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One John Deere Place, Moline, Illinois 61265
Deere & Company
(309) 765-8000
www.JohnDeere.com
2022
Annual Report
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02 John Deere 2022 Annual Report
CEO Letter
John Deere extended its record of strong performance in 2022. The company
achieved outstanding financial results while overcoming major supplier challenges
and responding to healthy customer demand. Net sales and revenues, net income,
and SVA* were the highest in company history. Deere shareholders fared well, too,
realizing a total return on their investment of 17 percent at fiscal year end.
Deere also enhanced its competitive position, adding customers throughout the
world. Demand for our precision technologies continued to move ahead. To give our
smart-industrial operating model more strength and definition, a series of exacting
metrics, known as Leap Ambitions, was introduced. They set aggressive goals for
unlocking value for our customers as well as producing strong financial and
sustainability outcomes for John Deere.
NET SALES & REVENUES
$52.58
BILLION
SHAREHOLDER
VALUE ADDED*
$6.23
BILLION
$52,577
$44,024
$35,540
2022
2021
2020
$6,229
$5,128
$1,679
2022
2021
2020
NET INCOME
(attributable to Deere & Company)
$7,131
$5,963
$7.13
BILLION
$2,751
2022
2021
2020
Chairman & CEO
JOHN
MAY
The amounts shown in the charts above represent millions of dollars.
* Shareholder Value Added (SVA), referred to throughout this report, is a non-GAAP financial measure.
See page 15, and related footnotes, for further details.
Unless indicated otherwise, all capitalized names of products and services are trademarks of Deere & Company.
On the cover:
In 2022 John Deere unveiled its first fully autonomous tractor for large-scale
production. The autonomous 8R tractor offers advanced technologies,
including six pairs of stereo cameras that provide 360-degree vision to see
objects in the field and determine distance.
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John Deere 2022 Annual Report
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03
Chairman & CEO Letter
STRONG MARKETS,
SOUND STRATEGY
PACE RECORD YEAR
John Deere extended its record of strong
performance in 2022, achieving outstanding
financial results while overcoming major supplier
challenges and responding to vigorous demand for
our products.
Our achievements were many: We brought out
important new products with the latest technology
and advanced features, improved our competitive
position in much of the world, and made further
progress ensuring the success of our strategic
plan and business model. We made investments
that help our customers be more profitable,
productive, and sustainable. We also launched a set
of challenging metrics to inspire superior customer,
financial, and sustainable outcomes.
From a financial standpoint, 2022 was a memorable
year. Net income totaled $7.13 billion versus $5.96
billion in the previous year. Net sales and revenues
increased 19 percent to $52.58 billion. Profitability
in relation to sales (operating profit/net sales) was
the best in modern times.
The investment community took note of our
success. Deere shareholders realized a total return
on their investment of 17 percent, compared with
a decline in the overall market. The quarterly
dividend rate on Deere stock was increased by 8
percent during the fiscal year and roughly 10 million
shares, representing an expenditure of $3.6 billion,
were repurchased. (The dividend was increased by
an additional 6 percent in December.)
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04 John Deere 2022 Annual Report
CEO Letter
India-built 5115M tractor is part of the updated 5M series of utility
tractors. These tractors offer tremendous versatility – from baling
to tillage to loader work – with connectivity included.
OPERATIONS MOVE AHEAD
Precision & Production Agriculture — our largest
business, accounting for almost half of our sales —
benefited from the success of new products such as
large tractors, sprayers, and combines. Customers
continued to adopt the latest in high-value precision
technologies, many of which include autonomous
capabilities. Results for Small Agriculture & Turf
reflected positive consumer sentiment and the impact
of new products.
Construction & Forestry (C&F) operations set new
highs in sales and profit, aided by solid markets for
earthmoving, forestry, and roadbuilding equipment.
Helping the division were higher sales of backhoes,
utility and production loaders, large dump trucks,
and compact equipment.
Deere’s financial-services unit made a substantial
contribution to company earnings while financing
roughly half of the new equipment sold by our dealers.
Credit quality remained impressive, and the loan and
lease portfolio grew to more than $50 billion for
the first time.
NAVIGATING CHALLENGES
Our results were achieved in the face of persistent
supply-chain pressures and higher material costs.
Over the course of the year, many Deere factories
experienced slowdowns or disruptions due to parts
or component shortages. We are proud of the tireless
efforts of our employees to help manage the situation,
ramp up production, and get much-needed products
to our customers’ farms and jobsites. As well, Deere
faced stiff headwinds related to higher costs for raw
materials and freight.
The XUV 835R Signature Series Gator is our
most comfortable and advanced three-passenger
crossover utility vehicle. The premium cab features
automotive-like controls, leather seats, touch-
screen infotainment with Apple CarPlay and
Android Auto, and sliding back window. These
machines are available with a gas or diesel engine.
Z370R residential zero-turn
mower is the first electric
lithium-ion battery product from
John Deere. It offers reduced
maintenance, less noise, and
zero-emissions while mowing —
and performance similar to gas-
powered models. (It is available
for order February 7, 2023.)
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John Deere 2022 Annual Report
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05
The new GUSS (Global Unmanned Spray System) herbicide sprayer is the world’s first autonomous sprayer for orchards.
Its nine sensors precisely detect, target, and spot spray weeds throughout the growing season. Through a joint venture with GUSS
Automation, John Deere now offers growers of orchards, vineyards, and other high-value crops a lineup of autonomous sprayers.
Deere’s dealer channel continued to serve
customers while strengthening its technical
capabilities and making wide use of
digital tools. Remote diagnostic sessions
between customers and dealers increased
more than 60 percent and have more
than doubled in the last two years. Dealer
support, which helps keep customers up and
running and realize even more value from
their equipment, has taken on even more
importance as our products become more
technologically advanced.
OPERATING MODEL MAKING IMPACT
Again in 2022, Deere’s smart-industrial
operating model produced strong results.
Deere added customers, brought more
focus to its business portfolio, and made
further technological advances. Based in
large part on changes driven by the strategy,
the company has generated higher levels of
profit and profitability.
The operating model is organized by
production systems (“the way our
customers work”), establishing a centralized
technology group, and putting more
emphasis on delivering value to customers
across the lifecycle of the product. The
strategy also stresses increasing speed
and accountability.
Deere continued to make investments
in support of its strategy. They included
acquiring a majority stake in an Austrian-
based leader in battery-electric technology
and entering a joint venture with a company
that makes semi-autonomous orchard and
vineyard sprayers. Deere also invested in
a handful of other firms to strengthen its
technology stack.
We invested in our people, too. To ensure
that Deere remains a premier employer,
the company made enhancements
in compensation, benefits, and work
arrangements. Office locations were opened
in Austin and Chicago as part of an effort to
attract a wider range of employee talent. On
the production side, collective-bargaining
agreements approved by the autoworkers
(UAW) and machinists (IAM) unions set a new
standard for wage roles in our industries.
AMBITIONS SHOWCASE GROWTH,
SUSTAINABILITY
During the year, a series of exacting metrics
was introduced to demonstrate what the
smart-industrial operating model can
deliver. The Leap Ambitions, as they are
known, are focused on creating value for
our customers. Perhaps most important,
they show Deere has ample room for
growth, identifying incremental value
creation of at least $150 billion.
The ambitions set aggressive goals for
financial performance and sustainability.
These include a 20 percent return on mid-
cycle sales and 10 percent recurring revenue
by 2030 as well as a significant reduction
in emissions from our operations and
products. Our focus on recurring revenue
is intended to enhance the value we deliver
to customers, support the adoption of
technology, and optimize equipment value
over its lifecycle. The ambitions also call
for increasing the number of connected
machines and engaged acres, enabling
customers to make data-driven decisions to
improve their profitability and sustainability.
In response to the ambitions’ focus on
sustainability, Deere has accelerated efforts
to improve the efficiency and limit the
environmental impact of its products. To
reduce emissions in line with our goals, the
company is exploring ways to supplement
its traditional diesel-powered engines with
alternative propulsion systems such as
battery-electric and alternative fuels.
Our plans include having at least 20
battery-electric or hybrid-electric
construction and forestry machines on the
market by 2026 and offering a range of
electric options in turf-care and compact-
tractor products. Last year, our Wirtgen
roadbuilding unit introduced electric
tandem rollers and mini pavers. Deere also
unveiled concept models of battery-electric
mowers, utility vehicles, and small tractors,
and has plans to offer a battery-electric
residential zero-turn mower in 2023.
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06 John Deere 2022 Annual Report
CEO Letter
SETTING PACE IN INNOVATION
Product innovation, a traditional Deere strength, made further strides and earned
additional recognition. A noted group of U.S. agricultural and biological engineers
honored eight company products for innovative design, including new planters,
sprayers, four-wheel-drive tractors, and an integrated liquid-fertilizer system
that allows for simultaneous planting and nitrogen application. In addition, the
company’s autonomous 8R tractor was recognized for innovation by the Consumer
Technology Association.
Precision agriculture moved ahead as more customers embraced its productivity-
enhancing benefits. Sales grew for popular features that guide machines, plant seeds,
and apply chemicals, all with exceptional accuracy. Sprayers debuted that use camera
technology and artificial intelligence to distinguish weeds from healthy plants, helping
reduce costly inputs and benefiting yields. The products build on the success of earlier
models that identify and spray weeds on fallow ground. The John Deere Operations
Center gained further popularity with customers, ending the year with about 330 million
engaged acres worldwide.
C&F expanded its lineup of tiered products — models whose size, power, and features
are matched with the demands of the job — with the introduction of P-Tier wheel
loaders and excavators, as well as G-Tier compact wheel loaders. Wirtgen added
new milling machines and crushers.
Wirtgen’s new W 100 Fi, W 120 Fi,
and W 130 Fi compact milling
machines deliver impressive
performance in a wide range of
milling applications. They are the
first milling machines to feature
a John Deere engine.
BUILDING ON RECORD OF SOCIAL RESPONSIBILITY
Deere is dedicated to sharing with others and being a socially responsible company.
To this end, charitable contributions from the company and foundation reached
$55.5 million, a 30 percent increase over the previous year. Significant donations were
made to combat global food insecurity, promote agricultural education, and strengthen
support for underserved farmers. Deere and its foundation remain committed to
making charitable contributions of at least one percent of net income over time.
Highlighting our commitment to a more equitable society, Deere continued its
support of the LEAP coalition, a group that primarily helps Black farmers secure clear
title to their land. The company also helped create a fellowship program for Native
American youth studying agriculture. In another action, Deere announced plans to
invest in an equity fund managed by Advantage Capital that helps minority-owned
businesses gain access to capital.
New CP770 cotton picker is our most productive
cotton harvester ever. It can help farmers harvest
every pound of cotton possible while preserving
cotton quality. The CP770 is up to 20 percent more
fuel efficient compared with its predecessor.
The 953MH tracked harvester delivers
a powerful forestry solution, integrating
intelligent boom control (IBC) as part of
its core technology. With IBC, operators
no longer need to control each boom
function separately.
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John Deere 2022 Annual Report
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07
The company earned further accolades in 2022 for its record of
responsible citizenship. Among them, Deere was recognized as
one of the nation’s most community-minded companies as part of
Points of Light’s Civic 50. For a fifth year, the company was honored
for social innovation by the American Innovation Index Awards,
which focus on corporate activities and products benefiting society.
Deere also appeared in prominent listings of most-valuable brands
and companies committed to business integrity.
EMBRACING PROMISING FUTURE
Based on our forecasts, the year ahead holds a great deal of
promise. Agricultural fundamentals are favorable, customer
confidence is sound, and infrastructure spending is set to rise.
At the same time, machine inventories are lean, customer fleets
are being actively replenished, and demand is expected to
continue testing the industry’s capacity. Supply-chain issues,
though likely to remain a concern, have started showing signs
of improvement.
All in all, I firmly believe John Deere’s best days lie ahead. We’re
part of a great company that does great things. Market conditions
are solid, and our portfolio of solutions has never been stronger.
In addition, Deere is unleashing technological breakthroughs,
transforming the industries we serve and bringing value to our
customers that would have been scarcely imaginable not long
ago. Finally, we have a winning formula in the smart-industrial
operating model. It is driving our performance to new levels
and its promise is only beginning to be felt.
See & Spray Ultimate is an advanced, factory-installed spraying system available
for model year 2023 for Deere 410R, 412R, and 612R sprayers. It enables targeted
spraying of weeds in corn, soybean, and cotton plants, reducing non-residual
herbicide use by more than two-thirds.
Monosem ValoTerra Ultimate planter allows precise planting
without compromising consistency, depth, fertilization
capacity, and emergence quality. It can plant at speeds up
to 11 miles per hour. ValoTerra Ultimate earned a Gold Medal
at the 2022 SIMA agricultural trade show’s Innovation Awards.
Deere’s higher purpose, “We Run So Life Can Leap Forward,”
underscores our obligation to offer advanced products and
solutions that improve the living standards of people everywhere.
I’m proud to say we are managing our businesses and serving our
customers in ways that bring honor to our purpose and the legacy
that has inspired us for close to two centuries.
Our achievements in 2022 give us further confidence we can
continue moving in this direction for many years to come.
On behalf of the John Deere team,
John C. May
Chairman & Chief Executive Officer
December 15, 2022
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08 John Deere 2022 Annual Report
Leap Ambitions
JOHN DEERE IS UNIQUELY POSITIONED TO DELIVER BOTH
ECONOMIC AND SUSTAINABLE VALUE FOR OUR CUSTOMERS
THROUGH ADVANCED TECHNOLOGY AND SOLUTIONS.
OUR NEXT LEAP
In 2020, we announced a new vision and operating
model to accelerate success through the integration
of smart technology innovation with John Deere’s legacy
of manufacturing excellence.
value through technological innovation, engineering
and manufacturing excellence, and a world-class dealer
channel, all of which uniquely position Deere to anticipate,
address, and outpace these challenges better than anyone.
The Deere smart-industrial operating model focuses
on delivering intelligent, connected machines and
applications that will revolutionize production systems
in agriculture and construction, unlocking customer
economic value across the lifecycle in ways that are
more sustainable for all.
In 2022, in support of our strategy, we launched our Leap
Ambitions — the measures of our strategy. Our ambitions
align across our customers’ production systems to optimize
their complete operations — ensuring that every hour,
every drop, every seed, every pound, and every pass counts
— delivering better outcomes with fewer resources.
The core elements of our strategy’s operating model —
Production Systems, Technology Stack, and Lifecycle
Solutions — paired with a new approach to capital
allocation and the best team in the industry, are enabling
us to innovate with agility and speed.
Our customers face increasing challenges that make their
businesses more competitive and dynamic. We’ll build
on our track record by creating and delivering customer
Our Leap Ambitions are focused goals designed to boost
economic value and sustainability for our customers.
We’ve committed to achieving these goals within
four-year (2026) and eight-year (2030) periods. These
Leap Ambitions mean great things for our customers,
employees, investors, dealers, suppliers, and others who
have a stake in John Deere.
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John Deere 2022 Annual Report
Leap Ambitions
09
INCREMENTAL ADDRESSABLE MARKET OPPORTUNITY
>$150 BILLION
EXECUTING OUR STRATEGY
PRODUCTION & PRECISION AG
SMALL AG & TURF
CONSTRUCTION & FORESTRY
By 2026
– Reach 500 million engaged acres*
with 50% highly engaged**
By 2026
– Ensure 100% of new Small Ag
By 2026
– Deliver 20+ electric and hybrid-electric
equipment is connectivity enabled
product models
By 2030
– Ensure 75% of engaged acres are
sustainably engaged acres***
– Offer an electric option in each
Turf and Compact Utility Tractor
product family
– Deliver a fully autonomous,
battery-powered electric ag tractor
to the market
– Earthmoving: Increase SmartGrade™
grade control adoption to 50%
– Forestry: Boost Intelligent Boom
Control adoption to 100%
– Roadbuilding: Increase Precision
Roadbuilding Solutions adoption to 85%
DELIVER ONGOING
VALUE TO CUSTOMERS
IN ALL THREE
BUSINESS SEGMENTS
Connect 1.5 million machines by 2026
Demonstrate viable low/no carbon alternative power solutions by 2026
Grow enterprise recurring revenue to 10% by 2030
FINANCIAL AND SUSTAINABLE OUTCOMES
Equipment Operations OROS at 20% by 2030
Enhance Ag Customer
Outcomes by 2030
– Improve nitrogen use
efficiency 20%†
– Increase crop protection
efficiency 20%†
– Reduce 15% of customer
CO2e emissions†
Product Circularity by 2030
– Achieve 95% recyclable
product content
– Ensure 65% of product content is
sustainable material
– Grow 50% in remanufacturing revenue
Safety by 2026
– Improve Total Recordable Incident
Rate 20%
Reduce Environmental Footprint
by 2030
– 50% of operational CO2e emissions
(Scope 1 & 2)
– 30% of upstream and downstream
CO2e emissions (Scope 3)
– 15% of waste intensity
– 10% freshwater consumption
intensity at water-stressed
manufacturing locations
* Engaged acres is one of the foundational measures of customers’
use of the John Deere Operations Center (our online farm
management system). It reflects the number of unique acres with
at least one operation pass documented in the Operations Center
in the past 12 months.
** Highly Engaged Acres include documentation of multiple production steps
and the use of digital tools to complete multiple, value creating activities
over a 12 month period.
*** Sustainably engaged acres include incorporation of two or more
sustainable John Deere technology solutions or sustainable practices
over a 12-month period.
†Per unit of output
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10 John Deere 2022 Annual Report
Citizenship
HELPING LIFE
LEAP FORWARD
BY ADDRESSING
FOOD INSECURITY
Wherever we operate, John Deere is committed to being
a responsible corporate citizen. We believe in sharing our
success with others. Since 2016, John Deere established a
goal of investing at least one percent of the company’s net
income from the previous three fiscal years in corporate social
responsibility initiatives.
We use the commitment to fuel what has become an industry-
leading corporate social responsibility strategy dedicated to
creating long-lasting economic, social, and environmental
value for those we serve. A key part of our strategy focuses
on addressing global food insecurity.
Solving the global hunger crisis that affects more than 828
million people begins by dispelling a misconception: People don’t
experience hunger because the world’s growers aren’t producing
enough food; they experience hunger because they don’t have
equitable access to it.
It’s gaining this access (and increasing food supply and
production) that has the John Deere Foundation focused
on the necessary steps to reduce, and ultimately
eliminate, hunger.
According to the World Food Programme, waste affects about
one-third of all food grown globally — roughly 1.3 billion tons
worth about $1 trillion annually. That waste means we are
feeding landfills instead of each other. It also means that the
food is rotting and increasing greenhouse gas emissions.
Getting food to those who need it most is what allows
non-profit organizations like the Global Food Banking
Network (GFN) and One Acre Fund to make an impact.
It’s also where, in 2021, the John Deere Foundation’s bold
commitment of pledging to invest $200 million over 10 years
is making a difference.
The foundation, which marks its 75th anniversary in 2023,
has targeted its investments toward three groups of people:
marginalized families and youth in our home communities,
smallholder and resource-constrained farmers across the
globe, and the company’s workforce. Within these groups, the
foundation aligned its work to the United Nations Sustainable
Development Goals, which includes “zero hunger” by 2030.
Through its grants in 2022, the foundation invested more than
$3 million in food banks and emergency hunger assistance,
representing the equivalent of more than 13 million meals.
To strengthen these grants, the foundation made the vast
majority of them either wholly unrestricted or for critical
capacity building.
“Our work certainly starts with our support of organizations
working with the world’s farmers, and it continues with those
organizations ensuring that all the food grown is put to its best
use,” Nate Clark, global director of corporate social responsibility,
said. “Through unrestricted grants, we allow these organizations
the autonomy to make a greater impact on the lives of others by
investing in themselves.”
