1,234
..................................
Net income
539
942
566
2020
2020
2019
2019
% Change
% Change
-3
-24
+5
While the average balance of receivables and leases financed was
2 percent higher in 2020, revenue decreased due to lower average
interest rates. Interest expense decreased in 2020 as a result of
lower average borrowing rates, partially offset by higher average
borrowings. Net income in 2020 increased mainly due to lower
impairments and reduced losses on operating lease residual values
and income earned on a higher average portfolio, partially offset
by a higher provision for credit losses, employee-separation
expenses, and unfavorable financing spreads.
Deere & Company in U.S. and Canada
Deere & Company in U.S. and Canada
(In millions of dollars)
Net sales and revenues .................. $ 21,386 $ 23,746
Operating profit ...........................
2,841
..........................
Operating margin
12.0%
2,775
13.0%
20202020
20192019
% Change
% Change
-10
-2
Net sales and revenues decreased in 2020 due primarily to lower
shipment volumes, partially offset by price realization. The
reduction in operating profit was due primarily to lower shipment
volumes / mix and employee-separation expenses, partially offset
by price realization, lower research and development costs,
reduced selling, general and administrative expenses, improved
production costs, and lower warranty expenses.
Deere & Company outside U.S. and Canada
Deere & Company outside U.S. and Canada
(In millions of dollars)
Net sales and revenues .................. $
Operating profit ...........................
..........................
Operating margin
2020
2020
14,154 $
1,530
10.8%
2019
2019
15,512
1,574
10.1%
% Change
% Change
-9
-3
The net sales and revenues decrease in 2020 compared to 2019
was primarily the result of lower shipment volumes and the
21
unfavorable effects of currency translation, partially offset by
price realization. Operating profit declined primarily due to lower
shipment volumes / mix, impairments, employee-separation
expenses, and the unfavorable effects of currency exchange,
largely offset by price realization, reduced selling, general and
administrative expenses, lower research and development costs,
improved production costs, and lower warranty expenses.
CAPITAL RESOURCES AND LIQUIDITY
CAPITAL RESOURCES AND LIQUIDITY
The discussion of capital resources and liquidity has been organized
to review separately, where appropriate, the company’s consolidated
totals, equipment operations, and financial services operations.
CONSOLIDATED
CONSOLIDATED
Positive cash flows from consolidated operating activities in 2021
were $7,726 million. This resulted primarily from net income
adjusted for non-cash provisions, an increase in accounts payable
and accrued expenses, and a decrease in receivables related to
sales, which were partially offset by an increase in inventories.
Cash outflows from investing activities were $5,750 million in 2021,
due mainly to the cost of receivables (excluding receivables related
to sales) and cost of equipment on operating leases acquired
exceeding the collections of receivables and the proceeds from
sales of equipment on operating leases by $4,332 million,
purchases of property and equipment of $848 million, a change in
collateral on derivatives – net of $281 million, and acquisition of
businesses, net of cash acquired, of $244 million (see Note 4).
Cash outflows from financing activities were $1,078 million in 2021,
due primarily to repurchases of common stock of $2,538 million
and dividends paid of $1,040 million, partially offset by an increase
in borrowings of $2,450 million and proceeds from the issuance of
common stock (resulting from the exercise of stock options) of
$148 million. Cash, cash equivalents, and restricted cash increased
$953 million during 2021.
Over the last three years, operating activities have provided an
aggregate of $18,621 million in cash. Cash inflows were also
provided by increases in borrowings of $5,621 million. The
aggregate amount of these cash inflows was used mainly to
acquire receivables (excluding receivables related to sales) and
equipment on operating leases that exceeded collections of
receivables and the proceeds from sales of equipment on
operating leases by $9,817 million, repurchase common stock of
$4,541 million, pay dividends of $2,939 million, and purchase
property and equipment of $2,788 million. Cash, cash equivalents,
and restricted cash increased $4,110 million over the three-year
period.
The company has access to most global capital markets at
reasonable costs and expects to have sufficient sources of global
funding and liquidity to meet its funding needs in the short term
and long term. Sources of liquidity for the company include cash
and cash equivalents, marketable securities, funds from
operations, the issuance of commercial paper and term debt, the
securitization of retail notes (both public and private markets), and
committed and uncommitted bank lines of credit. The company’s
commercial paper outstanding at October 31, 2021 and November 1,
2020 was $2,230 million and $1,238 million, respectively, while the
total cash and cash equivalents and marketable securities position
was $8,745 million and $7,707 million, respectively. The amount of
the total cash and cash equivalents and marketable securities held
by foreign subsidiaries was $5,817 million at October 31, 2021 and
$5,010 million at November 1, 2020. During November 2021, the
company’s foreign subsidiaries returned $3,500 million of cash and
cash equivalents to the U.S.
Lines of Credit. The company also has access to bank lines of credit
with various banks throughout the world. Worldwide lines of credit
totaled $8,336 million at October 31, 2021, $5,770 million of which
were unused. For the purpose of computing the unused credit
lines, commercial paper and short-term bank borrowings,
excluding secured borrowings and the current portion of long-
term borrowings, were considered to constitute utilization.
Included in the total credit lines at October 31, 2021 was a 364-day
credit facility agreement of $3,000 million, expiring in fiscal April
2022. In addition, total credit lines included long-term credit facility
agreements of $2,500 million, expiring in fiscal April 2025, and
$2,500 million, expiring in fiscal March 2026. The agreements are
mutually extendable and the annual facility fees are not significant.
These credit agreements require John Deere Capital Corporation
(Capital Corporation) to maintain its consolidated ratio of earnings
to fixed charges at not less than 1.05 to 1 for each fiscal quarter and
the ratio of senior debt, excluding securitization indebtedness, to
capital base (total subordinated debt and stockholder’s equity
excluding accumulated other comprehensive income (loss)) at not
more than 11 to 1 at the end of any fiscal quarter. The credit
agreements also require the equipment operations to maintain a
ratio of total debt to total capital (total debt and stockholders’
equity excluding accumulated other comprehensive income (loss))
of 65 percent or less at the end of each fiscal quarter. Under this
provision, the company’s excess equity capacity and retained
earnings balance free of restriction at October 31, 2021 was $15,388
million. Alternatively under this provision, the equipment
operations had the capacity to incur additional debt of $28,579
million at October 31, 2021. All of these credit agreement
requirements have been met during the periods included in the
consolidated financial statements.
Debt Ratings. To access public debt capital markets, the company
relies on credit rating agencies to assign short-term and long-term
credit ratings to the company’s securities as an indicator of credit
quality for fixed income investors. A security rating is not a
recommendation by the rating agency to buy, sell, or hold company
securities. A credit rating agency may change or withdraw
company ratings based on its assessment of the company’s current
and future ability to meet interest and principal repayment
obligations. Each agency’s rating should be evaluated
independently of any other rating. Lower credit ratings generally
result in higher borrowing costs, including costs of derivative
transactions, and reduced access to debt capital markets.
22
The senior long-term and short-term debt ratings and outlook
currently assigned to unsecured company securities by the rating
agencies engaged by the company are as follows:
Senior
Long-Term Short-Term Outlook
Fitch Ratings ............................
Moody’s Investors Service, Inc........
Standard & Poor’s ......................
A
A2
A
F1
Prime-1
A-1
Stable
Stable
Stable
Trade Accounts and Notes Receivable. Trade accounts and notes
receivable primarily arise from sales of goods to independent
dealers. Trade receivables increased by $37 million in 2021. The ratio
of trade accounts and notes receivable at October 31, 2021 and
November 1, 2020 to fiscal year net sales was 11 and 13 percent,
respectively. Total worldwide production and precision agriculture
receivables decreased $193 million, worldwide small agriculture and
turf receivables increased $199 million, and construction and
forestry receivables increased $31 million. The collection period for
trade receivables averages less than 12 months. The percentage of
trade receivables outstanding for a period exceeding 12 months
was 1 percent at October 31, 2021 and 3 percent at November 1,
2020.
Deere & Company Stockholders’ Equity. Deere & Company
stockholders’ equity was $18,431 million at October 31, 2021,
compared with $12,937 million at November 1, 2020. The increase of
$5,494 million resulted from net income attributable to Deere &
Company of $5,963 million, a change in the retirement benefits
adjustment of $2,884 million, an increase in common stock of $159
million, and a change in the cumulative translation adjustment of
$118 million, which was partially offset by an increase in treasury
stock of $2,468 million and dividends declared of $1,125 million.
Contractual Obligations and Cash Requirements. The company’s
material cash requirements include the following contractual and
other obligations:
Borrowings – As of October 31, 2021, the equipment operations had
$1,497 million of payments due on borrowings and securitization
borrowings in the next year, along with interest payments of $329
million. As of the same date, the financial services operations had
$11,959 million of payments due on borrowings and securitization
borrowings in the next year, along with interest payments of $574
million. The securitization borrowing payments are based on the
expected liquidation of the retail notes, as well as the repurchases
due to the reduced facility capacity (see Note 29). The financial
services borrowings will likely be replaced with new borrowings to
finance their receivable and lease portfolios.
Purchase Obligations – As of October 31, 2021, the company’s
outstanding purchase obligations were $4,314 million, with $4,190
million payable within one year. These purchase obligations are
noncancelable.
Other Cash Requirements – In addition to its contractual
obligations, the company’s quarterly cash dividend is $1.05 per
share, subject to change at the discretion of the company’s Board
of Directors. Total company pension and OPEB contributions in
2022 are expected to be approximately $1,250 million. Fiscal year
2022 contributions include a voluntary U.S. OPEB plan
contribution of $1,000 million made on November 30, 2021 (see
Note 29). Also anticipated in 2022 is the dissolution of the joint
venture agreement between the company and Hitachi. In
connection with the termination, the company will purchase all of
Hitachi’s shares in the relevant joint venture manufacturing
entities and receive certain intellectual property rights. The initial
cash consideration consists of $275 million for the shares and an
intellectual property license (see Notes 1, 4, and 11). The company
will consider share repurchases as a means of deploying excess
cash to shareholders once the previously mentioned requirements
are met.
EQUIPMENT OPERATIONS
EQUIPMENT OPERATIONS
The company’s equipment businesses are capital intensive and are
subject to seasonal variations in financing requirements for
inventories and certain receivables from dealers. The equipment
operations sell a significant portion of their trade receivables to
financial services. To the extent necessary, funds provided from
operations are supplemented by external financing sources.
Cash provided by operating activities of the equipment operations
during 2021, including intercompany cash flows, was $5,900 million
due largely to net income adjusted for non-cash provisions and an
increase in accounts payable and accrued expenses, partially offset
by an increase in inventories and an increase in trade, notes,
and financing receivables related to sales.
Over the last three years, these operating activities, including
intercompany cash flows, have provided an aggregate of $13,860
million in cash.
Trade receivables held by the equipment operations increased by
$142 million during 2021. The equipment operations sell a
significant portion of their trade receivables to financial services
(see previous consolidated discussion).
Inventories increased by $1,782 million in 2021 due primarily to
increased production schedules. A majority of these inventories are
valued on the last-in, first-out (LIFO) method. The ratios of
inventories on a first-in, first-out (FIFO) basis (see Note 15), which
approximates current cost, to fiscal year cost of sales were 31
percent and 28 percent at October 31, 2021 and November 1, 2020,
respectively.
Total interest-bearing debt, excluding finance lease liabilities, of
the equipment operations was $10,373 million at the end of 2021,
compared with $10,382 million at the end of 2020 and $6,446
million at the end of 2019. The ratio of total debt to total capital
(total interest-bearing debt and Deere & Company stockholders’
equity) at the end of 2021, 2020, and 2019 was 36 percent, 45
percent, and 36 percent, respectively.
In 2020, the equipment operations issued three tranches of notes in
the U.S. with aggregate principal totaling $2,250 million that are due
from 2025 to 2050. The equipment operations also issued Euro notes
with aggregate principal totaling €2,000 million (approximately
$2,170 million based on the exchange rate at the issue date) that are
due from 2024 to 2032 (see Note 20). In 2020, the equipment
operations issued commercial paper in the U.S. with aggregate
23
principal totaling $466 million, of which $448 million had an original
term greater than 90 days. This commercial paper was repaid in 2020
and is presented in “Increase (decrease) in total short-term
borrowings” in the statement of consolidated cash flows.
Property and equipment cash expenditures for the equipment
operations in 2021 were $845 million, compared with $816 million in
2020. Capital expenditures in 2022 are estimated to be $1,175 million.
FINANCIAL SERVICES
FINANCIAL SERVICES
The financial services operations rely on their ability to raise
substantial amounts of funds to finance their receivable and lease
portfolios. Their primary sources of funds for this purpose are a
combination of commercial paper, term debt, securitization of
retail notes, equity capital, and borrowings from Deere & Company.
The cash provided by operating and financing activities was used
primarily to increase receivables and leases. Cash flows from the
financial services’ operating activities, including intercompany
cash flows, were $1,965 million in 2021. Cash used for investing
activities totaled $4,308 million in 2021 due primarily to the cost of
receivables (excluding trade and wholesale) and cost of equipment
on operating leases acquired exceeding collections of these
receivables and the proceeds from sales of equipment on
operating leases by $5,311 million, a change in collateral on
derivatives – net of $274 million, and purchases of marketable
securities exceeding proceeds from maturities and sales by $89
million. Partially offsetting the use of cash was a decrease in trade
receivables and wholesale notes of $1,364 million. Cash provided
by financing activities totaled $2,238 million in 2021, resulting
primarily from an increase in external borrowings of $2,468 million,
an increase in borrowings from Deere & Company of $354 million,
partially offset by dividends paid to Deere & Company of $555
million. Cash, cash equivalents, and restricted cash decreased $91
million.
Over the last three years, the operating activities, including
intercompany cash flows, have provided $6,359 million in cash. In
addition, an increase in total borrowings of $5,476 million, a
decrease in trade and wholesale receivables of $2,428 million, and
a change in collateral on derivatives – net of $59 million provided
cash inflows. These amounts have been used mainly to fund
receivables (excluding trade and wholesale) and equipment on
operating lease acquisitions, which exceeded collections and the
proceeds from sales of equipment on operating leases, by $12,454
million, pay dividends to Deere & Company of $1,368 million, and
purchase $182 million of marketable securities in excess of
maturities and sales. Cash, cash equivalents, and restricted cash
increased $112 million over the three-year period.
Trade and financing receivables and equipment on operating leases
increased by $3,401 million in 2021, compared with 2020. Total
acquisition volumes of receivables (excluding trade and wholesale)
and cost of equipment on operating leases increased 16 percent in
2021, compared with 2020. The volume of finance leases, retail
notes, and revolving charge accounts increased 33 percent,
26 percent, and 1 percent, respectively. The volume of operating
leases decreased 2 percent. During 2021, the wholesale notes and
trade receivables portfolios decreased 26 percent and 7 percent,
respectively.
Total external interest-bearing debt of the financial services
operations was $37,978 million at the end of 2021, compared with
$35,556 million at the end of 2020 and $38,888 million at the end
of 2019. Total external borrowings have changed generally
corresponding with the level of the receivable and lease portfolio,
the level of cash and cash equivalents, the change in payables
owed to Deere & Company, and the change in investment from
Deere & Company. The financial services operations’ ratio of total
interest-bearing debt to total stockholder’s equity was 7.8 to 1 at
the end of 2021, 7.8 to 1 at the end of 2020, and 8.0 to 1 at the end
of 2019.
The Capital Corporation has a revolving credit agreement to utilize
bank conduit facilities to securitize retail notes (see Note 14). At
October 31, 2021, the revolving credit agreement had a total
capacity, or “financing limit,” of up to $2,000 million of secured
financings at any time. At October 31, 2021, $1,572 million of short-
term securitization borrowings were outstanding under the
agreement. 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. The agreement was
renewed in November 2021 with an expiration in November 2022
and a capacity of $1,000 million. As a result of the reduced
capacity, $511 million of outstanding short-term securitization
borrowings were repurchased by the company in November 2021,
in addition to the normal monthly collection of payments on the
retail notes.
During 2021, the financial services operations issued $2,801 million
and retired $2,861 million of retail note securitization borrowings,
which are presented in “Increase (decrease) in total short-term
borrowings” on the statement of consolidated cash flows. The
financial services operations also issued $8,711 million and retired
$6,996 million of long-term borrowings in 2021, which were
primarily medium-term notes.
CRITICAL ACCOUNTING ESTIMATES
CRITICAL ACCOUNTING ESTIMATES
The preparation of the company’s consolidated financial
statements in conformity with accounting principles generally
accepted in the U.S. requires management to make estimates and
assumptions that affect reported amounts of assets, liabilities,
revenues, and expenses. Changes in these estimates and
assumptions could have a significant effect on the financial
statements. The accounting policies below are those management
believes are the most critical to the preparation of the company’s
financial statements and require the most difficult, subjective, or
complex judgments. The company’s other accounting policies are
described in the Notes to the Consolidated Financial Statements.
Sales Incentives
Sales Incentives
In certain markets, the company provides sales incentives to
dealers. At the time a sale to a dealer is recognized, the company
records an estimate of the future sales incentive costs as a
reduction to the sales price. These incentives may be based on a
24
dealer’s purchase volume, or on retail sales incentive programs for
allowances and financing programs that will be due when the
dealer sells the equipment to a retail customer. The estimated cost
of these programs is based on historical data, announced and
expected incentive programs, field inventory levels, and forecasted
sales volumes. The final cost of these programs is determined at
the end of the measurement period for volume-based incentives or
when the dealer sells the equipment to the retail customer. This is
due to numerous programs available at any particular time and new
programs that may be announced after the company records the
equipment sale. Changes in the mix and types of programs affect
these estimates, which are reviewed quarterly.
The sales incentive accruals at October 31, 2021, November 1, 2020,
and November 3, 2019 were $1,680 million, $1,718 million, and
$2,033 million, respectively. The total accruals recorded were $880
million, $1,109 million, and $1,443 million in trade accounts and
notes receivable – net, and $800 million, $609 million, and $590
million in accounts payable and accrued expenses at October 31,
2021, November 1, 2020, and November 3, 2019, respectively. The
decrease in 2021 primarily resulted from higher retail demand and
the decrease in 2020 primarily related to lower sales volume.
The estimation of the retail sales incentive accrual is impacted by
many assumptions. One of the key assumptions is the predictive
value of the historical percent of retail sales incentive costs to retail
sales from dealers. Over the last five fiscal years, this percent has
varied by an average of approximately plus or minus .5 percent,
compared to the average retail sales incentive costs to retail sales
percent during that period. Holding other assumptions constant, if
this estimated retail incentive cost experience percent were to
increase or decrease .5 percent, the sales incentive accrual at
October 31, 2021 would increase or decrease by approximately $31
million.
Product Warranties
Product Warranties
For most equipment and parts sales, the company provides a
standard warranty to provide assurance that the equipment will
function as intended for a specified period of time. At the time a sale
is recognized, the company records the estimated future warranty
costs. The company generally determines its total warranty liability
by applying historical claims rate experience to the estimated
amount of equipment that has been sold and is still under warranty
based on dealer inventories and retail sales. The historical claims rate
is primarily determined by a review of five-year claims costs and
consideration of current quality developments. Variances in claims
experience and the type of warranty programs affect these
estimates, which are reviewed quarterly.
The product warranty accruals, excluding extended warranty
unamortized premiums, at October 31, 2021, November 1, 2020, and
November 3, 2019 were $1,312 million, $1,105 million, and $1,218
million, respectively. The increase in 2021 primarily related to higher
sales volume while the decrease in 2020 mainly related to lower
sales volume.
Estimates used to determine the product warranty accruals are
significantly affected by the historical percent of warranty claims
costs to sales. Over the last five fiscal years, this percent has varied
by an average of approximately plus or minus .08 percent,
compared to the average warranty costs to sales percent during
that period. Holding other assumptions constant, if this estimated
cost experience percent were to increase or decrease .08 percent,
the warranty accrual at October 31, 2021 would increase or decrease
by approximately $35 million.
Postretirement Benefit Obligations
Postretirement Benefit Obligations
Pension and OPEB, primarily health care and life insurance plans,
obligations are based on various assumptions used by the
company’s actuaries in calculating these amounts. These
assumptions include discount rates, health care cost trend rates,
expected return on plan assets, compensation increases,
retirement rates, mortality rates, and other factors. Actual results
that differ from the assumptions and changes in assumptions
affect future expenses and obligations.
The pension assets, net of pension liabilities, recognized on the
balance sheet at October 31, 2021 were $2,665 million. The pension
liabilities, net of pension assets, recognized on the balance sheet
at November 1, 2020 and November 3, 2019 were $447 million and
$226 million, respectively. The increase in the pension net assets in
2021 was primarily due to returns on plan assets. The increase in
the pension net liabilities in 2020 was primarily due to decreases in
discount rates and interest on the liabilities, largely offset by the
return on plan assets.
The OPEB liabilities, net of OPEB assets, at October 31, 2021,
November 1, 2020, and November 3, 2019 were $3,175 million,
$3,892 million, and $4,686 million, respectively. The decrease in
OPEB net liabilities in 2021 was due primarily to returns on plan
assets and favorable changes to medical assumptions. The
decrease in OPEB net liabilities in 2020 was due primarily to
contributions to a U.S. OPEB plan.
The effect of hypothetical changes to selected assumptions on the
company’s major U.S. retirement benefit plans would be as follows
in millions of dollars:
October 31, 2021
October 31, 2021
Increase
(Decrease)
PBO/APBO*
2022
2022
Increase
(Decrease)
Expense
Percentage
Change
+/-.5
+/-.5
+/-.5
+/-.5
$
(812)/930
$
(271)/300
(42)/45
(63)/63
(11)/11
(9)/9
+/-1.0
512/(429)
52/(49)
Assumptions
Pension
Pension
.........
Discount rate**
Expected return on assets
OPEB
OPEB
Discount rate** .........
Expected return on assets
Health care cost
trend rate** ...........
* Projected benefit obligation (PBO) for pension plans and accumulated
postretirement benefit obligation (APBO) for OPEB plans.
** Pretax impact on service cost, interest cost, and amortization of gains
or losses.
Goodwill
Goodwill
Goodwill is not amortized and is tested for impairment annually
and when events or circumstances change such that it is more
25
likely than not that the fair value of a reporting unit is reduced
below its carrying amount. The end of the fiscal third quarter is the
annual measurement date. To test for goodwill impairment, the
carrying value of each reporting unit is compared with its fair
value. If the carrying value of the goodwill is considered impaired,
a loss is measured as the excess of the reporting unit’s carrying
value over the fair value, with a limit of the goodwill allocated to
that reporting unit.
An estimate of the fair value of the reporting unit is determined
through a combination of comparable market values for similar
businesses and discounted cash flows. These estimates can change
significantly based on such factors as the reporting unit’s financial
performance, economic conditions, interest rates, growth rates,
pricing, changes in business strategies, and competition.
The company has not identified a reporting unit for which the
goodwill was impaired in 2021, 2020, or 2019. For all reporting units,
a 10 percent decrease in the estimated fair value would have had
no effect on the carrying value of goodwill at the annual
measurement date in 2021.
Allowance for Credit Losses
Allowance for Credit Losses
The allowance for credit losses is an estimate of the credit losses
expected over the life of the receivable portfolio. The allowance is
measured on a collective basis when similar risk characteristics
exist. Risk characteristics considered by the company include
finance product category, market, geography, credit risk, and
remaining duration. Receivables that do not share risk
characteristics with other receivables in the portfolio are evaluated
on an individual basis. Non-performing receivables are included in
the estimate of expected credit losses.
The company utilizes loss forecast models, which are selected
based on the size and credit risk of the underlying pool of
receivables, to estimate expected credit losses. Transition matrix
models are used for large and complex retail customer receivable
pools, while weighted average remaining maturity models are used
for smaller and less complex retail customer receivable pools.
Expected credit losses on wholesale receivables are based on
historical loss rates, with consideration of current economic
conditions and dealer financial risk. The modeled expected credit
losses are adjusted based on reasonable and supportable
forecasts, which may include economic indicators such as
commodity prices, industry equipment sales, unemployment rates,
and housing starts. Management reviews each model’s output
quarterly, and qualitative adjustments are incorporated as
necessary.
In 2021, the company adopted ASU No. 2016-13, which revised the
measurement of credit losses from an incurred loss to an expected
loss methodology. Upon adoption the company’s allowance for
credit losses increased with an offset to retained earnings (see
Note 3). The allowance for credit losses at November 1, 2020 and
November 3, 2019 were not restated under the expected loss
methodology. The total allowance for credit losses at October 31,
2021, November 1, 2020, and November 3, 2019 was $207 million,
$223 million, and $222 million, respectively. The allowance
decreased in 2021 compared to 2020 due to lower expected losses
in the construction and forestry market, continued improvement in
the agriculture and turf market, and better than expected
performance of accounts granted payment relief due to the
economic effects of COVID. As previously mentioned, the
allowance decrease was partially offset by the adoption of ASU No.
2016-13. The allowance was about the same in 2020 compared to
2019 with an increase in the financing receivable allowance largely
offset by a decrease in the allowance for trade accounts and notes
receivable (see Note 13).
The assumptions used in evaluating the company’s exposure to
credit losses involve estimates and significant judgment. While the
company believes its allowance is sufficient to provide for losses
over the life of its existing receivable portfolio, different
assumptions or changes in economic conditions would result in
changes to the allowance for credit losses. Historically, changes in
economic conditions have had limited impact on credit losses
within the company’s wholesale receivable portfolio. Within the
retail customer receivables portfolio, credit loss estimates are
dependent on a number of factors, including historical portfolio
performance, current delinquency levels, and estimated recoveries
on defaulted accounts. The company’s transition matrix models,
which are utilized to estimate credit losses for more than 90
percent of retail customer receivables, use historical portfolio
performance and current delinquency levels to forecast future
defaults. Estimated recovery rates are applied to the estimated
default balance to calculate the expected credit losses. Holding all
other factors constant, a 10 percent increase in the transition
matrix models’ forecasted defaults and a simultaneous 10 percent
decrease in recovery rates would have resulted in a $34 million
increase to the allowance for credit losses at October 31, 2021.
Operating Lease Residual Values
Operating Lease Residual Values
The carrying value of equipment on operating leases is affected by
the estimated fair values of the equipment at the end of the lease
(residual values). Upon termination of the lease, the equipment is
either purchased by the lessee or sold to a third party, in which
case the company may record a gain or a loss for the difference
between the estimated residual value and the sale price. The
estimated residual values are based on several factors, including
lease term, expected hours of usage, historical wholesale sales
prices, return experience, intended equipment use, market
dynamics and trends, and dealer residual value guarantees. The
company reviews residual value estimates during the lease term
and tests the carrying value of its operating leases for impairment
when events or circumstances necessitate. Changes in residual
value assumptions would affect the amount of depreciation
expense and the amount of investment in equipment on operating
leases. Depreciation is adjusted prospectively on a straight-line
basis over the remaining lease term if residual estimates are
revised.
The total operating lease residual values at October 31, 2021,
November 1, 2020, and November 3, 2019 were $5,025 million,
$5,254 million, and $5,259 million, respectively. The decreases in
2021 and 2020 primarily related to a lower average operating lease
portfolio.
26
Estimates used in determining end of lease market values for
equipment on operating leases significantly impact the amount
and timing of depreciation expense. Hypothetically, if future
market values for this equipment were to decrease 10 percent from
the company’s present estimates and all the equipment on
operating leases were returned to the company for remarketing at
the end of the lease term, the total effect would be to increase the
company’s annual depreciation for equipment on operating leases
by approximately $80 million, after consideration of dealer residual
value guarantees.
Income Taxes
Income Taxes
The company’s income tax provision, deferred income tax assets
and liabilities, and liabilities for uncertain tax benefits represent
the company’s best estimate of current and future income taxes to
be paid. The annual tax rate is based on income tax laws, statutory
tax rates, taxable income levels, and tax planning opportunities
available in various jurisdictions where the company operates.
These tax laws are complex, and require significant judgment to
determine the consolidated provision for income taxes. Changes in
tax laws, regulations, statutory tax rates, and estimates of the
company’s future taxable income levels could result in actual
realization of deferred taxes being materially different from
amounts provided for in the consolidated financial statements.
Deferred income taxes represent temporary differences between
the tax and the financial reporting basis of assets and liabilities,
which will result in taxable or deductible amounts in the future.
Deferred tax assets also include loss carryforwards and tax credits.
These assets are regularly assessed for the likelihood of
recoverability from estimated future taxable income, reversal of
deferred tax liabilities, and tax planning strategies. To the extent
the company determines that it is more likely than not a deferred
income tax asset will not be realized, a valuation allowance is
established. The recoverability analysis of the deferred income tax
assets and the related valuation allowances requires significant
judgment and relies on estimates.
Uncertain tax positions are determined based on whether it is
more likely than not the tax positions will be sustained based on
the technical merits of the position. For those positions that meet
the more likely than not criteria, an estimate of the largest amount
of tax benefit that is greater than 50 percent likely to be realized
upon ultimate settlement with the related tax authority is
recognized. The ultimate resolution of the tax position could take
many years and result in a payment that is significantly different
from the original estimate.
A provision for foreign withholding taxes has not been recorded on
undistributed profits of the company’s non-U.S. subsidiaries that
are determined to be indefinitely reinvested outside the U.S. If
management intentions change in the future, there may be a
significant impact on the provision for income taxes in the period
the change occurs. For further information on income taxes, see
Note 9 to the consolidated financial statements.
SAFE HARBOR STATEMENT
SAFE HARBOR STATEMENT
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995: Statements under “Business” (including under
“Market Conditions”), “Risk Factors,” “Management’s Discussion
and Analysis” (including under “Overview” and “Trends and
Economic Conditions”), and other forward-looking statements
herein that relate to future events, expectations, and trends
involve factors that are subject to change, and risks and
uncertainties that could cause actual results to differ materially.
Some of these risks and uncertainties could affect particular lines
of business, while others could affect all of the company’s
businesses.
The company’s agricultural equipment businesses are subject to
a number of uncertainties, including certain factors that affect
farmers’ confidence and financial condition. These factors
include demand for agricultural products; world grain stocks;
weather conditions and the effects of climate change; soil
conditions; harvest yields; prices for commodities and livestock;
crop and livestock production expenses; availability of transport
for crops (including as a result of reduced state and local
transportation budgets); trade restrictions and tariffs (e.g.,
China); global trade agreements; the level of farm product
exports (including concerns about genetically modified
organisms); the growth and sustainability of non-food uses for
some crops (including ethanol and biodiesel production); real
estate values; available acreage for farming; land ownership
policies of governments; changes in government farm programs
and policies; international reaction to such programs; changes in
and effects of crop insurance programs; changes in
environmental regulations and their impact on farming practices;
animal diseases (e.g., African swine fever) and their effects on
poultry, beef, and pork consumption and prices and on livestock
feed demand; crop pests and diseases; and the impact of the
COVID pandemic on the agricultural industry including demand
for, and production and exports of, agricultural products, and
commodity prices.
The production and precision agriculture business is dependent
on agricultural conditions, and relies in part on hardware and
software, guidance, connectivity and digital solutions, and
automation and machine intelligence. Many factors contribute
to the company’s precision agriculture sales and results,
including the impact to customers’ profitability and/or
sustainability outcomes; the rate of adoption and use by
customers; availability of technological innovations; speed of
research and development; effectiveness of partnerships with
third parties; and the dealer channel’s ability to support and
service precision technology solutions.
Factors affecting the company’s small agriculture and turf
equipment operations include agricultural conditions; consumer
confidence; weather conditions and the effects of climate
change; customer profitability; labor supply; consumer
borrowing patterns; consumer purchasing preferences; housing
starts and supply; infrastructure investment; spending by
municipalities and golf courses; and consumable input costs.
Factors affecting the company’s construction and forestry
equipment operations include consumer spending patterns; real
estate and housing prices; the number of housing starts; interest
27
rates; commodity prices such as oil and gas; the levels of public
and non-residential construction; and investment in
infrastructure. Prices for pulp, paper, lumber, and structural
panels affect sales of forestry equipment.
Many of the factors affecting the production and precision
agriculture, small agriculture and turf, and construction and
forestry segments have been and may continue to be impacted
by global economic conditions, including those resulting from
the COVID pandemic and responses to the pandemic taken by
governments and other authorities.
All of the company’s businesses and its results are affected by
general economic conditions in the global markets and industries
in which the company operates; customer confidence in general
economic conditions; government spending and taxing; foreign
currency exchange rates and their volatility, especially
fluctuations in the value of the U.S. dollar; interest rates
(including the availability of IBOR reference rates); inflation and
deflation rates; changes in weather and climate patterns; the
political and social stability of the global markets in which the
company operates; the effects of, or response to, terrorism and
security threats; wars and other conflicts; natural disasters; and
the spread of major epidemics or pandemics (including the
COVID pandemic) and government and industry responses to
such epidemics or pandemics, such as travel restrictions and
extended shut downs of businesses.
Continued uncertainties related to the magnitude, duration, and
persistent effects of the COVID pandemic may significantly
adversely affect the company’s business and outlook. These
uncertainties include, among other things: the duration and
impact of the resurgence in COVID cases in any country, state, or
region; the emergence, contagiousness, and threat of new and
different strains of virus; the availability, acceptance, and
effectiveness of vaccines; additional closures as mandated or
otherwise made necessary by governmental authorities;
disruptions in the supply chain, including those caused by
industry capacity constraints, material availability, and global
logistics delays and constraints arising from, among other
things, the transportation capacity of ocean shipping containers,
and a prolonged delay in resumption of operations by one or
more key suppliers, or the failure of any key suppliers; an
increasingly competitive labor market due to a sustained labor
shortage or increased turnover caused by the COVID pandemic;
the company’s ability to meet commitments to customers on a
timely basis as a result of increased costs and supply and
transportation challenges; increased logistics costs; additional
operating costs due to continued remote working arrangements,
adherence to social distancing guidelines, and other COVID-
related challenges; increased risk of cyberattacks on network
connections used in remote working arrangements; increased
privacy-related risks due to processing health-related personal
information; legal claims related to personal protective
equipment designed, made, or provided by the company or
alleged exposure to COVID on company premises; absence of
employees due to illness; and the impact of the pandemic on the
company’s customers and dealers. The sustainability of the
economic recovery observed in 2021 remains unclear and
significant volatility could continue for a prolonged period.
These factors, and others that are currently unknown or
considered immaterial, could materially and adversely affect our
business, liquidity, results of operations, and financial position.
Significant changes in market liquidity conditions, changes in the
company’s credit ratings, and any failure to comply with financial
covenants in credit agreements could impact access to funding
and funding costs, which could reduce the company’s earnings
and cash flows. Financial market conditions could also negatively
impact customer access to capital for purchases of the
company’s products and customer confidence and purchase
decisions, financing and repayment practices, and the number
and size of customer delinquencies and defaults. A debt crisis in
Europe, Latin America, or elsewhere could negatively impact
currencies, global financial markets, social and political stability,
funding sources and costs, asset and obligation values,
customers, suppliers, demand for equipment, and company
operations and results. The company’s investment management
activities could be impaired by changes in the equity, bond, and
other financial markets, which would negatively affect earnings.
Continued effects of the withdrawal of the United Kingdom from
the European Union could adversely affect business activity,
political stability, and economic conditions in the United
Kingdom, the European Union, and elsewhere. The economic
conditions and outlook could be further adversely affected by (i)
uncertainty regarding any new or modified trade arrangements
between the United Kingdom and the European Union and/or
other countries; (ii) the risk that one or more other European
Union countries could come under increasing pressure to leave
the European Union; or (iii) the risk that the euro as the single
currency of the eurozone could cease to exist. Any of these
developments could affect our businesses, liquidity, results of
operations, and financial position.
Additional factors that could materially affect the company’s
operations, access to capital, expenses, and results include
changes in, uncertainty surrounding, and the impact of
governmental trade, banking, monetary, and fiscal policies,
including financial regulatory reform and its effects on the
consumer finance industry, derivatives, funding costs, and other
areas; the potential default of the U.S. federal government if
Congress fails to pass a 2022 budget resolution; governmental
programs, policies, and tariffs for the benefit of certain
industries or sectors; sanctions in particular jurisdictions;
retaliatory actions to such changes in trade, banking, monetary,
and fiscal policies; actions by central banks; actions by financial
and securities regulators; actions by environmental, health, and
safety regulatory agencies, including those related to engine
emissions, carbon and other greenhouse gas emissions, noise,
and the effects of climate change; changes to GPS radio
frequency bands or their permitted uses; changes in labor and
immigration regulations; changes to accounting standards;
changes in tax rates, estimates, laws, and regulations and
28
company actions related thereto; changes to and compliance
with privacy, banking, and other regulations; changes to and
compliance with economic sanctions and export controls laws
and regulations; compliance with U.S. and foreign laws when
expanding to new markets and otherwise; and actions by other
regulatory bodies.
Other factors that could materially affect the company’s results
include production, design, and technological innovations and
difficulties, including capacity and supply constraints and prices;
the loss of or challenges to intellectual property rights, whether
through theft, infringement, counterfeiting, or otherwise; the
availability and prices of strategically sourced materials,
components, and whole goods; delays or disruptions in the
company’s supply chain or the loss of liquidity by suppliers;
disruptions of infrastructures that support communications,
operations, or distribution; the failure of customers, dealers,
suppliers, or the company to comply with laws, regulations, and
company policy pertaining to employment, human rights, health,
safety, the environment, sanctions, export controls, anti-
corruption, privacy and data protection, and other ethical
business practices; introduction of legislation that could affect
the company’s business model and intellectual property, such as
right to repair or right to modify; events that damage the
company’s reputation or brand; significant investigations,
claims, lawsuits, or other legal proceedings; start-up of new
plants and products; the success of new product initiatives or
business strategies; changes in customer product preferences
and sales mix; gaps or limitations in rural broadband coverage,
capacity, and speed needed to support technology solutions; oil
and energy prices, supplies, and volatility; the availability and
cost of freight; actions of competitors in the various industries in
which the company competes, particularly price discounting;
dealer practices, especially as to levels of new and used field
inventories; changes in demand and pricing for used equipment
and resulting impacts on lease residual values; labor relations
and contracts, including work stoppages and other disruptions;
changes in the ability to attract, develop, engage, and retain
qualified personnel; acquisitions and divestitures of businesses;
greater-than-anticipated transaction costs; the integration of
new businesses; the failure or delay in closing or realizing
anticipated benefits of acquisitions, joint ventures, or
divestitures; the inability to deliver precision technology and
agricultural solutions to customers; the implementation of the
smart industrial operating model and other organizational
changes; the failure to realize anticipated savings or benefits of
cost reduction, productivity, or efficiency efforts; difficulties
related to the conversion and implementation of enterprise
resource planning systems; security breaches, cybersecurity
attacks, technology failures, and other disruptions to the
information technology infrastructure of the company and its
suppliers and dealers; security breaches with respect to the
company’s products; changes in company-declared dividends
and common stock issuances and repurchases; changes in the
level and funding of employee retirement benefits; changes in
market values of investment assets, compensation, retirement,
discount, and mortality rates which impact retirement benefit
costs; and significant changes in health care costs.
The liquidity and ongoing profitability of John Deere Capital
Corporation and the company’s other financial services
subsidiaries depend largely on timely access to capital in order to
meet future cash flow requirements, and to fund operations,
costs, and purchases of the company’s products. If general
economic conditions deteriorate or capital markets become more
volatile, funding could be unavailable or insufficient.
Additionally, customer confidence levels may result in declines in
credit applications and increases in delinquencies and default
rates, which could materially impact write-offs and provisions
for credit losses.
The company’s forward-looking statements are based upon
assumptions relating to the factors described above, which are
sometimes based upon estimates and data prepared by
government agencies. Such estimates and data are often revised.
The company, except as required by law, undertakes no obligation
to update or revise its forward-looking statements, whether as a
result of new developments or otherwise. Further information
concerning the company and its businesses, including factors that
could materially affect the company’s financial results, is included
in the company’s other filings with the SEC (including, but not
limited to, the factors discussed in Item 1A. Risk Factors of this
annual report on Form 10-K and the company’s quarterly reports
on Form 10-Q).
SUPPLEMENTAL CONSOLIDATING INFORMATION
SUPPLEMENTAL CONSOLIDATING INFORMATION
The supplemental consolidating data presented on the
subsequent pages is presented for informational purposes. The
equipment operations represents the enterprise without financial
services. The equipment operations includes the company’s
production and precision agriculture operations, small agriculture
and turf operations, construction and forestry operations, and
other corporate assets, liabilities, revenues, and expenses not
reflected within financial services. Transactions between the
“equipment operations” and “financial services” have been
eliminated to arrive at the consolidated financial statements.
The equipment operations and financial services participate in
different industries. The equipment operations primarily generate
earnings and cash flows by manufacturing and distributing
equipment, service parts, and technology solutions to dealers and
retail customers. Financial services primarily finances sales and
leases by dealers of new and used equipment that is largely
manufactured by the company. Those earnings and cash flows
generally are the difference between the finance income received
from customer payments less interest expense, and depreciation
on equipment subject to an operating lease. The two businesses
are capitalized differently and have separate performance metrics.
The supplemental consolidating data is also used by management
due to these differences.
29
SUPPLEMENTAL CONSOLIDATING DATA
SUPPLEMENTAL CONSOLIDATING DATA
INCOME STATEMENT
INCOME STATEMENT
For the Years Ended October 31, 2021, November 1, 2020, and November 3, 2019
For the Years Ended October 31, 2021, November 1, 2020, and November 3, 2019
(In millions of dollars) Unaudited
Net Sales and Revenues
Net Sales and Revenues
Net sales
Finance and interest income
Other income
...................................
............
..............................
Total .....................................
EQUIPMENT
EQUIPMENT
OPERATIONS 11
OPERATIONS
2020
2020
2021
2021
2019
2019
2021
2021
FINANCIAL
FINANCIAL
SERVICES
SERVICES
2020
2020
2019
2019
$ 39,737 $ 31,272 $ 34,886
ELIMINATIONS
ELIMINATIONS
2020
2020
2021
2021
2019
2019
133
941
40,811
112
808
32,192
118 $ 3,442 $ 3,610 $ 3,735 $ (279) $ (272) $ (360)
(236)
234
881
(596)
3,969
35,885
352
3,794
257
3,867
(302)
(581)
(247)
(519)
CONSOLIDATED
CONSOLIDATED
2020
2020
2019
2019
2021
2021
$ 39,737 $ 31,272 $ 34,886
3,296
991
44,024
3,450
818
35,540
3,493 2
879 3
39,258
...............................
Costs and Expenses
Costs and Expenses
Cost of sales
Research and development expenses
Selling, administrative and general expenses
..........................
Interest expense
Interest compensation to Financial Services
...............
Other operating expenses
Total......................................
29,119
1,587
2,887
368
217
181
34,359
23,679
1,644
2,878
329
248
278
29,056
26,793
1,783
3,031
256
336
299
32,498
504
687
606
942
528
1,234
1,453
2,644
1,572
3,120
1,506
3,268
(3)
(2)
(1)
(8)
(62)
(217)
(291)
(581)
(7)
(24)
(248)
(238)
(519)
(8)
(24)
(336)
(227)
(596)
29,116
1,587
3,383
993
23,677
1,644
3,477
1,247
1,343
36,422
1,612
31,657
26,792 4
1,783
3,551 4
1,466 5
5
1,578 6
35,170
Income before Income Taxes ...........
Income before Income Taxes
Provision for income taxes ..............
6,452
1,386
3,136
899
3,387
689
1,150
272
747
183
5,066
2,237
2,698
878
564
701
163
538
7,602
1,658
3,883
1,082
4,088
852
5,944
2,801
3,236
18
(50)
20
3
2
1
21
(48)
21
5,084
2,187
2,718
881
566
539
5,965
2,753
3,257
2
2
4
2
2
4
Income after Income Taxes..............
Income after Income Taxes
Equity in income (loss)
of unconsolidated affiliates ..........
Net Income
Net Income
Less: Net income attributable to
................................
noncontrolling interests
Net Income Attributable to
Net Income Attributable to
..............
Deere & Company...................... $ 5,082 $ 2,185 $ 2,714 $ 881 $ 566 $ 539
Deere & Company
$ 5,963 $ 2,751 $ 3,253
1 The equipment operations represents the enterprise without financial services. The equipment operations includes the company’s production and precision agriculture
operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected
within financial services.
2 Elimination of financial services’ interest income earned from equipment operations.
3 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases (see Note 7).
4 Elimination of intercompany service fees.
5 Elimination of equipment operations’ interest expense to financial services.
6 Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.
30
SUPPLEMENTAL CONSOLIDATING DATA (continued)
SUPPLEMENTAL CONSOLIDATING DATA (continued)
CONDENSED BALANCE SHEET
CONDENSED BALANCE SHEET
As of October 31, 2021 and November 1, 2020
As of October 31, 2021 and November 1, 2020
(In millions of dollars) Unaudited
EQUIPMENT
EQUIPMENT
OPERATIONS 1 1
OPERATIONS
FINANCIAL
FINANCIAL
SERVICES
SERVICES
ELIMINATIONS
ELIMINATIONS
2021
2021
2020
2020
2021
2021
2020
2020
2021
2021
2020
2020
CONSOLIDATED
CONSOLIDATED
2020
2021
2020
2021
ASSETS
ASSETS
Cash and cash equivalents........................... $
Marketable securities ................................
Receivables from unconsolidated affiliates .......
Trade accounts and notes receivable - net ........
Financing receivables - net ..........................
Financing receivables securitized - net ............
Other receivables .....................................
Equipment on operating leases - net ..............
Inventories ............................................
Property and equipment - net ......................
Investments in unconsolidated affiliates ..........
Goodwill ...............................................
Other intangible assets - net ........................
Retirement benefits ..................................
Deferred income taxes ...............................
Other assets ...........................................
TToottaal l AAsssseettss ........................................... $
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
LIABILITIES
Short-term borrowings .............................. $
Short-term securitization borrowings .............
Payables to unconsolidated affiliates ..............
Accounts payable and accrued expenses ..........
Deferred income taxes ...............................
Long-term borrowings...............................
Retirement benefits and other liabilities ..........
Total liabilities ...............................
Commitments and contingencies (Note 21)
7,188 $
3
5,591
1,155
73
10
1,602
6,781
5,783
153
3,291
1,275
3,539
1,215
1,493
39,152 $
6,145 $
7
5,290
1,013
106
26
1,117
4,999
5,778
174
3,081
1,327
859
1,763
1,439
33,124 $
$
$
(5,564) $
(842)
(5,259)
(1,080)
(23)
(48)
829 $
725
921
634
3,895
33,726
4,649
159
6,988
37
22
4,238
29,644
4,677
151
7,298
39
19
64
53
477
51,624 $
59
45
994
48,719 $
(2)
(231)
(6,662) $
(55)
(309)
(1)
(6,752) $
8,017 $
728
27
4,208
33,799
4,659
1,738
6,988
6,781
5,820
175
3,291
1,275
3,601
1,037
1,970
84,114 $
1,509 $
10
143
11,055
438
8,915
4,239
26,309
292 $
26
104
9,114
385
10,124
5,366
25,411
9,410 $
4,595
5,564
2,015
369
23,973
107
46,033
8,290
4,656
5,260 $
2,127
443
22,610
102
43,488
(5,564) $
(865)
(231)
(5,259)
(1,129)
(309)
(2)
(6,662)
(55)
(6,752)
$
10,919 $
4,605
143
12,205
576
32,888
4,344
65,680
STOCKHOLDERS’ EQUITY
STOCKHOLDERS’ EQUITY
Total Deere & Company stockholders’ equity .....
Noncontrolling interests.............................
Financial Services' equity ............................
Adjusted total stockholders' equity .........
TToottaal l LLiiaabbiilliittiiees s aannd d SSttoocckkhhoollddeerrss’ ’ EEqquuiittyy
......... $
18,431
3
(5,591)
12,843
39,152 $
12,937
7
(5,231)
7,713
33,124 $
5,591
5,231
(5,591)
(5,231)
5,591
51,624 $
5,231
48,719 $
(6,662) $
(6,752) $
5,591
5,231
18,431
3
12,937
7
18,434
84,114 $
12,944
75,091
7
8
7,066
641
31
4,171
29,750
4,703
1,220 8
7,298
4,999
5,817
193
3,081
1,327
863
1,499 10
2,432
75,091
9
8,582
4,682
105
10,112 8
519 10
7
32,734
5,413
62,147
9
11
11
1 The equipment operations represents the enterprise without financial services. The equipment operations includes the company’s production and precision agriculture
operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected
within financial services.
7 Elimination of receivables / payables between equipment operations and financial services.
8 Reclassification of sales incentive accruals on receivables sold to financial services.
9 Reclassification of net pension assets / liabilities.
10 Reclassification of deferred tax assets / liabilities in the same taxing jurisdictions.
11 Elimination of financial services’ equity.
31
SUPPLEMENTAL CONSOLIDATING DATA (continued)
SUPPLEMENTAL CONSOLIDATING DATA (continued)
STATEMENT OF CASH FLOWS
STATEMENT OF CASH FLOWS
For the Years Ended October 31, 2021, November 1, 2020, and November 3, 2019
For the Years Ended October 31, 2021, November 1, 2020, and November 3, 2019
(In millions of dollars) Unaudited
EQUIPMENT
EQUIPMENT
1
OPERATIONS1
OPERATIONS
2020
2020
2021
2021
2019
2019
2021
2021
FINANCIAL
FINANCIAL
SERVICES
SERVICES
2020
2020
2019
2019
ELIMINATIONS
ELIMINATIONS
2020
2020
2019
2019
2021
2021
CONSOLIDATED
CONSOLIDATED
2020
2020
2021
2021
2019
2019
Cash Flows from Operating Activities
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash
..............................................
$ 5,084 $
2,187 $ 2,718 $
881 $
566 $
539
$ 5,965 $ 2,753 $
3,257
provided by operating activities:
...................
Provision (credit) for credit losses
........
Provision for depreciation and amortization
.................................
Impairment charges
................
Share-based compensation expense
Loss on sale of businesses and unconsolidated affiliates
Undistributed earnings of unconsolidated affiliates
.........
Provision (credit) for deferred income taxes
Changes in assets and liabilities:
Trade, notes, and financing receivables related to sales
Inventories
Accounts p ayable and accrued expenses
Accrued income taxes payable/receivable
Retirement benefits
........................................
..........
.........
...............................
................................................
.......
Net cash provided by operating activities
Other
to sales)
Cash Flows from Investing Activities
Cash Flows from Investing Activities
Collections of receivables (excluding receivables related
...............................................
Proceeds from maturities and sales of marketable securities
Proceeds from sales of equipment on operating leases
Proceeds from sales of businesses and unconsolidated
affiliates, net of cash sold
.............................
560
(369)
(105)
(1,835)
1,589
13
30
(167)
5,900
4
Cost of receivables acquired (excluding receivables
related to sales)
.......................................
.........
......................
...................
.........
Acquisitions of businesses, net of cash acquired
Purchases of marketable securities
Purchases of property and equipment
Cost of equipment on operating leases acquired
Decrease (increase) in trade and wholesale receivables
Collateral on derivatives - net
Other
............................
.....................................................
...........
Net cash used for investing activities
(244)
(845)
(7)
58
(1,034)
(66)
(4)
(816)
(6)
(99)
(991)
Cash Flows from Financing Activities
Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings
Change in intercompany receivables/payables
Proceeds from long-term borrowings
Payments of long-term borrowings
Proceeds from issuance of common stock
Repurchases of common stock
Dividends paid
Other
......
...........
....................
......................
...............
...........................
...........................................
.....................................................
Net cash provided by (used for) financing activities
65
(354)
11
(94)
148
(2,538)
(1,040)
(61)
(3,863)
(177)
(3,207)
4,586
(607)
331
(750)
(956)
(105)
(885)
7
1,043
50
5
1,016
162
14
1,015
(13)
1,140
105
1,227
32
29
1,135 $
77
24
381
105
373
1,011
(331)
(14)
(544)
385
4,760
5
437
(222)
(142)
(102)
13
(355)
(235)
54
3,200
(3)
(72)
(2)
(116)
(2)
(243)
57
(2)
(1)
(22)
1,965
(1)
22
7
136
1,976
163
528
2
190
2,418
(133) $
(125) $
(131)
82
81
82
(555)
(386)
(426)
1,074
(662)
238
1,636
(614)
325
(727)
(678)
(130)
(183)
(139)
(170)
747
(196)
(2,206)
(6)
2,050
50
82
2
(441)
969
(2,497)
1,884
11
29
(372)
7,726
110
2,118
194
81
24
(7)
(11)
2,009
397
(7)
8
(537)
351
7,483
43
2,019
77
82
5
9
(465)
12
13
14
17
(869) 15, 17, 18
16
(780)
46
173
(233)
48 12, 13, 16
3,412
12
93
(3)
(1,118)
27
(989)
(149)
(305)
1,348
(972)
178
(1,253)
(943)
(79)
(2,175)
20,527
105
2,094
18,829
93
1,783
18,190
77
1,648
(1,568)
(1,448)
(1,484)
18,959
109
2,094
17,381
93
1,783
16,706
89
1,648
15
(25,305)
(21,360)
(20,321)
1,652
1,395
1,448
895
(1,364)
830
(1,999)
917
935
(23)
(408)
110
(1,112)
(30)
1,786
(194)
(3)
(2,627)
1,364
(274)
5
(4,308)
(126)
(4)
(2,666)
1,999
274
(38)
(1,216)
(137)
(2)
(3,246)
(935)
59
(54)
(4,721)
753
354
8,711
(6,996)
(1,183)
3,207
4,685
(6,776)
(768)
305
8,638
(5,454)
(555)
(29)
2,238
(386)
(7)
(460)
(427)
(30)
2,264
555
(8)
547
386
(21)
365
427
(7)
420
93
(18,873)
15
(23,653)
(244)
(194)
(848)
(1,732)
(19,965)
(66)
(130)
(820)
(1,836)
(140)
(1,120)
(2,329)
(281)
40
(5,750)
268
(27)
(3,319)
59
(57)
(3,924)
16
15
14, 18
818
(1,360)
(917)
8,722
(7,090)
148
(2,538)
(1,040)
(98)
(1,078)
9,271
(7,383)
331
(750)
(956)
(133)
(980)
9,986
(6,426)
178
(1,253)
(943)
(116)
509
14
14
Effect of Exchange Rate Changes on Cash, Cash
Effect of Exchange Rate Changes on Cash, Cash
Equivalents, and Restricted Cash ......................
Equivalents, and Restricted Cash
Net Increase (Decrease) in Cash, Cash Equivalents, and
Net Increase (Decrease) in Cash, Cash Equivalents, and
Restricted Cash ........................................
Restricted Cash
41
76
(42)
14
(44)
(14)
55
32
(56)
1,044
2,960
(6)
(91)
256
(53)
953
3,216
(59)
Cash, Cash Equivalents, and Restricted Cash at
Cash, Cash Equivalents, and Restricted Cash at
Beginning of Year ..................................... 6,156
Beginning of Year
3,196
3,202
1,016
760
813
7,172
3,956
4,015
Cash, Cash Equivalents, and Restricted Cash at
Cash, Cash Equivalents, and Restricted Cash at
End of Year
End of Year
............................................ $ 7,200 $ 6,156 $ 3,196 $
925 $
1,016 $
760
$ 8,125 $
7,172 $ 3,956
1 The equipment operations represents the enterprise without financial services. The equipment operations includes the company’s production and precision agriculture operations, small
agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services.
12 Elimination of depreciation on leases related to inventory transferred to equipment on operating leases (see Note 7).
13 Reclassification of share-based compensation expense.
14 Elimination of dividends from financial services to the equipment operations, which are included in the equipment operations net cash provided by operating activities, and capital
investments in financial services from the equipment operations.
15 Primarily reclassification of receivables related to the sale of equipment.
16 Reclassification of direct lease agreements with retail customers.
17 Reclassification of sales incentive accruals on receivables sold to financial services
18 Elimination and reclassification of the effects of financial services partial financing of the construction and forestry retail locations sales and subsequent collection of those amounts (see
Note 4).
32
Foreign Currency Risk
Foreign Currency Risk
In the equipment operations, the company’s practice is to hedge
significant currency exposures. Worldwide foreign currency
exposures are reviewed quarterly. Based on the equipment
operations’ anticipated and committed foreign currency cash
inflows, outflows, and hedging policy for the next twelve
months, the company estimates that a hypothetical 10 percent
strengthening of the U.S. dollar relative to other currencies
through 2022 would decrease the 2022 expected net cash
inflows by approximately $113 million. At November 1, 2020, a
hypothetical 10 percent strengthening of the U.S. dollar under
similar assumptions and calculations indicated a potential $90
million adverse effect on the 2021 net cash inflows.
In the financial services operations, the company’s policy is to
manage foreign currency risk through hedging strategies if the
currency of the borrowings does not match the currency of the
receivable portfolio. As a result, a hypothetical 10 percent
adverse change in the value of the U.S. dollar relative to all other
foreign currencies would not have a material effect on the
financial services cash flows.
FINANCIAL INSTRUMENT MARKET RISK INFORMATION
FINANCIAL INSTRUMENT MARKET RISK INFORMATION
The company is naturally exposed to various interest rate and
foreign currency risks. As a result, the company enters into
derivative transactions to manage certain of these exposures
that arise in the normal course of business and not for the
purpose of creating speculative positions or trading. The
company’s financial services operations manage the relationship
of the types and amounts of their funding sources to their
receivable and lease portfolio in an effort to diminish risk due to
interest rate and foreign currency fluctuations while responding
to favorable financing opportunities. In addition, the company
has interest rate exposure at certain equipment operations units
for below market retail financing programs that are used as sales
incentives and are offered for extended periods. Accordingly,
from time to time, these operations enter into interest rate swap
agreements to manage their interest rate exposure. The
company also has foreign currency exposures at some of its
foreign and domestic operations related to buying, selling, and
financing in currencies other than the functional currencies. The
company has entered into agreements related to the
management of these foreign currency transaction risks.