One Acre Fund supports smallholder farmers across nine African
countries and developed a powerful model that places “farmers
first” through financing, farm input distribution, agricultural
training, and post-harvest support. Currently, One Acre Fund
is working with 1.4 million farmers directly — more than 60
percent of whom are women — and another 1.9 million through
partnership projects.
As populations grow and farmland faces the pressures
of urbanization, the effectiveness of precision agriculture
will be key in keeping up with food demands. It’s here that
John Deere is developing and deploying groundbreaking
innovations and technologies by creating advanced solutions.
Through our products and services, customers can make their
businesses more efficient, profitable, and sustainable.
Finally, the impact of the John Deere Foundation’s investments
is magnified by the involvement of the company’s workforce.
In 2022, employees earned over $6 million for the nonprofit
organizations they support via the foundation’s employee-giving
programs, which match volunteerism and personal philanthropy.
This shared commitment has not gone unnoticed as Points of
Light, a nonprofit dedicated to accelerating people-powered
change, named John Deere a 2022 honoree of The Civic 50,
which recognizes the 50 most community-minded companies
in the United States.
Learn more about our efforts to support sustainability and
social responsibility at: www.deere.com/sustainabilityreport
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BUSINESS HIGHLIGHTS
2022 AWARDS AND RECOGNITIONS
John Deere 2022 Annual Report
Business Highlights
11
50 MOST COMMUNITY-MINDED COMPANIES
John Deere was named a 2022 honoree of The Civic 50, a
recognition of the 50 most community-minded companies in
the nation. The Civic 50 is an initiative of Points of Light, the
world’s largest nonprofit dedicated to accelerating people-
powered change. The Civic 50 honorees are selected based
on their corporate citizenship and social impact.
CONSUMER ELECTRONIC SHOW (CES) INNOVATION AWARDS
Deere’s See & Spray spraying technology earned a CES 2022
Innovation Awards Best of Innovation recognition in the Robotics
and Vehicle Intelligence & Transportation categories from the
Consumer Technology Association (CTA), which recognizes
outstanding design and engineering in consumer technology
products. See & Spray uses computer vision and machine learning
to detect the difference between plants and weeds and targets
application of herbicide on the weeds.
WORLD’S MOST ETHICAL COMPANIES
Ethisphere Institute recognized Deere as one of the World’s
Most Ethical Companies in 2022 – one of seven honorees in
the Industrial Manufacturing category. John Deere has been
named one of the World’s Most Ethical Companies 15 times.
The honor is for companies with a commitment to advancing
business integrity.
HELPING TO ACHIEVE ZERO HUNGER
Deere made a $1 million donation to World Food Program USA
to combat global food insecurity and address the rise of hunger
made worse by the crisis in Ukraine. The grant will support
work of the United Nations World Food Programme (WFP)
and the organization’s Innovation Accelerator, which supports
innovations to reduce hunger.
AE50 AWARDS FOR INNOVATION
American Society of Agricultural and Biological Engineers
(ASABE) recognized Deere for innovation in engineering and
technology with eight awards for products, ranging from 9 Series
tractors to a new 24-row planter.
INVESTING IN UNDERREPRESENTED ENTREPRENEURS
AND BUSINESS OWNERS
Deere became a limited investor in Advantage Capital’s
Empower the Change (EPC) growth fund. It provides
entrepreneurs of color access to capital in order to grow
their businesses and create community wealth. The investment
is part of the company’s broader objective of allocating
$500 million within the next three years to identify and grow
relationships with underrepresented and disadvantaged
business enterprises.
JOINT VENTURE WITH GUSS AUTOMATION
Deere formed a joint venture with GUSS Automation,
a pioneer in semi-autonomous orchard and vineyard sprayers.
High-value crops such as orchards and vineyards generate
significantly higher value per acre than grains or oilseeds.
INVESTING IN BATTERY TECHNOLOGY
Deere acquired majority ownership in Kreisel Electric, a
leading pioneer in the development of immersion-cooled
battery technology. The Austrian company manufactures
high-density, high-durability electric-battery modules and
packs for high-performance and off-highway applications,
and has created a related charging platform.
MEETING A COMMITMENT TO REDUCE GREENHOUSE
GAS EMISSIONS
The Science Based Targets initiative (SBTi) validated that
Deere met emissions reduction targets in 2022. Through
an independent assessment, SBTi found Deere’s targets
consistent with what is required to prevent the most
damaging effects of climate change.
HELPING AFRICAN SMALLHOLDER FARMERS
SHARE EQUIPMENT
The company made a minority investment in Hello Tractor,
an ag-tech company based in Nairobi, Kenya. Hello Tractor
connects tractor owners with smallholder farmers in Africa
and Asia through a farm-equipment-sharing app, which
helps farmers track and manage their fleet, book customers,
and access financing options.
SEE & SPRAY ULTIMATE EARNS HONORS
See & Spray Ultimate spraying technology received the Best
Innovation in Digital Farming Technology award at the 2022
Crop Science Awards in London. It also earned the annual
Product of the Year award from the readers of CropLife
IRON magazine.
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12 John Deere 2022 Annual Report
Senior Leadership
SENIOR
LEADERSHIP
Deere leadership team shown at the John Deere Pavilion in Moline, Illinois.
From left: Ryan D. Campbell, Markwart von Pentz, Mary K.W. Jones, Cory J. Reed, Jahmy J. Hindman,
Felecia J. Pryor, Rajesh Kalathur, John C. May, Marc A. Howze, Justin R. Rose, and Joshua A. Jepsen.
John C. May (25)
Chairman & Chief Executive Officer
Ryan D. Campbell (15)
President, Worldwide Construction & Forestry
and Power Systems
Jahmy J. Hindman (26)
Chief Technology Officer
Marc A. Howze (21)
Senior Advisor, Office of the Chairman
Joshua A. Jepsen (23)
Senior Vice President and Chief Financial Officer
Mary K.W. Jones (25)
Senior Vice President, General Counsel and Worldwide
Public Affairs
Justin R. Rose (Effective Oct. 31, 2022)
President, Lifecycle Solutions, Customer Support
and Supply Management
Rajesh Kalathur (26)
President, John Deere Financial, and Chief
Information Officer
Felecia J. Pryor (Effective Aug. 15, 2022)
Senior Vice President and Chief People Officer
Cory J. Reed (24)
President, Worldwide Agriculture & Turf Division,
Production & Precision Ag, Sales & Marketing Regions
of the Americas and Australia
Markwart von Pentz (32)
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, 2023
2022_Annual_Report_Overall_Layout_Production_V9.indd 12
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John Deere 2022 Annual Report
Board of Directors
13
BOARD OF
DIRECTORS
John C. May (3)
Chairman & Chief Executive Officer, Deere & Company
Leanne G. Caret (1)
Retired Executive Vice President and Senior Advisor, The Boeing Company and Former
President and Chief Executive Officer, Boeing Defense, Space & Security
Aircraft, defense, intelligence and satellite systems and services, and related financing
Tamara A. Erwin (2)
Retired Senior Advisor, Verizon Communications, Inc. and Former Executive
Vice President and Group Chief Executive Officer, Verizon Business Group
Communications, information and entertainment products and services
Alan C. Heuberger (6)
Senior Investment Manager, Cascade Asset Management Company (formerly BMGI)
Private investment management
Charles O. Holliday, Jr. (14)
Retired Chairman and Chief Executive Officer, DuPont and Former Chairman,
Royal Dutch Shell plc
Oil and natural gas exploration, refining, and product sales
Michael O. Johanns (7)
Retired U.S. Senator from Nebraska and former
U.S. Secretary of Agriculture
Clayton M. Jones (15)
Retired Chairman and Chief Executive Officer,
Rockwell Collins, Inc.
Aviation electronics and communications
Gregory R. Page (9)
Chairman, Corteva, Inc.
Agricultural seeds, crop protection products,
and digital solutions
Sherry M. Smith (11)
Former Executive Vice President and Chief Financial Officer,
Supervalu Inc.
Retail and wholesale grocery and retail general
merchandise products
Dmitri L. Stockton (7)
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
Former Chairman, President, and Chief Executive Officer,
GE Asset Management Inc.
Global investments
Sheila G. Talton (7)
President and Chief Executive Officer, Gray Matter Analytics
Healthcare analytics for healthcare providers, payers,
and pharma companies
Figures in parentheses represent complete years of board service through January 1, 2023
From left: Tamara A. Erwin, Charles O. Holliday, Jr., Dmitri L. Stockton, Gregory R. Page,
Leanne G. Caret, Alan C. Heuberger, Sherry M. Smith, Clayton M. Jones, John C. May,
Michael O. Johanns, and Sheila G. Talton.
2022_Annual_Report_Overall_Layout_Production_V9.indd 13
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14 John Deere 2022 Annual Report
7-Year Cumulative Total Return
7-YEAR CUMULATIVE TOTAL RETURN
Deere Compared To S&P 500 Index And S&P 500 Construction & Heavy Trucks Index
$600
$500
$400
$300
$200
$100
$0
2015
2016
2017
2018
2019
2020
2021
2022
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 & Farm
Machinery Index, and the S&P 500
Stock Index over a seven-year period.
It assumes $100 was invested on
October 30, 2015, and that dividends
were reinvested. Deere & Company
stock price at October 30, 2022, was
$396.85. The Standard & Poor’s 500
Construction & Farm Machinery 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 Con & Heavy Trucks
S&P 500
2015
2016
2017
2018
2019
2020
2021
2022
$100.00
$115.11
$100.00
$118.80
$100.00
$104.51
$179.70
$183.55
$129.21
$182.48
$246.30
$321.72
$492.80
$578.59
$159.92
$138.70
$195.00
$228.36
$285.42
$308.03
$158.57
$173.97
$248.62
$212.30
Copyright© 2022 Standard & Poor’s, a division of S&P Global. All rights reserved.
SHAREHOLDER INFORMATION
ANNUAL MEETING
The 2023 Annual Meeting of Shareholders (the
“Annual Meeting”) will be held exclusively online on
Wednesday, February 22, 2023, at 10 a.m. Central
Standard Time. To attend the Annual Meeting at
www.virtualshareholdermeeting.com/DE2023, you
must enter the 16-digit control number on your proxy
card, voting instruction form, or Notice of Internet
Availability.
TRANSFER AGENT & REGISTRAR
Send all correspondence, including address
changes and certificates for transfer, as well as
inquiries concerning lost, stolen, or destroyed
stock certificates 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
2022_Annual_Report_Overall_Layout_Production_V9.indd 14
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John Deere 2022 Annual Report
SVA
15
SVA: FOCUSING ON GROWTH AND SUSTAINABLE PERFORMANCE
Shareholder Value Added (SVA) — essentially, the difference between operating profit 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 identifiable operating assets with inventory at standard cost (believed
to more closely approximate the current cost of inventory and the company’s related investment). The financial 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 profit.
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,
with higher returns goals for incentive
compensation targets. (For purposes of this
calculation, operating assets are average
identifiable assets during the year with
inventories valued at standard cost.)
EQUIPMENT OPERATIONS
Dollars in Millions
Net Sales
Average Identifiable Assets
With Inventories at LIFO
With Inventories at Standard Cost
Operating Profit
Percent of Net Sales
Operating Return on Assets
With Inventories at LIFO
With Inventories at Standard Cost
SVA Cost of Assets
SVA
SMALL AGRICULTURE & TURF
Dollars in Millions
Net Sales
Average Identifiable Assets
With Inventories at LIFO
With Inventories at Standard Cost
Operating Profit
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 Profit
Cost of Equity
SVA
2022
$47,917
$19,420
$20,983
$8,349
17.4%
43.0%
39.8%
$(2,519)
$5,830
2022
$13,381
$4,349
$4,795
$1,949
14.6%
44.8%
40.6%
$(576)
$1,373
2022
$880
$5,725
15.4%
$1,159
$(760)
$ 399
2021
$39,737
$16,680
$18,045
$6,868
17.3%
41.2%
38.1%
$(2,165)
$4,703
2021
$11,860
$3,625
$4,047
$2,045
17.2%
56.4%
50.5%
$(486)
$1,559
2021
$881
$5,497
16.0%
$1,144
$(719)
$425
PRODUCTION & PRECISION AGRICULTURE
Dollars in Millions
Net Sales
Average Identifiable Assets
With Inventories at LIFO
With Inventories at Standard Cost
Operating Profit
Percent of Net Sales
Operating Return on Assets
With Inventories at LIFO
With Inventories at Standard Cost
SVA Cost of Assets
SVA
CONSTRUCTION & FORESTRY
Dollars in Millions
Net Sales
Average Identifiable Assets
With Inventories at LIFO
With Inventories at Standard Cost
Operating Profit
Percent of Net Sales
Operating Return on Assets
With Inventories at LIFO
With Inventories at Standard Cost
SVA Cost of Assets
SVA
Financial Services SVA is
calculated on a pretax basis.
2022
$22,002
$8,336
$9,118
$4,386
19.9%
52.6%
48.1%
$(1,094)
$3,292
2022
$12,534
$6,735
$7,070
$2,014
16.1%
29.9%
28.5%
$(849)
$1,165
2021
$16,509
$6,640
$7,321
$3,334
20.2%
50.2%
45.5%
$(878)
$2,456
2021
$11,368
$6,415
$6,677
$1,489
13.1%
23.2%
22.3%
$(801)
$688
2022_Annual_Report_Overall_Layout_Production_V9.indd 15
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16 John Deere 2022 Annual Report
Table of Contents
Table of Contents
17 Management’s Discussion and Analysis
32 Reports of Independent Registered Public
Accounting Firm
35 Consolidated Financial Statements
40 Notes to Consolidated Financial Statements
74 Selected Financial Data
2022_Annual_Report_Overall_Layout_Production_V9.indd 16
12/30/22 1:09 PM
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
OCTOBER 30, 2022, OCTOBER 31, 2021, AND NOVEMBER 1, 2020
OVERVIEW
Organization
The company generates net sales from the sale of equipment to
John Deere dealers and distributors. The company manufactures
and distributes a full line of agricultural equipment; a variety of
commercial and consumer equipment; and a broad range of
equipment for construction, roadbuilding, and forestry. These
operations (collectively known as the “equipment operations”) are
managed through the production and precision agriculture, small
agriculture and turf, and construction and forestry operating
segments. The company’s financial services segment provides
credit services, which finance sales and leases of equipment by
John Deere dealers. In addition, the financial services segment
provides wholesale financing to dealers of the foregoing
equipment, finances retail revolving charge accounts, and offers
extended equipment warranties.
Smart Industrial Operating Model and Leap Ambitions
The company’s Smart Industrial operating model is focused on
making significant investments, strengthening the company’s
capabilities in digital, automation, autonomy, and alternative
propulsion technologies. These technologies are intended to
increase worksite efficiency, improve yields, lower input costs, and
ease labor constraints. The company’s Leap Ambitions are goals
designed to boost economic value and sustainability for the
company’s customers. The company anticipates opportunities in
this area, as the company and its customers have a vested interest
in sustainable practices.
Trends and Economic Conditions
Industry Trends for Fiscal Year 2023 – Industry sales of large
agricultural machinery in the U.S. and Canada for 2023 are
forecasted to increase 5 to 10 percent compared to 2022. Industry
sales of small agricultural and turf equipment in the U.S. and
Canada are expected to be flat to down 5 percent in 2023. Industry
sales of agricultural machinery in Europe are forecasted to be flat
to up 5 percent, while South American industry sales of tractors
and combines are expected to be flat to up 5 percent in 2023. Asia
industry sales are forecasted to be down moderately in 2023 as
the demand in India, the world’s largest tractor market by unit,
stabilizes. On an industry basis, North American construction
equipment and compact construction equipment sales are both
expected to be flat to up 5 percent in 2023. Global forestry and
global roadbuilding industry sales are each expected to be flat.
Company Trends – Customers’ demand for integration of
technology into equipment is a market trend underlying the
company’s Smart Industrial operating model and Leap Ambitions
framework. Customers have sought to improve profitability,
productivity, and sustainability through technology. The
company’s approach to technology involves hardware and
software, guidance, connectivity and digital solutions, automation
and machine intelligence, autonomy, and electrification. This
technology is incorporated into products within each of the
company’s operating segments.
Customers continue to adopt technology integrated in the John
Deere portfolio of “smart” machines, systems, and solutions. The
company expects this trend to persist for the foreseeable future.
Demand for the company’s equipment remains strong, as order
books are full through a majority of 2023. Agricultural
fundamentals are expected to remain solid into 2023, and retail
demand will comprise most of 2023 sales. The company expects
dealer stock inventory replenishment to occur in 2024. The North
American retail customer fleet age remains above average, and
dealer inventories are historically low due to the manufacturing
and supply chain constraints over the past few years. Crop prices
remain favorable to our customers in part due to low stock-to-use
ratios for key grains and lower exports from the Black Sea region.
The company expects to sell more large agricultural equipment in
2023 than 2022 in North America, Europe, and South America.
Demand for small agricultural equipment remains stable, while turf
and utility equipment product sales are expected to be lower due
to the overall U.S. economic conditions. Construction equipment
markets are forecasted to be steady. Rental fleets replenishment,
the energy industry, and U.S. infrastructure spend will offset
moderation in residential home construction. Roadbuilding
demand remains strongest in the U.S., largely offset by softening
demand in Europe and sluggish demand in Asia. Net income for
the company’s financial services operations is expected to be
slightly higher than fiscal year 2022 due to a higher average
portfolio, partially offset by less-favorable financing spreads and
lower gains on operating leases. Excluding the portfolio in Russia,
a higher provision for credit losses is forecasted for 2023.
Additional Trends – The company experienced supply chain
disruptions and inflationary pressures in 2022. While these are
two distinct issues and discussed separately below, their impact
may be intertwined.
17
Supply chain disruptions impacted many aspects of the business,
including parts availability, increased production costs, and more
partially completed machines in inventory. Past due deliveries
from suppliers were at elevated levels. Late part deliveries incurred
expedited freight charges and rework of partially built machines,
contributing to production inefficiencies and higher overhead
costs. The company implemented the following mitigation efforts
to minimize the impact of supply chain disruptions on its ability to
meet customer demand:
• Worked with the supply base to obtain allocations and
certain countries or covering certain products, the ongoing effects
of the pandemic, capital market disruptions, changes in demand
and pricing for new and used equipment, significant fluctuations in
foreign currency exchange rates, volatility in the prices of many
commodities, and potential recession. These items could impact
the company’s results. The company is making investments in
technology and in strengthening its capabilities in digital,
automation, autonomy, and electrification. As with most
technology investments, marketplace adoption and monetization
of these features holds an elevated level of uncertainty.
improve on-time deliveries of parts.
• Multi-sourced some parts and materials.
•
•
Provided resources to suppliers to address constraints.
Entered into long-term contracts for some critical
components.
Utilized alternative freight carriers to expedite delivery.
•
While supply chain disruptions are expected to persist into 2023,
the company is working diligently to secure the parts and
components that customers need to deliver essential food and
infrastructure more profitably and sustainably.
Inflation was a pervasive feature throughout 2022, increasing the
cost of material, freight, energy, salaries, and wages. Higher costs
due to general business inflation were offset by price realization,
which mitigated the impact of inflation on the company’s
operating results. The company expects inflation to continue in
2023 resulting in higher costs. If customers are unwilling to accept
increases in cost of John Deere products, or the company is
otherwise unable to offset increases in production costs, inflation
could have an adverse effect on the company’s operations and
financial condition.
Interest rates rose in 2022 and further central bank policy rate
increases are projected in 2023. Most retail customer receivables
are fixed rate, while wholesale financing receivables are floating
rate. The company has both fixed and floating rate borrowings.
The company manages the risk of interest rate fluctuations
through balancing the types and amounts of its funding sources
to its financing receivable and equipment on operating lease
portfolios. Accordingly, the company enters into interest rate
swap agreements to manage its interest rate exposure. Rising
interest rates have historically impacted the company’s
borrowings sooner than the benefit is realized from the financing
receivable and equipment on operating lease portfolios. As a
result, the company’s financial services operations experienced
spread compression in 2022. If interest rates continue to rise, the
company expects to continue experiencing spread compression in
2023.
Supply chain disruptions, inflationary pressures, and rising interest
rates are driven by factors outside of the company’s control, and
as a result, the company cannot reasonably foresee when these
conditions will subside.
Items of Concern and Uncertainties – Other items of concern
include global and regional political conditions, economic and
trade policies, imposition of new or retaliatory tariffs against
18
2022 COMPARED WITH 2021
CONSOLIDATED RESULTS
Deere & Company
(In millions of dollars, except per share amounts)
Net sales and revenues
Net income attributable to Deere & Company
Diluted earnings per share
$
2022
52,577 $
7,131
23.28
2021
44,024
5,963
18.99
Net income in 2022 and 2021 was impacted by special items. See
Notes 3 and 4 for additional details. The discussion on net sales
and operating profit is included in the Business Segment Results
below.
An explanation of the cost of sales to net sales ratio and other
significant statement of consolidated income changes follows:
Deere & Company
(In millions of dollars)
Cost of sales to net sales
Other income
Research and development expenses
Selling, administrative and
$
general expenses
Interest expense
Other operating expenses
Provision for income taxes
2022
73.7%
2021
73.3%
% Change
1,295 $
1,912
991
1,587
3,863
1,062
1,275
2,007
3,383
993
1,343
1,658
+31
+20
+14
+7
-5
+21
The cost of sales to net sales ratio increased compared to 2021
mainly due to higher production costs partially offset by price
realization. Other income increased due to a non-cash gain on the
remeasurement of the previously held equity investment in the
Deere-Hitachi joint venture. Research and development expenses
were higher in 2022 largely due to continued focus on developing
and incorporating technology solutions. Selling, administrative and
general expenses increased mostly due to higher provision for
credit losses, including higher reserves due to the economic
uncertainty in Russia (see Note 4), as well as a higher merit pay
increase due to inflationary conditions. Interest expense increased
in 2022 due to higher average borrowings and higher average
borrowing rates. Other operating expenses were lower compared
to 2021 largely due to reduced depreciation of equipment on
operating leases and lower retirement benefit costs. The provision
for income taxes increased consistent with higher pretax income.
Small Agriculture and Turf Operations
(In millions of dollars)
Net sales
Operating profit
Operating margin
Price realization
Currency translation
$
2022
13,381 $
1,949
14.6%
2021
11,860
2,045
17.2%
% Change
+13
-5
+9
-4
Segment sales were higher in 2022 due to price realization and
higher shipment volumes, partially offset by the negative effects
of currency translation. Operating profit decreased as a result of
higher production costs, higher selling, administrative and general
expenses and research and development expenses, and the
unfavorable effects of foreign exchange, partially offset by price
realization and improved shipment volumes. Results for the
current year were affected by the impact of higher reserves and
impairments related to events in Russia / Ukraine and the UAW
contract ratification bonus, while results of the prior year were
positively impacted by a gain on the sale of a factory in China (see
Note 4).
BUSINESS SEGMENT RESULTS
The following discussion relates to operating results by reportable
segment. Operating profit is income before corporate expenses,
certain external interest expense, certain foreign exchange gains
or losses, and income taxes.
For the equipment operations, higher production costs were
mostly due to elevated material and inbound freight expenses.
Overhead spend was also higher for the year as factories
continued to experience some production inefficiencies due to
supply chain challenges and clearing partially completed machines
in inventory.
Production and Precision Agriculture Operations
(In millions of dollars)
Net sales
Operating profit
Operating margin
Price realization
Currency translation
2022
2021
$ 22,002 $ 16,509
3,334
20.2%
4,386
19.9%
% Change
+33
+32
+14
-2
Segment sales increased due to higher shipment volumes and price
realization. Operating profit benefitted from price realization and
higher shipment volumes / sales mix. These items were partially
offset by higher production costs, higher research and development
expenses and selling, administrative and general expenses, the
impact of higher reserves and impairments related to events in
Russia / Ukraine, and the UAW contract ratification bonus. The prior
year was also impacted by a favorable indirect tax ruling in Brazil (see
Note 4).
19
operations guarantees financial services’ investments in certain
international markets, including Russia (see Note 4).
Construction and Forestry Operations
(In millions of dollars)
Net sales
Operating profit
Operating margin
Price realization
Currency translation
$
2022
12,534 $
2,014
16.1%
2021
11,368
1,489
13.1%
% Change
+10
+35
+10
-3
Segment sales increased in 2022 due to price realization and higher
shipment volumes, partially offset by the negative effects of
currency translation. Operating profit increased mainly due to price
realization, partially offset by higher production costs. The current
year results included a non-cash gain on the remeasurement of the
previously held equity investment in the Deere-Hitachi joint
venture, partially offset by the impact of higher reserves and
impairments related to events in Russia / Ukraine (see Note 4).
2021 COMPARED WITH 2020
The comparison of the 2021 results with 2020 can be found under
the heading “2021 Compared With 2020” in the “Management’s
Discussion and Analysis” section of the company’s 2021 Form 10-K.
CAPITAL RESOURCES AND LIQUIDITY
SOURCES OF LIQUIDITY, KEY METRICS, AND BALANCE SHEET
DATA
The company has access to most global markets at a reasonable
cost. Sources of liquidity for the company include cash and cash
equivalents, marketable securities, funds from operations, the
issuance of commercial paper and term debt, the securitization of
retail notes (both public and private markets), and bank lines of
credit. The company closely monitors its liquidity sources against
the cash requirements and expects to have sufficient sources of
global funding and liquidity to meet its funding needs in the short
term (next 12 months) and long term (beyond 12 months). The
company operates in multiple industries, which have different
funding requirements. The production and precision agriculture,
small agriculture and turf, and construction and forestry segments
are capital intensive and are typically subject to seasonal variations
in financing requirements for inventories and certain receivables
from dealers. However, the patterns of seasonality in inventory
have been affected by increases in production rates and supply
chain disruptions experienced during fiscal year 2022, which
continue to impact inventory levels. As a result, the company may
not experience typical seasonal reduction in inventory during
2023. The financial services operations rely on their ability to raise
substantial amounts of funds to finance their receivable and lease
portfolios.
Financial Services Operations
(In millions of dollars)
Revenue (including intercompany)
Interest expense
Net income
$
2022
4,085 $
799
880
2021
3,794
687
881
% Change
+8
+16
The average balance of receivables and leases financed was 8
percent higher in 2022, consistent with revenue growth. Interest
expense increased in 2022 as a result of higher average borrowings
and higher average borrowing rates. Net income in 2022 was
roughly the same mainly due to income earned on a higher average
portfolio, partially offset by less favorable financing spreads and
unfavorable discrete income tax adjustments. The provision for
credit losses increased, primarily due to economic uncertainty in
Russia. The financial services operations received an intercompany
benefit from the equipment operations, as the equipment
20
Key metrics are provided in the following table, in millions of
dollars:
Cash, cash equivalents, and marketable
securities
$ 5,508 $ 8,745 $ 7,707
2022
2021
2020
Trade accounts and notes receivable – net
Ratio to prior 12 month’s net sales
6,410
4,208
13%
11%
4,171
13%
Inventories
Ratio to prior 12 month’s cost of sales
8,495
24%
6,781
23%
4,999
21%
Unused credit lines
3,284
5,770
6,801
Financial Services:
Ratio of interest-bearing debt to
stockholder’s equity
8.5 to 1 7.8 to 1 7.8 to 1
Due to the uncertainties around the COVID-19 pandemic, the
company temporarily increased its cash, cash equivalents, and
marketable securities balance beginning in March 2020. The cash
balance decrease in 2022 was driven by working capital
requirements. The reduction in unused credit lines in 2022
compared to both prior periods relates to an increase in
commercial paper outstanding to fund growth in the receivable
portfolio. The company forecasts higher operating cash flows in
2023 as identified previously in Trends and Economic Conditions.
Cash Flows
2022
2021
2020
Net cash provided by operating activities $ 4,699 $ 7,726 $ 7,483
(3,319)
Net cash used for investing activities
Net cash provided by (used for)
(8,485)
(5,750)
financing activities
826
(1,078)
(980)
October 30, 2022 and $5,817 million at October 31, 2021. During
2022, the company’s foreign subsidiaries returned $5,643 million of
cash and cash equivalents to the U.S. Distributions of profits from
foreign subsidiaries are not expected to cause a significant
incremental U.S. tax impact. However, these distributions may be
subject to withholding taxes outside the U.S.
Trade Accounts and Notes Receivable – Trade accounts and notes
receivable arise from sales of goods to customers. Trade
receivables increased by $2,202 million in 2022. 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 each of October 30, 2022 and October 31,
2021.
Financing Receivables and Equipment on Operating Leases –
Financing receivables and leases consist of retail notes originated
in connection with financing of new and used equipment,
operating leases, revolving charge accounts, sales-type and direct
financing leases, and wholesale notes. Financing receivables and
equipment on operating leases increased by $3,747 million in 2022,
compared with 2021. Total acquisition volumes of financing
receivables and equipment on operating leases were 7 percent
higher in 2022 compared with the same period last year, as volumes
of revolving charge accounts, operating leases, wholesale notes,
and retail notes increased primarily due to higher sales by the
company, while volumes of finance leases decreased.
Inventories – Inventories increased by $1,714 million in 2022 due to
higher production schedules and supply chain disruptions. 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 13), which approximates current cost, to
fiscal year cost of sales were 31 percent at each of October 30, 2022
and October 31, 2021.
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
Net increase (decrease) in cash, cash
equivalents, and restricted cash
(224)
55
32
$ (3,184) $
953 $ 3,216
Property and Equipment – Property and equipment cash
expenditures in 2022 were $1,134 million, compared with $848
million in 2021.
Positive cash flows from consolidated operating activities in 2022
were $4,699 million. This resulted from net income adjusted for
non-cash provisions, partially offset by an increase in receivables
related to sales, an increase in inventories, and a $1,000 million
voluntary contribution to a U.S. other postretirement benefit
(OPEB) plan. Cash outflows from investing activities were $8,485
million in 2022. The primary drivers were growth in the retail
customer receivable and lease portfolios; purchases of property
and equipment; a change in collateral on derivatives – net; and
acquisitions of businesses, net of cash acquired. Cash inflows from
financing activities were $826 million in 2022, due to an increase in
borrowings, partially offset by repurchases of common stock and
dividends paid. Cash, cash equivalents, and restricted cash
decreased $3,184 million during 2022.
Cash and Marketable Securities Held by Foreign Subsidiaries – The
amount of the total cash and cash equivalents and marketable
securities held by foreign subsidiaries was $3,379 million at
Borrowings – Total external borrowings increased by $3,487 million in
2022, corresponding with the level of the receivable and the lease
portfolio, as well as the level of cash and cash equivalents.
John Deere Capital Corporation (Capital Corporation), a U.S.
financial services subsidiary, has a revolving warehouse facility to
utilize bank conduit facilities to securitize retail notes (see Note 12).
At October 30, 2022, $948 million of short-term securitization
borrowings were outstanding under the facility. At the end of the
contractual revolving period, unless the banks and Capital
Corporation agree to renew, Capital Corporation would liquidate
the secured borrowings over time as payments on the retail notes
are collected. The agreement was renewed in November 2022 with
an expiration in November 2023 and a capacity of $1,500 million.
During 2022, the company issued $4,085 million and retired $2,965
million of retail note securitization borrowings, which are
presented in “Increase (decrease) in total short-term borrowings”
on the statements of consolidated cash flows.
21
Lines of Credit – The company also has access to bank lines of
credit with various banks throughout the world. Worldwide lines of
credit totaled $8,402 million at October 30, 2022, $3,284 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. See
Note 17 for more information.
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.
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
Positive
Stable
CONTRACTUAL OBLIGATIONS AND CASH REQUIREMENTS
The company’s material cash requirements include the following:
Borrowings – As of October 30, 2022, the company had $15,274
million of payments due on borrowings and securitization
borrowings in the next year, along with interest payments of
$1,460 million. The securitization borrowing payments are based
on the expected liquidation of the retail notes. See Notes 12 and 19
for additional borrowing details. These payments will likely be
replaced with new borrowings to finance the receivable and lease
portfolio, which is expected to grow in 2023.
Purchase Obligations – As of October 30, 2022, the company’s
outstanding purchase obligations were $4,701 million, with $4,121
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 $1.20 per
share, subject to change at the discretion of the company’s Board
of Directors. Total company pension and OPEB contributions in
2023 are expected to be approximately $200 million. The company
also plans capital expenditures of $1,400 million in 2023. The
company will consider share repurchases as a means of deploying
excess cash to shareholders once the previously mentioned
requirements are met.
22
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
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 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. Actual cost differences from the
original cost estimate are recognized in “Net sales.”
The sales incentive accruals at October 30, 2022, October 31, 2021,
and November 1, 2020 were $2,364 million, $1,680 million, and
$1,718 million, respectively. The total accruals recorded were $1,320
million, $880 million, and $1,109 million in trade accounts and
notes receivable – net, and $1,044 million, $800 million, and $609
million in accounts payable and accrued expenses at October 30,
2022, October 31, 2021, and November 1, 2020, respectively. The
accruals recorded against receivables relate to programs where the
company has the contractual right and the intent to offset against
existing receivables. The increase in each of 2022 and 2021
primarily resulted from higher retail demand. Additional factors in
2022 were higher incentives expected to be paid for dealer market
share and incentives provided to offset elevated interest rates.
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 .8 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 would have
increased or decreased .8 percent, the sales incentive accrual at
October 30, 2022 would have increased or decreased by
approximately $74 million.
The company’s pension and OPEB costs in 2022 were $176 million,
compared with $197 million in 2021 and $341 million in 2020. The
long-term expected return on plan assets, which is reflected in
these costs, was an expected gain of 5.0 percent in 2022 and 5.9
percent in 2021, or $836 million and $876 million, respectively. The
actual return was a loss of $3,565 million in 2022 and a gain of
$3,616 million in 2021. In 2023, the expected return is approximately
6.0 percent. The company’s costs under these plans in 2023 are
expected to decrease by $225 million compared to 2022, resulting
in a net periodic benefit. The reduction in the company’s cost is
due to increases in the expected long-term rates of return on plan
assets and increases in discount rates.
The pension assets, net of pension liabilities, recognized on the
balance sheets at October 30, 2022 and October 31, 2021 were
$2,690 million and $2,665 million, respectively. The pension
liabilities, net of pension assets, recognized on the balance sheets
at November 1, 2020 were $447 million. The increase in the pension
net assets in 2022 was due to an increase in discount rates offset
by losses on plan assets and UAW contract impacts. The increase in
the pension net assets in 2021 was due to returns on plan assets.
The OPEB liabilities, net of OPEB assets, at October 30, 2022,
October 31, 2021, and November 1, 2020 were $1,205 million, $3,175
million, and $3,892 million, respectively. The decrease in OPEB net
liabilities in 2022 was due to an increase in discount rates and a
$1,000 million contribution to a U.S. OPEB plan. The decrease in
OPEB net liabilities in 2021 was due to returns on plan assets and
favorable changes to medical assumptions.
The company employs de-risking strategies for the global funded
pension plans that increase the matching characteristics of the
plan assets relative to the obligations, through an increased
allocation to fixed income assets, as the funded status improves.
Changes in interest rates, which directly influence changes in
discount rates, in addition to other factors, have a significant
impact on the value of the pension obligation and the fixed income
asset portfolio. The company anticipates that changes in interest
rates will likely result in offsetting effects in the value of the
pension obligation and the value of the fixed income asset
portfolio, reducing funded status volatility.
Product 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 of time. At the time a sale
is recognized, the company records the estimated future warranty
costs. The company 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
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 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
statements of consolidated income 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 sheets (see Note 18).
The product warranty accruals, excluding extended warranty
unamortized premiums, at October 30, 2022, October 31, 2021, and
November 1, 2020 were $1,427 million, $1,312 million, and $1,105
million, respectively. The increase in each of 2022 and 2021 related
to higher sales volume, partially offset by a decrease in the
warranty rate.
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 .11 percent, compared
to the average warranty costs to sales percent during that period.
Holding other assumptions constant, if this estimated cost
experience percent would have increased or decreased .11 percent,
the warranty accrual at October 30, 2022 would have increased or
decreased by approximately $57 million.
Postretirement Benefit Obligations
The estimation of defined benefit pension and OPEB plan
obligations and expenses requires the use of estimates of the
present value of the projected future benefit payments. Plan
obligations and expenses are based on existing retirement plan
provisions. No assumption is made regarding any potential
changes to benefit provisions beyond those to which the company
is presently committed (e.g., in existing labor contracts). The key
assumptions used in developing the required estimates used by the
company’s actuaries include discount rates, health care cost trend
rates, expected long-term return on plan assets, compensation
increases, retirement rates, mortality rates, and expected
contributions. Actual results that differ from the assumptions and
changes in assumptions affect future expenses and obligations.
Assumptions are set at each year-end and are not changed during
the year unless there is a significant plan event, such as a
curtailment or settlement that would trigger a plan
remeasurement.
23
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 30, 2022
Increase
(Decrease)
PBO/APBO*
2023
Increase
(Decrease)
Expense
Percentage
Change
+/-.5
+/-.5
+/-.5
+/-.5
$
(485)/547
$
(149)/162
0/1
(63)/63
(2)/2
(10)/10
+/-1.0
291/(250)
40/(29)
Assumptions
Pension
Discount rate**
Expected return on assets
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 is not amortized and is tested for impairment annually
and when events or circumstances change such that it is more
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 2022, 2021, or 2020. 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 2022.
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
24
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. The
allowance for credit losses at November 1, 2020 was not restated
under the expected loss methodology. The total allowance for
credit losses at October 30, 2022, October 31, 2021, and November 1,
2020 was $361 million, $207 million, and $223 million, respectively.
The allowance increased in 2022 compared to 2021 due to higher
reserves related to the economic uncertainty in Russia. 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 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 $40 million
increase to the allowance for credit losses at October 30, 2022.
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 30, 2022,
October 31, 2021, and November 1, 2020 were $4,640 million,
$5,025 million, and $5,254 million, respectively. The decreases in
2022 and 2021 related to a lower average operating lease portfolio.
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 $40 million, after consideration of dealer residual
value guarantees.
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 8 to the consolidated financial statements.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein, including in the section
entitled “Overview” relating to future events, expectations, and
trends constitute “forward-looking statements” as defined in the
Private Securities Litigation Reform Act of 1995 and involve
factors that are subject to change, assumptions, risks, and
uncertainties that could cause actual results to differ materially.
Some of these risks and uncertainties could affect all lines of the
company’s operations generally while others could more heavily
affect a particular line of business.
Forward-looking statements are based on currently available
information and current assumptions, expectations, and
projections about future events and should not be relied upon.
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 subsequent
Quarterly Reports on Form 10-Q).
Factors Affecting All Lines of Business
All of the company’s businesses and their results are affected by
general global macroeconomic conditions, including but not
limited to inflation, including rising costs for materials used in our
production, slower growth or recession, higher interest rates and
currency fluctuations which could adversely affect the U.S. dollar
and customer confidence, customer access to capital, and overall
demand for our products; delays or disruptions in the company’s
supply chain, including work stoppages or disputes by suppliers
with their unionized labor; shipping delays; government spending
and taxing; changes in weather and climate patterns; the political
and social stability of the markets in which the company operates;
the effects of, or response to, wars and other conflicts, including
the current conflict between Russia and Ukraine; natural disasters;
and the spread of major epidemics or pandemics (including the
COVID-19 pandemic).