Interest Rate Risk
Interest Rate Risk
Quarterly, the company uses a combination of cash flow models
to assess the sensitivity of its financial instruments with interest
rate exposure to changes in market interest rates. The models
calculate the effect of adjusting interest rates as follows: cash
flows for financing receivables are discounted at the current
prevailing rate for each receivable portfolio, cash flows for
marketable securities are primarily discounted at the applicable
benchmark yield curve plus market credit spreads, cash flows for
unsecured borrowings are discounted at the applicable
benchmark yield curve plus market credit spreads for similarly
rated borrowers, cash flows for securitized borrowings are
discounted at the swap yield curve plus a market credit spread
for similarly rated borrowers, and cash flows for interest rate
swaps are projected and discounted using forward rates from
the swap yield curve at the repricing dates. The net loss in these
financial instruments’ fair values which would be caused by
increasing the interest rates by 10 percent from the market rates
at October 31, 2021 would have been approximately $19 million.
The net loss from increasing the interest rates by 10 percent at
November 1, 2020 would have been approximately $50 million.
33
RREEPPOORRT T OOF F IINNDDEEPPEENNDDEENNT T
RREEGGIISSTTEERREED D PPUUBBLLIIC C AACCCCOOUUNNTTIINNG G FFIIRRM M
To the stockholders and the Board of Directors of Deere &
Company:
Opinion on the Financial Statements
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets
of Deere & Company and subsidiaries (the "Company") as of
October 31, 2021 and November 1, 2020, the related statements
of consolidated income, consolidated comprehensive income,
changes in consolidated stockholders' equity, and consolidated
cash flows for each of the three years in the period ended
October 31, 2021, and the related notes (collectively referred to
as the "financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial
position of the Company as of October 31, 2021 and November 1,
2020, and the results of its operations and its cash flows for
each of the three years in the period ended October 31, 2021, in
conformity with accounting principles generally accepted in the
United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting
as of October 31, 2021, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission and
our report dated December 16, 2021, expressed an unqualified
opinion on the Company's internal control over financial
reporting.
Basis for Opinion
Basis for Opinion
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our
audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current-period audit of the financial statements that were
communicated or required to be communicated to the audit
committee and that (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way
our opinion on the financial statements, taken as a whole, and we
are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Sales Incentives — Refer to Note 2 to the financial statements
Sales Incentives — Refer to Note 2 to the financial statements
Critical Audit Matter Description
The sales incentive accrual at October 31, 2021 was $1,680 million,
of which $880 million is recorded within trade accounts and notes
receivable – net and $800 million is recorded within accounts
payable and accrued expenses. At the time a sale to a dealer is
recognized, the Company records an estimate of the future sales
incentive costs as a reduction to the sales price. These incentives
may be based on a dealer’s purchase volume, or on retail sales
incentive programs for allowances and financing programs that will
be due when the dealer sells the equipment to a retail customer.
The estimated cost of these programs is based on historical data,
announced and expected incentive programs, field inventory levels
and forecasted sales volumes. The final cost of these programs is
determined at the end of the measurement period for volume-
based incentives or when the dealer sells the equipment to the
retail customer. This is due to numerous programs available at any
particular time and new programs that may be announced after
the Company records the equipment sale. Changes in the mix and
types of programs affect these estimates, which are reviewed
quarterly. The estimation of the sales incentive accrual is impacted
by many assumptions. One of the key assumptions is the predictive
value of the historical percentage of sales incentive costs to retail
sales from dealers.
We identified the sales incentive accrual as a critical audit matter
because estimating sales incentive costs requires significant
judgment by management and changes in historical percentage of
sales incentive costs to retails sales by dealers could have a
material impact on the sales incentive accrual. Auditing
management’s assumptions about the predictive nature of
historical sales incentive costs involves a high degree of auditor
judgment and an increased extent of effort to evaluate the
reasonableness of management’s estimates.
34
How the Critical Audit Matter Was Addressed in the Audit
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to testing the Company’s allowance
for credit losses included the following, among others:
• We tested the effectiveness of management’s controls over
the methodology, data and assumptions used to estimate the
allowance for credit losses.
• We tested the accuracy and evaluated the relevance of the
underlying historical data used in the Company’s model.
• With the assistance of our credit specialists, we evaluated the
reasonableness and accuracy of the models used to estimate
the allowance for credit losses, including model assumptions
and the selection and application of relevant risk
characteristics and use of qualitative adjustments.
• We evaluated qualitative adjustments to the model estimate.
Our evaluation included:
• Comparison of qualitative factors used by the Company to
source data provided by the Company and/or to externally
available data.
• Consideration and evaluation of contradictory evidence.
• We evaluated management’s ability to accurately forecast credit
losses by performing a retrospective review, which involved
comparing actual credit losses to historical estimates.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
December 16, 2021
We have served as the Company’s auditor since 1910.
Our audit procedures related to testing management’s assumption
that historical sales incentive costs are predictive of future
incentive costs included the following, among others:
• We tested the effectiveness of management’s controls over the
assumptions used to estimate the sales incentive accrual.
• We evaluated management’s ability to accurately forecast
future incentive costs performing a retrospective review that
involved comparing actual incentive costs to management’s
historical forecasts.
• We evaluated the reasonableness of management’s assumption
that historical sales incentive costs are predictive of future
incentive costs by:
• Considering the impact of changes in the current
economic conditions and competitive environment.
• Testing the completeness of the population used in the
calculation by inspecting a sample of incentive program
communications to dealers to ensure all sales incentive
programs offered were included in the calculation and by
confirming sales incentive payments with a sample of
dealers.
• Comparing historical and current sales incentive costs in
the following manner:
• Type and number of programs
• Geography
• Program size and duration
• Eligible products
AAlllloowwaanncce e ffoor r CCrreeddiit t LLoossssees s – – RReeffeer r tto o NNoottees s 2 2 aannd d 113 3 tto o tthhe e
ffiinnaanncciiaal l ssttaatteemmeenntts s
Critical Audit Matter Description
The allowance for credit losses as of October 31, 2021 was $207
million. The allowance for credit losses is an estimate of the
credit losses expected over the life of the Company’s receivable
portfolio. The Company measures expected credit losses on a
collective basis when similar risk characteristics exist. Risk
characteristics considered by the Company include finance
product category, market, geography, credit risk, and remaining
duration. The Company utilizes loss forecast models, which are
selected based on the size and credit risk of the underlying pool
of receivables, to estimate expected credit losses. Transition
matrix models are used for large and complex retail customer
receivable pools. The modeled expected credit losses are
adjusted based on reasonable and supportable forecasts, which
may include economic indicators such as commodity prices,
industry equipment sales, unemployment rates, and housing
starts. Management reviews each model’s output quarterly, and
qualitative adjustments are incorporated as necessary.
We identified the allowance for credit losses as a critical audit
matter because determining the appropriate methodology and
assumptions used in the estimate requires significant judgment
by management. Given the subjective nature and judgment
applied by management to determine the allowance for credit
losses, auditing the methodology and assumptions requires a
high degree of auditor judgment and an increased extent of
effort, including the need to involve credit specialists.
35
on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial
Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
December 16, 2021
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The management of Deere & Company (the “company”) is
responsible for establishing and maintaining adequate internal
control over financial reporting. The company’s internal control
system was designed to provide reasonable assurance regarding
the preparation and fair presentation of published financial
statements in accordance with generally accepted accounting
principles.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation in
accordance with generally accepted accounting principles.
Management assessed the effectiveness of the company’s
internal control over financial reporting as of October 31, 2021,
using the criteria set forth in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that
assessment, management believes that, as of October 31, 2021,
the company’s internal control over financial reporting was
effective.
The company’s independent registered public accounting firm
has issued an audit report on the effectiveness of the company’s
internal control over financial reporting. This report appears
below.
December 16, 2021
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Deere &
Company:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of
Deere & Company and subsidiaries (the “Company”) as
of October 31, 2021, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of October 31, 2021, based on criteria established in Internal
Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the
year ended October 31, 2021 of the Company and our report
dated December 16, 2021, expressed an unqualified opinion on
those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report
36
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Years Ended October 31, 2021, November 1, 2020, and November 3, 2019
(In millions of dollars and shares except per share amounts)
Net Sales and Revenues
Net sales
Finance and interest income
Other income
Total
.................................................................................................................
.......................................................................................
...........................................................................................................
.................................................................................................................
$
Costs and Expenses
Cost of sales
Research and development expenses
Selling, administrative and general expenses
Interest expense
Other operating expenses
............................................................................................................
...........................................................................
.................................................................
......................................................................................................
..........................................................................................
.................................................................................................................
Total
Income of Consolidated Group before Income Taxes
Provision for income taxes
.......................................................
.........................................................................................
Income of Consolidated Group
Equity in income (loss) of unconsolidated affiliates
....................................................................................
.........................................................
Net Income
Less: Net income attributable to noncontrolling interests
.............................................................................................................
...........................................
................................................................
Net Income Attributable to Deere & Company
Per Share Data
Basic
Diluted
Dividends declared
......................................................................................................................
...................................................................................................................
...................................................................................................
Average Shares Outstanding
Basic
Diluted
......................................................................................................................
...................................................................................................................
The notes to consolidated financial statements are an integral part of this statement.
$
$
$
$
2021
2020
2019
39,737
3,296
991
44,024
29,116
1,587
3,383
993
1,343
36,422
7,602
1,658
5,944
21
5,965
2
5,963
19.14
18.99
3.61
311.6
314.0
$
31,272
3,450
818
35,540
$
34,886
3,493
879
39,258
23,677
1,644
3,477
1,247
1,612
31,657
3,883
1,082
2,801
(48)
2,753
2
2,751
8.77
8.69
3.04
313.5
316.6
$
$
$
$
26,792
1,783
3,551
1,466
1,578
35,170
4,088
852
3,236
21
3,257
4
3,253
10.28
10.15
3.04
316.5
320.6
$
$
$
$
37
DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Years Ended October 31, 2021, November 1, 2020, and November 3, 2019
(In millions of dollars)
Net Income
.............................................................................................................
$
5,965
$
2,753
$
3,257
2021
2020
2019
Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment
Cumulative translation adjustment
Unrealized gain (loss) on derivatives
Unrealized gain (loss) on debt securities
.............................................................................
..........................................................................
........................................................................
...................................................................
...............................................
..............................................................
................................
................................................
2,884
118
16
(18)
3,000
8,965
2
8,963
$
(3)
55
2
14
68
2,821
2
2,819
(678)
(448)
(75)
29
(1,172)
2,085
4
2,081
$
$
Other Comprehensive Income (Loss), Net of Income Taxes
Comprehensive Income of Consolidated Group
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive Income Attributable to Deere & Company
The notes to consolidated financial statements are an integral part of this statement.
38
DEERE & COMPANY
CONSOLIDATED BALANCE SHEET
As of October 31, 2021 and November 1, 2020
(In millions of dollars)
ASSETS
Cash and cash equivalents
Marketable securities
Receivables from unconsolidated affiliates
Trade accounts and notes receivable - net
Financing receivables - net
Financing receivables securitized - net
Other receivables
Equipment on operating leases - net
Inventories
Property and equipment - net
Investments in unconsolidated affiliates
Goodwill
Other intangible assets - net
Retirement benefits
Deferred income taxes
Other assets
Total Assets
........................................................................................................
..............................................................................................................
..................................................................................
...................................................................................
.......................................................................................................
.......................................................................................
...................................................................................................................
..........................................................................................
............................................................................................................................
...................................................................................................
.....................................................................................
...............................................................................................................................
.....................................................................................................
................................................................................................................
............................................................................................................
..........................................................................................................................
..........................................................................................................................
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Short-term borrowings
Short-term securitization borrowings
Payables to unconsolidated affiliates
Accounts payable and accrued expenses
Deferred income taxes
Long-term borrowings
Retirement benefits and other liabilities
............................................................................................................
.........................................................................................
.........................................................................................
.....................................................................................
............................................................................................................
............................................................................................................
......................................................................................
................................................................................................................
Total liabilities
Commitments and contingencies (Note 21)
STOCKHOLDERS’ EQUITY
Common stock, $1 par value (authorized – 1,200,000,000 shares;
issued – 536,431,204 shares in 2021 and 2020), at paid-in amount
Common stock in treasury, 228,366,144 shares in 2021 and 222,775,254 shares in 2020, at cost
Retained earnings
Accumulated other comprehensive income (loss)
Total Deere & Company stockholders’ equity
Noncontrolling interests
................................................
...........
...................................................................................................................
..........................................................................
...............................................................................
..........................................................................................................
......................................................................................................
....................................................................................
Total Liabilities and Stockholders’ Equity
Total stockholders’ equity
The notes to consolidated financial statements are an integral part of this statement.
2021
2020
$
$
$
$
8,017
728
27
4,208
33,799
4,659
1,738
6,988
6,781
5,820
175
3,291
1,275
3,601
1,037
1,970
84,114
10,919
4,605
143
12,205
576
32,888
4,344
65,680
5,054
(20,533)
36,449
(2,539)
18,431
3
18,434
84,114
$
$
$
$
7,066
641
31
4,171
29,750
4,703
1,220
7,298
4,999
5,817
193
3,081
1,327
863
1,499
2,432
75,091
8,582
4,682
105
10,112
519
32,734
5,413
62,147
4,895
(18,065)
31,646
(5,539)
12,937
7
12,944
75,091
39
DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Years Ended October 31, 2021, November 1, 2020, and November 3, 2019
(In millions of dollars)
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
............................................................................................................
Provision (credit) for credit losses
Provision for depreciation and amortization
Impairment charges
Share-based compensation expense
Loss on sales of businesses and unconsolidated affiliates
Undistributed earnings of unconsolidated affiliates
Credit for deferred income taxes
Changes in assets and liabilities:
..........................................................................
............................................................
............................................................................................
......................................................................
...........................................
..................................................
...........................................................................
Trade, notes, and financing receivables related to sales
Inventories
Accounts payable and accrued expenses
Accrued income taxes payable/receivable
Retirement benefits
...........................................
......................................................................................................
...............................................................
.............................................................
..........................................................................................
...............................................................................................................
............................................................
Net cash provided by operating activities
Other
Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)
Proceeds from maturities and sales of marketable securities
Proceeds from sales of equipment on operating leases
Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold
Cost of receivables acquired (excluding receivables related to sales)
Acquisitions of businesses, net of cash acquired
Purchases of marketable securities
Purchases of property and equipment
Cost of equipment on operating leases acquired
Collateral on derivatives - net
Other
.....................................
............................................
...................................................
...............
..................................
............................................................
.............................................................................
.........................................................................
...........................................................
....................................................................................
....................................................................................................................
.................................................................
Net cash used for investing activities
Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings
Proceeds from long-term borrowings
Payments of long-term borrowings
Proceeds from issuance of common stock
Repurchases of common stock
Dividends paid
Other
........................................................
..........................................................................
.............................................................................
....................................................................
...................................................................................
........................................................................................................
....................................................................................................................
..............................................
Net cash provided by (used for) financing activities
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash
...............
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
Cash, Cash Equivalents, and Restricted Cash at Beginning of Year
Cash, Cash Equivalents, and Restricted Cash at End of Year
.............................
....................................
.............................................
$
The notes to consolidated financial statements are an integral part of this statement.
40
2021
2020
2019
$
5,965
$
2,753
$
3,257
(6)
2,050
50
82
2
(441)
969
(2,497)
1,884
11
29
(372)
7,726
18,959
109
2,094
(23,653)
(244)
(194)
(848)
(1,732)
(281)
40
(5,750)
818
8,722
(7,090)
148
(2,538)
(1,040)
(98)
(1,078)
55
953
7,172
8,125
110
2,118
194
81
24
(7)
(11)
2,009
397
(7)
8
(537)
351
7,483
17,381
93
1,783
(19,965)
(66)
(130)
(820)
(1,836)
268
(27)
(3,319)
(1,360)
9,271
(7,383)
331
(750)
(956)
(133)
(980)
32
3,216
3,956
7,172
$
43
2,019
77
82
5
9
(465)
(869)
(780)
46
173
(233)
48
3,412
16,706
89
1,648
93
(18,873)
(140)
(1,120)
(2,329)
59
(57)
(3,924)
(917)
9,986
(6,426)
178
(1,253)
(943)
(116)
509
(56)
(59)
4,015
3,956
$
DEERE & COMPANY
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY
For the Years Ended November 3, 2019, November 1, 2020, and October 31, 2021
(In millions of dollars)
Total Stockholders’ Equity
Deere & Company Stockholders
Total
Stockholders’
Equity
Common
Stock
Treasury
Stock
Retained
Earnings
Balance October 28, 2018
.......
$
11,291 $
4,474 $
(16,312)
$
27,553
Accumulated
Other
Comprehensive
Income (Loss)
(4,427)
$
Noncontrolling
Interests
Redeemable
Noncontrolling
Interest
$
3
$
14
......
ASU No. 2016-01 adoption
...........................
Net income
......
Other comprehensive loss
Repurchases of common stock
........
Treasury shares reissued
................
Dividends declared
.........
Stock options and other
......
Balance November 3, 2019
...........................
Net income
Other comprehensive income
Repurchases of common stock
........
Treasury shares reissued
................
Dividends declared
Noncontrolling interest
redemption (Note 5)
Stock options and other
Balance November 1, 2020
...........
.........
.....
3,257
(1,172)
(1,253)
91
(965)
168
11,417
2,752
68
(750)
159
(956)
168
4,642
(1,253)
91
(17,474)
(750)
159
254
12,944
253
4,895
(18,065)
ASU No. 2016-13 adoption
.............................
...........................
(Note 3)
Net income
Other comprehensive income
Repurchases of common stock
........
Treasury shares reissued
................
Dividends declared
.........
Stock options and other
........
Balance October 31, 2021
$
(35)
5,965
3,000
(2,538)
70
(1,127)
155
18,434 $
(2,538)
70
159
5,054 $
(20,533) $
36,449 $
(2,539) $
The notes to consolidated financial statements are an integral part of this statement.
(8)
(1,172)
(5,607)
68
(5,539)
3,000
8
3,253
(963)
1
29,852
2,751
(955)
(2)
31,646
(35)
5,963
(1,125)
14
1
(1)
(14)
4
(2)
(1)
4
1
(1)
3
7
2
(2)
(4)
3
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND CONSOLIDATION
Structure of Operations
The information in the notes and related commentary are
presented in a format that includes data grouped as follows:
Consolidated – Represents the consolidation of the equipment
operations and financial services. References to “Deere &
Company” or “the company” refer to the entire enterprise.
Equipment Operations – Represents the enterprise without
financial services, while including the company’s production and
precision agriculture operations, small agriculture and turf
operations, construction and forestry operations, and other
corporate assets, liabilities, revenues, and expenses not reflected
within financial services.
Financial Services – Represents the company’s financing
operations.
New Segment Reporting Structure
In fiscal year 2021, the company implemented a new operating
model and reporting structure. With this change, the company’s
agriculture and turf operations were divided into two new
segments: production and precision agriculture (PPA) and small
agriculture and turf (SAT). There were no changes to the
construction and forestry (CF) and financial services (FS)
segments. At the beginning of fiscal year 2021, the company also
reclassified goodwill from identifiable operating assets to
corporate assets for segment reporting, as goodwill is no longer
considered in evaluating the operating performance of the
segments. Additional information on the new segments and the
segment financial results are presented in Note 28. Prior period
segment information was recast for a consistent presentation.
References to agriculture and turf include both production and
precision agriculture and small agriculture and turf.
Principles of Consolidation
The consolidated financial statements represent the consolidation
of all companies in which Deere & Company has a controlling
interest. Certain variable interest entities (VIEs) are consolidated
since the company is the primary beneficiary. The primary
beneficiary has both the power to direct the activities that most
significantly impact the VIEs’ economic performance and the
obligation to absorb losses or the right to receive benefits that
could potentially be significant to the VIEs. Deere & Company
records its investment in each unconsolidated affiliated company
(generally 20 to 50 percent ownership) at its related equity in the
net assets of such affiliate (see Note 11). Other investments (less
than 20 percent ownership) are recorded at cost.
Fiscal Year
The company uses a 52/53 week fiscal year ending on the last
Sunday in the reporting period, which generally occurs in October.
An additional week is included in the fourth fiscal quarter every
five or six years to realign the company’s fiscal quarters with the
calendar. The fiscal year ends for 2021, 2020, and 2019 were
October 31, 2021, November 1, 2020, and November 3, 2019,
respectively. Fiscal years 2021 and 2020 contained 52 weeks
compared to 53 weeks in fiscal year 2019. Unless otherwise stated,
42
references to particular years or quarters refer to the company’s
fiscal years and the associated periods in those fiscal years.
Wirtgen Reporting Lag Removal
Prior to November 2, 2020, the operating results of the Wirtgen
Group (Wirtgen) were incorporated into the company’s
consolidated financial statements using a one-month lag period. In
2021, the reporting lag was eliminated resulting in one additional
month of Wirtgen activity in fiscal year 2021. The effect was an
increase to “Net sales” of $270 million, which the company
considers immaterial to construction and forestry’s annual net
sales. Prior period results were not restated.
Variable Interest Entities
The company consolidates certain VIEs related to retail note
securitizations (see Note 14).
The company also has an interest in a joint venture that
manufactures construction equipment in Indaiatuba, Brazil for
local and overseas markets. The joint venture is a VIE; however, the
company is not the primary beneficiary. Therefore, the entity’s
financial results are not fully consolidated in the company’s
consolidated financial statements but are included on the equity
basis. In 2020, the investment in the joint venture was impaired.
The maximum exposure to loss was $9 million and $5 million at
October 31, 2021 and November 1, 2020, respectively. On August 19,
2021, the company announced the dissolution of the joint venture
with Hitachi Construction Machinery Co., Ltd. and the purchase of
the shares in the relevant joint venture manufacturing entities,
including the above referenced factory in Indaiatuba, Brazil. Refer
to Note 4 for more details.
Argentina
The company has equipment operations and financial services
operations in Argentina. The U.S. dollar has historically been the
functional currency for the company’s Argentina operations, as its
business is generally indexed to the U.S. dollar due to the highly
inflationary conditions. The Argentine government has certain
capital and currency controls that restrict the company’s ability to
access U.S. dollars in Argentina and remit earnings from its
Argentine operations. As of October 31, 2021, the company's net
investment in Argentina was approximately $578 million. The
company's net investment in its Argentine operations is likely to
increase as Deere generates net income that is unable to be
remitted. Net sales and revenues from the company’s Argentine
operations represented approximately 1 percent of consolidated
net sales and revenues for 2021. The company has employed
mechanisms to convert Argentine pesos into U.S. dollars to the
extent possible. The net peso exposure as of October 31, 2021 was
approximately $3 million. Argentine peso-denominated monetary
assets and liabilities are remeasured at each balance sheet date
using the official currency exchange rate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are significant accounting policies in addition to
those included in other notes to the consolidated financial
statements.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. requires
management to make estimates and assumptions that affect the
reported amounts and related disclosures. The COVID pandemic
has resulted in uncertainties in the company’s business, which may
result in actual results differing from those estimates.
Revenue Recognition
Sales of equipment and service parts are recognized when each of
the following criteria are met: (1) the company and an independent
customer approve a contract with commercial substance, (2) the
sales price is determinable and collectability of the payments are
probable based on the terms outlined in the contract, and (3)
control of the goods has transferred to the independent customer.
In most situations, the independent customer is a dealer, which
subsequently sells the equipment and service parts purchased
from the company to a retail customer, who can finance the
equipment with the financial services segment or another source
of financing. In some situations, the company sells directly to a
retail customer. The term “customer” includes both dealers and
retail customers to whom the company makes direct sales. Transfer
of control generally occurs for equipment and service parts when
the good is delivered as specified in the contract and the risks and
rewards of ownership are transferred. In the U.S. and most
international locations, this transfer occurs primarily when goods
are shipped. In Canada and some other international locations,
certain goods are shipped to dealers on a consignment basis under
which the risks and rewards of ownership are not transferred to
the dealer at the time the goods are shipped. Accordingly, in these
locations, sales are not recorded until a retail customer has
purchased the goods. Generally, no right of return exists on sales
of equipment.
In limited instances, equipment is transferred to a customer or a
financial institution with an obligation to repurchase the
equipment for a specified amount, which is exercisable at the
customer’s option. When the equipment is expected to be
repurchased, those arrangements are accounted for as leases. No
sale is recorded at the time of the equipment transfer and the
difference between sale price and the specified repurchase
amount is recognized as revenue on a straight-line basis until the
customer’s option expires. When this equipment is not expected to
be repurchased, a sale is recorded with a return obligation.
Under the terms of sales agreements with dealers, interest-free
periods are determined based on the type of equipment sold and
the time of year of the sale. These periods range from one to
twelve months for most equipment. Interest-free periods may not
be extended. Interest is primarily charged to dealers on
outstanding balances, from the earlier of the date when goods are
sold to a retail customer by the dealer or the expiration of the
interest-free period granted at the time of the sale to the dealer,
until payment is received by the company. Interest charged may
not be forgiven and the past due interest rates exceed market
rates. In 2020 and to a much lesser extent in 2021, short-term
payment relief was provided to dealers due to the economic
effects of COVID (see Note 13). Dealers cannot cancel purchases
after the company recognizes a sale and are responsible for
payment even if the equipment is not sold to retail customers. If
the interest-free or below market interest rate period exceeds one
year, the company adjusts the expected sales revenue for the
effects of the time value of money using a current market interest
rate. The revenue related to the financing component is
recognized in “Finance and interest income” using the interest
method. The company does not adjust the sales price to account
for a financing component if the expected interest-free or below
market period is one year or less.
Service parts and certain attachments returns are estimable and
accrued at the time a sale is recognized. The estimated returns are
recorded in “Other assets” for the inventory value of estimated
returns, adjusted for restocking fees. The estimated dealer refund
liability, adjusted for restocking fees, is recorded in “Accounts
payable and accrued expenses.” The estimated returns are based
on historical return rates, current dealer inventory levels, and
current economic conditions.
The company remanufactures used engines and components
(cores) that are sold to dealers and retail customers for
maintenance and repair parts. Revenue for remanufactured
components is recognized using the same criteria as other parts
sales. When a remanufactured part is sold, the company collects a
deposit that is repaid if the customer returns a core that meets
certain specifications within a defined time period. The deposit
received from the customer is recognized as a liability in “Accounts
payable and accrued expenses” and the used component that is
expected to be returned is recognized in “Other assets” in the
consolidated balance sheet. When a customer returns a core, the
deposit is repaid, the liability reversed, and the returned core is
recorded in inventory to be remanufactured and sold to another
customer. If a core is not returned within the required time, the
deposit is recognized as revenue in “Net sales,” and the estimated
core return is recorded as an expense in “Cost of sales” in the
statement of consolidated income.
Certain equipment is sold with precision guidance, telematics, and
other information gathering and analyzing capabilities. These
technology solutions require hardware, software, and may include
an obligation to provide services for a period of time. These
solutions are generally bundled with the sale of the equipment but
can also be purchased or renewed separately. The revenue related
to the hardware and embedded software is generally recognized at
the time of the equipment sale and recorded in “Net sales” in the
statement of consolidated income. The revenue for the future
services is generally deferred and recognized over the service
period. The deferred revenue is recorded as a contract liability in
“Accounts payable and accrued expenses” in the consolidated
balance sheet and is recognized in “Other income” with the
43
associated expenses recognized in “Other operating expenses” in
the statement of consolidated income.
Financing revenue is recorded over the lives of the related
receivables using the interest method. Deferred costs on the
origination of financing receivables are recognized as a reduction
in “Finance and interest income” over the expected lives of the
receivables using the interest method. Income and deferred costs
on the origination of operating leases are recognized on a straight-
line basis over the scheduled lease terms in “Finance and interest
income.”
Sales Incentives
In certain markets, the company provides sales incentives to
dealers. These incentives may be based on a dealer’s purchase
volume or on retail sales incentive programs for allowances and
financing programs that will be due when the dealer sells the
equipment to a retail customer. At the time of the sale to a dealer,
the company records an estimated cost of these programs as a
reduction to the sales price. The estimated cost is based on
historical data, announced and expected incentive programs, field
inventory levels, and forecasted sales volumes. The final cost of
these programs is determined at the end of the measurement
period for volume-based incentives or when the dealer sells the
equipment to a retail customer. Actual cost differences from the
original cost estimate are recognized in “Net sales.”