Significant changes in market liquidity conditions, changes in the
company’s credit ratings, and any failure to comply with financial
25
covenants in credit agreements could impact our access to or
terms of future funding, which could reduce the company’s
earnings and cash flows. A debt crisis in Europe (including the
recent volatility of the United Kingdom’s bond market), Latin
America, or elsewhere could negatively impact currencies, global
financial markets, funding sources and costs, asset and obligation
values, customers, suppliers, and demand for equipment. The
company’s investment management activities could be impaired
by changes in the equity, bond, and other financial markets, which
would negatively affect earnings.
Additional factors that could materially affect the company’s
operations, financial condition, and results include changes in
governmental trade, banking, monetary, and fiscal policies,
including policies and tariffs for the benefit of certain industries or
sectors; actions by environmental, health, and safety regulatory
agencies, including those related to engine emissions, carbon and
other greenhouse gas emissions, and the effects of climate
change; changes to GPS radio frequency bands and their
permitted uses; speed of research and development; effectiveness
of partnerships with third parties; the dealer channel’s ability to
support and service precision technology solutions; changes to
accounting standards; changes to and compliance with economic
sanctions and export controls laws and regulations (including
those in place for Russia); and compliance with evolving U.S. and
foreign laws when expanding to new markets and otherwise.
Other factors that could materially affect the company’s results
and operations include 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;
the loss of or challenges to intellectual property rights; the
availability and prices of strategically sourced materials,
components, and whole goods; introduction of legislation that
could affect the company’s business model and intellectual
property, such as so-called right to repair or right to modify
legislation; events that damage the company’s reputation or
brand; significant investigations, claims, lawsuits, or other legal
proceedings; the success or failure of new product initiatives or
business strategies; changes in product preferences, sales mix,
and take rates of products and life cycle solutions; 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; the inability to deliver precision technology
and agricultural solutions to customers; labor relations and
contracts, including work stoppages and other disruptions;
changes in the ability to attract, develop, engage, and retain
qualified personnel; and the integration of acquired businesses.
Production & Precision Agriculture and Small Agriculture & Turf
Operations
The company’s agricultural equipment operations are subject to a
number of uncertainties, including customer profitability;
consumer purchasing preferences; housing starts and supply;
infrastructure investment; and consumable input costs.
Additionally, these operations are subject to certain factors that
affect farmers’ confidence and financial condition. These factors
include demand for agricultural products; world grain stocks; soil
conditions; harvest yields; prices for commodities and livestock;
availability and cost of fertilizer; availability of transport for crops;
the growth and sustainability of non-food uses for some crops
(including ethanol and biodiesel production); real estate values;
availability of technological innovations; available acreage for
farming; changes in government farm programs and policies;
changes in and effects of crop insurance programs; changes in
environmental regulations and their impact on farming practices;
animal diseases and their effects on poultry, beef, and pork
consumption and prices on livestock feed demand; and crop pests
and diseases.
Production and Precision Agriculture Operations
In addition to the uncertainties discussed above, the production
and precision agriculture operations rely in part on hardware and
software, guidance, connectivity and digital solutions, and
automation and machine intelligence. Many factors contribute to
the company’s production and precision agriculture sales and
results, including the impact to customers’ profitability and/or
sustainability outcomes.
Small Agriculture and Turf Equipment
In addition to the uncertainties discussed above, factors affecting
the company’s small agriculture and turf equipment operations
include spending by municipalities and golf courses.
Construction and Forestry
Factors affecting the company’s construction and forestry
equipment operations include real estate and housing prices; the
number of housing starts; commodity prices such as oil and gas;
the levels of public and non-residential construction; and
investment in infrastructure, while prices for pulp, paper, lumber,
and structural panels affect sales of forestry equipment.
John Deere Financial
The liquidity and ongoing profitability of John Deere Capital
Corporation and the company’s other financial services
subsidiaries depend on timely access to capital to meet future cash
flow requirements, and to fund operations, costs, and purchases
of the company’s products. If general economic conditions
deteriorate further 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.
26
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 generate earnings
and cash flows by manufacturing and selling equipment, service
parts, and technology solutions to dealers and retail customers.
Financial services finances sales and leases by dealers of new and
used equipment that is largely manufactured by the company.
Those earnings and cash flows generally are the difference
between the finance income received from customer payments
less interest expense, and depreciation on equipment subject to an
operating lease. The two businesses are capitalized differently and
have separate performance metrics. The supplemental
consolidating data is also used by management due to these
differences.
27
SUPPLEMENTAL CONSOLIDATING DATA
INCOME STATEMENTS
For the Years Ended October 30, 2022, October 31, 2021, and November 1, 2020
(In millions of dollars) Unaudited
EQUIPMENT
OPERATIONS
2021
2022
2020
2022
FINANCIAL
SERVICES
2021
2020
ELIMINATIONS
2021
2020
2022
CONSOLIDATED
2021
2022
2020
Net Sales and Revenues
Net sales
Finance and interest income
Other income
Total
$ 47,917 $ 39,737 $ 31,272
213
1,261
49,391
133
941
40,811
112 $ 3,583 $ 3,442 $ 3,610 $
808
32,192
502
4,085
352
3,794
257
3,867
$ 47,917 $ 39,737 $ 31,272
3,450
1
(431) $ (279) $ (272)
(247)
(302)
(468)
(519)
(581)
(899)
3,365
1,295
52,577
3,296
991
44,024
818 2, 3
35,540
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
35,341
1,912
29,119
1,587
23,679
1,644
(3)
(3)
(2)
35,338
1,912
29,116
1,587
23,677
1,644
3,137
390
299
350
41,429
2,887
368
217
181
34,359
2,878
329
248
278
29,056
735
799
504
687
606
942
1,386
2,920
1,453
2,644
1,572
3,120
(9)
(127)
(299)
(461)
(899)
(8)
(62)
(217)
(291)
(581)
(7)
(24)
(248)
(238)
(519)
4
4
5
5
3,863
1,062
3,383
993
3,477
1,247
1,275
43,450
1,343
36,422
1,612 6, 7
31,657
9,127
2,007
7,602
1,658
3,883
1,082
7,120
5,944
2,801
10
21
(48)
7,130
5,965
2,753
(1)
2
2
$
6,251 $ 5,082 $ 2,185 $
880 $ 881 $ 566
$
7,131 $ 5,963 $ 2,751
Income before Income Taxes
Provision for income taxes
7,962
1,718
6,452
1,386
3,136
899
1,165
289
1,150
272
747
183
Income after Income Taxes
Equity in income (loss)
of unconsolidated affiliates
Net Income
Less: Net income (loss) attributable to
noncontrolling interests
Net Income Attributable to
Deere & Company
6,244
5,066
2,237
876
878
564
6
18
(50)
4
3
2
6,250
5,084
2,187
880
881
566
(1)
2
2
1 Elimination of financial services’ interest income earned from equipment operations.
2 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases (see Note 6).
3 Elimination of financial services’ income related to intercompany guarantees of investments in certain international markets.
4 Elimination of intercompany service fees.
5 Elimination of equipment operations’ interest expense to financial services.
6 Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.
7 Elimination of equipment operations’ expense related to intercompany guarantees of investments in certain international markets.
28
SUPPLEMENTAL CONSOLIDATING DATA (continued)
CONDENSED BALANCE SHEETS
As of October 30, 2022 and October 31, 2021
(In millions of dollars) Unaudited
EQUIPMENT
OPERATIONS
FINANCIAL
SERVICES
2022
2021
2022
2021
ELIMINATIONS
2022
2021
CONSOLIDATED
2021
2022
ASSETS
Cash and cash equivalents
Marketable securities
Receivables from Financial Services
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
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 Equipment Operations
Accounts payable and accrued expenses
Deferred income taxes
Long-term borrowings
Retirement benefits and other liabilities
Total liabilities
Commitments and contingencies (Note 20)
Redeemable noncontrolling interest (Note 3)
STOCKHOLDERS’ EQUITY
Total Deere & Company stockholders’ equity
Noncontrolling interests
Financial Services' equity
Adjusted total stockholders' equity
Total Liabilities and Stockholders’ Equity
$
$
3,767 $
61
6,569
1,273
47
1,670
8,495
6,021
3,687
1,218
3,666
940
1,794
39,208 $
7,188 $
3
5,564
1,155
73
10
1,629
6,781
5,783
3,291
1,275
3,539
1,215
1,646
39,152 $
$
1,040 $
1,509 $
10
11,198
438
8,915
4,239
26,309
12,962
380
7,917
2,351
24,650
92
20,262
3
(5,799)
14,466
39,208 $
18,431
3
(5,591)
12,843
39,152 $
$
8
9
9
10
11
8
9
11
10
1,007 $
673
829
725
$
4,774 $
734
8,017
728
6,434
36,587
5,936
832
6,623
3,895
33,726
4,649
159
6,988
$ (6,569) $ (5,564)
(842)
(1,297)
(10)
(23)
35
37
66
45
626
58,864 $
64
53
499
51,624 $
(2)
(161)
(3)
(8,042) $
(2)
(231)
(6,662) $
6,410
36,634
5,936
2,492
6,623
8,495
6,056
3,687
1,218
3,730
824
2,417
90,030 $
4,208
33,799
4,659
1,765
6,988
6,781
5,820
3,291
1,275
3,601
1,037
2,145
84,114
11,552 $
5,711
6,569
3,170
276
25,679
108
53,065
9,410
4,595
5,564 $
2,015
369
23,973
107
46,033
(6,569) $
(1,310)
(161)
(5,564)
(865)
(231)
(2)
(8,042)
(2)
(6,662)
$
12,592 $
5,711
10,919
4,605
12,348
576
32,888
4,344
65,680
14,822
495
33,596
2,457
69,673
92
20,262
3
5,799
5,591
(5,799)
(5,591)
5,799
5,591
18,431
3
12
12
5,799
58,864 $
5,591
51,624 $
(8,042) $
(6,662) $
20,265
90,030 $
18,434
84,114
8 Elimination of receivables / payables between equipment operations and financial services.
9 Primarily reclassification of sales incentive accruals on receivables sold to financial services.
10 Reclassification of net pension assets / liabilities.
11 Reclassification of deferred tax assets / liabilities in the same taxing jurisdictions.
12 Elimination of financial services’ equity.
29
SUPPLEMENTAL CONSOLIDATING DATA (continued)
STATEMENTS OF CASH FLOWS
For the Years Ended October 30, 2022, October 31, 2021, and November 1, 2020
(In millions of dollars) Unaudited
EQUIPMENT
OPERATIONS
2021
2022
2020
2022
FINANCIAL
SERVICES
2021
2020
ELIMINATIONS
2021
2020
2022
CONSOLIDATED
2021
2022
2020
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
$ 6,250 $ 5,084 $ 2,187 $
880 $
881 $
566
$
7,130 $
5,965 $
2,753
Provision (credit) for credit losses
Provision for depreciation and amortization
Impairment charges
Share-based compensation expense
Loss on sale of businesses and unconsolidated affiliates
Gain on remeasurement of previously held
equity investment
Undistributed earnings of Financial Services
Provision (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
Other
Net cash provided by operating activities
3
1,041
88
7
1,043
50
5
1,016
162
24
(326)
444
8
(189)
(1,924)
1,444
166
(1,016)
250
6,239
555
(369)
386
105
(105)
(1,835)
1,589
13
30
(162)
5,900
373
1,011
(331)
(14)
(544)
380
4,760
189
1,050
(13)
1,140
105
1,227 $
32
(196) $
(133) $
(125)
85
82
81
(444)
(555)
(386)
(6)
2,050
50
82
110
2,118
194
81
24
192
1,895
88
85
(326)
13
14
15
(74)
(72)
(116)
(66)
(441)
(11)
143
(25)
1
(287)
1,877
57
(2)
(1)
(25)
1,965
(1)
22
7
134
1,976
(2,294)
(167)
(454)
1,074
(662)
238
1,636
(614)
325
53
(3,417)
(183)
(139)
(170)
747
(2,483)
(2,091)
1,133
141
(1,015)
16
4,699
969
(2,497)
1,884
11
29
(370)
7,726
16, 18, 19
17
18
13, 14, 17
2,009
397
(7)
8
(537)
344
7,483
Cash Flows from Investing Activities
Collections of receivables (excluding receivables
related to sales)
Proceeds from sales of equipment on operating leases
Cost of receivables acquired (excluding receivables
related to sales)
Acquisitions of businesses, net of cash acquired
Purchases of property and equipment
Cost of equipment on operating leases acquired
Decrease (increase) in trade and wholesale receivables
Collateral on derivatives - net
Other
Net cash used for investing activities
22,400
2,093
20,527
2,094
18,829
1,783
(1,493)
(1,568)
(1,448)
20,907
2,093
18,959
2,094
17,381
1,783
(498)
(1,131)
(244)
(845)
(66)
(816)
5
(206)
(1,830)
(7)
62
(1,034)
(6)
(103)
(991)
(26,903)
(25,305)
(21,360)
603
1,652
1,395
(3)
(2,879)
(3,601)
(647)
(81)
(9,621)
(3)
(2,627)
1,364
(274)
(84)
(4,308)
(4)
(2,666)
1,999
274
(71)
(1,216)
225
3,601
895
(1,364)
830
(1,999)
30
2,966
(23)
(408)
110
(1,112)
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
136
(1,633)
138
(1,356)
63
(3,597)
(1,313)
(57)
(7,619)
65
(354)
11
(94)
148
(2,538)
(1,040)
(61)
(3,863)
(177)
(3,207)
4,586
(607)
331
(750)
(956)
(105)
(885)
Effect of Exchange Rate Changes on Cash, Cash
3,716
1,633
10,220
(7,089)
753
354
8,711
(6,996)
(1,183)
3,207
4,685
(6,776)
(444)
(42)
7,994
(555)
(29)
2,238
(386)
(7)
(460)
444
7
451
555
(8)
547
386
(21)
365
Equivalents, and Restricted Cash
(209)
41
76
(15)
14
(44)
(224)
55
32
Net Increase (Decrease) in Cash, Cash Equivalents,
and Restricted Cash
(3,419)
1,044
2,960
235
(91)
256
(3,184)
953
3,216
Cash, Cash Equivalents, and Restricted Cash at
Beginning of Year
7,200
6,156
3,196
925
1,016
760
8,125
7,172
3,956
Cash, Cash Equivalents, and Restricted Cash at
End of Year
$ 3,781 $ 7,200 $ 6,156 $
1,160 $
925 $
1,016
$
4,941 $
8,125 $
7,172
Componentsofcash,cashequivalents,andrestrictedcash
Cash and cash equivalents
Restricted cash (Other assets)
Total cash, cash equivalents, and restricted cash
$ 3,767 $ 7,188 $ 6,145 $
12
$ 3,781 $ 7,200 $ 6,156 $
14
11
1,007 $
153
1,160 $
829 $
96
925 $
921
95
1,016
$ 4,774 $
167
4,941 $
$
8,017 $
108
8,125 $
7,066
106
7,172
13 Elimination of depreciation on leases related to inventory transferred to equipment on operating leases (see Note 6).
14 Reclassification of share-based compensation expense.
15 Elimination of dividends from financial services to the equipment operations, which are included in the equipment operations operating activities, and capital investments in financial services
from the equipment operations.
16 Primarily reclassification of receivables related to the sale of equipment.
17 Reclassification of direct lease agreements with retail customers.
18 Reclassification of sales incentive accruals on receivables sold to financial services
19 Elimination and reclassification of the effects of financial services partial financing of the construction and forestry retail locations sales and subsequent collection of those amounts.
30
16
16
17
16
(26,300)
(498)
(1,134)
(2,654)
(23,653)
(244)
(848)
(1,732)
(19,965)
(66)
(820)
(1,836)
(642)
(257)
(8,485)
(281)
(45)
(5,750)
268
(64)
(3,319)
15, 19
3,852
818
(1,360)
10,358
(8,445)
63
(3,597)
(1,313)
(92)
826
8,722
(7,090)
148
(2,538)
(1,040)
(98)
(1,078)
9,271
(7,383)
331
(750)
(956)
(133)
(980)
15
15
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 sales incentive programs. 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 derivative agreements related to the management of these
foreign currency transaction risks.
Interest Rate Risk
Interest rates rose in 2022 and further central bank policy rate
increases are projected in 2023. Rising interest rates have
historically impacted the company’s borrowings sooner than the
benefit is realized from the financing receivable and equipment
on operating lease portfolios. As a result, the company’s
financial services operations experienced spread compression in
2022. If interest rates continue to rise, the company expects to
continue experiencing spread compression in 2023.
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 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 impact in
these financial instruments’ fair values which would be caused
by increasing or decreasing the interest rates by 10 percent from
the market rates at October 30, 2022 and October 31, 2021 would
have been approximately $50 million and $20 million,
respectively.
The company continues to transition its financing, funding, and
hedging portfolios from the London Interbank Offered Rate
(LIBOR) to alternative reference rates. These transition activities
are not expected to have a material impact on the company’s
financial statements.
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 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 2023 would decrease the 2023
expected net cash inflows by approximately $125 million, with
the estimated impacts by currency as follows:
(In millions of dollars)
Australian dollar
Brazilian real
British pound
Canadian dollar
Euro
Japanese yen
Mexican peso
All other
Total increase (decrease)
2023
(100)
(150)
(25)
(25)
50
125
25
(25)
(125)
$
$
At October 31, 2021, a hypothetical 10 percent strengthening of
the U.S. dollar under similar assumptions and calculations
indicated a potential $110 million decrease on the 2022 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.
31
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
Critical Audit Matter Description
The sales incentive accrual at October 30, 2022 was $2,364
million, of which $1,320 million is recorded within trade accounts
and notes receivable – net and $1,044 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.
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Deere &
Company:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance
sheets of Deere & Company and subsidiaries (the "Company")
as of October 30, 2022 and October 31, 2021, 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 30, 2022, 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
30, 2022 and October 31, 2021, and the results of its
operations and its cash flows for each of the three years in the
period ended October 30, 2022, 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 30, 2022, 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 15, 2022,
expressed an unqualified opinion on the Company's internal
control over financial reporting.
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.
32
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 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 tested 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.
• 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.
• Comparing historical and current sales incentive data
for eligible products in the following manner:
• Type and number of programs
• Geography
• Program size and duration
Allowance for Credit Losses – Refer to Notes 2 and 11 to the
financial statements
Critical Audit Matter Description
The allowance for credit losses as of October 30, 2022 was
$361 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.
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 15, 2022
We have served as the Company’s auditor since 1910.
33
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 30,
2022, 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
30, 2022, 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 15, 2022
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 30, 2022, 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 30, 2022, 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 30, 2022 of the Company and our
report dated December 15, 2022, 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
34
financial reporting, included in the accompanying
Management’s Report 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 15, 2022
DEERE & COMPANY
STATEMENTS OF CONSOLIDATED INCOME
For the Years Ended October 30, 2022, October 31, 2021, and November 1, 2020
(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 (loss) attributable to noncontrolling interests
Net Income Attributable to Deere & Company
Per Share Data
Basic
Diluted
Dividends declared
Dividends paid
Average Shares Outstanding
Basic
Diluted
The notes to consolidated financial statements are an integral part of this statement.
2022
2021
2020
$
$
$
$
$
$
47,917
3,365
1,295
52,577
35,338
1,912
3,863
1,062
1,275
43,450
9,127
2,007
7,120
10
7,130
(1)
7,131
23.42
23.28
4.36
4.28
304.5
306.3
$
39,737
3,296
991
44,024
$
31,272
3,450
818
35,540
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
3.32
311.6
314.0
$
$
$
$
$
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
3.04
313.5
316.6
$
$
$
$
$
35
DEERE & COMPANY
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
For the Years Ended October 30, 2022, October 31, 2021, and November 1, 2020
(In millions of dollars)
Net Income
Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment
Cumulative translation adjustment
Unrealized gain on derivatives
Unrealized gain (loss) on debt securities
Other Comprehensive Income (Loss), Net of Income Taxes
Comprehensive Income of Consolidated Group
Less: Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive Income Attributable to Deere & Company
The notes to consolidated financial statements are an integral part of this statement.