PProduct Warranties
For most equipment and service parts sales, the company provides
a standard warranty to provide assurance that the equipment will
function as intended for a specified period. At the time a sale is
recognized, the estimated future warranty costs are recorded. The
company generally determines its total warranty liability by
applying historical warranty claims rate experience to the
estimated amount of equipment that has been sold and is still
under warranty based on dealer inventories and retail sales. The
historical claims rate is primarily determined by a review of five-
year claims costs with consideration of current quality
developments. The company also offers extended warranty
arrangements for purchase at the customer’s option. The
premiums for extended warranties are recognized in “Other
income” in the statement of consolidated income primarily in
proportion to the costs expected to be incurred over the contract
period. The unamortized extended warranty premiums (deferred
revenue) are recorded in “Accounts payable and accrued expenses”
in the consolidated balance sheet (see Note 21).
Sales and Transaction Taxes
The company collects and remits taxes assessed by different
governmental authorities that are both imposed on and concurrent
with revenue producing transactions between the company and its
customers. These taxes include sales, use, value-added, and some
excise taxes. The company elected to exclude these taxes from the
determination of the sales price (excluded from revenues).
Contract Costs
Incremental costs of obtaining an equipment revenue contract are
recognized as an expense when incurred since the amortization
period would be one year or less.
Advertising Costs
Advertising costs are charged to expense as incurred. This expense
was $212 million in 2021, $196 million in 2020, and $215 million in
2019.
Depreciation and Amortization
Property and equipment, capitalized software, and other
intangible assets are generally stated at cost less accumulated
depreciation or amortization. These assets are depreciated over
their estimated useful lives generally using the straight-line
method. Equipment on operating leases is depreciated over the
terms of the leases using the straight-line method. Property and
equipment expenditures for new and revised products, increased
capacity, and the replacement or major renewal of significant items
are capitalized. Expenditures for maintenance, repairs, and minor
renewals are generally charged to expense as incurred.
Securitization of Receivables
Certain financing receivables are periodically transferred to special
purpose entities (SPEs) in securitization transactions (see Note 14).
These securitizations qualify as collateral for secured borrowings
and no gains or losses are recognized at the time of securitization.
The receivables remain on the balance sheet and are classified as
“Financing receivables securitized - net.” The company recognizes
finance income over the lives of these receivables using the
interest method.
Receivables and Allowances
All financing and trade receivables are reported on the balance
sheet at outstanding principal and accrued interest, adjusted for
any write-offs, the allowance for credit losses, and any
unamortized deferred fees or costs on originated financing
receivables. The company also records an allowance and provision
for credit losses related to the receivables from sales (trade
receivables and certain financing receivables). The allowance is a
reduction to the receivable balances and the provision is recorded
in “Selling, administrative and general expenses.” The allowance
represents an estimate of the credit losses expected over the life of
the receivable portfolio. The company measures expected credit
losses on a collective basis when similar risk characteristics exist.
Risk characteristics considered by the company include finance
product category, market, geography, credit risk, and remaining
duration. Receivables that do not share risk characteristics with
other receivables in the portfolio are evaluated on an individual
basis.
The company utilizes loss forecast models, which are selected
based on the size and credit risk of the underlying pool of
receivables, to estimate expected credit losses. Transition matrix
models are used for large and complex retail customer receivable
pools, while weighted average remaining maturity models are used
for smaller and less complex retail customer receivable pools.
Expected credit losses on wholesale receivables are based on
historical loss rates, with consideration of current economic
conditions and dealer financial risk. The modeled expected credit
losses are adjusted based on reasonable and supportable forecasts,
which may include economic indicators such as commodity prices,
industry equipment sales, unemployment rates, and housing
44
starts. Management reviews each model’s output quarterly, and
qualitative adjustments are incorporated as necessary. Receivables
are written-off to the allowance when the account is considered
uncollectible (see Note 13).
Impairment of Long-Lived Assets, Goodwill, and Other Intangible
Assets
The company evaluates the carrying value of long-lived assets
(including equipment on operating leases, property and
equipment, goodwill, and other intangible assets) when events or
circumstances warrant such a review. Goodwill and unamortized
intangible assets are tested for impairment annually at the end of
the third quarter of each fiscal year, and more often if events or
circumstances indicate a reduction in the fair value below the
carrying value. Goodwill is allocated and reviewed for impairment
by reporting unit. Goodwill is allocated to the reporting unit in
which the business that created the goodwill resides. To test for
goodwill impairment, the carrying value of each reporting unit is
compared with its fair value. If the carrying value of the goodwill is
considered impaired, the impairment is measured as the excess of
the reporting unit’s carrying value over the fair value, with a limit
of the goodwill allocated to that reporting unit. If the carrying
value of the long-lived asset is considered impaired, a loss is
recognized based on the amount by which the carrying value
exceeds the fair value of the asset (see Notes 5 and 26).
Derivative Financial Instruments
The company’s policy is derivative transactions are executed only
to manage exposures arising in the normal course of business and
not for the purpose of creating speculative positions or trading.
The company’s financial services operations manage the
relationship of the types and amounts of their funding sources to
their receivable and lease portfolio in an effort to diminish risk due
to interest rate and foreign currency fluctuations, while responding
to favorable financing opportunities. The company also has foreign
currency exposures at some of its foreign and domestic operations
related to buying, selling, and financing in currencies other than
the functional currencies. In addition, the company has interest
rate exposure at certain equipment operations units for below
market retail financing programs that are used as sales incentives
and are offered for extended periods.
All derivatives are recorded at fair value on the balance sheet. Cash
collateral received or paid is not offset against the derivative fair
values on the balance sheet. Each derivative is designated as a
cash flow hedge, fair value hedge, or remains undesignated.
Changes in the fair value of derivatives that are designated and
effective as cash flow hedges are recorded in other comprehensive
income (OCI) and reclassified to the income statement when the
effects of the item being hedged are recognized in the income
statement. Changes in the fair value of derivatives that are
designated and effective as fair value hedges are recognized
currently in net income. These changes are offset in net income by
fair value changes related to the risk being hedged on the hedged
item. Changes in the fair value of undesignated hedges are
recognized currently in the income statement.
All designated hedges are formally documented as to the
relationship with the hedged item as well as the risk-management
strategy. Both at inception and on an ongoing basis the hedging
instrument is assessed as to its effectiveness. If and when a
derivative is determined not to be highly effective as a hedge, the
underlying hedged transaction is no longer likely to occur, the
hedge designation is removed, or the derivative is terminated,
hedge accounting is discontinued (see Note 27).
Foreign Currency Translation
The functional currencies for most of the company’s foreign
operations are their respective local currencies. The assets and
liabilities of these operations are translated into U.S. dollars at the
end of the period exchange rates. The revenues and expenses are
translated at weighted-average rates for the period. The gains or
losses from these translations are recorded in OCI. Gains or losses
from transactions denominated in a currency other than the
functional currency of the subsidiary involved and foreign
exchange derivative contracts are included in net income. The
pretax net gain (loss) for foreign exchange in 2021, 2020, and 2019
was $(134) million, $18 million, and $(13) million, respectively.
3. NEW ACCOUNTING STANDARDS
New Accounting Standards Adopted
In the first quarter of 2021, the company adopted Financial
Accounting Standards Board (FASB) Accounting Standards Update
(ASU) No. 2016-13, Measurement of Credit Losses on Financial
Instruments, which establishes Accounting Standards Codification
(ASC) 326, Financial Instruments - Credit Losses. This ASU was
adopted using a modified-retrospective approach. The ASU, along
with related amendments, revised the measurement of credit
losses for financial assets measured at amortized cost from an
incurred loss to an expected loss methodology. The ASU affects
receivables, debt securities, net investment in leases, and most
other financial assets that represent a right to receive cash.
The company holds deposits from dealers (dealer deposits), which
are recorded in “Accounts payable and accrued expenses” to
absorb certain credit losses. Prior to adopting this ASU, the
allowance for credit losses was estimated on probable credit losses
incurred after consideration of recoveries from dealer deposits.
The ASU considers dealer deposits and certain credit insurance
contracts as freestanding credit enhancements. As a result, after
adoption, credit losses recovered from dealer deposits and certain
credit insurance contracts are presented in “Other income” and no
longer as part of the allowance for credit losses or the provision for
credit losses. The ASU also modified the treatment of the
estimated write-off of delinquent receivables by no longer
including the estimated benefit of charges to the dealer deposits
in the write-off amount. This change increases the estimated
write-offs on delinquent financing receivables with the benefit of
credit losses recovered from dealer deposits presented in “Other
income.” This benefit, in both situations, is recorded when the
dealer deposits are charged and no longer based on estimated
recoveries.
45
tradenames. In connection with the Termination, the company will
purchase all of Hitachi’s shares in the relevant joint venture
manufacturing entities located in Kernersville, North Carolina,
U.S.; Langley, British Columbia, Canada; and Indaiatuba, Brazil. The
company will receive certain intellectual property rights relating to
certain manufacturing processes under a perpetual license
agreement. The initial cash consideration consists of $275 million
for the shares and an intellectual property license. The cash
consideration will be offset by cash acquired and the settlement of
intercompany balances. The company will also assume
substantially all liabilities and debt of the joint venture entities. In
addition to the foregoing payments, Hitachi will pay the book
value of certain pre-existing inventory. Following the Termination,
the company will purchase John Deere-branded excavators,
components, and service parts from Hitachi under a new supply
agreement with a duration that ranges from 5 to 30 years. The
company will also continue to manufacture 10-50 metric ton John
Deere-branded excavators. The Termination is expected to close
during the first half of fiscal year 2022, subject to the receipt of
certain required regulatory approvals and satisfaction of certain
other customary closing conditions. The company expects to fund
the initial consideration and the transaction expenses from cash
on hand.
Acquisitions
Bear Flag
In August 2021, the company acquired Bear Flag Robotics, Inc.
(Bear Flag) to further accelerate Deere’s development and delivery
of advanced technology. Bear Flag’s technology is complementary
to other Deere technology efforts and enables autonomous
tractor operations. The total cash purchase price before final
adjustments, net of cash acquired of $4 million, was $225 million,
with an additional $25 million to be recognized as compensation
expense over the four-year post-acquisition service period. In
addition to the cash purchase price, $19 million of liabilities were
assumed. The preliminary asset and liability fair values at the
acquisition date in millions of dollars follow:
Property and equipment
Goodwill
Other intangible assets
..........................................
................................................................
............................................
.........................................................
Total assets
$
AAugust 2021
$
1
189
54
244
Accounts payable and accrued expenses
Deferred income taxes
....................
............................................
......................................................
Total liabilities
$
$
1
18
19
The identified intangible was related to technology with a seven-
year amortization period. The goodwill will not be deductible for
tax purposes.
The effects of adopting the ASU on the consolidated balance sheet
were as follows in millions of dollars:
NNovember 1
2
2020
Cumulative Effect
from Adoption
November 2
N
2020
2
Assets
Trade accounts and note
receivable - net
................
...
Financing receivables - net
Financing receivables
securitized - net
Deferred income taxes
...............
.........
$
4,171 $
29,750
2 $
(27)
4,173
29,723
4,703
1,499
(4)
1
4,699
1,500
Liabilities
Accounts payable and
accrued expenses
Deferred income taxes
.............
.........
$
10,112 $
519
14 $
(7)
10,126
512
Stockholders’ equity
Retained earnings
................
$ 31,646 $
(35) $
31,611
Note 13 contains additional disclosures, while the company’s
updated allowance for credit losses accounting policy is included in
Note 2 and the MD&A’s Critical Accounting Estimates.
The company also adopted the following standards in 2021, none of
which had a material effect on the company’s consolidated
financial statements:
Accounting Standards Updates
No. 2018-15 — Customer’s Accounting for Implementation Costs Incurred in a
Cloud Computing Arrangement That Is a Service Contract, which amends
ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software
No. 2019-04 — Codification Improvements to Topic 326, Financial
Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic
825, Financial Instruments
No. 2021-01 — Reference Rate Reform (Topic 848): Scope
New Accounting Standards to be Adopted
The company will adopt the following standards in future periods,
none of which are expected to have a material effect on the
company’s consolidated financial statements:
Accounting Standards Updates
No. 2019-12 — Simplifying the Accounting for Income Taxes, which amends
ASC 740, Income Taxes
No. 2020-08 — Codification Improvements to Subtopic 310-20,
Receivables – Nonrefundable Fees and Other Costs
4. ACQUISITIONS AND DISPOSITIONS
Pending Acquisitions
In August 2021, the company and Hitachi Construction Machinery
Co., Ltd. (Hitachi) entered into a Joint Venture Dissolution
Agreement (Dissolution Agreement) pursuant to which the parties
agreed to voluntarily terminate (Termination) the joint venture
agreement dated May 16, 1988 between the company and Hitachi.
The joint venture agreement governs the terms of the joint
venture between the company and Hitachi for the manufacture
and distribution of excavators in North, Central, and South
America under the John Deere and Hitachi trademarks and
46
Unimil
In September 2020, the company acquired Unimil, a leading
Brazilian company in the after-sales service parts business for
sugarcane harvesters, which is based in Piracicaba, Brazil. The total
cash purchase price, net of cash acquired of $5 million, was $66
million, with $6 million funded to an escrow to secure certain
indemnity obligations. In addition to the cash purchase price, $14
million of liabilities were assumed. The asset and liability fair values
at the acquisition date in millions of dollars follow:
Trade accounts and notes receivable
Other receivables
Inventories
Property and equipment
Goodwill
Other intangible assets
.........................
...................................................
............................................................
..........................................
................................................................
...........................................
.........................................................
Total assets
SSeptember 2020
5
$
2
10
22
28
13
80
$
Accounts payable and accrued expenses
Deferred income taxes
...................
............................................
.....................................................
Total liabilities
$
$
5
9
14
The identified intangibles were primarily related to customer
relationships, trade name, and a non-compete agreement. The
weighted-average amortization period is approximately nine years.
The goodwill is not deductible for tax purposes.
For the acquisitions, the goodwill was the result of future cash
flows and related fair value exceeding the fair value of the
identified assets and liabilities. The results of these operations
have been included in the company’s consolidated financial
statements in the production and precision agriculture operating
segment and the pro forma results of operations as if these
acquisitions had occurred at the beginning of the current or
comparative fiscal year would not differ significantly from the
reported results.
Dispositions
In September 2020, the company sold its German lawn mower
business. At the time of the sale, total assets were $26 million,
which were recorded in “Other assets,” and total liabilities were $5
million, which were recorded in “Accounts payable and accrued
expenses.” No cash proceeds were received, resulting in a loss on
sale, including transaction costs, of $24 million pretax and after-
tax. The loss was recorded with a pretax and after-tax accrual
recognized in the third quarter of 2020 when a definitive sale
agreement was finalized. The loss was recorded in “Other
operating expenses” in the small agriculture and turf segment.
In October 2019, the company sold its construction and forestry
retail locations in Canada. At the time of the sale, total assets were
$187 million consisting of inventory of $138 million, property and
equipment – net of $24 million, other assets of $3 million, and
goodwill of $22 million. The liabilities consisted of $10 million of
accounts payable and accrued expenses. In addition, the company
accrued $15 million for transaction expenses and related costs. The
total proceeds from the sale were approximately $187 million, with
$93 million received in 2019. The remaining sales price was due
based on standard payment terms of new equipment sales to
independent dealers and separately negotiated terms ranging from
12 months to five years. A pretax loss of approximately $5 million
was recorded in “Other operating expenses” in the construction
and forestry segment.
For the retail location disposition, the company sells equipment,
service parts, and provides other services to the purchaser as an
independent dealer.
5. SPECIAL ITEMS
In 2021, the company sold a closed factory that previously
produced small agricultural equipment in China, resulting in a $27
million pretax gain. The fixed assets in an asphalt plant factory in
Germany were impaired by $38 million, pretax and after-tax. The
company also continued to assess its manufacturing locations,
resulting in additional long-lived asset impairments of $12 million
pretax. The impairments were the result of a decline in forecasted
financial performance that indicated it was probable future cash
flows would not cover the carrying amount of the net assets. The
company recognized a favorable indirect tax ruling in Brazil of $58
million pretax. See Note 26 for fair value measurement
information.
Expense (benefit):
...
Gain on sale – Other income
Long-lived asset impairments –
......................
$
Brazil indirect tax – Cost of sales
Total pretax expense (benefit) $
Cost of sales
PPA
SAT
CF
$
(27)
Total
$
(27)
5
(53)
(48) $
3 $
(24) $
42
(5)
37 $
50
(58)
(35)
47
The programs’ total pretax expenses in 2020 were as follows:
PPA
$
51 $
SAT
CF
FS
31 $
22
Total
$ 104
..................
Cost of sales
Research and development
....................
expenses
29
18
8
55
Selling, administrative and
general expenses
.........
Total operating profit impact $ 133 $ 92 $
Non-operating profit impact*
Total pretax expense
.....
43
53
24 $
54 $
15
15
135
294
41
35
$ 3
* Relates primarily to non-cash charges of $34 million from curtailments in certain
OPEB plans (see Note 8) and other corporate expenses, both of which were
recorded outside of operating profit. Approximately $6 million of the
curtailment charge was recorded by financial services.
During 2019, the company also completed certain employee-
separation programs designed for specific functions and
geographic areas as part of its on-going efforts to create a more
efficient organizational structure. These programs provided for
cash payments based on years of service. The expenses were
recorded in the period the employees irrevocably accepted the
separation offer with the following total pretax expenses:
PPA
.................
Cost of sales
$
Research and development
...................
expenses
SAT
CF
FS
3 $
2
1
Selling, administrative and
general expenses
Total pretax expense
........
....
$
7
11 $
6 $
8 $
2 $
2 $
9
9 $
Total
5
$
1
24
30
Redeemable Noncontrolling Interest
In 2020, the minority interest holder in Hagie Manufacturing
Company, LLC exercised its right to sell the remaining 20 percent
interest to the company for $14 million. The arrangement was
accounted for as an equity transaction with no gain or loss
recorded in the statement of consolidated income. This operation
is included in the company’s production and precision agriculture
segment.
In 2020, the company closed a factory that produced small
agricultural equipment in China, recognized impairments in the
fixed assets in an asphalt plant factory in Germany, a construction
equipment factory in Brazil, and other international locations,
recorded impairments of equipment on operating leases and
matured lease inventory, as well as impairments of the investment
in certain affiliate companies. See Note 26 for a description of the
valuation methodologies used to measure these impairments.
PPA
SAT
CF
FS
Factory closure – Cost of sales
Long-lived asset impairments:
.................
Cost of sales
.............
SA&G expenses
$
Other operating expenses
Affiliate company impairments
– Equity in loss of
unconsolidated affiliates
Total pretax impairments
....
$
20
13 $ 80
2
2
$
32
50
Total
20
$
93
4
32
50
and closure costs
..........
$
2 $
35 $
130 $
32 $
199
In the fourth quarter of 2019, the company recorded non-cash
charges in “Other operating expenses” of approximately $59
million pretax for the impairment of equipment on operating leases
and approximately $18 million pretax on matured operating lease
inventory recorded in “Other assets.” The impairment was the
result of lower estimated values of used agriculture and
construction equipment than originally estimated with the
probable effect that the future cash flows would not cover the
carrying amount of the net assets. The assets are part of the
financial services operations (see Note 26).
Employee-Separation Programs
During 2020, the company implemented employee-separation
programs for the company’s salaried workforce in several
geographic areas, including the U.S., Europe, Asia, and Latin
America. The programs’ main purpose was to improve efficiency
through a leaner, more flexible organization. The programs were
largely voluntary in nature with the expense recorded primarily in
the period in which the employees irrevocably accepted a
separation offer. For the limited involuntary employee-separation
programs, the expense was recorded when management
committed to a plan, the plan was communicated to the
employees, and the employees were not required to provide
service beyond the legal notification period. The programs
provided for cash payments based on years of service, and in some
countries subsidized healthcare for a limited period and
outplacement services.
48
6. REVENUE RECOGNITION
The company’s net sales and revenues by primary geographic
market, major product line, and timing of revenue recognition in
millions of dollars follow:
PPA
SAT
CF
FS
Total
2021
Primary geographic
markets:
...........
United States
....................
Canada
........
Western Europe
Central Europe and CIS
...........
Latin America
Asia, Africa, Australia,
New Zealand, and
...........
Middle East
.........................
Total
$ 8,223 $ 6,505 $ 5,697 $ 2,389 $ 22,814
3,015
1,047
6,429
1,807
2,664
828
4,522
903
853
2,086
1,322
2,916
498
2,433
475
456
617
103
39
247
1,417
4,580
$ 16,817 $ 12,046 $ 11,613 $ 3,548 $44,024
1,679
1,331
153
Major product lines:
............
$ 8,619
2,853
.......
........................
Production agriculture $ 16,248
Small agriculture
Turf
Construction
Compact construction
Roadbuilding
Forestry
Financial products
Other
$ 16,248
8,619
2,853
4,684
1,489
3,749
1,280
3,669
1,433
$ 16,817 $ 12,046 $ 11,613 $ 3,548 $44,024
.....
......................
.........................
$ 4,684
1,489
3,749
1,280
............
..................
20 $ 3,548
391
46
528
55
514
Total
Revenue recognized:
At a point in time
Over time
.......
................
.........................
Total
$ 16,659 $ 11,969 $ 11,522 $
105 $40,255
3,769
$ 16,817 $ 12,046 $ 11,613 $ 3,548 $44,024
3,443
158
77
91
PPA
SAT
CF
FS
Total
22020
Primary geographic
markets:
..........
United States
..................
Canada
......
Western Europe
Central Europe and CIS
..........
Latin America
Asia, Africa, Australia,
New Zealand, and
..........
Middle East
.......................
Total
$ 6,889 $ 5,059 $ 4,548 $ 2,500 $ 18,996
2,390
5,333
2,072
3,023
640
1,827
898
1,902
802
1,479
646
553
350
1,937
493
334
598
90
35
234
1,119
3,726
$ 13,275 $ 9,495 $ 9,181 $ 3,589 $ 35,540
1,322
1,153
132
Major product lines:
$ 6,827
2,390
......
......................
..........
Production agriculture $ 12,662
Small agriculture
Turf
Construction
Compact construction
Roadbuilding
Forestry
Financial products
Other
$ 12,662
6,827
2,390
3,521
1,269
2,924
1,100
3,720
1,127
$ 13,275 $ 9,495 $ 9,181 $ 3,589 $ 35,540
...
....................
.......................
$ 3,521
1,269
2,924
1,100
..........
.................
25 $ 3,589
342
69
544
37
241
Total
Revenue recognized:
At a point in time
Over time
.....
...............
.......................
Total
$ 13,106 $ 9,439 $ 9,071 $
106 $ 31,722
3,818
$ 13,275 $ 9,495 $ 9,181 $ 3,589 $ 35,540
3,483
169
110
56
PPA
SAT
CF
FS
Total
2019
Primary geographic
markets:
..........
United States
..................
Canada
......
Western Europe
Central Europe and CIS
..........
Latin America
Asia, Africa, Australia,
New Zealand, and
..........
Middle East
l .......................
Tota
$ 6,772 $ 5,590 $ 6,082 $ 2,482 $20,926
2,820
5,539
2,209
3,885
421
2,053
564
367
675
1,813
859
2,527
1,107
1,586
749
719
617
87
37
272
1,039
3,879
$ 13,685 $ 10,444 $ 11,508 $ 3,621 $39,258
1,449
1,265
126
Major product lines:
$ 7,422
2,650
......
......................
...........
Production agriculture $ 13,001
Small agriculture
Turf
Construction
Compact construction
Roadbuilding
Forestry
Financial products
Other
..........
.................
...
....................
.......................
$ 13,001
7,422
2,650
5,188
1,279
3,193
1,403
3,75
1,37
$ 13,685 $ 10,444 $ 11,508 $ 3,621 $39,258
$ 5,188
1,279
3,193
1,403
30 $ 3,621
415
78
606
22
350
1
1
Total
Revenue recognized:
At a point in time
Over time
.....
...............
.......................
Total
$ 13,509 $10,406 $ 11,391 $
111 $ 35,417
3,841
$ 13,685 $ 10,444 $ 11,508 $ 3,621 $39,258
3,510
176
38
117
49
Following is a description of the company’s major product lines:
Production Agriculture – Includes net sales of large and certain
mid-size tractors and associated attachments, combines, cotton
pickers, cotton strippers, sugarcane harvesters, sugarcane loaders
and pull behind scrapers, tillage, seeding, and application
equipment, including sprayers and nutrient management and soil
preparation machinery, and related attachments and service parts.
Small Agriculture – Includes net sales of mid-size and utility
tractors, self-propelled forage harvesters, hay and forage
equipment, balers, mowers, and related attachments and service
parts.
Turf – Includes net sales of turf and utility equipment, including
riding lawn equipment, golf course equipment, utility vehicles, and
commercial mowing equipment, along with a broad line of
associated implements, other outdoor power products, and
related attachments and service parts.
Construction – Includes net sales of a broad range of machines
used in construction, earthmoving, and material handling,
including backhoe loaders, crawler dozers and loaders, four-
wheel-drive loaders, excavators, motor graders, articulated dump
trucks, and related attachments and service parts.
Compact Construction – Includes net sales of smaller construction
equipment, including compact excavators, compact track loaders,
compact wheel loaders, skid steers, landscape loaders, and related
attachments and service parts.
Roadbuilding – Includes net sales of equipment used in
roadbuilding and renovation, including milling machines, recyclers,
slipform pavers, surface miners, asphalt pavers, compactors,
tandem and static rollers, mobile crushers and screens, mobile and
stationary asphalt plants, and related attachments and service
parts.
Forestry – Includes net sales of equipment used in timber
harvesting, including log skidders, feller bunchers, log loaders, log
forwarders, log harvesters, and related attachments and service
parts.
Financial Products – Includes finance and interest income primarily
from retail notes related to sales of John Deere equipment to retail
customers, wholesale financing to dealers of John Deere
equipment, and revolving charge accounts; lease income from
retail leases of John Deere equipment; and revenue from extended
warranties.
Other – Includes sales of components to other equipment
manufacturers that are included in “Net sales”; and revenue
earned over time from precision guidance, telematics, and other
information enabled solutions, revenue from service performed at
company owned dealerships and service centers, gains on
disposition of property and businesses, trademark licensing
revenue, and other miscellaneous revenue items that are included
in “Other income.”
The company invoices in advance of recognizing the sale of certain
products and the revenue for certain services. These items are
primarily for extended warranty premiums, advance payments for
future equipment sales, and subscription and service revenue
related to precision guidance and telematic services. These
advanced customer payments are presented as deferred revenue,
a contract liability, in “Accounts payable and accrued expenses” in
the consolidated balance sheet. The deferred revenue received,
but not recognized in revenue, including extended warranty
premiums also shown in Note 21, was $1,344 million and $1,090
million at October 31, 2021 and November 1, 2020, respectively.
The contract liability is reduced as the revenue is recognized.
Revenue recognized from deferred revenue that was recorded as a
contract liability at the beginning of the fiscal year was $485
million in 2021, $425 million in 2020, and $444 million in 2019.
The amount of unsatisfied performance obligations for contracts
with an original duration greater than one year is $1,062 million at
October 31, 2021. The estimated revenue to be recognized by fiscal
year follows in millions of dollars: 2022 - $339, 2023 - $289,
2024 - $199, 2025 - $101, 2026 - $64, and later years - $70. As
permitted, the company 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 generally for sales to dealers and retail customers
for equipment, service parts, repair services, and certain telematics
services.
7. CASH FLOW INFORMATION
The company considers investments with purchased maturities of
three months or less to be cash equivalents. Substantially all of the
company’s short-term borrowings, excluding the current
maturities of finance lease obligations and long-term borrowings,
mature or may require payment within three months or less.
The equipment operations sell a significant portion of their trade
receivables to financial services. These intercompany cash flows
are eliminated in the consolidated cash flows.
All cash flows from the changes in trade accounts and notes
receivable (see Note 13) are classified as operating activities in the
statement of consolidated cash flows as these receivables arise
from sales to the company’s customers. Cash flows from financing
receivables that are related to sales to the company’s customers
(see Note 13) are also included in operating activities. The
remaining financing receivables are related to the financing of
equipment sold by independent dealers and are included in
investing activities.
The company had the following non-cash operating and investing
activities that were not included in the statement of consolidated
cash flows. The company transferred inventory to equipment on
operating leases of $662 million, $614 million, and $678 million in
2021, 2020, and 2019, respectively. The company also had accounts
payable related to purchases of property and equipment of $121
million, $98 million, and $152 million at October 31, 2021,
November 1, 2020, and November 3, 2019, respectively.
50
The company’s restricted cash held at October 31, 2021,
November 1, 2020, and November 3, 2019 was as follows in millions
of dollars:
The components of net periodic OPEB cost and the assumptions
related to the cost consisted of the following in millions of dollars
and in percentages:
Equipment operations
Financial services
....................
$
..........................
.........................................
$
Total
22021
22020
12 $
96
108
$
11 $
95
106 $
22019
21
78
99
The restricted cash, recorded in “Other assets” in the consolidated
balance sheet, primarily relates to securitization of financing
receivables (see Note 14).
Cash payments for interest and income taxes consisted of the
following in millions of dollars:
2021
2020
2019
Interest:
Equipment operations
Financial services
Intercompany eliminations
...............