2022
2021
2020
$
7,130
$
5,965
$
2,753
645
(1,116)
63
(109)
(517)
6,613
(16)
6,629
$
2,884
118
16
(18)
3,000
8,965
2
8,963
$
(3)
55
2
14
68
2,821
2
2,819
$
36
DEERE & COMPANY
CONSOLIDATED BALANCE SHEETS
As of October 30, 2022 and October 31, 2021
(In millions of dollars)
ASSETS
Cash and cash equivalents
Marketable securities
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
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
Accounts payable and accrued expenses
Deferred income taxes
Long-term borrowings
Retirement benefits and other liabilities
Total liabilities
Commitments and contingencies (Note 20)
Redeemable noncontrolling interest (Note 3)
STOCKHOLDERS’ EQUITY
Common stock, $1 par value (authorized – 1,200,000,000 shares;
issued – 536,431,204 shares in 2022 and 2021), at paid-in amount
Common stock in treasury, 237,659,289 shares in 2022 and 228,366,144 shares in 2021, at cost
Retained earnings
Accumulated other comprehensive income (loss)
Total Deere & Company stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
The notes to consolidated financial statements are an integral part of this statement.
2022
2021
$
$
$
$
4,774
734
6,410
36,634
5,936
2,492
6,623
8,495
6,056
3,687
1,218
3,730
824
2,417
90,030
12,592
5,711
14,822
495
33,596
2,457
69,673
92
5,165
(24,094)
42,247
(3,056)
20,262
3
20,265
90,030
$
$
$
$
8,017
728
4,208
33,799
4,659
1,765
6,988
6,781
5,820
3,291
1,275
3,601
1,037
2,145
84,114
10,919
4,605
12,348
576
32,888
4,344
65,680
5,054
(20,533)
36,449
(2,539)
18,431
3
18,434
84,114
37
DEERE & COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Years Ended October 30, 2022, October 31, 2021, and November 1, 2020
(In millions of dollars)
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2022
2021
2020
$
7,130
$
5,965
$
2,753
192
1,895
88
85
(326)
(66)
(2,483)
(2,091)
1,133
141
(1,015)
16
4,699
20,907
2,093
(26,300)
(498)
(1,134)
(2,654)
(642)
(257)
(8,485)
3,852
10,358
(8,445)
63
(3,597)
(1,313)
(92)
826
(224)
(3,184)
8,125
4,941
4,774
167
4,941
(6)
2,050
50
82
(441)
969
(2,497)
1,884
11
29
(370)
7,726
18,959
2,094
(23,653)
(244)
(848)
(1,732)
(281)
(45)
(5,750)
818
8,722
(7,090)
148
(2,538)
(1,040)
(98)
(1,078)
55
953
7,172
8,125
8,017
108
8,125
$
$
$
110
2,118
194
81
24
(11)
2,009
397
(7)
8
(537)
344
7,483
17,381
1,783
(19,965)
(66)
(820)
(1,836)
268
(64)
(3,319)
(1,360)
9,271
(7,383)
331
(750)
(956)
(133)
(980)
32
3,216
3,956
7,172
7,066
106
7,172
$
$
$
Provision (credit) for credit losses
Provision for depreciation and amortization
Impairment charges
Share-based compensation expense
Loss on sales of businesses and unconsolidated affiliates
Gain on remeasurement of previously held equity investment
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
Other
Net cash provided by operating activities
Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)
Proceeds from sales of equipment on operating leases
Cost of receivables acquired (excluding receivables related to sales)
Acquisitions of businesses, net of cash acquired
Purchases of property and equipment
Cost of equipment on operating leases acquired
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
Components of cash, cash equivalents, and restricted cash
Cash and cash equivalents
Restricted cash (Other assets)
Total cash, cash equivalents, and restricted cash
$
$
$
The notes to consolidated financial statements are an integral part of this statement.
38
DEERE & COMPANY
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY
For the Years Ended November 1, 2020, October 31, 2021, and October 30, 2022
(In millions of dollars)
Total Stockholders’ Equity
Deere & Company Stockholders
Accumulated
Other
Common
Stock
Treasury
Stock
Retained
Earnings
Comprehensive Noncontrolling
Income (Loss)
Interests
Redeemable
Noncontrolling
Interest
Total
Stockholders’
Equity
Balance November 3, 2019
$
11,417 $
4,642 $
(17,474) $
29,852 $
(5,607) $
Net income
Other comprehensive income
Repurchases of common stock
Treasury shares reissued
Dividends declared
Noncontrolling interest
redemption (Note 4)
Share based awards and other
Balance November 1, 2020
ASU No. 2016-13 adoption
Net income
Other comprehensive income
Repurchases of common stock
Treasury shares reissued
Dividends declared
Share based awards and other
Balance October 31, 2021
2,752
68
(750)
159
(956)
254
12,944
(35)
5,965
3,000
(2,538)
70
(1,127)
155
18,434
Acquisitions (see Note 3)
Net income (loss)
Other comprehensive loss
Repurchases of common stock
Treasury shares reissued
Dividends declared
Share based awards and other
Balance October 30, 2022
$
7,133
(517)
(3,597)
36
(1,329)
105
20,265 $
(750)
159
253
4,895
(18,065)
(2,538)
70
68
(5,539)
3,000
2,751
(955)
(2)
31,646
(35)
5,963
(1,125)
159
5,054
(20,533)
36,449
(2,539)
7,131
(517)
(3,597)
36
111
5,165 $
(24,094) $
(1,327)
(6)
42,247 $
The notes to consolidated financial statements are an integral part of this statement.
(3,056) $
3
$
$
4
1
(1)
3
7
2
(2)
(4)
3
2
(2)
14
1
(1)
(14)
104
(3)
(15)
6
92
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND CONSOLIDATION
Deere & Company has been developing innovative solutions to
help its customers become more profitable for 185 years.
References to Deere & Company, John Deere, Deere, or the
company include its consolidated subsidiaries and consolidated
variable interest entities (VIEs). The company is managed through
the following operating segments: production and precision
agriculture (PPA), small agriculture and turf (SAT), construction and
forestry (CF), and financial services (FS). References to “equipment
operations” include production and precision agriculture, small
agriculture and turf, and construction and forestry, while
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 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. The company consolidates certain VIEs related to retail note
securitizations (see Note 12). Deere & Company records its
investment in each unconsolidated affiliated company (20 to 50
percent ownership) at cost, plus or minus the company’s share of
the profit or loss after acquisition and further reduced for any
dividends (see Note 16). 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 near the
end of 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 2022, 2021, and
2020 were October 30, 2022, October 31, 2021, and November 1,
2020, respectively. Fiscal years 2022, 2021, and 2020 contained 52
weeks. Unless otherwise stated, 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.
The reporting lag was eliminated resulting in one additional month
of Wirtgen activity in 2021. The effect was an increase to fiscal year
2021 “Net sales” of $270 million, which the company considers
immaterial to construction and forestry’s annual net sales. Fiscal
year 2020 results were not restated.
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 indexed to the U.S. dollar due to the highly inflationary
conditions. The Argentine government has certain capital and
40
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 30, 2022 and October 31, 2021, the
company's net investment in Argentina was approximately $742
million and $578 million, respectively. Net sales and revenues from
the company’s Argentine operations represented approximately
1 percent of consolidated net sales and revenues for 2022. The
company has employed mechanisms to convert Argentine pesos
into U.S. dollars to the extent possible. The net peso exposure was
not material as of October 30, 2022 and October 31, 2021.
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 AND NEW
ACCOUNTING STANDARDS
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. Actual results could
differ from those estimates.
Revenue Recognition
Sales of equipment and service parts are recognized when the
company transfers control of the good to the independent
customer, which generally occurs upon shipment. 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.
Prior to 2022, certain goods were shipped to dealers in Canada on a
consignment basis under which the risks and rewards of ownership
were not transferred to the dealer at the time the goods are
shipped. Accordingly, sales for consigned goods were not recorded
until a retail customer purchased the goods or the goods were
otherwise removed from the dealer’s inventory. The dealer
contract in Canada was changed such that all goods delivered after
November 1, 2021 are delivered on terms, resulting in transfer of
control and revenue recognition upon delivery of all goods. For
certain goods delivered to Canadian dealers prior to November 1,
2021, the dealer consignment terms already in place remain in
effect. As of October 30, 2022 and October 31, 2021, the remaining
consigned inventory was $7 million and $150 million, respectively.
Consignment terms are not prevalent in any other market.
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 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. 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.
Generally, no right of return exists on sales of equipment. 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 sheets. 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
statements 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 mostly 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 recognized at the time
of the equipment sale and recorded in “Net sales” in the
statements of consolidated income. The revenue for the future
services is 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 sheets
and is recognized in “Other income” with the associated expenses
recognized in “Other operating expenses” in the statements 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
At the time of the sale to a dealer, the company records an
estimated cost of sales incentive 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.”
Product 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 18).
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
41
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 $227 million in 2022, $212 million in 2021, and $196 million in
2020.
Depreciation and Amortization
Property and equipment, capitalized software, and other
intangible assets are stated at cost less accumulated depreciation
or amortization. These assets are depreciated over their estimated
useful lives 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
charged to expense as incurred.
Securitization of Receivables
Certain financing receivables are periodically transferred to special
purpose entities (SPEs) in securitization transactions (see Note 12).
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 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
42
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. Receivables
are written-off to the allowance when the account is considered
uncollectible (see Note 11).
Long-Lived Asset, Goodwill, and Other Intangible Asset Impairment
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 4 and 25).
Derivative Financial Instruments
It is the company’s policy that 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 and foreign currency exposure at certain equipment
operations units for sales incentive programs.
All derivatives are recorded at fair value on the consolidated
balance sheets. Cash collateral received or paid is not offset
against the derivative fair values on the balance sheet. The cash
flows from the derivative contracts are recorded in operating
activities in the statements of consolidated cash flows. 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.
3. ACQUISITIONS AND DISPOSITIONS
Acquisitions
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 26).
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 components of derivative contracts are included in net
income, with trade flow activity recorded in Cost of sales, sales
incentive activity recorded in Net sales, and all other activity
recorded in Other operating expenses. The pretax net gain (loss)
for foreign exchange in 2022, 2021, and 2020 was ($175) million,
($134) million, and $18 million, respectively.
New Accounting Standards
The company closely monitors all Accounting Standard Updates
(ASUs) issued by the Financial Accounting Standards Board (FASB)
and other authoritative guidance. The company adopted the
following standards in 2022, none of which had 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
ASUs to be adopted in future periods are being evaluated and at
this point are not expected to have a material impact on the
company’s financial statements. The FASB issued ASU No. 2022-
04, Liabilities – Supplier Finance Programs, which enhances the
transparency about the use of supplier finance programs. Deere
has not entered into any material supplier finance programs in
connection with buying goods or services.
Kreisel
In February 2022, the company acquired majority ownership in
Kreisel Electric Inc. (Kreisel), a pioneer in the development of
immersion-cooled battery technology. The Austrian company
manufactures high-density, high-durability electric battery
modules and packs for high-performance and off-highway
applications and has created a battery-buffered, high-powered
charging infrastructure platform.
The transaction includes a call option to purchase the remaining
ownership interest in Kreisel in 2027. The minority interest holders
also have a put option that would require the company to purchase
the holder’s ownership interest in 2027. The put and call options
cannot be separated from the noncontrolling interest. Due to the
redemption features, the minority interest is classified as
redeemable noncontrolling interest in the company’s consolidated
balance sheets.
The total cash purchase price was $276 million, consisting of $253
million for the acquired equity interests, $21 million to reduce the
option price, and customary working capital adjustments, net of
cash acquired. The preliminary fair values assigned to the assets
and liabilities of the acquired entity in millions of dollars, which is
based on information as of the acquisition date and available at
October 30, 2022 follows:
Trade accounts and notes receivable
Other receivables
Inventories
Property and equipment
Goodwill
Other intangible assets
Other assets
Total assets
Accounts payable and accrued expenses
Deferred income taxes
Redeemable noncontrolling interest
February 2022
2
$
11
11
11
218
178
6
437
$
$
$
26
39
96
The identifiable intangible assets were related to technology,
trade name, and customer relationships with a weighted average
amortization period of 12 years. The goodwill is not deductible for
income tax purposes. Kreisel will be allocated amongst the
company’s production and precision agriculture, small agriculture
and turf, and construction and forestry segments.
43
Prior to the acquisition, the company purchased Deere and
Hitachi-branded excavators, components, and parts from the
Deere-Hitachi joint venture factories for sale to John Deere
dealers. These purchases were included in Cost of sales, while the
sales to John Deere dealers were included in Net sales. Cost of
sales also included profit-sharing payments to Hitachi in
accordance with the previous marketing agreements. Following
the acquisition, Net sales only includes the sale of Deere-branded
excavators to John Deere dealers, while Cost of sales reflects
market pricing to purchase and manufacture excavators, as well as
the related components and service parts.
The preliminary fair values assigned to the assets and liabilities of
the acquired factories in millions of dollars, which are based on
information as of the acquisition date and available at October 30,
2022, follow:
Other receivables
Inventories
Property and equipment
Goodwill
Other intangible assets
Deferred income taxes
Other assets
Total assets
Accounts payable and accrued expenses
Long-term borrowings
Total liabilities
March 2022
29
286
180
529
70
56
3
1,153
300
163
463
$
$
$
$
The identifiable intangible assets were related to technology with a
10-year amortization period. The goodwill is not deductible for
income tax purposes. The excavator factories will be reported in
the company’s construction and forestry segment.
Excavator Factories
In March 2022, the company acquired full ownership of three
former Deere-Hitachi joint venture factories and began new
license and supply agreements with Hitachi Construction
Machinery Co., Ltd. (Hitachi). The two companies also ended their
joint venture manufacturing and marketing agreements. The
former joint venture factories continue to manufacture Deere-
branded construction excavators and forestry equipment. Through
a new supply agreement with Hitachi, Deere continues to offer a
full portfolio of excavators. Deere’s marketing arrangement for
Hitachi-branded construction excavators and mining equipment in
the Americas ended with Hitachi assuming distribution and
support of these products. John Deere dealers may continue to
support their existing field population of Hitachi-branded
excavators.
With the completion of this acquisition, the company now has
complete control over its excavator design, product, and feature
updates, making it possible to more rapidly respond to customer
requirements and integrate excavators with other construction
products in the John Deere product portfolio. The company can
leverage technology developed for other product lines and
production systems across the enterprise and extend those
advanced solutions to Deere-designed excavators, strengthening
the entire product portfolio. The total invested capital is as follows
in millions of dollars:
March 2022
$
Cash consideration for factories
Cash consideration for license agreement
Deferred consideration
Total purchase price consideration
Less: Cash obtained
Less: Settlement of intercompany balances
Net purchase price consideration
Fair value of previously held equity investment
Total invested capital
$
205
70
271
546
(187)
(113)
246
444
690
The total purchase price consideration includes deferred
consideration that will be paid as the company purchases Deere-
branded excavators, components, and service parts from Hitachi
under the new supply agreement with a duration that ranges from
5 to 30 years. The deferred consideration represents the price
increases under the new supply arrangement. Excluding inflation
adjustments, the price increases for products to be acquired by the
company from Hitachi are as much as 27 percent higher than the
prior supply arrangement. At October 30, 2022, the net present
value of the deferred consideration was approximately $236
million, subject to changes in market conditions, developments in
the company’s product offerings, and sourcing changes. The
company financed the acquisition and associated transaction
expenses from cash on hand. The fair value of the previously held
equity investment created a non-cash gain of $326 million (pretax
and after-tax), which was recorded in Other income and included in
the construction and forestry segment’s operating profit.
44
Other Acquisitions
In 2022, the company acquired AgriSync Inc. (AgriSync), a
technology service provider; an 80 percent stake in both SureFire
Ag Systems, Inc. and SureFire Electronics, LLC (renamed after
acquisition and collectively referred to as SurePoint), which design
and manufacture liquid fertilizer application and spray tendering
systems; a 40 percent equity method investment in GUSS
Automation LLC (GUSS Automation), a pioneer in semi-
autonomous orchard and vineyard sprayers; LGT, LLC (Light),
which specializes in depth sensing and camera-based perception
for autonomous vehicles; and an equity method investment in
InnerPlant, Inc. (InnerPlant), an early-stage biotech company. The
combined cost of these acquisitions was $134 million, net of cash
acquired of $3 million. The preliminary asset and liability fair values
at the respective acquisition dates follow in millions of dollars:
Trade accounts and notes receivable
Inventories
Property and equipment
Goodwill
Other intangible assets
Other assets
Total assets
Accounts payable and accrued expenses
Deferred income taxes
Total liabilities
Redeemable noncontrolling interest
October 2022
$
8
8
4
53
21
60
154
6
5
11
9
$
$
$
$
The identifiable intangible assets were related to trade name,
technology, and customer relationships with a weighted average
amortization period of 7 years. AgriSync was allocated amongst
the company’s production and precision agriculture, small
agriculture and turf, and construction and forestry segments, while
SurePoint, Light, and InnerPlant were allocated to the production
and precision agriculture segment. GUSS Automation was assigned
to the small agriculture and turf segment.
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 asset and liability fair values at the acquisition date
in millions of dollars follow:
Property and equipment
Goodwill
Other intangible assets
Total assets
Accounts payable and accrued expenses
Deferred income taxes
Total liabilities
August 2021
$
$
$
$
1
189
54
244
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.
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
Accounts payable and accrued expenses
Deferred income taxes
Total liabilities
September 2020
5
$
2
10
22
28
13
80
$
$
$
5
9
14
The identified intangibles were 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
45
statements, 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.
The financial services operations received an intercompany benefit
from the equipment operations, which guarantees the financial
services’ investments in certain international markets, including
Russia.
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.
4. SPECIAL ITEMS
UAW Collective Bargaining Agreement
In November 2021, employees represented by the International
Union, United Automobile, Aerospace and Agricultural Implement
Workers of America (UAW) approved a new collective bargaining
agreement. 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 included 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 was 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. See Note 7 for more information on the U.S. hourly
plan remeasurement.
Impact of Events in Russia / Ukraine
The events in Russia / Ukraine have resulted in the company
suspending shipments of machines and service parts to Russia.
The company manufactures and markets equipment and provides
financial services in Russia. As of October 30, 2022, the company’s
net exposure in Russia / Ukraine was approximately $266 million,
including ruble exposure of $31 million (ruble-denominated
financial assets, net of cross-currency interest rate contracts). Net
sales from the company’s Russian operations represented 2
percent of consolidated annual Net sales from 2017 to 2021. The
Ukraine operations were not material to the consolidated financial
statements.
The suspension of shipments to Russia reduced the forecasted
revenue for the region, which made it probable future cash flows
will not cover the carrying value of certain assets. As a result, an
impairment was recorded for most long-lived assets in Russia, and
the company’s U.S. senior management decided to initiate a
voluntary employee-separation program. The company also
recorded a reserve on inventory, and increased its allowance for
credit losses, reflecting economic uncertainty in Russia.
The Russian government has imposed certain restrictions on
companies’ abilities to repatriate or remit cash from their Russian-
based operations to locations outside of Russia. Cash in excess of
what is required to fund operations in Russia has been reclassified
as restricted. The company’s U.S. senior management continues to
closely monitor all financial risks to company operations in the
region. A summary of the reserves, impairments, and voluntary-
separation costs recorded in 2022 follows in millions of dollars. See
Note 25 for fair value measurement information.