......................
.........
................................
Consolidated
Income taxes:
Equipment operations
Financial services
Intercompany eliminations
...............
......................
.........
................................
Consolidated
$
$
584 $
736
(279)
1,041 $
666
553 $
1,154
998
(360)
(272)
1,279 $ 1,460
$ 1,996 $ 1,000 $
348
(269)
$ 2,075
297
(228)
$ 1,069 $
1,018
(57)
150
1,111
8. PENSION AND OTHER POSTRETIREMENT BENEFITS
The company has several funded and unfunded defined benefit
pension plans and other postretirement benefit (OPEB) plans,
primarily health care and life insurance plans, covering its U.S.
employees and employees in certain foreign countries. The
company uses an October 31 measurement date for these plans.
The components of net periodic pension cost and the assumptions
related to the cost consisted of the following in millions of dollars
and in percentages:
22021
22020
22019
$ 332 $ 321 $ 261
447
(802)
148
11
5
$ 101 $ 143 $ 70
347
(819)
256
13
25
276
(799)
259
12
21
.........................................
........................................
...............
.................
.............
......................
.............................................
Pensions
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service cost
Settlements/curtailments
Net cost
Weighted-average assumptions
Discount rates - service cost
Discount rates - interest cost
Rate of compensation increase
Expected long-term rates of return
Interest crediting rate - U.S. cash balance plan
...................
..................
...............
..........
2021
2020
2019
t ........................................
.......................................
...............
.................
.........
.......................................
.............................................
OPEB
Service cos
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service credit
Curtailments
Net cost
Weighted-average assumptions
Discount rates - service cost
Discount rates - interest cost
Expected long-term rates of return
..................
.................
.........
$ 48 $ 49 $
102
(77)
27
(4)
140
(50)
29
(4)
34
41
216
(36)
16
(72)
$ 96 $ 198 $ 165
3.4%
2.1%
5.4%
3.7%
2.7%
5.7%
4.8%
4.2%
5.7%
The 2020 OPEB curtailments were a result of the employee-
separation programs (see Note 5).
The spot yield curve approach is used to estimate the service and
interest cost components of the net periodic pension and OPEB
costs by applying the specific spot rates along the yield curve used
to determine the benefit plan obligations to relevant projected
cash outflows. The components of net periodic pension and OPEB
cost excluding the service component are primarily included in the
line item “Other operating expenses” in the statement of
consolidated income.
The previous pension cost in net income and other changes in plan
assets and benefit obligations in other comprehensive income in
millions of dollars were as follows:
2021
2020
2019
.............................................
Pensions
Net cost
Retirement benefit adjustments included
in other comprehensive (income) loss:
$
101 $ 143 $
70
Net actuarial (gain) loss
Amortization of actuarial loss
Amortization of prior service cost
Settlements
....................
............
.......
...................................
(2,821)
(256)
(12)
(22)
438
(249)
(11)
(26)
887
(143)
(11)
(3)
Total (gain) loss recognized in other
comprehensive (income) loss
........
(3,111)
152
730
Total recognized in comprehensive
(income) loss
....................................
$ (3,010) $ 295 $ 800
2.5%
2.1%
3.7%
6.0%
1.7%
2.9%
2.7%
3.8%
6.4%
2.1%
4.0%
4.0%
3.8%
6.5%
3.3%
51
The previous OPEB cost in net income and other changes in plan
assets and benefit obligations in other comprehensive income in
millions of dollars were as follows:
2021
2020
2019
...........................................
OPEB
Net cost
Retirement benefit adjustments included
in other comprehensive (income) loss:
$
96 $ 198 $ 165
Net actuarial (gain) loss
Amortization of actuarial loss
Amortization of prior service credit
...................
...........
...
(671)
(27)
4
(136)
(29)
4
141
(16)
72
Total (gain) loss recognized in other
comprehensive (income) loss
Total recognized in comprehensive
......
(income) loss
..................................
(694)
(161)
197
$ (598) $
======
37 $ 362
The benefit plan obligations, funded status, and the assumptions
related to the obligations at October 31, 2021 and November 1,
2020, respectively, in millions of dollars follow:
Pensions
OPEB
22021
2020
2021
2020
Change in benefit obligations
...
Beginning of year balance
......................
Service cost
.....................
Interest cost
............
Actuarial gain (loss)
....................
Benefits paid
.........
Health care subsidies
...
Settlements/curtailments
Foreign exchange and other
...........
End of year balance
$
$ (15,021) $ (14,250) $ (5,410)
(48)
(102)
381
290
(29)
(332)
(276)
373
755
(321)
(347)
(771)
749
(5,622)
(49)
(140)
119
297
(28)
1
(25)
(14,525)
15
(96)
(15,021)
(12)
(4,930)
13
(5,410)
Change in plan assets (fair value)
...
Beginning of year balance
Actual return on plan assets
........
Employer contribution
....................
Benefits paid
......................
Settlements
Foreign exchange and other
...........
End of year balance
..................
Funded status
14,574
3,249
101
(755)
14,024
1,144
108
(749)
(12)
59
14,574
21
17,190
$ 2,665 $
3
3
1,755
1,518
(447) $ (3,175) $ (3,892)
1,518
367
157
(290)
936
33
843
(297)
Weighted-average assumptions
..................
Discount rates
Rate of compensation increase
Interest crediting rate - U.S.
...........
cash balance plan
2.7%
3.7%
2.5%
3.7%
1.8%
1.7%
2.8%
2.7%
The company remeasured the U.S. hourly pension plan as of
November 30, 2021 due to the new collective bargaining
agreement, which decreased the plan’s funded status and
increased pension expense in 2022. See Note 29 for more
information.
The actuarial gain for pension for 2021 was primarily due to an
increase in discount rates. The actuarial gain for OPEB for 2021 was
primarily due to a decrease in health care trend rates, favorable
mortality assumptions, and an increase in discount rates. The
actuarial loss for pension for 2020 was primarily due to a decrease
in discount rates partially offset by favorable mortality
52
assumptions. The actuarial gain for OPEB for 2020 was primarily
due to the U.S. enactment of the Setting Every Community Up for
Retirement Enhancement Act (SECURE Act) that repealed the
health insurance provider fee effective in 2021, favorable mortality
assumptions, and a decrease in health care trend rates, partially
offset by a decrease in discount rates.
The mortality assumptions for the 2021 and 2020 benefit plan
obligations used the most recent tables and scales issued by the
Society of Actuaries at that time. The 2021 mortality assumption
includes an adjustment to the scale related to COVID.
The amounts recognized at October 31, 2021 and November 1, 2020,
respectively, in millions of dollars consisted of the following:
Pensions
OPEB
2021
2020
2021
2020
Amounts recognized in
..................
.....................
...............
..................................
balance sheet
Noncurrent asset
Current liability
Noncurrent liability
Total
Amounts recognized in
accumulated other
comprehensive income – pretax
..................
$
........
..................................
Net actuarial loss
Prior service cost (credit)
Total
$ 3,601 $
863
(72) $
(51)
(885)
(1,238)
$ 2,665 $ (447)
(36) $
(36)
(3,856)
$ (3,175) $ (3,892)
(3,139)
1,37
6 $ 4,475 $
9
21
$ 1,385 $ 4,496 $
49 $
(20)
29 $
747
(24)
723
The total accumulated benefit obligations for all pension plans at
October 31, 2021 and November 1, 2020, were $13,787 million and
$14,257 million, respectively.
The accumulated benefit obligations and fair value of plan assets
for pension plans with accumulated benefit obligations in excess of
plan assets were $2,012 million and $1,207 million, respectively, at
October 31, 2021 and $2,107 million and $1,100 million, respectively,
at November 1, 2020. The projected benefit obligations and fair
value of plan assets for pension plans with projected benefit
obligations in excess of plan assets were $2,163 million and $1,227
million, respectively, at October 31, 2021 and $10,792 million and
$9,482 million, respectively, at November 1, 2020.
Actuarial gains and losses are recorded in accumulated other
comprehensive income (loss). To the extent unamortized gains and
losses exceed 10 percent of the higher of the market-related value
of assets or the benefit obligation, the excess is amortized as a
component of net periodic cost over the remaining service period
of the active participants. For plans in which all or almost all of the
plan’s participants are inactive, the amortization period is the
remaining life expectancy of the inactive participants.
The company makes any required contributions to the plan assets
under applicable regulations and voluntary contributions after
evaluating the company’s liquidity position and ability to make
tax-deductible contributions. Total company contributions to the
plans were $258 million in 2021 and $951 million in 2020, which
included both required and voluntary contributions and direct
benefit payments. The voluntary contributions to plan assets were
$700 million in 2020.
The company expects to contribute approximately $100 million to
its pension plans and approximately $1,150 million to its OPEB plans
in 2022. Fiscal year 2022 OPEB contributions include a voluntary
contribution of $1,000 million to a U.S. plan made on
November 30, 2021 (see Note 29), which will increase plan assets.
The pension and OPEB contributions exceeding the voluntary
amounts primarily include direct benefit payments from company
funds. The company has no significant required contributions to
U.S. pension plan assets in 2022 under applicable funding
regulations.
The benefits expected to be paid from the benefit plans, which
reflect expected future years of service, are as follows in millions
of dollars:
2022
2023
2024
2025
2026
2027 to 2031
................................................
................................................
................................................
................................................
................................................
......................................
Pensions
$
730 $
710
701
693
698
3,426
OPEB*
280
279
279
278
278
1,374
*
Net of prescription drug group benefit subsidy under Medicare Part D.
The annual rates of increase in the per capita cost of covered
health care benefits (the health care cost trend rates) used to
determine accumulated postretirement benefit obligations were
based on the trends for medical and prescription drug claims for
pre- and post-65 age groups due to the effects of Medicare. For
the 2021 obligation, the weighted-average composite trend rates
were assumed to be a 2.1 percent increase from 2021 to 2022,
followed by an increase of 8.4 percent from 2022 to 2023,
gradually decreasing to 4.7 from 2028 to 2029 and all future
years. The lower estimated increase from 2021 to 2022 resulted
from a decrease in Medicare Advantage premiums. The 2020
obligations and the cost in 2021 assumed a 4.0 percent increase
from 2020 to 2021, followed by an increase of 7.6 percent from
2021 to 2022, gradually decreasing to 4.7 percent from 2027 to
2028 and all future years. The lower estimated increase from 2020
to 2021 resulted from the SECURE Act that repealed the health
insurance provider fee effective in 2021.
The discount rate assumptions used to determine the pension and
OPEB obligations for all periods presented were primarily based on
hypothetical AA yield curves represented by a series of annualized
individual discount rates. These discount rates represent the rates
at which the company’s benefit obligations could effectively be
settled at the October 31 measurement dates.
Fair value measurement levels in the following tables are defined in
Note 26.
The fair values of the pension plan assets at October 31, 2021
follow in millions of dollars:
Cash and short-term investments
Cash and short-term investments
Equity:
Total
$
Level 1 Level 2
23
378 $ 355 $
...........
...........
U.S. equity securities
International equity securities and funds
.......................
1,151
951
1,123
931
28
20
Fixed Income:
Government and agency securities
Corporate debt securities
Mortgage-backed securities
Real estate investment trusts
Derivative contracts - assets
Derivative contracts - liabilities
Receivables, payables, and other
Securities lending collateral
Securities lending liability
Securities sold short
.....
..................
..............
.................
..................
...............
.............
...................
......................
.............................
......
Total of Level 1 and Level 2 assets .
1,159
1,475
4,841
144
62
116
(75)
(155)
982
(982)
(139)
316
4,841
144
7
55
79
37
(60
(15)
)
22
(177)
875
107
(875)
(107)
(11)
(128)
8,749 $ 3,340 $ 5,409
Investments at net asset value:
Short-term investments
U.S. equity funds
International equity funds
Fixed income funds
Real estate funds
Hedge funds
Private equity
Venture capital
Other investments
Total net assets
......................
...............................
...................
............................
...............................
.....................................
...................................
..................................
.............................
..............................
815
796
528
1,701
566
751
1,385
1,537
362
$ 17,190
The fair values of the health care assets at October 31, 2021 follow
in millions of dollars:
Cash and short-term investments
Equity securities and funds
Fixed Income:
Total
............
$
.....................
55 $
30
Level 1 Level 2
55
29 $
1
Government and agency securities
Corporate debt securities
Mortgage-backed securities
......
...................
...............
l ....................
.......................
..............................
........
Securities lending collatera
Securities lending liability
Securities sold short
Total of Level 1 and Level 2 assets
Investments at net asset value:
243
307
10
64
(64)
(3)
215
28
307
10
44
(44)
20
(20)
(3)
- - - - - - - - - - - - -
642 $ 296 $ 346
- - - - -==
Short-term investments
U.S. equity funds
International equity funds
Fixed income funds
Real estate funds
Hedge funds
Private equity
Venture capital
Other investments
Total net assets
.......................
................................
....................
.............................
................................
......................................
....................................
...................................
..............................
...............................
20
619
358
18
42
13
18
20
5
$ 1,755
53
The fair values of the pension plan assets at November 1, 2020
follow in millions of dollars:
Cash and short-term investments
Equity:
.............
Total
$
Level 1 Level 2
33
309 $ 276 $
U.S. equity securities
International equity securities
.........................
.............
1,184
947
1,135
937
49
10
Fixed Income:
Government and agency securities
Corporate debt securities
Mortgage-backed securities
Real estate investment trusts
Derivative contracts - assets
Derivative contracts - liabilities
Receivables, payables, and other
Securities lending collateral
Securities lending liability
Securities sold short
.......
...................
...............
..................
...................
................
..............
.....................
........................
...............................
........
Total of Level 1 and Level 2 assets
824
1,133
3,534
136
49
94
(79)
(163)
449
(449)
(149)
309
3,534
136
1
48
92
2
(36)
(43)
21
(184)
359
90
(359)
(90)
(144)
(5)
6,995 $ 2,851 $ 4,144
Investments at net asset value:
Short-term investments
U.S. equity funds
International equity funds
Fixed income funds
Real estate funds
Hedge funds
Private equity
Venture capital
Other investments
Total net assets
.......................
................................
....................
.............................
................................
......................................
.....................................
...................................
..............................
................................
510
1,246
674
1,321
618
750
1,064
974
422
$ 14,574
The fair values of the health care assets at November 1, 2020 follow
in millions of dollars:
Total
$
Level 1 Level 2
$
117
43 $
117
44
Cash and short-term investments
Equity securities and funds
Fixed Income:
.............
.....................
Government and agency securities
Corporate debt securities
Mortgage-backed securities
.......
...................
...............
..................................................
.....................
........................
...............................
........
Other
Securities lending collateral
Securities lending liability
Securities sold short
Total of Level 1 and Level 2 assets
180
66
13
(1)
49
(49)
(3)
416 $
168
(1)
8
(8)
(3)
324 $
1
12
66
13
41
(41)
92
Investments at net asset value:
Short-term investments
U.S. equity funds
International equity funds
Fixed income funds
Hedge funds
Private equity
Venture capital
Other investments
Total net assets
.......................
................................
....................
.............................
......................................
.....................................
...................................
..............................
................................
9
539
320
185
12
13
12
12
$ 1,518
Investments at net asset value in the preceding tables are
measured at fair value using the net asset value per share practical
expedient and are not classified in the fair value hierarchy.
54
Fair values are determined as follows:
Cash and Short-Term Investments – The investments include (1)
cash accounts that are valued based on the account value, which
approximates fair value; (2) investments that are valued at quoted
prices in the active markets in which the investment trades or using
a market approach (matrix pricing model) in which all significant
inputs are observable or can be derived from or corroborated by
observable market data; and (3) investment funds that are valued
based on a constant fund net asset value (NAV), which is based on
quoted prices in the active market in which the investment fund
trades, or the fund’s NAV using the NAV per share practical
expedient, which is based on the fair value of the underlying
securities.
Equity Securities and Funds – The values are determined by quoted
prices in the active market in which the equity investment trades,
or the fund’s NAV, based on the fair value of the underlying
securities.
Fixed Income Securities and Funds and Other Funds – The
securities are valued using either 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, or they are valued using the quoted prices in the active
market in which the fixed income investment trades. Fixed income
and other funds are valued using the fund’s NAV, based on the fair
value of the underlying securities.
Real Estate, Venture Capital, Private Equity, and Hedge Funds – The
investments that are structured as limited partnerships are valued
at estimated fair value based on their proportionate share of the
limited partnership’s fair value that is determined by the respective
general partner. These investments are valued using the fund’s
NAV, which is based on the fair value of the underlying
investments. Real estate investment trusts are primarily valued at
the quoted prices in the active markets in which the investment
trades.
Derivative Instruments – The derivatives are valued using either an
income approach (discounted cash flow) using market observable
inputs, including swap curves and both forward and spot exchange
rates, or a market approach (quoted prices in the active market in
which the derivative instrument trades).
The primary investment objective for the pension and health care
plans assets is to fulfill the projected obligations to the
beneficiaries over a long period of time, while meeting the
company’s fiduciary responsibilities. The asset allocation policy is
the most important decision in managing the assets and it is
reviewed regularly. The asset allocation policy considers the
company’s long-term asset class risk/return expectations for each
plan since the obligations are long-term in nature. The current
target allocations for pension assets are approximately 26 percent
for equity, 55 percent for debt, 4 percent for real estate, and 15
percent for other investments. The target allocations for health
care assets are approximately 58 percent for equity, 35 percent for
debt, 2 percent for real estate, and 5 percent for other
investments. The allocation percentages above include the effects
of combining derivatives with other investments to manage asset
allocations and exposures to interest rates and foreign currency
exchange. The assets are well diversified and are managed by
professional investment firms as well as by investment
professionals who are company employees. As a result of the
company’s diversified investment policy, there were no significant
concentrations of risk.
The expected long-term rate of return on plan assets reflects
management’s expectations of long-term average rates of return
on funds invested to provide for benefits included in the projected
benefit obligations. A market related value of plan assets is used to
calculate the expected return on assets. The market related value
recognizes changes in the fair value of pension plan assets
systematically over a five-year period. The market related value of
the health care plan assets equals fair value. The expected return is
based on the outlook for inflation and for returns in multiple asset
classes, while also considering historical returns, asset allocation,
and investment strategy. The company’s approach has emphasized
the long-term nature of the return estimate such that the return
assumption is not changed significantly unless there are
fundamental changes in capital markets that affect the company’s
expectations for returns over an extended period of time (i.e., 10 to
20 years). The average annual return of the company’s U.S.
pension fund was approximately 11.0 percent during the past ten
years and approximately 9.3 percent during the past 20 years. Since
return premiums over inflation and total returns for major asset
classes vary widely even over ten-year periods, recent history is not
necessarily indicative of long-term future expected returns. The
company’s systematic methodology for determining the long-term
rate of return for the company’s investment strategies supports its
long-term expected return assumptions.
The company has created certain Voluntary Employees’ Beneficiary
Association trusts (VEBAs) for the funding of postretirement
health care benefits. The future expected asset returns for these
VEBAs are lower than the expected return on the other pension
and health care plan assets due to investment in a higher
proportion of liquid securities. These assets are in addition to the
other postretirement health care plan assets that have been
funded under Section 401(h) of the U.S. Internal Revenue Code and
maintained in a separate account in the company’s pension plan
trust.
The company has defined contribution plans related to employee
investment and savings plans primarily in the U.S. The company’s
contributions and costs under these plans were $207 million in
2021, $160 million in 2020, and $192 million in 2019. The
contribution rate varies primarily based on the company’s
performance in the prior year and employee participation in the
plans.
9. INCOME TAXES
The provision for income taxes by taxing jurisdiction and by
significant component consisted of the following in millions of
dollars:
2021
2020
2019
Current:
U.S.:
Federal
State
Foreign
.......................................
..........................................
.........................................
..............................
Total current
Deferred:
U.S.:
Federal
State
Foreign
.......................................
..........................................
.........................................
............................
....................
Total deferred
Provision for income taxes
$ 899 $ 400 $ 545
72
700
1,317
183
1,017
2,099
53
640
1,093
(303)
(45)
(93)
(441)
(345)
(26)
(94)
(465)
$ 1,658 $ 1,082 $ 852
(68)
9
48
(11)
Based upon the location of the company’s operations, the
consolidated income before income taxes in the U.S. in 2021, 2020,
and 2019 was $4,061 million, $2,082 million, and $2,166 million,
respectively, and in foreign countries was $3,541 million, $1,801
million, and $1,922 million, respectively. Certain foreign operations
are branches or partnerships of Deere & Company and are subject
to U.S. as well as foreign income tax regulations. The pretax
income by location and the preceding analysis of the income tax
provision by taxing jurisdiction are not directly related.
A comparison of the statutory and effective income tax provision
and reasons for related differences in millions of dollars follow:
2021
2020
2019
U.S. federal income tax provision at the
U.S. statutory rate (21 percent)
............
State and local taxes, net of federal effect
Other Impacts of Tax Cuts and Jobs Act of 2017
...
Rate differential on foreign subsidiaries
...........
Research and business tax credits
Excess tax benefits on equity compensation
............................
Valuation allowances
.........................................
Other - net
Provision for income taxes
....................
$ 1,597 $ 815 $ 859
47
(101)
89
(85)
(40)
28
55
$ 852
59
39
106
(50)
(87)
139
61
$ 1,658 $ 1,082
119
(85)
148
(48)
(79)
18
(12)
At October 31, 2021, accumulated earnings in certain subsidiaries
outside the U.S. totaled $2,155 million. A provision for foreign
withholding taxes has not been made since these earnings are
expected to remain indefinitely reinvested outside the U.S.
Determination of the amount of a foreign withholding tax liability
on these unremitted earnings is not practicable.
55
only related to timing. The company expects that any reasonably
possible change in the amounts of unrecognized tax benefits in
the next twelve months would not be significant.
The company files its tax returns according to the tax laws of the
jurisdictions in which it operates, which includes the U.S. federal
jurisdiction and various state and foreign jurisdictions. The U.S.
Internal Revenue Service (IRS) has completed the examination of
the company’s federal income tax returns for periods prior to 2015.
The federal income tax returns for years 2015, 2016, and 2017 are
currently under examination. Various state and foreign income tax
returns, including major tax jurisdictions in Argentina, Australia,
Brazil, Canada, China, Finland, France, Germany, India,
Luxembourg, Mexico, Russia, Singapore, and Spain also remain
subject to examination by taxing authorities.
The company’s policy is to recognize interest related to income
taxes in interest expense and interest income and recognize
penalties in selling, administrative and general expenses. During
2021 and 2019, the total amount of expense from interest and
penalties was $7 million and $13 million. During 2020, interest and
penalties previously recorded were reversed when tax positions
were effectively settled resulting in a $3 million net benefit. The
interest income in 2021, 2020, and 2019 was $8 million, $11 million,
and $25 million, respectively. At October 31, 2021 and November 1,
2020, the liability for accrued interest and penalties totaled
$75 million and $72 million, respectively, and the receivable for
interest was $11 million and $6 million, respectively.
10. OTHER INCOME AND OTHER OPERATING EXPENSES
The major components of other income and other operating
expenses consisted of the following in millions of dollars:
2021
2020
2019
Other income
...........................
Revenues from services
Insurance premiums and fees earned* .......
Trademark licensing income .....................
..............
Operating lease disposition gains
Investment income.................................
Other...................................................
$ 322
227
87
65
41
249
25
226
Total............................................... $ 991 $ 818 $ 879
26
182
$ 314 $ 348
214
223
66
73
Other operating expenses
Depreciation of equipment on operating leases $ 983
................
Insurance claims and expenses*
235
.....................................
Cost of services
202
Operating lease residual losses and impairments
Pension and OPEB benefit, excluding service
..................................
..................................................
...............................................
cost component
Other.
Total
* Primarily related to extended warranties (see Note 21).
$ 1,083 $
231
188
52
981
210
228
159
(183)
106
(67)
67
$ 1,343 $ 1,612 $ 1,578
(31)
89
Deferred income taxes arise because there are certain items that
are treated differently for financial accounting than for income tax
reporting purposes. An analysis of the deferred income tax assets
and liabilities at October 31, 2021 and November 1, 2020 in millions
of dollars follows:
2021
2
Deferred
Tax
Assets
676
Deferred
Tax
Liabilities
2020
2
Deferred
Tax
Assets
Deferred
Tax
Liabilities
$
804
$
399
$
489
OPEB liabilities.................. $
Lessor lease transactions ....
Tax loss and tax credit
carryforwards ................
Accrual for sales allowances
Tax over book depreciation
Goodwill and other
intangible assets ............
Pension - net ....................
Allowance for credit losses
Accrual for employee benefits
Share-based compensation
Deferred compensation ......
Lessee lease transactions....
Unearned revenue .............
Other items ......................
Less valuation allowances ...
Deferred income tax aassets
1,542
466
78
298
53
49
46
172
333
(1,530)
154
337
448
43
341
937
362
316
81
249
41
40
56
22
344
(858)
196
368
56
305
and liabilities ................. $ 2,183 $
1,722 $ 2,394 $
1,414
Deere & Company files a consolidated federal income tax return in
the U.S., which includes the wholly-owned financial services
subsidiaries. These subsidiaries account for income taxes generally
as if they filed separate income tax returns, with a modification for
realizability of certain tax benefits.
At October 31, 2021, tax loss and tax credit carryforwards of $1,542
million were available with $1,068 million expiring from 2022
through 2041 and $474 million with an indefinite carryforward
period.
A reconciliation of the total amounts of unrecognized tax benefits
at October 31, 2021, November 1, 2020, and November 3, 2019 in
millions of dollars follows:
019
Beginning of year balance ........................... $ 668 $ 553 $ 279
Increases to tax positions taken during the
020
021
2
2
2
current year...........................................
Increases to tax positions taken during prior years
Decreases to tax positions taken during prior years
Decreases due to lapse of statute of limitations
Settlements..............................................
Foreign exchange ......................................
End of year balance
30
357
(30)
(6)
(75)
(2)
................................... $ 811 $ 668 $ 553
63
95
(30)
(9)
(1)
(3)
81
100
(23)
(12)
(3)
The amount of unrecognized tax benefits at October 31, 2021 and
November 1, 2020 that would impact the effective tax rate if the
tax benefits were recognized was $227 million and $134 million,
respectively. The remaining liability was related to tax positions for
which there are offsetting tax receivables, or the uncertainty was
56
11. UNCONSOLIDATED AFFILIATED COMPANIES
12. MARKETABLE SECURITIES
Unconsolidated affiliated companies are companies in which
Deere & Company generally owns 20 percent to 50 percent of the
outstanding voting shares. Deere & Company does not control
these companies and accounts for its investments in them on the
equity basis. The investments in these companies primarily consist
of Deere-Hitachi Construction Machinery Corporation (50 percent
ownership) and Deere-Hitachi Maquinas de Construcao do Brasil
S.A. (50 percent ownership). During 2021, the company sold its
investment in Bell Equipment Limited, resulting in no material gain
or loss. The company also entered into a Dissolution Agreement
with Hitachi to terminate the joint venture agreement. The
termination is expected to occur in 2022 (see Note 4). The
unconsolidated affiliated companies primarily manufacture or
market equipment. Deere & Company’s share of the income or loss
of these companies is reported in the consolidated income
statement under “Equity in income (loss) of unconsolidated
affiliates.” In 2020, the company recorded impairments on certain
unconsolidated affiliates. The impairments were the result of an
other-than-temporary decline in value (see Note 5). The
investment in these companies is reported in the consolidated
balance sheet under “Investments in unconsolidated affiliates.”
Combined financial information of the unconsolidated affiliated
companies in millions of dollars follows:
erations
Op
................................................
Sales
.......................................
Net income
Deere & Company’s equity in net income (loss)
9
201
2021
2020
$ 2,095 $ 1,793 $ 2,483
50
21
7
(48)
51
21
...................................................
F
inancial Position
Total assets
Total external borrowings
Total net assets
Deere & Company’s share of the net assets
................................
..............................................
..............
2
021
$ 1,289 $
497
366
175
2
020
1,541
540
598
193
Consolidated retained earnings at October 31, 2021 include
undistributed earnings of the unconsolidated affiliates of $48
million. Dividends from unconsolidated affiliates were $21 million in
2021, none in 2020, and $30 million in 2019.
In the ordinary course of business, the company purchases and
sells components and finished goods to the unconsolidated
affiliated companies. Transactions with unconsolidated affiliated
companies reported in the statement of consolidated income in
millions of dollars follow:
Net sales........................................... $
Purchases
.........................................
78 $
81 $
1,605
1,288
2021
2020
201
9
143
1,937
All marketable securities are classified as available-for-sale.
Realized gains or losses from the sales of marketable securities are
based on the specific identification method.
The amortized cost and fair value of marketable securities at
October 31, 2021 and November 1, 2020 in millions of dollars follow:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
2021
..............
U.S. equity fund
International equity securities
......
Total equity securities
U.S. government
debt securities............. $
Municipal debt securities
Corporate debt securities
International debt securities
Mortgage-backed securities*
Total debt securities ........ $
Marketable securities ......