Inventory reserve –
Cost of sales
Fixed asset impairment –
Cost of sales
Intangible asset impairment –
Cost of sales
Allowance for credit losses –
Financing receivables –
SA&G expenses
Voluntary-separation program:
– Cost of sales
– SA&G expenses
Intercompany agreement
Total Russia/Ukraine events
PPA
SAT
CF
FS
Total
$
14 $
2 $
3
$
19
30
11
28
41
28
$
153
153
3
4
82
6
62
1
(153)
9
3
11
pretax expense
$
133 $
11 $
110 $
1
255
Net tax impact
Total Russia/Ukraine events
after-tax expense
(40)
$
215
Gain on Previously Held Equity Investment
In March 2022, the company acquired full ownership of three
former Deere-Hitachi joint venture factories and began new
license and supply agreements with Hitachi. The fair value of the
previous equity investment resulted in a non-cash gain of $326
million (pretax and after-tax; see Note 3).
2021 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 25 for fair value measurement
information.
46
Summary of 2022 and 2021 Special Items
The following table summarizes the operating profit impact, in
millions of dollars, of the special items recorded in 2022 and 2021:
PPA
SAT
CF
FS
Total
2022 Expense (benefit)
Gain on remeasurement of
equity investment – Other
income (Note 3)
Total Russia/Ukraine events
$ (326)
$ (326)
pretax expense
$
133 $
11
110 $
1
255
UAW ratification bonus –
Cost of sales
Total expense (benefit)
53
186
9
20
28
(188)
90
19
1
2021 Expense (benefit)
Gain on sale – Other income
Long-lived asset impairments –
Cost of sales
Brazil indirect tax – Cost of sales
Total expense (benefit)
(27)
3
(24)
5
(53)
(48)
42
(5)
37
(27)
50
(58)
(35)
Year over year change
$ 234 $
44 $ (225) $
1 $
54
2020 Special Items
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, and
recorded impairments of equipment on operating leases and
matured lease inventory, as well as impairments of the investment
in certain affiliate companies. A summary of the factory closure
and costs related to impairments follows in millions of dollars. See
Note 25 for a description of the valuation methodologies used to
measure these impairments.
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 and
PPA
SAT
$ 20
CF
FS
Total
$ 20
$
2
13 $ 80
2
$
32
50
93
4
32
50
closure costs
$
2 $
35 $
130 $
32 $
199
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 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.
The programs’ total pretax expenses in 2020 were as follows in
millions of dollars:
Cost of sales
Research and development
expenses
Selling, administrative and
general expenses
Total operating profit impact
Non-operating profit impact*
Total pretax expense
PPA
$
51 $
SAT
CF
FS
31 $
22
Total
$ 104
29
18
8
55
43
53
133 $ 92 $
24 $
54 $
$
15
135
15 294
41
$ 335
* Relates primarily to non-cash charges of $34 million from curtailments in certain
OPEB plans (see Note 7) 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.
Redeemable Noncontrolling Interest
In 2020, the minority interest holder in Hagie Manufacturing
Company, LLC (Hagie) exercised its right to sell the remaining 20
percent interest to the company for $14 million. As a result of such
transaction, the company became a 100 percent interest holder in
Hagie. The arrangement was accounted for as an equity
transaction with no gain or loss recorded in the statements of
consolidated income. This operation is included in the company’s
production and precision agriculture segment.
47
5. 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
2022
Primary geographic
markets:
United States
Canada
Western Europe
Central Europe and CIS
Latin America
Asia, Africa, Australia,
New Zealand, and
Middle East
Total
Major product lines:
$ 10,975 $ 7,741 $ 7,103 $ 2,419 $ 28,238
3,902
6,344
2,289
7,339
676
2,478
488
578
1,387
2,188
1,207
4,991
1,238
1,576
545
1,467
601
102
49
303
1,570
151 4,465
$ 22,318 $ 13,569 $ 13,065 $ 3,625 $ 52,577
1,608
1,136
3,027
$ 10,027
Production agriculture $ 21,685
Small agriculture
Turf
Construction
Compact construction
Roadbuilding
Forestry
Financial products
Other
$ 21,685
10,027
3,027
5,864
1,667
3,441
1,308
3,769
1,789
$ 22,318 $ 13,569 $ 13,065 $ 3,625 $ 52,577
32 $ 3,625
753
1,667
3,441
1,308
52
463
60
573
$ 5,864
$ 22,178 $ 13,493 $12,980 $
105 $ 48,756
3,821
$ 22,318 $ 13,569 $ 13,065 $ 3,625 $ 52,577
3,520
140
85
76
Total
Revenue recognized:
At a point in time
Over time
Total
48
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
Major product lines:
$ 8,223 $ 6,505 $ 5,697 $ 2,389 $ 22,814
3,015
617
6,429
103
39 2,664
4,522
247
853
2,086
1,322
2,916
498
2,433
475
456
1,047
1,807
828
903
1,417
153 4,580
$ 16,817 $ 12,046 $ 11,613 $ 3,548 $44,024
1,679
1,331
$ 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
1,489
3,749
1,280
20 $ 3,548
391
46
528
55
514
$ 4,684
Total
Revenue recognized:
At a point in time
Over time
Total
2020
Primary geographic
markets:
United States
Canada
Western Europe
Central Europe and CIS
Latin America
Asia, Africa, Australia,
New Zealand, and
Middle East
Total
Major product lines:
$ 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
$ 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
$ 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
25 $ 3,589
342
1,269
2,924
1,100
69
544
37
241
$ 3,521
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
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 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 relate to
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 sheets. The deferred revenue received, but
not recognized in revenue, including extended warranty premiums
also shown in Note 20, was $1,423 million and $1,344 million at
October 30, 2022 and October 31, 2021, 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 $609 million in
2022, $485 million in 2021, and $425 million in 2020.
The total amount of unsatisfied performance obligations for
contracts with an original duration greater than one year and the
estimated revenue to be recognized by fiscal year at October 30,
2022 follows in millions of dollars:
Year
2023
2024
2025
2026
2027
Later years
Total
$
Net Sales and Revenues
336
319
230
131
84
124
1,224
$
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 for sales to dealers and retail customers for
equipment, service parts, repair services, and certain telematics
services.
6. 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.
All cash flows from the changes in trade accounts and notes
receivable (see Note 11) are classified as operating activities in the
statements 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 11) 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.
Restricted cash, recorded in “Other assets” in the consolidated
balance sheets, relates to securitization of financing receivables
(see Note 12) and certain cash held in Russia.
49
to freeze their defined benefit pension plan benefit for an
enhanced defined contribution benefit.
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:
2022
2021
2020
OPEB
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial (gain) 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
$
45 $ 48 $ 49
140
102
99
(50)
(77)
(110)
29
27
(18)
(4)
(4)
(4)
34
12 $ 96 $ 198
$
3.6%
2.3%
4.4%
3.4%
2.1%
5.4%
3.7%
2.7%
5.7%
The 2020 OPEB curtailments were a result of the employee-
separation programs (see Note 4).
The benefit plan obligations, funded status, and the assumptions
related to the obligations at October 30, 2022 and October 31, 2021
in millions of dollars follow:
Pensions
OPEB
2022
2021
2022
2021
Change in benefit obligations
Beginning of year balance
Service cost
Interest cost
Actuarial gain
Prior service cost
Benefits paid
Health care subsidies
Settlements/curtailments
Foreign exchange and other
End of year balance
Change in plan assets (fair value)
Beginning of year balance
Actual return on plan assets
Employer contribution
Benefits paid
Foreign exchange and other
End of year balance
Funded status
$ (14,525) $ (15,021) $ (4,930) $ (5,410)
(48)
(102)
381
(332)
(276)
373
(45)
(99)
1,492
(12)
282
(33)
290
(29)
(349)
(330)
4,122
(505)
757
301
(10,529)
4
(3,341)
(12)
(4,930)
755
1
(25)
(14,525)
17,190
(3,070)
85
(757)
(229)
13,219
1,518
367
157
(290)
3
1,755
$ 2,690 $ 2,665 $ (1,205) $ (3,175)
14,574
3,249
101
(755)
21
17,190
1,755
(495)
1,155
(282)
3
2,136
Weighted-average assumptions
Discount rates
Rate of compensation increase
Interest crediting rate - U.S.
5.4%
3.8%
2.7%
3.7%
5.6%
2.8%
cash balance plans
4.4%
1.8%
Supplemental cash flow information follows in millions of dollars:
Cash paid for interest
Cash paid for income taxes
Inventory transferred to equipment
2022
2021
2020
$
1,101 $
1,940
1,041 $
2,075
1,279
1,069
on operating leases
167
662
614
Accounts payable related to purchases
of property and equipment
165
121
98
7. 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.
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 included in the line item
“Other operating expenses” in the statements of consolidated
income.
The company’s U.S. salaried pension plan will be closed to new
entrants effective January 1, 2023. Certain participants will have
the opportunity to make a one-time election in 2023 to freeze their
defined benefit pension plan benefit for an enhanced defined
contribution benefit.
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:
2022 2021
2020
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 plans
$ 349 $ 332 $ 321
347
(819)
256
13
25
$ 164 $ 101 $ 143
330
(726)
132
34
45
276
(799)
259
12
21
3.0%
2.6%
3.7%
5.1%
2.1%
2.5%
2.1%
3.7%
6.0%
1.7%
2.9%
2.7%
3.8%
6.4%
2.1%
In November 2021, employees represented by the UAW approved
a new collective bargaining agreement. The company remeasured
the U.S. hourly pension plan, which increased the 2022 pension
expense by nearly $80 million with $35 million negatively
impacting operating profit.
A curtailment loss of $34 million was recognized during 2022
when 10 percent of active, eligible U.S. hourly employees elected
50
The actuarial gains for pension and OPEB for 2022 were due to an
increase in discount rates. The actuarial gain for pension for 2021
was due to an increase in discount rates. The actuarial gain for
OPEB for 2021 was due to a decrease in health care trend rates,
favorable mortality assumptions, and an increase in discount rates.
The pension prior service cost for 2022 was due to the new UAW
collective bargaining agreement.
The discount rate assumptions used to determine the pension and
OPEB obligations for all periods presented were 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.
The mortality assumptions for the 2022 and 2021 U.S. benefit plan
obligations used the most recent tables and scales issued by the
Society of Actuaries at that time. The 2022 and 2021 mortality
assumptions included an adjustment to the scale related to COVID
for some plans.
The weighted-average annual rates of increase in the per capita
cost of covered health care benefits (the health care cost trend
rates) for medical and prescription drug claims for pre- and post-
65 age groups used to determine the October 30, 2022 and
October 31, 2021 accumulated postretirement benefit obligations
were as follows:
Initial year
Second year
Ultimate
2022
0.0% (2022 to 2023)
12.6% (2023 to 2024)
4.7% (2032 to 2033)
2021
2.1% (2021 to 2022)
8.4% (2022 to 2023)
4.7% (2028 to 2029)
A decrease in Medicare Advantage premiums impacted the
weighted-average annual rates of increase for the initial years in
2022 and 2021.
The amounts recognized at October 30, 2022 and October 31, 2021
in millions of dollars consisted of the following:
Pensions
OPEB
2022
2021
2022
2021
Amounts recognized in
balance sheet
Noncurrent asset
Current liability
Noncurrent liability
Total
Amounts recognized in
accumulated other
comprehensive income – pretax
$ 3,223 $ 3,601 $
(42)
(491)
(36)
(3,139)
$ 2,690 $ 2,665 $ (1,205) $ (3,175)
(51)
(885)
(1,673)
507
(39) $
Net actuarial (gain) loss
Prior service cost (credit)
Total
$
926 $ 1,376 $ (820) $
9
446
(4)
$ 1,372 $ 1,385 $ (824) $
49
(20)
29
Information related to pension plans benefit obligations at
October 30, 2022 and October 31, 2021 in millions of dollars follows:
Total accumulated benefit obligations
for all plans
$
10,068 $
13,787
2022
2021
Plans with accumulated benefit
obligation exceeding fair value of
plan assets:
Accumulated benefit obligations
Fair value of plan assets
Plans with projected benefit obligation
exceeding fair value of plan assets:
Projected benefit obligations
Fair value of plan assets
1,116
672
2,012
1,207
1,225
692
2,163
1,227
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.
Contributions
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 $1,240 million in 2022 and $258 million in 2021, which
included both required and voluntary contributions and direct
benefit payments. 2022 OPEB contributions included a voluntary
contribution of $1,000 million to a U.S. plan.
The company expects to contribute approximately $70 million to
its pension plans and approximately $130 million to its OPEB plans
in 2023. The contributions are direct benefit payments from
company funds. The company has no significant required
contributions to U.S. pension plan assets in 2023 under applicable
funding regulations.
Expected Future Benefit Payments
The expected future benefit payments at October 30, 2022 were
as follows in millions of dollars:
2023
2024
2025
2026
2027
2028 to 2032
Pensions
$
OPEB*
246
248
250
252
253
1,274
739 $
730
729
728
721
3,589
* Net of prescription drug group benefit subsidy under Medicare Part D.
51
The fair values of the pension plan assets at October 31, 2021 follow
in millions of dollars:
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
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
1,475 1,159
4,841
316
4,841
144
7
55
79
37
(60)
(15)
22
(177)
875
107
(875)
(107)
(11)
(128)
8,749 $ 3,340 $ 5,409
144
62
116
(75)
(155)
982
(982)
(139)
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:
Government and agency securities
Corporate debt securities
Mortgage-backed securities
Securities lending collateral
Securities lending liability
Securities sold short
Total
Level 1 Level 2
$
55 $
30
55
29 $
243
307
10
64
(64)
(3)
215
20
(20)
(3)
1
28
307
10
44
(44)
Total of Level 1 and Level 2 assets
642 $ 296 $
346
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
20
619
358
18
42
13
18
20
5
$ 1,755
Plan Asset Information
The fair values of the pension plan assets at October 30, 2022
follow in millions of dollars:
Cash and short-term investments
Equity:
$
Total
Level 1 Level 2
55
283 $
338 $
U.S. equity securities
International equity securities and funds
311
196
290
195
21
1
Fixed Income:
Government and agency securities
Corporate debt securities
Mortgage-backed securities
Other investments
Derivative contracts - assets
Derivative contracts - liabilities
Receivables, prepaids, and payables
Securities lending collateral
Securities lending liability
Securities sold short
Total of Level 1 and Level 2 assets
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
1,296 1,053
4,587
213
49
92
31
54
243
4,587
213
18
38
(103)
(209)
(106)
(207) (207)
684
(684)
(64)
684
(684)
(58)
(6)
6,602 $ 1,535 $ 5,067
633
54
125
1,736
592
569
1,322
1,553
33
$ 13,219
The fair values of the health care assets at October 30, 2022 follow
in millions of dollars:
Total
Level 1 Level 2
$
79 $
79
597 $
629
516
83
(4)
98
(98)
32
516
83
3
98
(98)
1,303 $ 669 $ 634
(7)
40
22
347
140
188
41
48
7
$ 2,136
Cash and short-term investments
Fixed Income:
Government and agency securities
Corporate debt securities
Mortgage-backed securities
Other
Securities lending collateral
Securities lending liability
Total of Level 1 and Level 2 assets
Investments at net asset value:
U.S. equity funds
International equity funds
Fixed income funds
Real estate funds
Hedge funds
Private equity
Venture capital
Other investments
Total net assets
52
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. Fair
value measurement levels in the preceding tables are defined in
Note 25.
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. Valuations may be lagged up to six months. The NAV
is adjusted for cash flows (additional investments or contributions,
and distributions) and any known substantive valuation changes
through year end. Real estate investment trusts were 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 investment objective for the pension and health care plan
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 20 percent for equity, 66 percent for
debt, 3 percent for real estate, and 11 percent for other
investments. The target allocations for health care assets are
approximately 15 percent for equity, 72 percent for debt, 4 percent
for real estate, and 9 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 8.6 percent during the past ten
years and approximately 8.9 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.
Defined Contribution Plans
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 $263 million in
2022, $207 million in 2021, and $160 million in 2020. The
contribution rate varies based on the company’s performance in
the prior year and employee participation in the plans.
53
8. INCOME TAXES
The provision for income taxes by taxing jurisdiction and by
significant component consisted of the following in millions of
dollars:
Current:
U.S.:
Federal
State
Foreign
Total current
Deferred:
U.S.:
Federal
State
Foreign
Total deferred
Provision for income taxes
2022
2021
2020
$
514 $ 899 $ 400
53
183
136
640
1,017
1,423
1,093
2,099
2,073
29
24
(119)
(66)
(68)
9
48
(11)
$ 2,007 $ 1,658 $ 1,082
(303)
(45)
(93)
(441)
Based upon the location of the company’s operations, the
consolidated income before income taxes in the U.S. in 2022, 2021,
and 2020 was $4,977 million, $4,061 million, and $2,082 million,
respectively, and in foreign countries was $4,150 million, $3,541
million, and $1,801 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:
2022
2021
2020
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
$ 1,917 $ 1,597 $ 815
59
39
106
(50)
(87)
139
61
$ 2,007 $ 1,658 $ 1,082
133
(29)
121
(65)
(55)
179
(194)
119
(85)
148
(48)
(79)
18
(12)
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 30, 2022 and October 31, 2021 in millions
of dollars follows:
2022
2021
Deferred Deferred Deferred Deferred
Tax
Assets
213
$
Tax
Tax
Liabilities Assets
676
$
Tax
Liabilities
$
310
$
399
1,405
579
1,542
466
174
178
532
57
254
90
304
41
44
62
154
487
154
337
448
43
341
78
298
53
49
46
172
333
(1,545)
(1,530)
OPEB - net
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 assets
and liabilities
$
1,834 $
1,505 $ 2,183 $ 1,722
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 as if they
filed separate income tax returns, with a modification for
realizability of certain tax benefits.
At October 30, 2022, tax loss and tax credit carryforwards of $1,405
million were available with $940 million expiring from 2023
through 2042 and $465 million with an indefinite carryforward
period.
A reconciliation of the total amounts of unrecognized tax benefits
at October 30, 2022, October 31, 2021, and November 1, 2020 in
millions of dollars follows:
At October 30, 2022, undistributed profits of subsidiaries outside
the U.S. of approximately $5,043 million are considered indefinitely
reinvested. Determination of the amount of a foreign withholding
tax liability on these unremitted earnings is not practicable.
Beginning of year balance
Increases to tax positions taken during the
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
Other
Foreign exchange
End of year balance
2022
2020
2021
$ 811 $ 668 $ 553
81
100
(23)
(12)
(3)
98
29
(18)
(7)
2
(24)
63
95
(30)
(9)
(1)
(3)
$ 891 $ 811 $ 668
The amount of unrecognized tax benefits at October 30, 2022 and
October 31, 2021 that would impact the effective tax rate if the tax
benefits were recognized was $303 million and $227 million,
respectively. The remaining liability was related to tax positions for
which there are offsetting tax receivables, or the uncertainty was
54
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 to 2020 are currently
under examination. Various state and foreign income tax returns
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
2022 and 2021, the total amount of expense from interest and
penalties was $23 million and $7 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 2022, 2021, and 2020 was $12 million, $8
million, and $11 million, respectively. At October 30, 2022 and
October 31, 2021, the liability for accrued interest and penalties
totaled $80 million and $75 million, respectively, and the
receivable for interest was $19 million and $11 million, respectively.
9. OTHER INCOME AND OTHER OPERATING EXPENSES
The major components of other income and other operating
expenses consisted of the following in millions of dollars:
2022
2021
2020
Other income
Revenues from services
Insurance premiums and fees earned*
Trademark licensing income
Operating lease disposition gains
Gain on previously held equity investment
Investment income
Other
Total
$ 283 $ 322 $ 314
223
73
227
87
65
26
182
$ 1,295 $ 991 $ 818
41
249
289
89
72
326
14
222
Other operating expenses
Depreciation of equipment on operating leases $ 827 $ 983 $ 1,083
231
Insurance claims and expenses*
188
Cost of services
Operating lease disposition losses and impairments
52
Pension and OPEB benefit, excluding service
235
202
267
214
cost component
Foreign exchange loss
Other
Total
(218)
132
53
(31)
4
85
$ 1,275 $ 1,343 $ 1,612
(183)
59
47
* Primarily related to extended warranties (see Note 20).
10. MARKETABLE SECURITIES
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 30, 2022 and October 31, 2021 in millions of dollars follow:
Gross
Gross
Amortized Unrealized Unrealized Fair
Cost
Gains
Losses
Value
2022
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
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
$
$
70
3
73
37
11
36
4
31
119
183
63
200
60
155
661
734
$
$
75
2
77
3
2
3
1
9
198
73
224
2
154
651
$ 728
220
74
236
64
186
780
$
$
196 $
69
215
5
152
637 $
5 $
4
11
3
23 $
* Primarily issued by U.S. government sponsored enterprises.
During 2022, 2021, and 2020, purchases of marketable securities
were $250 million, $194 million, and $130 million, respectively,
while proceeds from the maturities and sales of marketable
securities were $79 million, $109 million, and $93 million,
respectively.
Equity Securities
Proceeds of equity securities sold during 2022, 2021, and 2020 were
not material. Unrealized gain (loss) on equity securities during 2022
and 2021 in millions of dollars follow:
Net gain (loss) recognized on equity securities $
Less: Net gain on equity securities sold
Unrealized gain (loss) on equity securities
$
(11) $
(11) $
24
2
22
2022
2021
55
Trade accounts and notes receivable 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 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.
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 30, 2022 and October 31, 2021 in
millions of dollars follow:
2022
2021
Unrestricted/Securitized Unrestricted/Securitized
Retail notes:
Agriculture and turf
Construction and forestry
Total
Wholesale notes
Revolving charge accounts
Financing leases (direct
$ 23,830 $ 4,868 $ 21,736 $ 4,041
712
4,753
1,179
4,396
28,226
3,285
4,316
4,334
6,047 26,070
2,577
3,880
and sales-type)
Total financing receivables
2,832
38,659
2,879
6,047 35,406
4,753
Less:
Unearned finance income:
Retail notes
Wholesale notes
Revolving charge accounts
Financing leases
Total
Allowance for credit losses
Financing receivables – net
1,358
12
61
285
1,716
309
95
80
1,131
11
55
258
1,455
152
80
95
14
16
$ 36,634 $ 5,936 $ 33,799 $ 4,659
Financing receivables have significant concentrations of credit risk
in the agriculture and turf and construction and forestry markets.
On a geographic basis, 85 percent of the company’s financing
receivables were located in the U.S. and Canada at October 30,
2022. There is no disproportionate concentration of credit risk with
any single customer or dealer. The company retains as collateral
security in the equipment associated with retail notes, wholesale
notes, and financing leases, and requires theft and physical
damage insurance on such equipment.
Debt Securities
The contractual maturities of debt securities at October 30, 2022 in
millions of dollars follow:
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
$
$
Amortized
Cost
Fair
Value
81
96
166
163
155
661
81 $
105
196
212
186
780 $
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, and unrealized losses
that have been continuous for over twelve months were not
significant in 2022, 2021, and 2020. Unrealized losses at October 30,
2022 and October 31, 2021 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.
11. RECEIVABLES
Trade Accounts and Notes Receivable
Trade accounts and notes receivable at October 30, 2022 and
October 31, 2021 in millions of dollars follow:
Trade accounts and notes receivable:
Production & precision ag
Small ag & turf
Construction & forestry
Trade accounts and notes receivable – net
2022
2021
$ 2,397 $ 1,204
1,683
1,321
$ 6,410 $ 4,208
2,065
1,948
Trade accounts and notes receivable 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, 52 percent of the company’s trade accounts
and notes receivable are located in the U.S. and Canada at October
30, 2022. There is not a disproportionate concentration of credit
risk with any single dealer.
The allowance for credit losses on trade accounts and notes
receivable at October 30, 2022, October 31, 2021, and November 1,
2020, as well as the related activity, in millions of dollars follow:
Beginning of year balance
ASU No. 2016-13
Provision
Write-offs
Recoveries
Translation adjustments
End of year balance
2022
2021
2020
$
41 $
1
(5)
39 $
(2)
10
(7)
(1)
36 $
1
41 $
$
72
(23)
1
(11)
39
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.
56
Financing receivables at October 30, 2022 and October 31, 2021
related to the company’s sales of equipment that were included in
the previous table consisted of the following in millions of dollars:
2022
2021
Retail notes*:
Agriculture and turf
Construction and forestry
Total
Wholesale notes
Sales-type leases
Total
Less:
Unearned finance income:
Retail notes
Wholesale notes
Sales-type leases
Total
304
$ 1,392 $ 1,977
378
1,696
2,355
3,285 2,577
1,269
6,201
799
5,780
133
12
67
212
159
11
98
268
Financing receivables related to the company’s sales
of equipment
$ 5,568 $ 5,933
* These retail notes arise from sales of equipment by company-owned dealers or
through direct sales.
Included in the table above were $10 million of securitized
construction and forestry retail notes at October 31, 2021.
Financing receivable installments, including unearned finance
income, at October 30, 2022 and October 31, 2021 were scheduled
as follows in millions of dollars:
2022
2021
Unrestricted/Securitized Unrestricted/Securitized
Due in months:
0 – 12
13 – 24
25 – 36
37 – 48
49 – 60
Thereafter
Total
$ 17,032 $ 2,226 $ 15,205 $ 1,904
1,323
885
478
150
13
$ 38,659 $ 6,047 $ 35,406 $ 4,753
7,412
5,629
3,991
2,397
772
7,975
5,987
4,297
2,559
809
1,667
1,209
709
227
9
The maximum terms for retail notes are seven years for agriculture
and turf equipment, and five years for construction and forestry
equipment. The maximum term for financing leases is seven years.
In total, wholesale notes turned four times during 2022 and three
times during 2021.
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 resumed when the receivable becomes contractually current and
collections are reasonably assured.
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) by year of origination was
as follows in millions of dollars:
Retail customer receivables:
2022
October 30, 2022
2020
2021
2019
Agriculture and turf
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
46
14
1
27
$ 13,500 $
7,984 $ 4,091 $
63
25
36
13
1,875
17
6
60
44
28
Construction and forestry
Current
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
Total retail
2,964
53
19
1
25
1,974
52
16
4
61
842
23
7
1
34
292
9
3
3
19
customer receivables
$ 16,650 $
10,239 $
5,091 $
2,252
October 30, 2022
2018 Prior Years
Revolving
Charge
Accounts
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
Total retail
$
785 $
7
2
200 $
3
1
18
73
2
1
7
19
12
1
1
3
19
5
4,111 $ 32,546
191
66
1
204
8
108
3
1
6,265
143
47
10
149
customer receivables
$
895 $
240 $
4,255 $ 39,622
57
The credit quality analysis of wholesale receivables by year of
origination was as follows in millions of dollars:
2022
October 30, 2022
2020
2021
2019
$
387 $
64 $
27 $
Wholesale receivables:
Agriculture and turf
Current
30+ days past due
Non-performing
Construction and forestry
Current
30+ days past due
Non-performing
7
29
2
4
1
1
Total wholesale receivables $
394 $
93 $
29 $
6
October 30, 2022
2018 Prior Years Revolving
Total
$
2 $ 2,371 $ 2,855
1
1
377
417
Wholesale receivables:
Agriculture and turf
Current
30+ days past due
Non-performing
Construction and forestry
Current
30+ days past due
Non-performing
Total wholesale receivables
$
3 $ 2,748 $
3,273
Retail customer receivables:
2021
October 31, 2021
2019
2020
2018
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
$ 12,877 $ 6,676 $ 3,463 $
29
12
43
16
1,738
16
6
53
23
1
57
23
3,122
50
15
1
26
53
32
1,575
40
11
2
56
754
27
9
3
39
273
7
6
3
17
customer receivables
$ 16,173 $
8,494 $ 4,389 $ 2,098
October 31, 2021
2017
Prior Years
Revolving
Charge
Accounts
Total
$
728 $
7
3
3
1
211 $ 3,704 $ 29,397
165
14
65
4
1
212
23
7
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
17
57
4
1
4
7
customer receivables
$
828 $
251 $
3,825 $ 36,058
7
1
2
3
92
3
1
5,880
132
43
15
148
Wholesale receivables:
Agriculture and turf
Current
30+ days past due
Non-performing
Construction and forestry
Current
30+ days past due
Non-performing
2021
October 31, 2021
2019
2020
2018
$
346 $
80 $
22 $
9
41
7
12
7
Total wholesale receivables $
387 $
87 $
41 $
9
October 31, 2021
Prior Years Revolving
2017
Total
$
3
$
1,696 $ 2,156
1 $
340
1
1
12
397
1
Wholesale receivables:
Agriculture and turf
Current
30+ days past due
Non-performing
Construction and forestry
Current
30+ days past due
Non-performing
Total wholesale receivables $
4 $
2 $ 2,036 $ 2,566
58
An analysis of the allowance for credit losses and investment in
financing receivables follows in millions of dollars:
adoption of ASU No. 2016-13 and continued improvement in the
agricultural and turf market.
Retail Notes Revolving
& Financing Charge Wholesale
Leases
Accounts Receivables Total
2022
Allowance:
Beginning of year balance $
Provision (credit)
Write-offs
Recoveries
Translation adjustments
End of year balance*
$
138 $
197
(61)
22
3
299 $
7 $
(3)
21 $
(2)
(27)
30
22 $
4 $
166
192
(88)
52
3
325
Financing receivables:
End of year balance
$ 35,367 $ 4,255 $
3,273 $ 42,895
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
* Individual allowances were not significant.
As part of the allowance setting process, the company continues to
monitor the economy, including potential impacts of inflation and
rising interest rates, among other factors, and qualitative
adjustments to the allowance are incorporated, as necessary. In
2022, the allowance for credit losses on retail notes and financing
lease receivables increased due to higher reserves related to the
events in Russia / Ukraine and higher portfolio balances. This was
partially offset by continued positive agricultural market
conditions, which drove favorable impacts on the allowance.
Similar to the strong performance in 2021, the revolving portfolio
experienced low write-offs and solid recoveries. 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
Financing receivable analysis metrics follow in millions of dollars:
Percent of the overall financing receivable portfolio:
Past-due amounts
Non-performing
Allowance for credit losses
Deposits held as credit enhancements
$
2022
2021
1.07
.83
.76
158 $
1.09
.96
.43
154
A troubled debt restructuring is a significant 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. The following table includes receivable contracts
identified as troubled debt restructurings:
Number of receivable contracts
Pre-modification balance in millions
Post modification balance in millions
$
276
12
10
$
397
18
17
$
574
108
95
2022
2021
2020
Troubled debt restructurings in 2022 and 2021 related to retail
notes, while 2020 modifications related to wholesale receivables in
Argentina. The short-term relief related to COVID (primarily
granted in 2020) did not meet the definition of a troubled debt
restructuring. In 2022, 2021, and 2020, there were no significant
troubled debt restructurings that subsequently defaulted and were
written off. At October 30, 2022, the company had no
commitments to lend to customers whose accounts were modified
in troubled debt restructurings.
Other Receivables
Other receivables at October 30, 2022 and October 31, 2021
consisted of the following in millions of dollars:
Taxes receivable
Collateral on derivatives
Receivables from unconsolidated affiliates
Other
Other receivables
$
$
2021
709
2022
1,450 $ 1,436
13
27
289
2,492 $ 1,765
333
59
$3,024 million at October 30, 2022 and October 31, 2021,
respectively. The credit holders of these SPEs do not have legal
recourse to the company’s general credit.
The company has a revolving warehouse facility to utilize bank
conduit facilities to securitize retail notes, described further in the
following paragraphs. At October 30, 2022, the facility had a total
capacity, or “financing limit,” of up to $1,000 million of secured
financings at any time. The agreement was renewed in November
2022 with an expiration in November 2023 and a capacity of $1,500
million.
Through the revolving warehouse facility, 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 $843 million and $1,176 million at
October 30, 2022 and October 31, 2021, respectively. The liabilities
(short-term securitization borrowings and accrued interest) related
to these conduits were $759 million and $1,113 million at October
30, 2022 and October 31, 2021, 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 30, 2022 in millions of dollars:
Carrying value of liabilities
Maximum exposure to loss
2022
$ 759
843
The total assets of the unconsolidated conduits related to
securitizations were approximately $18 billion at October 30, 2022.
In addition, through the revolving warehouse facility, 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 $211
million and $496 million at October 30, 2022 and October 31, 2021,
respectively. The liabilities (short-term securitization borrowings
and accrued interest) were $190 million and $470 million at
October 30, 2022 and October 31, 2021, respectively.
12. SECURITIZATION OF FINANCING RECEIVABLES
As a part of its overall funding strategy, the company 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 sheets. The securitized retail notes are
recorded as “Financing receivables securitized - net” on the
balance sheets. The total restricted assets on the balance sheets
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 $5,037
million and $3,094 million at October 30, 2022 and October 31, 2021,
respectively. The liabilities (short-term securitization borrowings
and accrued interest) of these SPEs totaled $4,768 million and
60
The components of consolidated restricted assets, secured
borrowings, and other liabilities related to secured borrowings at
October 30, 2022 and October 31, 2021 were as follows in millions of
dollars:
Financing receivables securitized (retail notes)
Allowance for credit losses
Other assets (primarily restricted cash)
Total restricted securitized assets
2022
2021
$ 5,952 $ 4,673
(14)
107
$ 6,091 $ 4,766
(16)
155
Short-term securitization borrowings
Accrued interest on borrowings
Total liabilities related to restricted securitized assets
$ 5,711 $ 4,605
2
$ 5,717 $ 4,607
6
The short-term securitization borrowings are presented net of
debt acquisition costs. The weighted-average interest rates on
short-term securitization borrowings at October 30, 2022 and
October 31, 2021 were 2.8 percent and .9 percent, respectively. 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 on cash
flows generated by the restricted assets. Depending on the
company’s ability to obtain and meet certain pre-established credit
rating criteria, cash collections from these restricted assets are
required to be placed into a segregated collection account either
on a daily basis or immediately prior to the time payment is
required to the secured creditors. At October 30, 2022 the
maximum remaining term of all securitized retail notes was
approximately seven years.
The payment schedule for these borrowings at October 30, 2022
based on the expected liquidation of the retail notes in millions of
dollars is as follows: 2023 - $2,703, 2024 - $1,662, 2025 - $955, 2026
- $373, 2027 - $25, and later years - $3.
13. 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 30, 2022 and October 31, 2021 represented 57 percent and
54 percent, respectively, of worldwide gross inventories at FIFO
value. If all inventories had been valued on a FIFO basis, estimated
inventories by major classification at October 30, 2022 and October
31, 2021 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
2022
2021
$ 4,442 $ 3,524
994
1,190
4,373
5,363
8,891
10,995
2,500
2,110
$ 8,495 $ 6,781
14. PROPERTY AND DEPRECIATION
A summary of property and equipment at October 30, 2022 and
October 31, 2021 in millions of dollars follows:
Useful Lives*
(Years)
Land
Buildings and building equipment
Machinery and equipment
Dies, patterns, tools, etc.
All other
Construction in progress
Total at cost
Less accumulated depreciation
Property and equipment - net
* Weighted-averages
22
11
8
5
2021
274 $
2022
$
4,386
6,208
1,558
1,205
818
14,449
8,393
297
4,352
6,123
1,679
1,197
527
14,175
8,355
$ 6,056 $ 5,820
Total property and equipment additions in 2022, 2021, and 2020
were $1,197 million, $897 million, and $815 million and depreciation
was $806 million, $830 million, and $800 million, respectively.
Capitalized interest was $4 million, $3 million, and $6 million in the
same periods, respectively. The cost of leased property and
equipment under finance leases was $117 million and $131 million,
with accumulated depreciation of $68 million and $60 million at
October 30, 2022 and October 31, 2021, respectively.
For property and equipment, more than 10 percent resides in the
U.S. and Germany, separately disclosed below in millions of dollars:
U.S.
Germany
Other countries
Total
2022
2021
2020
$
3,452 $
991
1,613
$
6,056 $
3,138 $
1,096
1,586
5,820 $
3,150
1,113
1,554
5,817
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.
15. GOODWILL AND OTHER INTANGIBLE ASSETS – NET
The changes in amounts of goodwill by operating segments were
as follows in millions of dollars:
November 1, 2020
Acquisitions (Note 3)
Translation adjustments and other
October 31, 2021
Acquisitions (Note 3)
Translation adjustments and other
October 30, 2022
CF
PPA SAT
Total
$ 333 $ 268 $ 2,480 $ 3,081
201
9
3,291
800
(404)
$ 646 $ 318 $ 2,723 $ 3,687
4
2,484
599
(360)
201
8
542
132
(28)
(3)
265
69
(16)
There were no accumulated goodwill impairment losses in the
reported periods.
61
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
Unamortized intangible assets:
In-process research and development
Other intangible assets - net
2022
2021
$ 493 $ 542
1,104
1,646
1,301
1,794
166
410
576
1,218
151
343
494
1,152
123
$ 1,218 $ 1,275
In September 2017, the company acquired Blue River Technology’s
in-process research and development related to machine learning
technology to optimize the use of farm inputs. Those research and
development activities were completed, and the company started
amortizing the acquired technology in 2022.
Other intangible assets are stated at cost less accumulated
amortization. The amortization of other intangible assets in 2022,
2021, and 2020 was $145 million, $116 million, and $102 million,
respectively. The estimated amortization expense for the next five
years is as follows in millions of dollars:
Year
2023
2024
2025
2026
2027
Estimated
Amortization
162
$
158
131
111
110
16. OTHER ASSETS
Other assets at October 30, 2022 and October 31, 2021 consisted
of the following in millions of dollars:
Operating lease asset (Note 24)
Capitalized software, net
Investment in unconsolidated affiliates
Deferred charges (including prepaids)
Derivative assets (Note 26)
Prepaid taxes
Parts return asset
Restricted cash
Matured lease & repossessed inventory
Other
Total
2022
2021
299 $
372
117
383
373
185
119
167
44
358
2,417 $
291
282
175
281
275
193
114
108
55
371
2,145
$
$
Capitalized software has an estimated useful life of three years.
Amortization of these software costs in 2022, 2021, and 2020 was
$117 million, $121 million, and $133 million, respectively.
Investment in unconsolidated affiliates are companies in which
Deere & Company owns 20 percent to 50 percent of the
62
outstanding voting shares. Deere & Company does not control
these companies and accounts for its investments in them on the
equity basis. In March 2022, the company acquired full ownership
of three former Deere-Hitachi joint venture factories and began
new license and supply agreements with Hitachi (see Note 3).
During 2021, the company sold its investment in Bell Equipment
Limited, resulting in no material gain or loss.
Combined financial information of the unconsolidated affiliated
companies in millions of dollars follows:
Operations
Sales
Net income
Deere & Company’s equity in net income (loss)
2022
2021
$ 1,023 $ 2,095 $
11
10
51
21
2020
1,793
7
(48)
Financial Position
Total assets
Total external borrowings
Total net assets
Deere & Company’s share of the net assets
2022
2021
$ 696 $ 1,289
497
366
175
470
166
117
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 statements of consolidated income in
millions of dollars follow:
Net sales
Purchases
2022
2021
2020
$
26 $
761
78 $
1,605
81
1,288
17. SHORT-TERM BORROWINGS
Short-term borrowings at October 30, 2022 and October 31, 2021
consisted of the following in millions of dollars:
Commercial paper
Notes payable to banks
Finance lease obligations due within one year
Long-term borrowings due within one year*
Short-term borrowings
2021
2022
$ 4,703 $ 2,230
336
402
23
21
7,466
8,330
$ 12,592 $ 10,919
* Includes unamortized fair value adjustments related to interest rate swaps.