2020
U.S. equity fund..............
International equity securities
Total equity securities
U.S. government
......
debt securities............. $
Municipal debt securities
Corporate debt securities
International debt securities
Mortgage-backed securities*
Total debt securities ........ $
Marketable securities ......
196 $
69
215
5
152
637 $
5 $
4
11
3
23 $
159 $
63
173
9
140
544 $
10 $
5
15
7
37 $
$
75
2
77
3
2
3
1
9
198
73
224
2
154
651
$ 728
$
62
2
64
1
3
4
168
68
188
6
147
577
$ 641
* Primarily issued by U.S. government sponsored enterprises.
Equity Securities
Proceeds of equity securities sold during 2021, 2020, and 2019 were
not material. Unrealized gains on equity securities during 2021 and
2020 in millions of dollars follow:
Net gain recognized on equity securities
.......
Less: Net gain on equity securities sold .........
............
Unrealized gains on equity securities
$
$
$
24
2
22
$
8
1
7
2021
2020
Debt Securities
The contractual maturities of debt securities at October 31, 2021 in
millions of dollars follow:
Amortized
Cost
Fair
Value
Due in one year or less
Due after one through five years
Due after five through 10 years
Due after 10 years
Mortgage-backed securities
Debt securities
...............................
.................
.......................
.....................................
.......................
.........................................
$
$
28 $
80
144
233
152
637 $
28
82
147
240
154
651
57
Actual maturities may differ from contractual maturities because
some securities may be called or prepaid. Because of the potential
for prepayment on mortgage-backed securities, they are not
categorized by contractual maturity. Proceeds from the sales of
debt securities, realized gains, realized losses, the increase
(decrease) in net unrealized gains or losses, and unrealized losses
that have been continuous for over twelve months were not
significant in 2021, 2020, and 2019. Unrealized losses at October 31,
2021 and November 1, 2020 were not recognized in income due to
the ability and intent to hold to maturity. There were no significant
impairment write-downs in the periods reported.
13. RECEIVABLES
Trade Accounts and Notes Receivable
Trade accounts and notes receivable at October 31, 2021 and
November 1, 2020 in millions of dollars follow:
Trade accounts and notes receivable:
2021
2020
Production & precision ag
Small ag & turf
Construction & forestry
........................
.......................................
...........................
.......
Trade accounts and notes receivable – net
$
1,204 $
1,683
1,321
1,397
1,484
1,290
$ 4,208 $ 4,171
Trade accounts and notes receivable have significant
concentrations of credit risk in the agriculture and turf market and
construction and forestry market as shown in the previous table.
On a geographic basis, there is no disproportionate concentration
of credit risk in any area.
The allowance for credit losses on trade accounts and notes
receivable at October 31, 2021, November 1, 2020, and November 3,
2019, as well as the related activity, in millions of dollars follow:
22021
2020
2
22019
$
72 $
70
Beginning of year balance
ASU No. 2016-13
Provision
Write-offs
Recoveries
Translation adjustments
End of year balance
........
.....................
..............................
.............................
............................
..........
................
$
$
39
(2)
10
(7)
1
41 $
(23)
1
(11)
39 $
8
(14)
4
4
72
The equipment operations sell a significant portion of their trade
receivables to financial services and provide compensation to
financial services at approximate market interest rates.
Trade accounts and notes receivable primarily arise from sales of
goods to independent dealers. See Note 2 for the company’s
revenue recognition policy. The company evaluates and assesses
dealers on an ongoing basis as to their creditworthiness and
generally secures the receivables by retaining a security interest in
the goods associated with the trade receivables or with other
financial instruments. In certain jurisdictions, the company is
obligated to repurchase goods sold to a dealer upon cancellation
or termination of the dealer’s contract for such causes as change in
ownership and closeout of the business.
During 2020 and to a much lesser extent in 2021, the company
provided short-term payment relief on trade accounts and notes
58
receivable to customers that were negatively affected by the
economic effects of COVID. The relief was provided both in regional
programs and case-by-case situations with creditworthy customers.
This relief generally included payment deferrals not exceeding three
months, extending interest-free periods for up to an additional
three months with the total interest-free period not to exceed one
year, or reducing interest rates for a maximum of three months. The
trade receivables granted relief that remained outstanding at
October 31, 2021 were not material. This balance at November 1,
2020 was $75 million, or approximately 2 percent of the trade
receivable portfolio. Outside of these actions, the company did not
modify its normal sales terms with customers that are outlined in
Note 2.
For customers who obtained payment relief, subsequent sales
transactions are evaluated to confirm the revenue recognition
criteria are met, including that the sales price is determinable and
collectability of the payments is probable based on the terms
outlined in the contract.
Financing Receivables
While the company implemented a new operating model in fiscal
year 2021 resulting in new operating segments, assets managed by
financial services, including most financing receivables and
equipment on operating leases, continue to be evaluated by
market (agriculture and turf or construction and forestry).
Financing receivables at October 31, 2021 and November 1, 2020 in
millions of dollars follow:
220
2
1
220
2
0
Unrestricted/Securitized Unrestricted/Securitized
Retail notes:
Agriculture and turf.......... $ 21,736 $ 4,041
Construction and forestry ....
712
4,753
4,334
Total......................... 26,070
2,577
3,880
Wholesale notes ..............
Revolving charge accounts .....
Financing leases (direct
$ 17,780 $ 4,134
680
4,814
3,629
21,409
3,547
3,962
and sales-type) .............
Total financing receivables ...
2,879
35,406
4,753
2,364
31,282
Less:
Unearned finance income:
4,814
98
Retail notes................
Wholesale notes .........
Revolving charge accounts
Financing leases ...........
Total ......................
Allowance for credit losses ...
Financing rreceivables – net
1,131
11
55
258
1,455
152
80
1,066
18
60
217
1,361
171
98
80
13
14
.... $ 33,799 $ 4,659 $ 29,750 $ 4,703
Financing receivables have significant concentrations of credit risk
in the agriculture and turf and construction and forestry markets
as shown in the previous table. On a geographic basis, there is no
disproportionate concentration of credit risk in any area. The
company generally retains as collateral a security interest in the
equipment associated with retail notes, wholesale notes, and
financing leases.
Financing receivables at October 31, 2021 and November 1, 2020
related to the company’s sales of equipment that were included in
the table above consisted of the following in millions of dollars:
Retail notes*:
Total
Agriculture and turf
Construction and forestry
..........
...
........................
.............
.............
........................
Wholesale notes
Sales-type leases
Total
Less:
Unearned finance income:
Retail notes
Wholesale notes
Sales-type leases
...............
..........
..........
......................
Financing receivables related
to the company’s sales of
equipment
...................
Total
2021
2020
Unrestricted/Securitized Unrestricted/Securitized
27
27
27
$
1,977
368 $
2,345
2,577
1,269
6,191
159
11
98
268
10
10
10
$
1,971
335 $
2,306
3,547
1,045
6,898
178
18
82
278
$ 5,923 $
10 $ 6,620 $
27
* These retail notes generally arise from sales of equipment by company-owned
dealers or through direct sales.
Financing receivable installments, including unearned finance
income, at October 31, 2021 and November 1, 2020 were scheduled
as follows in millions of dollars:
2021
2
22020
Unrestricted/Securitized Unrestricted/Securitized
Due in months:
0 – 12
13 – 24
25 – 36
37 – 48
49 – 60
Thereafter
..........................
........................
........................
........................
.......................
...................
.............................
Total
$ 15,205 $ 1,904 $ 14,983 $ 1,971
1,354
1,323
889
885
460
478
129
150
11
13
$ 35,406 $ 4,753 $ 31,282 $ 4,814
7,412
5,629
3,991
2,397
772
6,180
4,556
3,145
1,794
624
The maximum terms for retail notes are generally seven years for
agriculture and turf equipment, and five years for construction and
forestry equipment. The maximum term for financing leases is
generally seven years. The average term for wholesale notes is less
than twelve months.
Past due balances of financing receivables still accruing finance
income represent the total balance held (principal plus accrued
interest) with any payment amounts 30 days or more past the
contractual payment due date. Non-performing financing
receivables represent loans for which the company has ceased
accruing finance income. The company ceases accruing finance
income when these receivables are generally 90 days delinquent.
Generally, when receivables are 120 days delinquent the estimated
uncollectible amount from the customer is written off to the
allowance for credit losses. Finance income for non-performing
receivables is recognized on a cash basis. Accrual of finance income
is generally resumed when the receivable becomes contractually
current and collections are reasonably assured.
Due to the significant, negative effects of COVID on dealers and
retail customers, the company provided short-term payment relief
to dealers and retail customers during 2020, and to a much lesser
extent in 2021. The relief was provided in regional programs and
case-by-case situations with customers that were generally current
in their payment obligations. This relief generally included payment
deferrals or reduced financing rates of three months or less. The
financing receivables granted relief that remained outstanding at
October 31, 2021 and November 1, 2020 represented approximately
3 percent and 4 percent of the financing receivable portfolio,
respectively. The majority of financing receivables granted short-
term relief are beyond the deferral period and have either resumed
making payments or are reported as delinquent based on the
modified payment schedule.
The company monitors the credit quality of financing receivables
based on delinquency status. The credit quality analysis of retail
notes, financing leases, and revolving charge accounts
(collectively, retail customer receivables) was as follows in millions
of dollars at October 31, 2021:
Retail customer receivables:
Agriculture and turf
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
....................
...
...
......
........
Construction and forestry
....................
...
...
......
........
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
Year of Origination
22020
22019
22018
22021
$ 12,877 $ 6,676 $ 3,463 $
43
16
23
3,122
50
15
1
26
53
23
1
57
1,575
40
11
2
56
29
12
53
754
27
9
3
39
1,738
16
6
32
273
7
6
3
17
Total retail
customer receivables
...
$ 16,173 $ 8,494 $ 4,389 $ 2,098
Year of Origination
Revolving
Charge
Accounts
Prior Years
22017
Total
Retail customer receivables:
Agriculture and turf
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
.....................
....
....
.......
.........
Construction and forestry
.....................
....
....
.......
.........
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
$
728 $
7
3
17
57
4
1
4
7
3
1
211 $ 3,704 $ 29,397
165
14
65
4
1
212
23
7
7
1
2
3
92
3
1
5,880
132
43
15
148
Total retail
customer receivables
....
$
828 $
251 $ 3,825 $ 36,058
59
The credit quality analysis of retail customer receivables was as
follows in millions of dollars at November 1, 2020:
The credit quality analysis of wholesale receivables was as follows
in millions of dollars at November 1, 2020:
Retail
Notes &
Financing
Leases
22020
Revolving
Charge
Accounts
Total
$ 21,597 $ 3,787 $ 25,384
148
68
2
269
135
64
2
263
13
4
6
4,859
111
55
14
106
88
2
1
1
4,947
113
56
14
107
31,108
Retail customer receivables:
Agriculture and turf
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
..............................
.............
............
...............
..................
Construction and forestry
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
..............................
.............
............
...............
..................
Total retail customer receivables $ 27,206 $ 3,902 $
The credit quality analysis of wholesale receivables was as follows
in millions of dollars at October 31, 2021:
Year of Origination
2020
2
2019
2
22018
22021
$
346 $
80 $
22 $
9
41
7
12
7
Wholesale receivables:
Agriculture and turf
.....................
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
.........
Construction and forestry
.....................
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
Total wholesale receivables $
387 $
87 $
41 $
9
Year of Origination
Prior Years Revolving
2
2017
Total
$
3
$ 1,696 $ 2,156
1 $
1
1
12
340
397
1
Wholesale receivables:
Agriculture and turf
.....................
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
.........
Construction and forestry
.....................
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
...
Total wholesale receivables $
4 $
2 $
2,036 $ 2,566
60
22020
$
3,010
47
472
............................................................
Wholesale receivables:
Agriculture and turf
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
................................................
Construction and forestry
............................................................
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
Total wholesale receivables
....................................
$
3,529
An analysis of the allowance for credit losses and investment in
financing receivables follows in millions of dollars:
Retail Notes
& Financing
Leases
Revolving
Charge
Accounts
Wholesale
Receivables
Total
2021
Allowance:
Beginning of year balance $
........
ASU No. 2016-13
........
Provision (credit)
................
Write-offs
................
Recoveries
Translation adjustments
.......
End of year balance*
$
133 $
44
(60)
20
1
138 $
8 $
(1)
43 $
(13)
(17)
(28)
36
21 $
7 $
184
31
(18)
(88)
56
1
166
Financing receivables:
End of year balance
.........
$ 32,233 $ 3,825 $
2,566 $ 38,624
2020
Allowance:
Beginning of year balance $
...................
Provision
.................
Write-offs
.................
Recoveries
Translation adjustments
........
End of year balance*
$
107 $
81
(65)
17
(7)
133 $
40 $
26
(53)
30
43 $
3 $
3
2
8 $
150
110
(118)
47
(5)
184
Financing receivables:
End of year balance
..........
$ 27,206 $ 3,902 $
3,529 $ 34,637
2019
Allowance:
Beginning of year balance $
...................
Provision
.................
Write-offs
.................
Recoveries
Translation adjustments
........
End of year balance*
$
129 $
6
(47)
23
(4)
107 $
43 $
29
(58)
26
40 $
6 $
(3)
3 $
178
35
(105)
49
(7)
150
Financing receivables:
End of year balance
..........
$ 25,151 $ 3,943 $
4,634 $ 33,728
*
Individual allowances were not significant.
In 2021, the allowance for credit losses on retail notes and financing
lease receivables increased due to the adoption of ASU No. 2016-13.
This was partially offset by lower expected losses in the
construction and forestry market and better than expected
performance of accounts granted payment relief due to the
economic effects of COVID. The allowance for credit losses on
revolving charge accounts decreased in 2021, reflecting a decrease
due to the adoption of ASU No. 2016-13 and continued
improvement in the agricultural and turf market. In 2020, the
negative economic effects related to COVID and other
macroeconomic issues significantly affected certain retail
customers, particularly purchasers of construction equipment.
Past-due amounts over 30 days represented 1.09 percent and 1.16
percent of the receivables financed at October 31, 2021 and
November 1, 2020, respectively. Non-performing receivables
comprised .96 percent and 1.22 percent of the financing
receivables at October 31, 2021 and November 1, 2020, respectively.
The allowance for credit losses represented .43 percent and .53
percent of financing receivables outstanding at October 31, 2021
and November 1, 2020, respectively. In addition, at October 31, 2021
and November 1, 2020, the company’s financial services operations
had $154 million and $136 million, respectively, of deposits
primarily withheld from dealers and merchants as credit
enhancements.
A troubled debt restructuring is generally the modification of debt
in which a creditor grants a concession it would not otherwise
consider to a debtor that is experiencing financial difficulties.
These modifications may include a reduction of the stated interest
rate, an extension of the maturity dates, a reduction of the face
amount or maturity amount of the debt, or a reduction of accrued
interest. During 2021, 2020, and 2019, the company identified 397,
574, and 522 receivable contracts as troubled debt restructurings
with aggregate balances of $18 million, $108 million, and $36
million pre-modification and $17 million, $95 million, and $35
million post-modification, respectively. Troubled debt
restructurings in 2021 and 2019 primarily related to retail notes,
while 2020 modifications primarily related to wholesale receivables
in Argentina. The short-term relief related to COVID did not meet
the definition of a troubled debt restructuring. In 2021 and 2020,
there were no significant troubled debt restructurings that
subsequently defaulted and were written off. At October 31, 2021,
the company had no commitments to lend to customers whose
accounts were modified in troubled debt restructurings.
Other Receivables
Other receivables at October 31, 2021 and November 1, 2020
consisted of the following in millions of dollars:
Taxes receivable........................................
Other
Other receivables
..
......................................
....................................................
$
2021
$ 1,436 $
2020
931
289
1,738 $ 1,220
302
14. SECURITIZATION OF FINANCING RECEIVABLES
The company, as a part of its overall funding strategy, periodically
transfers certain financing receivables (retail notes) into VIEs that
are SPEs, or non-VIE banking operations, as part of its asset-
backed securities programs (securitizations). The structure of
these transactions is such that the transfer of the retail notes does
not meet the accounting criteria for sales of receivables, and is,
therefore, accounted for as a secured borrowing. SPEs utilized in
securitizations of retail notes differ from other entities included in
the company’s consolidated statements because the assets they
hold are legally isolated. Use of the assets held by the SPEs or the
non-VIEs is restricted by terms of the documents governing the
securitization transactions.
In these securitizations, the retail notes are transferred to certain
SPEs, which in turn issue debt to investors, or to non-VIE banking
operations, which provide funding directly to the company. The
funding provided by these third-parties result in secured
borrowings, which are recorded as “Short-term securitization
borrowings” on the balance sheet. The securitized retail notes are
recorded as “Financing receivables securitized - net” on the
balance sheet. The total restricted assets on the balance sheet
related to these securitizations include the financing receivables
securitized, less an allowance for credit losses, and other assets
primarily representing restricted cash. Restricted cash results from
contractual requirements in securitized borrowing arrangements
and serves as a credit enhancement. The restricted cash is used to
satisfy payment deficiencies, if any, in the required payments on
secured borrowings. The balance of restricted cash is contractually
stipulated and is either a fixed amount as determined by the initial
balance of the financing receivables securitized or a fixed
percentage of the outstanding balance of the securitized financing
receivables. The restriction is removed either after all secured
borrowing payments are made or proportionally as these
receivables are collected and borrowing obligations reduced. For
those securitizations in which retail notes are transferred into
SPEs, the SPEs supporting the secured borrowings are
consolidated unless the company does not have both the power to
direct the activities that most significantly impact the SPEs’
economic performance and the obligation to absorb losses or the
right to receive benefits that could potentially be significant to the
SPEs. No additional support to these SPEs beyond what was
previously contractually required has been provided during the
reporting periods.
In certain securitizations, the company consolidates the SPEs since
it has both the power to direct the activities that most significantly
impact the SPEs’ economic performance through its role as
servicer of all the receivables held by the SPEs, and the obligation
through variable interests in the SPEs to absorb losses or receive
benefits that could potentially be significant to the SPEs. The
restricted assets (retail notes securitized, allowance for credit
losses, and other assets) of the consolidated SPEs totaled $3,094
million and $2,898 million at October 31, 2021 and November 1,
2020, respectively. The liabilities (short-term securitization
borrowings and accrued interest) of these SPEs totaled $3,024
61
million and $2,856 million at October 31, 2021 and November 1,
2020, respectively. The credit holders of these SPEs do not have
legal recourse to the company’s general credit.
The components of consolidated restricted assets related to
secured borrowings in securitization transactions at October 31,
2021 and November 1, 2020 were as follows in millions of dollars:
2020
Financing receivables securitized (retail notes) ....... $ 4,673 $ 4,716
Allowance for credit losses...............................
(13)
Other assets...................................................
98
Total restricted securitized assets ..................... $ 4,766 $ 4,801
(14)
107
2021
The components of consolidated secured borrowings and other
liabilities related to securitizations at October 31, 2021 and
November 1, 2020 were as follows in millions of dollars:
2020
Short-term securitization borrowings
$ 4,605 $ 4,682
3
Accrued interest on borrowings
Total liabilities related to restricted ssecuritized assets $ 4,607 $ 4,685
................
........................
2021
2
The secured borrowings related to these restricted securitized
retail notes are obligations that are payable as the retail notes are
liquidated. Repayment of the secured borrowings depends
primarily on cash flows generated by the restricted assets. Due to
the company’s short-term credit rating, cash collections from these
restricted assets are not required to be placed into a segregated
collection account until immediately prior to the time payment is
required to the secured creditors. At October 31, 2021, the
maximum remaining term of all securitized retail notes was
approximately seven years.
15. INVENTORIES
A majority of inventory owned by Deere & Company and its U.S.
equipment subsidiaries are valued at cost, on the “last-in, first-out”
(LIFO) basis. Remaining inventories are generally valued at the
lower of cost, on the “first-in, first-out” (FIFO) basis, or net
realizable value. The value of gross inventories on the LIFO basis at
October 31, 2021 and November 1, 2020 represented 54 percent and
52 percent, respectively, of worldwide gross inventories at FIFO
value. The pretax favorable income effect from the liquidation of
LIFO inventory during 2020 was $33 million. If all inventories had
been valued on a FIFO basis, estimated inventories by major
classification at October 31, 2021 and November 1, 2020 in millions
of dollars would have been as follows:
Raw materials and supplies
Work-in-process
Finished goods and parts
Total FIFO value
.............................
...........................................
................................
.......................................
.........................
..................................................
Less adjustment to LIFO value
Inventories
2021
2020
$ 3,524 $ 1,995
648
4,006
6,649
1,650
$ 6,781 $ 4,999
994
4,373
8,891
2,110
The company has a revolving credit agreement to utilize bank
conduit facilities to secure retail notes, described further in the
following paragraphs. At October 31, 2021, the revolving credit
agreement had a total capacity, or “financing limit,” of up to
$2,000 million of secured financings at any time. The agreement
was renewed in November 2021 with an expiration in November
2022 and a capacity of $1,000 million. As a result of the reduced
capacity, the company repurchased $511 million of outstanding
short-term securitization borrowings in November 2021, in addition
to the normal monthly liquidations as a result of payments
collected on the retail notes.
Through the revolving credit agreement, the company transfers
retail notes into bank-sponsored, multi-seller, commercial paper
conduits, which are SPEs that are not consolidated. The company
does not service a significant portion of the conduits’ receivables,
and therefore, does not have the power to direct the activities that
most significantly impact the conduits’ economic performance.
These conduits provide a funding source to the company (as well
as other transferors into the conduit) as they fund the retail notes
through the issuance of commercial paper. The company’s carrying
values and variable interest related to these conduits were
restricted assets (retail notes securitized, allowance for credit
losses, and other assets) of $1,176 million and $1,327 million at
October 31, 2021 and November 1, 2020, respectively. The liabilities
(short-term securitization borrowings and accrued interest) related
to these conduits were $1,113 million and $1,275 million at
October 31, 2021 and November 1, 2020, respectively.
The company’s carrying amount of the liabilities to the
unconsolidated conduits, compared to the maximum exposure to
loss related to these conduits, which would only be incurred in the
event of a complete loss on the restricted assets, was as follows at
October 31, 2021 in millions of dollars:
Carrying value of liabilities
Maximum exposure to loss
..................................................
.................................................
2021
$ 1,113
1,176
The total assets of the unconsolidated conduits related to
securitizations were approximately $40 billion at October 31, 2021.
In addition, through the revolving credit agreement, the company
transfers retail notes to banks, which may elect to fund the retail
notes through the use of their own funding sources. These non-
VIE banking operations are not consolidated since the company
does not have a controlling interest in them. The company’s
carrying values and interests related to the securitizations with the
unconsolidated non-VIEs were restricted assets (retail notes
securitized, allowance for credit losses and other assets) of $496
million and $576 million at October 31, 2021 and November 1, 2020,
respectively. The liabilities (short-term securitization borrowings
and accrued interest) were $470 million and $554 million at
October 31, 2021 and November 1, 2020, respectively.
62
16. PROPERTY AND DEPRECIATION
17. GOODWILL AND OTHER INTANGIBLE ASSETS – NET
A summary of property and equipment at October 31, 2021 and
November 1, 2020 in millions of dollars follows:
The changes in amounts of goodwill by operating segments were
as follows in millions of dollars:
........................................
Equipment Operations
Land
Buildings and building equipment
Machinery and equipment
Dies, patterns, tools, etc
All other
Construction in progress
............
. .............
....................................
..............
.........................
.....
...................................
Less accumulated depreciation
Total at cost
Total
........................................
Financial Services
Land
Buildings and building equipment
All other
....................................
.........................
.....
...................................
Property and equipment - net .......
Less accumulated depreciation
Total at cost
Total
Useful Lives*
(Years)
2021
2020
22
11
8
5
26
6
$
293 $
4,287
6,123
1,679
1,165
527
14,074
8,291
5,783
282
4,114
5,936
1,662
1,115
440
13,549
7,771
5,778
4
65
32
101
64
37
4
65
34
103
64
39
$ 5,820 $ 5,817
* Weighted-averages
Total property and equipment additions in 2021, 2020, and 2019
were $897 million, $815 million, and $1,107 million and depreciation
was $830 million, $800 million, and $779 million, respectively.
Capitalized interest was $3 million, $6 million, and $7 million in the
same periods, respectively. The cost of leased property and
equipment under finance leases of $131 million and $99 million and
accumulated depreciation of $60 million and $36 million at
October 31, 2021 and November 1, 2020, respectively, is included in
property and e quipment.
Capitalized software has an estimated useful life of three years.
The amounts of total capitalized software costs, including
purchased and internally developed software, classified as “Other
assets” at October 31, 2021 and November 1, 2020 were
$1,326 million and $1,339 million, less accumulated amortization of
$1,044 million and $1,070 million, respectively. Capitalized interest
on software was $2 million and $3 million at October 31, 2021 and
November 1, 2020, respectively. Amortization of these software
costs in 2021, 2020, and 2019 was $121 million, $133 million, and
$150 million, respectively.
The cost of compliance with foreseeable environmental
requirements has been accrued and did not have a material effect
on the company’s consolidated financial statements.
and other
.......
November 3, 2019
...
Acquisitions (Note 4)
Translation adjustments
...............
.......
November 1, 2020
...
Acquisitions (Note 4)
Translation adjustments
...............
and other
October 31, 2021 ......... $
Production & Small Ag Construction
Precision Ag & Turf & Forestry
310 $ 264 $
$
28
Total
2,343 $ 2,917
28
(5)
333
201
4
268
137
2,480
136
3,081
201
8
(3)
542 $ 265 $
4
9
2,484 $ 3,291
There were no accumulated goodwill impairment losses in the
reported periods.
The components of other intangible assets are as follows in
millions of dollars:
Amortized intangible assets:
Customer lists and relationships
Technology, patents, trademarks, and other
......................
.....
..............................................
Total at cost
Less accumulated amortization:
Customer lists and relationships
Technology, patents, trademarks, and other
......................
.....
....................
.......................
Total accumulated amortization
Amortized intangible assets
2021
2020
$ 542 $ 535
1,056
1,591
1,104
1,646
151
343
494
1,152
113
274
387
1,204
Unamortized intangible assets:
In-process research and development
123
Other intangible assets - net ............................... $ 1,275 $ 1,327
..............
123
Other intangible assets are stated at cost less accumulated
amortization. The amortization of other intangible assets in 2021,
2020, and 2019 was $116 million, $102 million, and $109 million,
respectively. The estimated amortization expense for the next five
years is as follows in millions of dollars: 2022 - $113, 2023 - $112,
2024 - $108, 2025 - $105, and 2026 - $103.
63
operations to maintain a ratio of total debt to total capital (total
debt and stockholders’ equity excluding accumulated other
comprehensive income (loss)) of 65 percent or less at the end of
each fiscal quarter. Under this provision, the company’s excess
equity capacity and retained earnings balance free of restriction at
October 31, 2021 was $15,388 million. Alternatively under this
provision, the equipment operations had the capacity to incur
additional debt of $28,579 million at October 31, 2021. All of these
credit agreement requirements have been met during the periods
included in the consolidated financial statements.
Deere & Company has an agreement with Capital Corporation
pursuant to which it has agreed to continue to own, directly or
through one or more wholly-owned subsidiaries, at least 51 percent
of the voting shares of capital stock of Capital Corporation and to
maintain Capital Corporation’s consolidated tangible net worth at
not less than $50 million. This agreement also obligates Deere &
Company to make payments to Capital Corporation such that its
consolidated ratio of earnings to fixed charges is not less than 1.05
to 1 for each fiscal quarter. Deere & Company’s obligations to make
payments to Capital Corporation under the agreement are
independent of whether Capital Corporation is in default on its
indebtedness, obligations or other liabilities. Further, Deere &
Company’s obligations under the agreement are not measured by
the amount of Capital Corporation’s indebtedness, obligations, or
other liabilities. Deere & Company’s obligations to make payments
under this agreement are expressly stated not to be a guaranty of
any specific indebtedness, obligation, or liability of Capital
Corporation and are enforceable only by or in the name of Capital
Corporation. No payments were required under this agreement
during the periods included in the consolidated financial
statements. At October 31, 2021, Deere & Company indirectly
owned 100 percent of the voting shares of Capital Corporation’s
capital stock and Capital Corporation’s consolidated tangible net
worth was $4,524 million.
18. TOTAL SHORT-TERM BORROWINGS
Total short-term borrowings at October 31, 2021 and November 1,
2020 consisted of the following in millions of dollars:
Equipment Operations
Notes payable to banks
Finance lease obligations due within one year
Long-term borrowings due within one year
................................
...
......
....................................................
Total
Financial Services
Commercial paper
Notes payable to banks
Long-term borrowings due within one year*
........................................
................................
.....
l ....................................................
Short-term borrowings.................................
Short-term securitization borrowings
Equipment Operations
Financial Services
Tota
22021
2020
$
273 $
23
1,213
1,509
192
21
79
292
2,230
63
7,117
9,410
10,919
1,238
182
6,870
8,290
8,582
.................................
........................................
....................................................
26
4,656
4,682
Total short-term borrowings ......................... $ 15,524 $ 13,264
10
4,595
4,605
Total
* Includes unamortized fair value adjustments related to interest rate swaps.
The short-term securitization borrowings are secured by financing
receivables (retail notes) on the balance sheet (see Note 14) and
presented net of debt acquisition costs. Although these
securitization borrowings are classified as short-term since
payment is required if the retail notes are liquidated early, the
payment schedule for these borrowings at October 31, 2021 based
on the expected liquidation of the retail notes in millions of dollars
is as follows: 2022 - $2,556, 2023 - $1,150, 2024 - $623, 2025 - $231,
2026 - $44, and later years - $6.
The weighted-average interest rates on total short-term
borrowings, excluding current maturities of finance lease
obligations and long-term borrowings, at October 31, 2 021 and
November 1, 2020 were .9 percent and 1.6 percent, respectively.
Lines of credit available from U.S. and foreign banks were $8,336
million at October 31, 2021. At October 31, 2021, $5,770 million of
these worldwide lines of credit were unused. For the purpose of
computing the unused credit lines, commercial paper and short-
term bank borrowings, excluding secured borrowings and the
current portion of long-term borrowings, were primarily
considered to constitute utilization. Included in the total credit
lines at October 31, 2021 was a 364-day credit facility agreement
of $3,000 million, expiring in fiscal April 2022. In addition, total
credit lines included long-term credit facility agreements of
$2,500 million, expiring in fiscal April 2025, and $2,500 million,
expiring in fiscal March 2026. The agreements are mutually
extendable and the annual facility fees are not significant. These
credit agreements require Capital Corporation to maintain its
consolidated ratio of earnings to fixed charges at not less than
1.05 to 1 for each fiscal quarter and the ratio of senior debt,
excluding securitization indebtedness, to capital base (total
subordinated debt and stockholder’s equity excluding
accumulated other comprehensive income (loss)) at not more
than 11 to 1 at the end of any fiscal quarter. The credit
agreements also require the equipment
64
19. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
20. LONG-TERM BORROWINGS
Accounts payable and accrued expenses at October 31, 2021 and
November 1, 2020 consisted of the following in millions of dollars:
Long-term borrowings at October 31, 2021 and November 1, 2020
consisted of the following in millions of dollars:
Equipment Operations
Accounts payable:
Trade payables
Dividends payable
Operating lease liabilities
Other
........................................
....................................
..........................
....................................................
Accrued expenses:
Dealer sales discounts
Product warranties
Employee benefits
Accrued taxes
Unearned revenue
Other
Total
..............................
..................................
...................................
.........................................
...................................
....................................................
...................................................
22021
22020
$ 2,967 $
329
279
155
1,926
244
297
251
1,636
1,312
1,448
933
825
1,171
11,055
1,682
1,105
1,086
730
679
1,114
9,114
Financial Services
Accounts payable:
Deposits withheld from dealers and merchants
............................
Collateral on derivatives
....................................................
Other
157
210
141
274
194
Accrued expenses:
Unearned revenue
Accrued interest
Employee benefits
Other
Total
Eliminations*
Accounts payable and accrued expenses
...................................
......................................
...................................
....................................................
...................................................
...............................................
...........
1,013
165
83
387
2,015
865
$ 12,205 $
968
181
60
309
2,127
1,129
10,112
* Primarily sales incentive accruals with a right of set-off against trade receivables.
At October 31, 2021 and November 1, 2020, $836 million and $1,073 million,
respectively, of sales incentive accruals were classified as accrued expenses by
the equipment operations as the related trade receivables had been sold to
financial services.
Equipment Operations
U.S. dollar notes and debentures:
8½% debentures due 2022
2.60% notes due 2022
2.75% notes due 2025
6.55% debentures due 2028
5.375% notes due 2029
3.10% notes due 2030
8.10% debentures due 2030
7.125% notes due 2031
3.90% notes due 2042
2.875% notes due 2049
3.75% notes due 2050
.....................
..........................
...........................
...................
.........................
...........................
...................
...........................
..........................
.........................
...........................
Euro notes:
.5% notes due 2023 (€500 principal)
1.375% notes due 2024 (€800 principal)
1.85% notes due 2028 (€600 principal)
2.20% notes due 2032 (€600 principal)
1.65% notes due 2039 (€650 principal)
Finance lease obligations and other notes
Less debt issuance costs and debt discounts
........
....
.....
....
.....
.....
Total
...............................................
Financial Services
Notes and debentures:
$
2021
2
2020
$
105
1,000
700
200
500
700
250
300
1,250
500
850
584
934
700
700
759
153
(61)
10,124
700
200
500
700
250
300
1,250
500
850
584
934
701
701
759
40
(54)
8,915
Medium-term notes due 2022 - 2031:
(principal $22,647 - 2021, $20,996 -
2020) Average interest rates of 1.2% -
2021, 1.7% - 2020
...............................
.............................................
Other notes
Less debt issuance costs and debt discounts
21,661 *
1,003
(54)
22,610
Long-term borrowings**............................ $ 32,888 $ 32,734
22,899 *
1,138
(64)
23,973
...............................................
Total
* Includes unamortized fair value adjustments related to interest rate swaps.
** All interest rates are as of year-end.
The principal amounts of the equipment operations’ long-term
borrowings maturing in each of the next five years in millions of
dollars are as follows: 2022 - $1,214, 2023 - $585, 2024 - $935,
2025 - $700, and 2026 - $0. The principal amounts of the financial
services’ long-term borrowings maturing in each of the next five
years in millions of dollars are as follows: 2022 - $7,120, 2023 -
$6,834, 2024 - $6,089, 2025 - $2,305, and 2026 - $3,373.
65
21. COMMITMENTS AND CONTINGENCIES
The company generally determines its total warranty liability by
applying historical claims rate experience to the estimated amount
of equipment that has been sold and is still under warranty based
on dealer inventories and retail sales. The historical claims rate is
primarily determined by a review of five-year claims costs and
current quality developments.
The premiums for extended warranties are primarily recognized in
income in proportion to the costs expected to be incurred over the
contract period. The unamortized extended warranty premiums
(deferred revenue) included in the following table totaled $774
million and $638 million at October 31, 2021 and November 1, 2020,
respectively.
A reconciliation of the changes in the warranty liability and
unearned premiums in millions of dollars follows:
Warranty Liability/
Unearned Premiums
2021 2020
1,743 $ 1,800
(942)
(864)
(222)
(227)
851
1,071
276
358
(20)
5
..................................... $ 2,086 $ 1,743
Beginning of year balance ............................. $
Payments ...................................................
Amortization of premiums received ................
Accruals for warranties .................................
Premiums received ......................................
Foreign exchange ........................................
End of year balance
At October 31, 2021, the company had approximately $409 million
of guarantees issued primarily to banks outside the U.S. and
Canada related to third-party receivables for the retail financing of
John Deere equipment. The company may recover a portion of any
required payments incurred under these agreements from
repossession of the equipment collateralizing the receivables. At
October 31, 2021, the company had accrued losses of approximately
$6 million under these agreements. The maximum remaining term
of the receivables guaranteed at October 31, 2021 was about six
years.
At October 31, 2021, the company had commitments of
approximately $254 million for the construction and acquisition of
property and equipment. Also at October 31, 2021, the company
had restricted assets of $68 million, classified as “Other assets.”
See Note 14 for additional restricted assets associated with
borrowings related to securitizations.
The company also had other miscellaneous contingent liabilities
totaling approximately $75 million at October 31, 2021. The accrued
liability for these contingencies was not material at October 31,
2021.
The company has commitments to extend credit to customers
through lines of credit and other pre-approved credit
arrangements. The amount of unused commitments to extend
credit to John Deere dealers was approximately $14 billion at
October 31, 2021. The amount of unused commitments to extend
credit to retail customers was approximately $30 billion at
October 31, 2021, primarily related to revolving charge accounts. A
significant portion of these commitments is not expected to be
66
fully drawn upon; therefore, the total commitment amounts likely
do not represent a future cash requirement. The company
generally has the right to unconditionally cancel, alter, or amend
the terms of these commitments at any time. The company
recorded a provision for credit losses on unused commitments that
are not unconditionally cancellable of $2 million in 2021.
The company is subject to various unresolved legal actions which
arise in the normal course of its business, the most prevalent of
which relate to product liability (including asbestos related
liability), retail credit, employment, patent, and trademark matters.
The company believes the reasonably possible range of losses for
these unresolved legal actions would not have a material effect on
its financial statements.
22. CAPITAL STOCK
The $1 par value common stock of Deere & Company is listed on
the New York Stock Exchange under the symbol “DE”. At
October 31, 2021, there were 18,466 holders of record of the
company’s common stock.
The number of common shares the company is authorized to issue
is 1,200 million. The number of common shares issued at
October 31, 2021, November 1, 2020, and November 3, 2019 was
536.4 million. The number of authorized preferred shares, none of
which has been issued, is nine million.
The Board of Directors at a meeting in December 2019 authorized
the repurchase of up to $8,000 million of common stock. At the
end of fiscal year 2021, this repurchase program had $5,811 million
(17.0 million shares based on the fiscal year end closing common
stock price of $342.31 per share) remaining to be repurchased.
Repurchases of the company’s common stock under this plan will
be made from time to time, at the company’s discretion, in the
open market.
A reconciliation of basic and diluted net income per share
attributable to Deere & Company follows in millions, except per
share amounts:
2021 2020 2019
Net income attributable to Deere & Company
$ 5,963 $ 2,751 $ 3,253
Average shares outstanding ....................
316.5
313.5
Basic per share ..................................... $ 19.14 $ 8.77 $ 10.28
Average shares outstanding ....................
316.5
Effect of dilutive stock options ................
4.1
Total potential shares outstanding ......
320.6
Diluted per share .................................. $ 18.99 $ 8.69 $ 10.15
311.6
2.4
314.0
313.5
3.1
316.6
311.6
All stock options outstanding were included in the computation
except .6 million in 2020 and .7 million in 2019 that had an
antidilutive effect under the treasury stock method.
23. STOCK OPTION AND RESTRICTED STOCK AWARDS
The company issues stock options and restricted stock unit awards
to key employees under plans approved by stockholders. Restricted
stock units are also issued to nonemployee directors for their
services as directors under a plan approved by stockholders.
Options are awarded with the exercise price equal to the market
price and become exercisable in one to three years after grant.
Options expire ten years after the date of grant. Restricted stock
awards generally vest after three years. The compensation cost for
stock options and service-based restricted stock units, which is
based on the fair value at the grant date, is recognized on a
straight-line basis over the requisite period the employee is
required to render service. The compensation cost for
performance/service-based units, which is based on the fair value
at the grant date excluding dividends, is recognized over the
employees’ requisite service period and periodically adjusted for
the probable number of shares to be awarded. The company
recognizes the effect of award forfeitures as an adjustment to
compensation expense in the period the forfeiture occurs.
According to these plans, at October 31, 2021, the company is
authorized to grant an additional 17.7 million shares related to stock
options or restricted stock units. The company currently uses
shares that have been repurchased through its stock repurchase
programs to satisfy share option exercises.
The fair value of each option award was estimated on the date of
grant using a binomial lattice option valuation model. Expected
volatilities are based on implied volatilities from traded call options
on the company’s stock. The expected volatilities are constructed
from the following three components: the starting implied
volatility of short-term call options traded within a few days of the
valuation date; the predicted implied volatility of long-term call
options; and the trend in implied volatilities over the span of the
call options’ time to maturity. The company uses historical data to
estimate option exercise behavior. The expected term of options
granted is derived from the output of the option valuation model
based on the underlying distribution of historical exercise behavior
and represents the weighted-average period of time that options
granted are expected to be outstanding. The risk-free rates utilized
for periods throughout the contractual life of the options are
based on U.S. Treasury security yields at the time of grant.
The assumptions used for the binomial lattice model to determine
the fair value of options follow:
Risk-free interest rate* ........
Expected dividends .............
Volatility* .........................
Expected term (in years)* .....
* Weighted-averages
2021 2020 2019
1.67%
1.8%
26.0%
5.7
2.85%
2.0%
30.0%
8.2
.47%
1.2%
31.0%
5.5
Stock option activity at October 31, 2021, and changes during 2021
in millions of dollars and shares follow:
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
Exercise
Price*
Shares
Outstanding at beginning of year
Granted ..........................
Exercised ........................
Outstanding at end of year
Exercisable at end of year
3.7 $ 107.30
254.83
99.38
127.82
103.25
.3
(1.5)
2.5
1.9
* Weighted-averages
5.07 $
4.00
527.3
445.0
The weighted-average grant-date fair values of options granted
during 2021, 2020, and 2019 were $62.73, $35.83, and $46.96,
respectively. The total intrinsic values of options exercised during
2021, 2020, and 2019 were $318 million, $398 million, and $186
million, respectively. During 2021, 2020, and 2019, cash received
from stock option exercises was $148 million, $331 million, and $178
million, respectively, with tax benefits of $71 million, $93 million,
and $44 million, respectively.
The service-only based units award one share of common stock for
each unit at the end of the vesting period and include dividend
equivalent payments. The performance/service based units are
subject to a performance metric based on the company’s
compound annual revenue growth rate, compared to a benchmark
group of companies over the vesting period. The
performance/service based units award common stock in a range
of zero to 200 percent for each unit granted based on the level of
the metric achieved and do not include dividend equivalent
payments over the vesting period. The weighted-average fair
values of the service-only based units at the grant dates during
2021, 2020, and 2019 were $258.86, $168.94, and $149.54 per unit,
respectively, based on the market price of a share of underlying
common stock. The fair value of the performance/service based
units at the grant date during 2021, 2020, and 2019 were $245.73,
$160.81, and $140.49 per unit, respectively, based on the market
price of a share of underlying common stock excluding dividends.
The company’s restricted stock units at October 31, 2021 and
changes during 2021 in millions of shares follow:
...................
..................................................
....................................................
.................................................
...........................
Service-only based
Nonvested at beginning of year
Granted
Vested
Forfeited
Nonvested at end of year
Performance/service based
Nonvested at beginning of year
Granted
Vested
Performance change
Nonvested at end of year
...................
..................................................
....................................................
.................................
...........................
Shares
Grant-Date
Fair Value*
.9 $
.2
(.5)
(.1)
.5
.2 $
.1
(.2)
.1
.2
155.47
258.86
190.87
163.16
190.87
147.55
245.73
145.16
144.98
171.82
* Weighted-averages
During 2021, 2020, and 2019, the total share-based compensation
expense was $82 million, $81 million, and $82 million, respectively,
with recognized income tax benefits of $16 million, $19 million, and
$20 million, respectively. At October 31, 2021, there was $63 million
of total unrecognized compensation cost from share-based
compensation arrangements granted under the plans, which is
related to restricted shares and options. This compensation is
expected to be recognized over a weighted-average period of
approximately two years. The total grant-date fair values of stock
options and restricted shares vested during 2021, 2020, and 2019
were $93 million, $79 million, and $66 million, respectively.
67
24. OTHER COMPREHENSIVE INCOME ITEMS
The after-tax components of accumulated other comprehensive
income at October 31, 2021, November 1, 2020, and November 3,
2019 in millions of dollars follow:
Before
Tax
Amount
Tax
(Expense)
Credit
After
Tax
Amount
2020
Cumulative translation adjustment:
Retirement benefits adjustment .... $
Cumulative translation adjustment
Unrealized loss on derivatives .......
Unrealized gain on debt securities
Total accumulated other
22021
(1,034) $
(1,478)
(42)
15
22020
(3,918) $
(1,596)
(58)
33
22019
(3,915)
(1,651)
(60)
19
Unrealized translation gain (loss) ............ $
Reclassification of realized (gain) loss to:
Other operating expenses ...................
Equity in (income) loss of
unconsolidated affiliates ..................
Net unrealized translation gain (loss) ......
18 $
1 $
19
13
23
54
13
23
55
1
comprehensive income (loss) ..... $ (2,539) $ (5,539) $ (5,607)
Unrealized gain (loss) on derivatives:
Following are amounts recorded in and reclassifications out of
other comprehensive income (loss), and the income tax effects, in
millions of dollars:
Before
Tax
Amount
Tax
(Expense)
Credit
After
Tax
Amount
2021
Cumulative translation adjustment:
Unrealized translation gain (loss)
Reclassification of realized (gain) loss to:
........... $
Equity in (income) loss of
112
$
112
unconsolidated affiliates
................
Net unrealized translation gain (loss) .....
6
118
6
118
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense
Net unrealized gain (loss) on derivatives
..............
Unrealized gain (loss) on debt securities:
8 $
(2)
6
13
21
(3)
(5)
10
16
Unrealized holding gain (loss) ...............
Net unrealized gain (loss) on debt securities
(21)
(21)
3
3
(18)
(18)
Retirement benefits adjustment:
Net actuarial gain (loss) ..................... 3,492
Reclassification to other operating
(845) 2,647
expenses through amortization of: *
Actuarial (gain) loss ......................
Prior service (credit) cost ..............
Settlements ................................
Net unrealized gain (loss) on retirement
283
8
22
(69)
(2)
(5)
214
6
17
benefits adjustment ......................... 3,805
$ 3,923 $
Total other comprehensive income (loss)
(921) 2,884
(923) $ 3,000
* These accumulated other comprehensive income amounts are included in net
periodic pension and OPEB costs. See Note 8 for additional detail.
Unrealized hedging gain (loss) ................
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense
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) .......................
Reclassification primarily to other operating
expenses through amortization of: *
Actuarial (gain) loss ........................
Prior service (credit) cost ................
Settlements ...................................
Net unrealized gain (loss) on retirement
(18)
2
(16)
21
3
17
17
(3)
(1)
(3)
(3)
18
2
14
14
(302)
65
(237)
278
7
26
(68)
(2)
(7)
210
5
19
benefits adjustment ............................
$
Total other comprehensive income (loss)
9
83 $
(12)
(15) $
(3)
68
* These accumulated other comprehensive income amounts are primarily included in
net periodic pension and OPEB costs. See Note 8 for additional detail.
Before
Tax
Amount
Tax
(Expense)
Credit
After
Tax
Amount
2019
Cumulative translation adjustment ............ $ (447) $
Unrealized gain (loss) on derivatives:
(1) $ (448)
Unrealized hedging gain (loss) ................
Reclassification of realized (gain) loss to:
(92)
21
(71)
Interest rate contracts – Interest expense
Net unrealized gain (loss) on derivatives
(5)
(97)
1
22
(4)
(75)
Unrealized gain (loss) on debt securities:
Unrealized holding gain (loss) .................
Net unrealized gain (loss) on debt securities
36
36
(7)
(7)
29
29
Retirement benefits adjustment:
Net actuarial gain (loss) ....................... (1,028)
Reclassification to other operating
274 (754)
expenses through amortization of: *
Actuarial (gain) loss ........................
Prior service (credit) cost ................
Settlements ...................................
Net unrealized gain (loss) on retirement
159
(61)
3
(39)
15
(1)
120
(46)
2
benefits adjustment ............................
Total other comprehensive income (loss)
(927)
$ (1,435) $
249 (678)
263 $ (1,172)
* These accumulated other comprehensive income amounts are included in net
periodic pension and OPEB costs. See Note 8 for additional detail.
68
25. LEASES
The company is both a lessee and a lessor. The company leases for
its own use primarily warehouse facilities, office space, production
equipment, information technology equipment, and vehicles. The
expected use periods generally range from less than one year to 20
years. The company’s financial services segment leases to users
equipment produced or sold by the company, and a limited amount
of other equipment. These leases are usually written for periods of
less than one year to seven years. The company determines if an
arrangement is or contains a lease at the contract inception.
Lessee
The company recognizes on the balance sheet a lease liability and a
right of use asset for leases with a term greater than one year for
both operating and finance leases.
The amounts of the lease liability and right of use asset are
determined at lease commencement and are based on the present
value of the lease payments over the lease term. The lease
payments are discounted using the company’s incremental
borrowing rate since the rate implicit in the lease is generally not
readily determinable. The company determines the incremental
borrowing rate for each lease based primarily on the lease term and
the economic environment of the country where the asset will be
used, adjusted as if the borrowings were collateralized. Leases with
contractual periods greater than one year and that do not meet
the finance lease criteria are classified as operating leases.
Certain real estate leases contain one or more options to terminate
or renew, with terms that can generally extend the lease term from
one to ten years. Options that the company is reasonably certain to
exercise are included in the lease term.
The company has elected to combine lease and nonlease
components, such as maintenance and utilities costs included in a
lease contract, for all asset classes. Leases with an initial term of
one year or less are expensed on a straight-line basis over the lease
term and recorded in short-term lease expense. Variable lease
expense primarily includes warehouse facilities leases with
payments based on utilization exceeding contractual minimum
amounts and leases with payments indexed to inflation when the
index changes after lease commencement.
The lease expense by type consisted of the following in millions of
do
llars:
22021
2 2020
Operating lease expense ................................ $
Short-term lease expense ...............................
Variable lease expense ...................................
Finance lease:
116 $
29
53
Depreciation expense ..................................
Interest on lease liabilities ............................
Total lease expense ................................... $
26
1
225 $
126
23
41
20
2
212
Operating and finance lease right of use assets and lease liabilities
ollow in millions of dollars:
f
Operating leases:
Other assets ............................................ $
Accounts payable and accrued expenses .......
291 $
279
324
305
22021
2 2020
Finance leases:
Property and equipment — net .................... $
71 $
63
Short-term borrowings ..............................
Long-term borrowings...............................
Total finance lease liabilities ..................... $
23
38
61 $
21
39
60
The weighted-average remaining lease terms in years and discount
rates follows:
Weighted-average remaining lease terms:
Operating leases ........................................
Finance leases ...........................................
5
2
5
3
22021
2 2020
Weighted-average discount rates:
Operating leases ........................................
Finance leases ...........................................
2.3%
2.3%
2.1%
2.2%
Lease payment amounts in each of the next five years at
October 31, 2021 follow in millions of dollars:
Operating
Leases
Finance
Leases
Due in:
2022 ........................................................ $
2023 .........................................................
2024 ........................................................
2025 ........................................................
2026 ........................................................
Later years ................................................
Total lease payments .................................
Less imputed interest ................................
Total lease liabilities ................................ $
83 $
69
54
32
15
41
294
15
279 $
25
19
11
5
1
3
64
3
61
Cash paid for amounts included in the measurement of lease
liabi
lities follows in millions of dollars:
Operating cash flows from operating leases ...... $
Operating cash flows from finance leases ........
Financing cash flows from finance leases ........
22021
2 2020
104 $
1
25
124
2
17
Right of use assets obtained in exchange for lease liabilities follow
in millions of dollars:
Operating leases ......................................... $
Finance leases ............................................
101 $
27
40
46
22021
2 2020
69
Lessor
The company leases equipment manufactured or sold by the
company and a limited amount of non-John Deere equipment to
retail customers through sales-type, direct financing, and
operating leases. Sales-type and direct financing leases are
reported in “Financing receivables - net” on the consolidated
balance sheet. Operating leases are reported in “Equipment on
operating leases - net” on the consolidated balance sheet.
Leases offered by the company may include early termination and
renewal options. At the end of a lease, the lessee generally has the
option to purchase the underlying equipment for a fixed price or
return it to the dealer. If the equipment is returned to the dealer,
the dealer also has the option to purchase the equipment or return
it to the company for remarketing.
The company estimates the residual values for operating leases at
lease inception based on several factors, including lease term,
expected hours of usage, historical wholesale sale prices, return
experience, intended use of the equipment, market dynamics and
trends, and dealer residual guarantees. The company reviews
residual value estimates during the lease term and tests the
carrying value of its operating lease assets for impairment when
events or circumstances necessitate. The depreciation is adjusted
on a straight-line basis over the remaining lease term if residual
value estimates change. Lease agreements include usage limits
and specifications on machine condition, which allow the company
to assess lessees for excess use or damages to the underlying
equipment. In 2020 and 2019, the company recorded impairment
losses on operating leases of $22 million and $59 million,
respectively, due to higher expected equipment return rates and
lower estimated values of used construction equipment. Operating
lease impairments were recorded in “Other operating expenses.”
The company has elected to combine lease and nonlease
components. The nonlease components primarily relate to
preventative maintenance and extended warranty agreements
financed by the retail customer. The company has also elected to
report consideration related to sales and value added taxes net of
the related tax expense. Property taxes on leased assets are
recorded on a gross basis in “Finance and interest income” and
“Other operating expenses” on the statement of consolidated
income. Variable lease revenues primarily relate to property taxes
on leased assets in certain markets and late fees. Variable lease
revenues also include excess use and damage fees of $7 million and
$8 million for 2021 and 2020, respectively, which were reported in
“Other income” on the statement of consolidated income.
Due to the significant, negative effects of COVID, the company
provided short-term relief to lessees during 2020, and to a much
lesser extent in 2021. The relief, which included payment deferrals
of three months or less, was provided in regional programs and on
a case-by-case basis with customers that were generally current in
their payment obligations. The operating leases granted relief
represented approximately 2 percent and 4 percent of the
company’s operating lease portfolio at October 31, 2021 and
November 1, 2020, respectively. The majority of operating leases
granted short-term relief are beyond the deferral period and have
70
resumed making payments. See Note 13 for sales-type and direct
financing leases provided payment relief.
Lease revenues earned by the company follow in millions of dollars:
Sales-type and direct finance lease revenues
Operating lease revenues
Variable lease revenues
Total lease revenues
.....
$
.............................
................................
$
.......................................
145 $
1,423
30
1,598 $
22021
22020
135
1,469
31
1,635
At the time of accepting a lease that qualifies as a sales-type or
direct financing lease, the company records the gross amount of
lease payments receivable, estimated residual value of the leased
equipment, and unearned finance income. The unearned finance
income is recognized as revenue over the lease term using the
interest method.
Sales-type and direct financing lease receivables by market follow
in millions of dollars:
Total
Agriculture and turf
Construction and forestry
......................................
$
..............................
.......................................................
............................
........................
........................
..........................
$
Guaranteed residual values
Unguaranteed residual values
Less unearned finance income
Financing lease receivables
2021
1,131 $
1,284
2,415
394
70
(258)
2,621
$
2020
985
1,030
2,015
278
71
(217)
2,147
Scheduled payments, including guaranteed residual values, on
sales-type and direct financing lease receivables at October 31, 2021
follow in millions of dollars:
Due in:
2022
2023
2024
2025
2026
Later years
Total
........................................................................
$
.........................................................................
........................................................................
........................................................................
........................................................................
................................................................
......................................................................
$
22021
1,223
712
461
229
161
23
2,809
Lease payments from operating leases are recorded as income on a
straight-line method over the lease terms. Operating lease assets
are recorded at cost and depreciated to their estimated residual
value on a straight-line method over the terms of the leases.
The cost of equipment on operating leases by market follow in
millions of dollars:
Agriculture and turf
Construction and forestry
.....................................
$
.............................
......................................................
......................
............
Equipment on operating leases - net
Less accumulated depreciation
Total
2021
2020
7,317 $ 7,366
1,921
1,616
9,287
8,933
(1,989)
(1,945)
$ 7,298
$ 6,988
The total operating lease residual values at October 31, 2021 and
November 1, 2020 were $5,025 million and $5,254 million,
respectively. Certain operating leases are subject to residual value
guarantees. The total residual value guarantees were $950 million
and $757 million at October 31, 2021 and November 1, 2020,
respectively. The residual value guarantees at October 31, 2021 and
November 1, 2020 include $3 million and $5 million, respectively, of
dealer deposits available for potential losses on residual values.
The equipment is depreciated on a straight-line basis over the term
of the lease. The corresponding depreciation expense was $983
million in 2021, $1,083 million in 2020, and $981 million in 2019.
Lease payments for equipment on operating leases at October 31,
2021 were scheduled as follows in millions of dollars:
Due in:
2022
2023
2024
2025
2026
Later years
Total
........................................................................
$
........................................................................
........................................................................
........................................................................
........................................................................
................................................................
......................................................................
$
22021
1,027
693
409
207
50
6
2,392
Past due balances of operating leases represent the total balance
held (net book value plus accrued lease payments) and still
accruing financing income with any payment amounts 30 days or
more past the contractual payment due date. These amounts were
$70 million and $87 million at October 31, 2021 and November 1,
2020, respectively. The delinquency status of operating leases
granted relief due to COVID is based on the modified payment
schedule.
The company discusses with lessees and dealers options to
purchase the equipment or extend the lease prior to lease maturity.
Equipment returned to the company upon termination of leases is
remarketed by the company and recorded in “Other assets” at the
lower of net book value or estimated fair value of the equipment
less costs to sell and is not depreciated. The matured operating
lease inventory balances at October 31, 2021 and November 1, 2020
were $30 million and $70 million, respectively. In 2020, the
company recorded impairment losses on matured operating lease
inventory of $10 million due to lower estimated values of used
construction equipment. Impairment losses on matured operating
lease inventory were included in “Other operating expenses.”
26. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. To
determine fair value, the company uses various methods including
market and income approaches. The company utilizes valuation
models and techniques that maximize the use of observable
inputs. The models are industry-standard models that consider
various assumptions including time values and yield curves as well
as other economic measures. These valuation techniques are
consistently applied.
Level 1 measurements consist of quoted prices in active markets for
identical assets or liabilities. Level 2 measurements include
significant other observable inputs such as quoted prices for
similar assets or liabilities in active markets; identical assets or
liabilities in inactive markets; observable inputs such as interest
rates and yield curves; and other market-corroborated inputs.
Level 3 measurements include significant unobservable inputs.
The fair values of financial instruments that do not approximate
the carrying values at October 31, 2021 and November 1, 2020 in
millions of dollars follow:
22021
Fair
Value*
Carrying
Value
22020
Carrying
Value
Fair
Value *
Financing receivables – net:
Equipment operations ... $
103
73 $
Financial services ........... 33,726 33,650 29,645 29,838
Total ....................... $ 33,799 $ 33,718 $ 29,750 $ 29,941
105 $
68 $
Financing receivables
securitized – net:
Equipment operations ... $
10 $
Financial services ........... 4,649 4,694
26
4,773
Total ....................... $ 4,659 $ 4,704 $ 4,703 $ 4,799
26 $
4,677
10 $
Short-term securitization
borrowings:
Equipment operations ... $
Financial services ...........
26
4,595 4,600 4,656 4,698
Total ....................... $ 4,605 $ 4,610 $ 4,682 $ 4,724
26 $
10 $
10 $
Long-term borrowings due
within one year:
**
Equipment operations ... $
Financial services ...........
78
6,936
Total ....................... $ 8,330 $ 8,364 $ 6,949 $ 7,014
1,213 $ 1,222 $
7,117
6,870
7,142
79 $
Long-term borrowings:**
Equipment operations ... $ 8,877 $ 10,244 $ 10,085 $ 11,837
Financial services ...........
23,170
Total ....................... $ 32,850 $ 34,506 $ 32,695 $ 35,007
24,262
22,610
23,973
* Fair value measurements above were Level 3 for all financing receivables, Level 3
for equipment operations short-term securitization borrowings, and Level 2 for
all other borrowings.
** Values exclude finance lease liabilities that are presented as borrowings (see
Note 25).
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 the company 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. Certain
long-term borrowings have been swapped to current variable
interest rates. The carrying values of these long-term borrowings
included adjustments related to fair value hedges.
71
Assets and liabilities measured at October 31, 2021 and November 1,
2020 at fair value on a recurring basis in millions of dollars follow,
excluding the company’s cash equivalents, which were carried at
cost that approximates fair value and consisted primarily of money
market funds and time deposits. Level 3 marketable securities were
transferred to Level 2 in 2021.
2021
2020
Level 1:
Marketable securities
U.S. equity fund
International equity securities
U.S. government debt securities
Total Level 1 marketable securities
......................................
....................
.................
................
$
75 $
2
59
136
62
2
55
119
Level 2:
Marketable securities
U.S. government debt securities
Municipal debt securities
Corporate debt securities
International debt securities
Mortgage-backed securities*
Total Level 2 marketable securities
.................
..........................
..........................
......................
.....................
................
Other assets
Derivatives:
Interest rate contracts
Foreign exchange contracts
Cross-currency interest rate contracts
..............................
......................
.........
............................
Total Level 2 other assets
Accounts payable and accrued expenses
Derivatives:
..............................
Interest rate contracts
Foreign exchange contracts
Cross-currency interest rate contracts
Total Level 2 accounts payable and accrued
......................
.........
139
73
224
2
154
592
239
31
5
275
132
94
2
expenses
...............................................
228
Level 3:
Marketable securities
International debt securities
......................
* Primarily issued by U.S. government sponsored enterprises.
113
68
188
2
147
518
669
48
8
725
88
26
1
115
4
Fair value, nonrecurring measurements from impairments at October
31, 2021 and November 1, 2020 in millions of dollars follow:
Fair Value
2021 2020 2021 2020 2019
Losses
..................
Other receivables 1
Equipment on operating leases – net 2
Property and equipment – net 3 $ 41 $ 135 $ 44 $ 102
Investments in unconsolidated
1
$
$ 371
2
$
$ 22 $ 59
affiliates 4
Other intangible assets – net
Other assets 5
..........................
....
........................
$ 19
$ 50
$ 2
$
1 $ 59 $ 6 $ 16 $ 18
1 Fair value as of August 2, 2020.
2 Fair value as of May 3, 2020.
3 2021 fair value of $41 million at January 31, 2021. 2020 fair value of $70 million at
May 3, 2020, $8 million at August 2, 2020, and $57 million at November 1, 2020.
4 Fair value as of November 1, 2020.
5 2021 fair value as of January 31, 2021. 2020 fair value as of May 3, 2020.
72
The following is a description of the valuation methodologies the
company uses to measure certain financial instruments on the
balance sheet at fair value:
Marketable securities – The portfolio of investments, except for
the Level 3 measurement international debt securities, is primarily
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 primarily valued using the fund’s net asset value, based on the
fair value of the underlying securities. The Level 3 measurement
international debt securities were primarily valued using an income
approach based on discounted cash flows using yield curves
derived from limited, observable market data.
Derivatives – The company’s 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). Inputs include a
selection of realizable values (see Note 13).
Other receivables – The impairment was based on the expected
realization of value-added tax receivables related to a closed
factory operation (see Note 5).
Equipment on operating leases – net – The impairments are based
on an income approach (discounted cash flow), using the
contractual payments, plus an estimate of return rates and
equipment sale price at lease maturity. Inputs include historical
return rates and realized sales values (see Note 5).
Property and equipment – net – The impairments are measured at
the lower of the carrying amount, or fair value. The valuations
were based on cost and market approaches. The inputs include
replacement cost estimates adjusted for physical deterioration and
economic obsolescence, or quoted prices when available (see
Note 5).
Investment in unconsolidated affiliates – Other than temporary
impairments for investments are measured as the difference
between the implied fair value or the estimated realization amount,
and the carrying value. The fair value for publicly traded entities is
the share price multiplied by the shares owned, or the estimated
realization amount (see Note 5).
Other intangible assets – net – The impairment was measured at
the remaining net book value of customer relationships related to a
closed factory operation (see Note 5).
Other assets – The impairments of the matured operating lease
inventory were measured at the fair value of that equipment. The
valuations were based on a market approach. The inputs include
sales of comparable assets. The impairment of the German lawn
mower business was measured at the estimated realizable value.
Fair value was based on estimates of the final sale price (see
Note 5).
The amounts recorded, at October 31, 2021 and November 1, 2020,
in the consolidated balance sheet related to borrowings designated
in fair value hedging relationships in millions of dollars follow:
27. DERIVATIVE INSTRUMENTS
Cash Flow Hedges
Certain interest rate and cross-currency interest rate contracts
(swaps) were designated as hedges of future cash flows from
borrowings. The total notional amounts of the receive-
variable/pay-fixed interest rate contracts at October 31, 2021 and
November 1, 2020 were $2,700 million and $1,550 million,
respectively. During 2019, the company hedged a portion of its
exposure to interest rate changes on a forecasted debt issuance
using an interest rate contract with a term of 30 years. The hedge
was terminated upon issuance of the debt, resulting in a fair value
loss of $70 million. Fair value gains or losses on cash flow hedges
were recorded in OCI and are subsequently reclassified into
interest expense or other operating expenses (foreign currency
exchange) in the same periods during which the hedged
transactions impact earnings. These amounts offset the effects of
interest rate or foreign currency exchange rate changes on the
related borrowings. The cash flows from these contracts were
recorded in operating activities in the statement of consolidated
cash flows.
The amount of loss recorded in OCI at October 31, 2021 that is
expected to be reclassified to interest expense or other operating
expenses in the next twelve months if interest rates or exchange
rates remain unchanged is approximately $4 million after-tax.
There were no gains or losses reclassified from OCI to earnings
based on the probability that the original forecasted transaction
would not occur.
Fair Value Hedges
Certain interest rate contracts (swaps) were designated as fair
value hedges of borrowings. The total notional amounts of the
receive-fixed/pay-variable interest rate contracts at October 31,
2021 and November 1, 2020 were $8,043 million and $7,239 million,
respectively. The fair value gains or losses on these contracts were
generally offset by fair value gains or losses on the hedged items
(fixed-rate borrowings) with both items recorded in interest
expense.
Cumulative Increase (Decrease) of
Fair Value Hedging Adjustments
Included in the Carrying Amount
Active
Hedging
Relationships
Discontinued
Relationships
Total
Carrying
Amount of
Hedged
Item
2021
Long-term borrowings
due within one year
Long-term borrowings
2020
Long-term borrowings
* $
189 $
8,070
3 $
29
(2) $
223
1
252
due within one year * $
155 $
Long-term borrowings
7,725
2 $
543
3 $
122
5
665
* Presented in short-term borrowings.
Derivatives Not Designated as Hedging Instruments
The company has certain interest rate contracts (swaps), foreign
currency exchange contracts (futures, forwards, and swaps), and
cross-currency interest rate contracts (swaps), which were not
formally designated as hedges. These derivatives were held as
economic hedges for underlying interest rate or foreign currency
exposures primarily for certain borrowings, purchases or sales of
inventory, and below market retail financing programs. The total
notional amounts of the interest rate swaps at October 31, 2021
and November 1, 2020 were $10,848 million and $8,514 million, the
foreign currency exchange contracts were $7,584 million and
$4,903 million, and the cross-currency interest rate contracts
were $238 million and $113 million, respectively. The fair value
gains or losses from the interest rate contracts were recognized
currently in interest expense and the gains or losses from foreign
currency exchange contracts in cost of sales or other operating
expenses, generally offsetting over time the expenses on the
exposures being hedged. The cash flows from these non-
designated contracts were recorded in operating activities in the
statement of consolidated cash flows.
73
Fair values of derivative instruments in the consolidated balance
sheet at October 31, 2021 and November 1, 2020 in millions of
dollars follow:
Other Assets
Designated as hedging instruments:
Interest rate contracts
............................
$
166 $
586
Not designated as hedging instruments:
2021
2020
Interest rate contracts
Foreign exchange contracts
Cross-currency interest rate contracts
............................
....................
......
............................
.....................
Total derivative assets
Total not designated
73
31
5
109
275 $
$
Accounts Payable and Accrued Expenses
Designated as hedging instruments:
Interest rate contracts
............................
$
99 $
Not designated as hedging instruments:
Interest rate contracts
Foreign exchange contracts
Cross-currency interest rate contracts
............................
....................
......
............................
.................
Total derivative liabilities
Total not designated
33
94
2
129
228 $
$
83
48
8
139
725
14
74
26
1
101
115
The classification and gains (losses) including accrued interest
expense related to derivative instruments on the statement of
consolidated income consisted of the following in millions of
dollars:
Fair Value Hedges
Interest rate contracts – Interest expense
...
$ (236) $ 496 $ 589
2021
2020
2019
Cash Flow Hedges
Recognized in OCI:
Interest rate contracts – OCI (pretax)
........
8
(18)
(92)
Reclassified from OCI:
Interest rate contracts – Interest expense
(13)
(21)
5
Not Designated as Hedges
Interest rate contracts – Net sales
Interest rate contracts – Interest expense*
Foreign exchange contracts – Cost of sales
Foreign exchange contracts – Other
..............
operating expenses*
Total not designated
..............................
............................
$
13 $
14
(101)
(23) $ (23)
(32)
(2)
(18)
93
(262)
$ (336) $
122
190 $
97
24
* Includes interest and foreign exchange gains (losses) from cross-currency
interest rate contracts.
Counterparty Risk and Collateral
Derivative instruments are subject to significant concentrations of
credit risk to the banking sector. The company manages individual
counterparty exposure by setting limits that consider the credit
rating of the counterparty, the credit default swap spread of the
counterparty, and other financial commitments and exposures
between the company and the counterparty banks. All interest rate
derivatives are transacted under International Swaps and
Derivatives Association (ISDA) documentation. Some of these
agreements include credit support provisions. Each master
74
agreement permits the net settlement of amounts owed in the
event of default or termination.
Certain of the company’s derivative agreements contain credit
support provisions that may require the company 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
October 31, 2021 and November 1, 2020, was $135 million and
$89 million, respectively. In accordance with the limits established
in these agreements, the company posted no cash collateral at
October 31, 2021 or November 1, 2020. In addition, the company
paid $8 million of collateral either in cash or pledged securities that
was outstanding at both October 31, 2021 and November 1, 2020 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 at October
31, 2021 and November 1, 2020 in millions of dollars follows:
Gross Amounts
Recognized
Netting
Arrangements
Collateral
Net
Amount
2021
Assets
Liabilities
2020
Assets
Liabilities
..........
......
..........
......
$
$
$
$
275
228
725
115
(105)
(105) $
$
(5)
(93) $
(93)
(274) $
170
118
358
22
28. SEGMENT AND GEOGRAPHIC AREA DATA
In fiscal year 2021, the company implemented a new operating
model and reporting structure. With this change, the company’s
agriculture and turf operations were divided into two new
segments: production and precision agriculture and small
agriculture and turf. There were no changes to the construction
and forestry and financial services segments. This presentation is
consistent with how the chief operating decision maker assesses
the performance of the segments and makes decisions about
resource allocations. The company’s operations are presently
organized and reported in four business segments described as
follows:
The production and precision agriculture segment defines,
develops, and delivers global equipment and technology solutions
to unlock customer value for production-scale growers of large
grains, small grains, cotton, and sugar. Main products include large
and certain mid-size tractors, combines, cotton pickers, sugarcane
harvesters and loaders, and soil preparation, seeding, application
and crop care equipment.
The small agriculture and turf segment defines, develops, and
delivers global equipment and technology solutions to unlock
customer value for dairy and livestock producers, high-value crop
producers, and turf and utility customers. The segment’s primary
products include certain mid-size and small tractors, as well as hay
and forage equipment, riding and commercial lawn equipment,
golf course equipment, and utility vehicles.
The construction and forestry segment defines, develops, and
delivers a broad range of machines and technology solutions
organized along the earthmoving, forestry, and roadbuilding
production systems. The segment’s primary products include
crawler dozers and loaders, four-wheel-drive loaders, excavators,
skid-steer loaders, milling machines, and log harvesters.
The products and services produced by the segments above are
marketed primarily through independent retail dealer networks
and major retail outlets, and, as it relates to roadbuilding products
in certain markets outside the U.S. and Canada, primarily through
company-owned sales and service subsidiaries.
The financial services segment primarily finances sales and leases
by John Deere dealers of new and used production and precision
agriculture equipment, small agriculture and turf equipment, and
construction and forestry equipment. In addition, the financial
services segment provides wholesale financing to dealers of the
foregoing equipment, finances retail revolving charge accounts,
and offers extended equipment warranties.
Because of integrated manufacturing operations and common
administrative and marketing support, a substantial number of
allocations must be made to determine operating segment and
geographic area data. Intersegment sales and revenues represent
sales of components and finance charges, which are generally
based on market prices.
At the beginning of fiscal year 2021, the company reclassified
goodwill from identifiable operating segment assets to corporate
assets for segment reporting, as goodwill is no longer considered
in evaluating the operating performance of the segments. Prior
period amounts have been restated for a consistent presentation.
Information relating to operations by operating segment in millions
of dollars follows for the years ended October 31, 2021, November 1,
2020 and November 3, 2019. In addition to the following
unaffiliated sales and revenues by segment, intersegment sales
and revenues in 2021, 2020, and 2019 were as follows: production
and precision agriculture net sales of $27 million, $22 million, and
$31 million; small agriculture and turf net sales of $11 million, $2
million, and $3 million; construction and forestry had no
intersegment sales in 2021, $1 million in 2020, and $1 million in 2019;
and financial services revenues of $246 million, $278 million, and
$348 million, respectively.
OPERATING SEGMENTS
Net sales and revenues
Unaffiliated customers:
Production & precision ag net sales
Small ag & turf net sales
Construction & forestry net sales
Financial services revenues
Other revenues *
......
.....................
........
................
...............................
Total
.........................................
2021
2020
2019
$ 16,509 $ 12,962 $ 13,364
10,302
11,220
3,621
751
$44,024 $ 35,540 $39,258
11,860
11,368
3,548
739
9,363
8,947
3,589
679
* Other revenues are primarily the equipment operations’ revenues for finance
and interest income, and other income.
OPERATING SEGMENTS
Operating profit
Production & precision ag
Small ag & turf
Construction & forestry
Financial services*
Total operating profit*
...................
..................................
.....................
............................
..................
................................
...............................
Interest income
Interest expense
Foreign exchange gains (losses) from
2021
2020
2019
$ 3,334 $ 1,969 $
2,045
1,489
1,144
8,012
82
(368)
1,000
590
746
4,305
62
(329)
1,729
777
1,215
694
4,415
85
(256)
equipment operations’ financing activities
(45)
17
(22)
Pension and OPEB benefit (cost),
excluding service cost component
.....
...................
....................................
..........................................
......................................
Corporate expenses – net
Income taxes
Total
Net income
Less: Net income attributable to
noncontrolling interests
Net income attributable to
..................
183
(241)
(1,658)
(2,047)
5,965
31
(251)
(1,082)
(1,552)
2,753
67
(180)
(852)
(1,158)
3,257
2
2
4
Deere & Company
..........................
$ 5,963 $ 2,751 $ 3,253
* Operating profit of the financial services business segment includes the effect of
its interest expense and foreign exchange gains or losses.
Interest income*
Production & precision ag
Small ag & turf
Construction & forestry
Financial services
Corporate
Intercompany
Total
...................
$
..................................
.....................
..............................
........................................
...................................
..........................................
21 $
21
10
1,999
82
(279)
16
6
11
2,316
85
(360)
$ 1,854 $ 1,962 $ 2,074
22 $
16
12
2,122
62
(272)
* Does not include finance rental income for equipment on operating leases.
Interest expense
Production & precision ag
Small ag & turf
Construction & forestry
Financial services
Corporate
Intercompany
Total
...................
$
..................................
.....................
..............................
........................................
...................................
..........................................
$
87
76 $
84 $
158
111
87
91
61
46
1,234
942
687
256
329
368
(279)
(360)
(272)
993 $ 1,247 $ 1,466
Depreciation* and amortization expense
...................
Production & precision ag
$
..................................
Small ag & turf
.....................
Construction & forestry
..............................
Financial services
...................................
Intercompany
..........................................
Total
495 $
245
303
1,140
(133)
$ 2,050 $
* Includes depreciation for equipment on operating leases.
475
480 $
248
247
292
289
1,135
1,227
(125)
(131)
2,118 $ 2,019
(continued)
75
2021
2020
2019
29. SUBSEQUENT EVENTS
OPERATING SEGMENTS
Equity in income (loss) of
unconsolidated affiliates
Small ag & turf
Construction & forestry
Financial services
...............................
...................
...........................
.......................................
Total
$
$
2 $
16
3
21 $
2 $
(52)
2
(48) $
6
14
1
21
Identifiable operating assets
Production & precision ag
Small ag & turf
Construction & forestry
Financial services
Corporate*
Total
................
...............................
...................
...........................
....................................
.......................................
$ 7,021 $ 5,708 $ 6,149
3,656
3,266
7,044
6,322
48,483
48,719
7,679
11,076
$ 84,114 $ 75,091 $ 73,011
3,959
6,457
51,624
15,053
* Corporate assets are primarily the equipment operations’ retirement benefits,
deferred income tax assets, goodwill, marketable securities, and cash and cash
equivalents.
Capital additions
Production & precision ag
Small ag & turf
Construction & forestry
Financial services
..................
.................................
.....................
.............................
.........................................
Total
$ 458 $
253
183
3
$ 897 $
431 $
223
157
4
815 $
595
264
245
3
1,107
Investments in unconsolidated affiliates
Production & precision ag
Small ag & turf
Construction & forestry
Financial services
..................
.................................
$
.....................
.............................
.........................................
Total
$
$
1 $
31
122
22
175 $
29
144
19
193 $
1
27
171
16
215
The company views and has historically disclosed its operations as
consisting of two geographic areas (the U.S. and Canada, and
outside the U.S. and Canada) for net sales and revenues and
operating profit shown below in millions of dollars. No individual
foreign country’s net sales and revenues were material for
disclosure purposes. For property and equipment, a material
amount does reside in the country of Germany, separately
disclosed below in millions of dollars.
GEOGRAPHIC AREAS
Net sales and revenues
Unaffiliated customers:
U.S. and Canada
Outside U.S. and Canada
..........................
...............
..............................................
Total
2021
2020
2019
$25,829 $ 21,386 $ 23,746
15,512
14,154
$44,024 $35,540 $ 39,258
18,195
Operating profit
U.S. and Canada
Outside U.S. and Canada
...............................
....................
.........................................
Total
$ 4,774 $ 2,775 $ 2,841
1,574
$ 8,012 $ 4,305 $ 4,415
3,238
1,530
Property and equipment
U.S. and Canada
Germany
Other countries
...............................
.........................................
................................
.........................................
Total
$ 3,164 $ 3,178 $ 3,197
1,137
1,639
$ 5,820 $ 5,817 $ 5,973
1,096
1,560
1,113
1,526
76
In November 2021, the company renewed its outstanding bank
conduit facility revolving credit agreement, which reduced the
facility capacity from $2,000 million to $1,000 million. As a result
of the facility renewal at a reduced capacity, the company
repurchased $511 million of outstanding short-term securitization
borrowings in November 2021, in addition to the normal monthly
collection of payments on the retail notes.
On November 17, 2021, employees represented by the UAW
approved a new collective bargaining agreement and terminated a
strike that began on October 14, 2021. The agreement, which has a
term of six years, covers the wages, hours, benefits, and other
terms and conditions of employment for the company’s UAW-
represented employees at 14 U.S. facilities. The labor agreement
includes a lump sum ratification bonus payment of $8,500 per
eligible employee, totaling $90 million, and an immediate wage
increase of 10 percent plus further wage increases over the term of
the contract. The lump sum payment will be expensed in the first
quarter of 2022. The company remeasured the U.S. hourly pension
plan as of November 30, 2021 due to the new collective bargaining
agreement, which decreased the plan’s funded status by
approximately $495 million and will increase pension expense in
2022 by nearly $80 million. The U.S. hourly pension plan changes
will continue to impact pension expense through the remaining
term of the contract as well as years beyond the current contract
as employees continue to accumulate years of service. The UAW
strike is expected to have an adverse effect on the company’s
results of operations for the three months ending January 30,
2022 as a result of reduced production and shipments.
On November 30, 2021, the company voluntarily contributed
$1,000 million to a U.S. OPEB plan. The expected return on this
contribution was included in the 2022 pension and OPEB cost
estimates in the MD&A.
A quarterly dividend of $1.05 per share was declared at the Board
of Directors meeting on December 8, 2021, payable on February 8,
2022 to stockholders of record on December 31, 2021.
On December 14, 2021, the company announced a definitive
agreement to acquire majority ownership in Kreisel Electric, Inc.
(Kreisel), a battery technology provider based in Austria. Kreisel
has differentiated battery technology for high-performance and
off-highway applications as well as charging infrastructure
offerings globally and across multiple end markets. This will
provide Deere with the high-density battery technology necessary
to optimally integrate and efficiently design vehicles and power
trains while leveraging Kreisel’s charging technology to build out
infrastructure to enable global customer adoption. The
transaction is expected to close in the first half of fiscal year 2022,
subject to the receipt of certain required regulatory approvals and
satisfaction of certain other customary closing conditions. Total
cash consideration will be €221 million and paid out of cash on
hand. Kreisel will be allocated amongst the company’s production
and precision agriculture, small agriculture and turf, and
construction and forestry segments.
DEERE & COMPANY
SELECTED FINANCIAL DATA
A
D
S
(Dollars in millions except per share amounts)
L
............................
...............................................
.....................
.........
....
....................................
..........................................
.................................
Net sales and revenues
Net sales
Finance and interest income
Research and development expenses
Selling, administrative and general expenses
Interest expense
Net income*
Return on net sales
Return on beginning Deere & Company
stockholders’ equity
Comprehensive income*
.............................
..........................
...................
.................
....................
..........................
Net income per share – basic*
– diluted*
Dividends declared per share
Dividends paid per share
Average number of common shares
outstanding (in millions) – basic
– diluted
.............
............
20211
20155
20144
20199
20166
20188
20200
20177
$44,024 $ 35,540 $ 39,258 $ 37,358 $ 29,738 $ 26,644 $ 28,863 $ 36,067 $ 37,795
34,998
25,885
2,115
2,732
1,445
1,373
3,558
3,098
741
899
3,537
2,159
10.1%
8.3%
34,886
3,493
1,783
3,551
1,466
3,253
9.3%
23,387
2,511
1,394
2,791
764
1,524
6.5%
25,775
2,381
1,410
2,868
680
1,940
7.5%
32,961
2,282
1,437
3,266
664
3,162
9.6%
31,272
3,450
1,644
3,477
1,247
2,751
8.8%
39,737
3,296
1,587
3,383
993
5,963
15.0%
33,351
3,107
1,658
3,455
1,204
2,368
7.1%
20133
20122
$ 36,157
33,501
1,981
1,409
3,369
783
3,065
9.1%
46.1%
8,963
24.1%
2,819
28.8%
2,081
24.8%
3,222
33.1%
3,221
22.6%
627
21.4%
994
30.8%
2,072
51.7%
5,416
45.1%
2,171
$ 19.14 $
18.99
3.61
3.32
8.77 $ 10.28 $
8.69
3.04
3.04
10.15
3.04
2.97
7.34 $ 6.76 $ 4.83 $
7.24
2.58
2.49
6.68
2.40
2.40
4.81
2.40
2.40
5.81 $
5.77
2.40
2.40
8.71 $
8.63
2.22
2.13
9.18 $
9.09
1.99
1.94
7.72
7.63
1.79
1.74
311.6
314.0
313.5
316.6
316.5
320.6
322.6
327.3
319.5
323.3
315.2
316.6
333.6
336.0
363.0
366.1
385.3
389.2
397.1
401.5
Total assets
Trade accounts and notes receivable – net
Financing receivables – net
Financing receivables securitized – net
Equipment on operating leases – net
Inventories
Property and equipment – net
Short-term borrowings:
...........................................
.....
......................
.......
.........
............................................
..................
$ 84,114 $ 75,091 $ 73,011 $ 70,108 $ 65,786 $ 57,918 $ 57,883 $ 61,267 $ 59,454 $ 56,193
3,799
22,159
3,618
2,528
5,170
5,012
4,171
29,750
4,703
7,298
4,999
5,817
3,05
24,809
4,835
4,970
3,817
5,181
3,758
25,633
4,153
3,152
4,935
5,467
5,230
29,195
4,383
7,567
5,975
5,973
5,004
27,054
4,022
7,165
6,149
5,868
4,208
33,799
4,659
6,988
6,781
5,820
3,278
27,422
4,602
4,016
4,210
5,578
3,011
23,702
5,127
5,902
3,341
5,171
3,925
25,104
4,159
6,594
3,904
5,068
1
Equipment operations
Financial services
........................
...............................
.............................................
Total
Short-term securitization borrowings:
Equipment operations
Financial services
........................
...............................
.............................................
Total
Long-term borrowings:
Equipment operations
Financial services
........................
...............................
.............................................
....
Total Deere & Company stockholders’ equity
Total
1,509
9,410
10,919
10
4,595
4,605
292
8,290
8,582
26
4,656
4,682
987
9,797
10,784
1,434
9,628
11,062
375
9,660
10,035
249
6,662
6,911
464
7,961
8,425
434
7,584
8,018
1,080
7,707
8,787
425
5,966
6,391
44
4,277
4,321
75
3,882
3,957
4,119
4,119
4,998
4,998
4,585
4,585
4,553
4,553
4,103
4,103
3,569
3,569
8,915
23,973
32,888
18,431
10,124
22,610
32,734
12,937
5,415
24,814
30,229
11,413
4,714
22,523
27,237
11,288
5,491
20,400
25,891
9,557
4,565
19,138
23,703
6,520
4,439
19,336
23,775
6,743
4,619
19,699
24,318
9,063
4,845
16,673
21,518
10,266
5,418
16,970
22,388
6,842
Book value per share*
Capital expenditures
Number of employees (at year end)
.
* Attributable to Deere & Company.
.............................
...............................
............
$ 59.83 $ 41.25 $ 36.45 $ 35.45 $ 29.70 $ 20.71 $ 21.29 $ 26.23 $ 27.46 $ 17.64
1,132 $ 1,360
$
59,623 67,044 66,859
668
56,767
74,413 60,476
655 $ 1,004 $
762 $ 1,084 $
69,634
73,489
75,550
969 $
586 $
57,180
867 $
$
77
Deere & Company
One John Deere Place, Moline, Illinois 61265
(309) 765-8000
www.JohnDeere.com