The weighted-average interest rates on short-term borrowings,
excluding current maturities of finance lease obligations and long-
term borrowings, at October 30, 2022 and October 31, 2021 were 4.1
percent and .8 percent, respectively.
Lines of credit available from U.S. and foreign banks were $8,402
million at October 30, 2022. At October 30, 2022, $3,284 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 30, 2022 was a 364-day credit facility agreement of
$3,000 million, expiring in the second quarter of 2023. In addition,
total credit lines included long-term credit facility agreements of
$2,500 million, expiring in the second quarter of 2026, and $2,500
million, expiring in the second quarter of 2027. The agreements are
mutually extendable, and the annual facility fees are not significant.
In October 2022, the company amended these credit agreements
with pricing adjustments tied to the Leap Ambitions framework.
Failure to meet certain Scope 1 and 2 emissions targets or engaged
acres goals will result in a maximum 6 basis-point penalty rate, while
exceeding certain thresholds on the same metrics will result in a
similar favorable rate adjustment.
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 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 30, 2022 was $18,526 million. Alternatively under this
provision, the equipment operations had the capacity to incur
additional debt of $34,405 million at October 30, 2022. 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 30, 2022, 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 $4,803 million.
18. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at October 30, 2022 and
October 31, 2021 consisted of the following in millions of dollars:
Accounts payable and accrued expenses
Accounts payable:
Trade payables
Payables to unconsolidated affiliates
Dividends payable
Operating lease liabilities
Deposits withheld from dealers and merchants
Other
Accrued expenses:
2022 2021
$ 3,894 $ 3,173
143
11
329
279
157
159
343
302
163
214
2,324
1,427
1,528
1,265
399
557
866
288
1,231
1,320
16,132
1,310
1,636
Dealer sales discounts
1,312
Product warranties
1,531
Employee benefits
1,075
Accrued taxes
421
Unearned operating lease revenue
570
Unearned revenue (contractual liability)
774
Extended warranty premium
251
Accrued interest
228
Derivative liabilities
1,175
Other
13,213
Total
865
Eliminations*
$ 14,822 $ 12,348
Total accounts payable and accrued expenses
* Primarily sales incentive accruals with a right of set-off against trade receivables.
At October 30, 2022 and October 31, 2021, $1,280 million and $836 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.
19. LONG-TERM BORROWINGS
Long-term borrowings at October 30, 2022 and October 31, 2021
consisted of the following in millions of dollars:
Underwritten term debt
U.S. dollar notes and debentures:
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)
Serial issuances
Medium-term notes: (principal $25,629 -
2022, $22,647 - 2021) Average interest
rates of 2.9% - 2022, 1.2% - 2021
Other notes and finance lease obligations
Less debt issuance costs and debt discounts
Long-term borrowings
2022
2021
$
700 $
200
500
700
250
300
1,250
500
850
797
598
598
648
700
200
500
700
250
300
1,250
500
850
584
934
701
701
759
24,604
1,223
(122)
22,899
1,178
(118)
$ 33,596 $ 32,888
63
At October 30, 2022, the company had commitments of
approximately $418 million for the construction and acquisition of
property and equipment. Also at October 30, 2022, the company
had restricted assets of $221 million, classified as “Other assets.”
The company also had other miscellaneous contingent liabilities
and guarantees totaling approximately $110 million at October 30,
2022. The accrued liability for these contingencies was not material
at October 30, 2022.
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 $10 billion at
October 30, 2022. The amount of unused commitments to extend
credit to retail customers was approximately $32 billion at October
30, 2022, primarily related to revolving charge accounts. A
significant portion of these commitments is not expected to be
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 has a
reserve for credit losses of $3 million on unfunded commitments
that are not unconditionally cancellable at October 30, 2022.
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, trademark, and
antitrust 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.
21. 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 30, 2022, there were 17,829 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
30, 2022, October 31, 2021, and November 1, 2020 was 536.4 million.
The number of authorized preferred shares is nine million. No
preferred shares have been issued.
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 2022, this repurchase program had $2,228 million
(5.6 million shares based on the fiscal year end closing common
stock price of $396.85 per share) remaining to be repurchased.
Repurchases of the company’s common stock under this plan are
made from time to time, at the company’s discretion, in the open
market.
Medium-term notes serially due 2023 through 2032 are primarily
offered by prospectus and issued at fixed and variable rates. These
notes are presented in the table above with fair value adjustments
related to interest rate swaps. All outstanding notes and
debentures are senior unsecured borrowings and rank equally with
each other.
In April 2022, the company issued $600 million of sustainability-
linked medium-term notes with an initial interest rate of 3.35
percent, which are due in 2029. This transaction supports the
company’s commitment to environmental sustainability. Failure to
meet the stated sustainability performance target will result in a
25-basis point increase to the interest rate payable on the 2029
notes from and including April 2026.
The principal amounts of the company’s long-term borrowings
maturing in each of the next five years in millions of dollars are as
follows: 2023 - $7,453, 2024 - $7,960, 2025 - $6,820, 2026 - $4,154,
and 2027 - $3,242.
20. COMMITMENTS AND CONTINGENCIES
The company 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
determined by a review of five-year claims costs and current
quality developments.
The premiums for extended warranties are recognized in “Other
income” in the statements of consolidated 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 $866 million and $774
million at October 30, 2022 and October 31, 2021, respectively.
A reconciliation of the changes in the warranty liability and
unearned premiums in millions of dollars follows:
Warranty Liability/
Unearned Premiums
Beginning of year balance
Payments
Amortization of premiums received
Accruals for warranties
Premiums received
Foreign exchange
End of year balance
2021
2022
$ 2,086 $
1,743
(864)
(227)
1,071
358
5
$ 2,293 $ 2,086
(951)
(289)
1,094
404
(51)
At October 30, 2022, the company had approximately $287 million
of guarantees issued 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 30, 2022,
the accrued losses under these agreements were not material. The
maximum remaining term of the receivables guaranteed at October
30, 2022 was about eight years.
64
A reconciliation of basic and diluted net income per share
attributable to Deere & Company follows in millions, except per
share amounts:
2022
2021
2020
Net income attributable to Deere & Company $ 7,131 $ 5,963 $ 2,751
304.5
Average shares outstanding
313.5
311.6
$ 23.42 $ 19.14 $ 8.77
Basic per share
313.5
311.6
304.5
Average shares outstanding
3.1
2.4
1.8
Effect of dilutive stock options
306.3
316.6
314.0
$ 23.28 $ 18.99 $ 8.69
Total potential shares outstanding
Diluted per share
All stock options outstanding were included in the computation of
diluted shares except .2 million in 2022 and .6 million in 2020 that
had an antidilutive effect under the treasury stock method.
22. STOCK OPTION AND RESTRICTED STOCK UNIT AWARDS
The company issues stock options and restricted stock unit awards
to key employees under plans approved by stockholders. Restricted
stock unit awards consist of service-based and performance
/service-based awards. Restricted stock units are also issued to
nonemployee directors for their services as directors under a plan
approved by stockholders. At October 30, 2022, the company is
authorized to grant an additional 17.2 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.
Service-based restricted stock units cliff vest after a three-year
service period and include dividend equivalent payments.
Performance/service-based awards 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
three-year 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.
Stock options ratably vest over a three-year service period and
expire ten years from the grant date.
The fair value of stock options and service-based restricted stock
units, which is based on the closing price of the company’s
common stock on the grant date, are expensed over the shorter of
the award vesting period or the employee’s retirement eligibility
period. Performance/service-based units expense, which are based
on the fair value at the grant date excluding dividends, are
recognized over the employees’ requisite service period and
adjusted quarterly for the probable number of shares to be
awarded. The fair value of each stock option award was estimated
on the date of grant using a binomial lattice option valuation
model. The company recognizes the effect of award forfeitures as
an adjustment to compensation expense in the period the
forfeiture occurs.
The total share-based compensation expense, recognized income
tax benefits, and total grant-date fair values of stock options and
restricted stock units vested consisted of the following in millions
of dollars:
Share-based compensation expense $
Income tax benefits
Stock options and restricted stock
units vested
2022
2021
2020
85 $
17
82 $
16
74
93
81
19
79
At October 30, 2022, there was $66 million of total unrecognized
compensation cost from share-based compensation arrangements
granted under the plans. This compensation is expected to be
recognized over a weighted-average period of approximately
1.5 years.
Stock Options
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
2022
1.27%
1.2%
32.0%
5.1
2021
.47%
1.2%
31.0%
5.5
2020
1.67%
1.8%
26.0%
5.7
The activity for outstanding stock options at October 30, 2022, and
changes during 2022 in millions of dollars and shares follow:
Remaining
Contractual Aggregate
Intrinsic
Value
Term
(Years)
Exercise
Shares Price*
Outstanding at
beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Exercisable at end of year
* Weighted-averages
2.5 $ 127.82
343.94
105.85
290.65
153.11
119.16
.2
(.6)
(.1)
2.0
1.6
4.81 $ 497.2
436.9
3.79
65
The amounts related to stock options were as follows in millions of
dollars unless otherwise noted:
and settlements/curtailment are included in net periodic pension
and other postretirement benefit costs (see Note 7).
2022
2021
2020
Weighted-average grant date
fair values (per share)
$
Intrinsic value of options exercised $
Cash received from exercises
Tax benefit from exercises
89.20 $
169 $
63
39
62.73 $
318 $
148
71
35.83
398
331
93
Restricted Stock Units
The weighted-average grant date fair values were as follows:
Service-based
Performance/service-based
$
2022
347.59 $
331.47
2021
258.86 $
245.73
2020
168.94
160.81
The company’s restricted stock units at October 30, 2022 and
changes during 2022 in thousands of shares follow:
Service-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
Forfeited
Nonvested at end of year
* Weighted-averages
Shares
Grant-Date
Fair Value*
486 $
139
(208)
(13)
404
197 $
37
(168)
84
(7)
143
190.87
347.59
173.62
259.72
251.42
171.82
331.47
139.37
139.37
267.13
227.70
23. OTHER COMPREHENSIVE INCOME ITEMS
The after-tax components of accumulated other comprehensive
income follow in millions of dollars.
Retirement benefits adjustment
Cumulative translation adjustment
Unrealized gain (loss) on derivatives
Unrealized gain (loss) on debt securities
Total accumulated other
$
2022
2020
2021
(389) $ (1,034) $ (3,918)
(1,596)
(1,478)
(58)
(42)
33
15
(2,594)
21
(94)
comprehensive income (loss)
$ (3,056) $ (2,539) $ (5,539)
Following are amounts recorded in and reclassifications out of
other comprehensive income (loss), and the income tax effects, in
millions of dollars. Retirement benefits adjustment
reclassifications for actuarial (gain) loss, prior service (credit) cost,
66
Tax
After
(Expense) Tax
Before
Tax
Amount Credit
Amount
2022
Cumulative translation adjustment
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)
Reclassification of realized (gain) loss to:
$ (1,105) $
(11) $ (1,116)
89
(19)
70
Interest rate contracts – Interest expense
Net unrealized gain (loss) on derivatives
(9)
80
2
(17)
(7)
63
Unrealized gain (loss) on debt securities:
Unrealized holding gain (loss)
Reclassification of realized (gain) loss –
(140)
30
(110)
Other income
1
Net unrealized gain (loss) on debt securities
(139)
30
1
(109)
Retirement benefits adjustment:
Net actuarial gain (loss)
Prior service credit (cost)
Reclassification to Other operating
expenses through amortization of:
1,192
(517)
(298)
124
894
(393)
Actuarial (gain) loss
Prior service (credit) cost
Settlements/curtailments
116
30
45
(29)
(7)
(11)
87
23
34
Net unrealized gain (loss) on retirement
benefits adjustment
Total other comprehensive income (loss)
866
$ (298) $
(221)
645
(219) $ (517)
Tax
After
(Expense) Tax
Before
Tax
Amount Credit
Amount
2021
Cumulative translation adjustment:
Unrealized translation gain (loss)
Reclassification of realized (gain) loss to:
Equity in (income) loss of
unconsolidated affiliates
Net unrealized translation gain (loss)
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:
$
112
$
112
6
118
6
118
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)
Reclassification to Other operating
expenses through amortization of:
3,492
(845) 2,647
Actuarial (gain) loss
Prior service (credit) cost
Settlements
283
8
22
(69)
(2)
(5)
214
6
17
Net unrealized gain (loss) on retirement
benefits adjustment
Total other comprehensive income (loss)
3,805
$ 3,923 $
2,884
(921)
(923) $ 3,000
(12)
(15) $
(3)
68
Operating and finance lease right of use assets and lease liabilities
follow in millions of dollars:
Tax
After
(Expense) Tax
Before
Tax
Amount Credit
Amount
$
18 $
1 $
19
13
23
54
(18)
21
3
17
17
13
23
55
(16)
18
2
14
14
1
2
(3)
(1)
(3)
(3)
(302)
65
(237)
278
(68)
210
5
19
(2)
(7)
7
26
9
83 $
2020
Cumulative translation adjustment:
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)
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:
Unrealized holding gain (loss)
Net unrealized gain (loss) on debt securities
Retirement benefits adjustment:
Net actuarial gain (loss)
Reclassification to Other operating
expenses through amortization of:
Actuarial (gain) loss
Prior service (credit) cost
Settlements
Net unrealized gain (loss) on retirement
benefits adjustment
Total other comprehensive income (loss) $
24. LEASES
The company is both a lessee and a lessor. The company leases for
its own use warehouse facilities, office space, production
equipment, information technology equipment, and vehicles. The
expected use periods 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 sheets 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 not readily
determinable. The company determines the incremental borrowing
rate for each lease based 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 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 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
dollars:
Operating lease expense
Short-term lease expense
Variable lease expense
Finance lease:
Depreciation expense
Interest on lease liabilities
Total lease expense
2022
2021
2020
$
114 $
55
74
116 $
29
53
126
23
41
26
1
270 $
26
1
225 $
20
2
212
$
Operating leases:
Other assets
Accounts payable and accrued expenses
2022
2021
$
299 $
302
291
279
Finance leases:
Property and equipment — net
$
49 $
71
Short-term borrowings
Long-term borrowings
Total finance lease liabilities
$
21
30
51 $
23
38
61
The weighted-average remaining lease terms in years and discount
rates follows:
Weighted-average remaining lease terms:
Operating leases
Finance leases
Weighted-average discount rates:
Operating leases
Finance leases
2022
2021
7
3
5
2
2.4%
1.9%
2.3%
2.3%
67
Lease payment amounts in each of the next five years at October
30, 2022 follow in millions of dollars:
equipment. Operating lease impairments were recorded in “Other
operating expenses.”
Due in:
2023
2024
2025
2026
2027
Later years
Operating
Leases
$
Finance
Leases
22
14
7
3
2
6
54
3
51
95 $
77
54
27
17
53
323
21
302 $
Total lease payments
Less imputed interest
Total lease liabilities
$
Cash paid for amounts included in the measurement of lease
liabilities follows in millions of dollars:
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
2022 2021
127 $
$
1
104 $
1
28
25
2020
124
2
17
Right of use assets obtained in exchange for lease liabilities follow
in millions of dollars:
Operating leases
Finance leases
2022
2021
$
135 $
17
101
27
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 sheets. Operating leases are reported in “Equipment on
operating leases - net” on the consolidated balance sheets.
Leases offered by the company may include early termination and
renewal options. At the end of a lease, the lessee 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, the company recorded impairment losses on
operating leases of $22 million, due to higher expected equipment
return rates and lower estimated values of used construction
68
The company has elected to combine lease and nonlease
components. The nonlease components 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 statements of consolidated income.
Variable lease revenues relate to property taxes on leased assets in
certain markets and late fees. Variable lease revenues also include
excess use and damage fees of $2 million, $7 million, and $8
million for 2022, 2021, and 2020 respectively, which were reported
in “Other income” on the statements of consolidated income.
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
2021
2022
154 $
1,318
26
2020
135
1,469
31
$ 1,498 $ 1,598 $ 1,635
145 $
1,423
30
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:
Agriculture and turf
Construction and forestry
Total
Guaranteed residual values
Unguaranteed residual values
Less unearned finance income
Financing lease receivables
2022
1,118 $
1,167
2,285
491
56
(285)
2,547 $
$
$
2021
1,131
1,284
2,415
394
70
(258)
2,621
Scheduled payments, including guaranteed residual values, on
sales-type and direct financing lease receivables at October 30,
2022 follow in millions of dollars:
Due in:
2023
2024
2025
2026
2027
Later years
Total
2022
$
$
1,310
722
404
200
120
20
2,776
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
Total
Less accumulated depreciation
Equipment on operating leases - net
$
2022
6,912 $
1,342
8,254
(1,631)
2021
7,317
1,616
8,933
(1,945)
$ 6,623 $ 6,988
The total operating lease residual values at October 30, 2022 and
October 31, 2021 were $4,640 million and $5,025 million,
respectively. For operating lease originations effective after
January 2020, John Deere dealers provide a first-loss residual value
guarantee. The total first-loss residual value guarantees were
$1,025 million and $950 million at October 30, 2022 and October 31,
2021, respectively.
The equipment is depreciated on a straight-line basis over the term
of the lease. The corresponding depreciation expense was $827
million in 2022, $983 million in 2021, and $1,083 million in 2020.
Lease payments for equipment on operating leases at October 30,
2022 were scheduled as follows in millions of dollars:
Due in:
2023
2024
2025
2026
2027
Later years
Total
2022
$
$
974
709
437
228
58
6
2,412
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
$68 million and $70 million at October 30, 2022 and October 31,
2021, respectively.
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. 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.”
25. 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.
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.
The fair values of financial instruments that do not approximate
the carrying values at October 30, 2022 and October 31, 2021 in
millions of dollars follow:
2022
2021
Carrying Fair Carrying Fair
Value
Value* Value
Value*
Financing receivables – net $ 36,634 $ 35,526 $ 33,799 $ 33,718
Financing receivables
securitized – net
5,936 5,698
4,659
4,704
Short-term securitization
borrowings
Long-term borrowings due
within one year**
Long-term borrowings**
5,711
5,577
4,605
4,610
7,466
33,566
7,322
8,330 8,364
31,852 32,850 34,506
* Fair value measurements above were Level 3 for all financing receivables and
Level 2 for all borrowings.
** Values exclude finance lease liabilities that are presented as borrowings (see
Note 24).
69
using the fund’s net asset value, based on the fair value of the
underlying securities.
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 11).
Other receivables – The impairment was based on the expected
realization of value-added tax receivables related to a closed
factory operation.
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.
Inventories – The impairment was based on net realizable value,
less reasonably predictable selling and disposal costs.
Property and equipment – net – 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.
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.
Other intangible assets – net – In 2022, the company considered
external valuations based on the company’s probability weighted
cash flow analysis. In 2020, the impairment was measured at the
remaining net book value of customer relationships related to a
closed factory operation.
Other assets – In 2021, the impairments were measured at the fair
value of the right of use operating lease asset. In 2020, 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. Also in 2020, 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.
Assets and liabilities measured at October 30, 2022 and October 31,
2021 at fair value on a recurring basis in millions of dollars follow,
excluding the company’s cash equivalents, which were carried at a
cost that approximates fair value and consisted of money market
funds and time deposits:
Level 1:
Marketable securities
U.S. equity fund
International equity securities
U.S. government debt securities
Total Level 1 marketable securities
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
Accounts payable and accrued expenses
Derivatives
2022
2021
$
70 $
3
62
135
75
2
59
136
121
63
200
60
155
599
139
73
224
2
154
592
373
275
1,231
228
Level 3:
Accounts payable and accrued expenses –
Deferred consideration
236
* Primarily issued by U.S. government sponsored enterprises.
Fair value, nonrecurring measurements from impairments at October
30, 2022 and October 31, 2021 in millions of dollars follow:
Other receivables
Equipment on operating leases – net
Inventories
Property and equipment – net 2
Investments in unconsolidated
Fair Value
Losses
20221 2021 2022 2021 2020
2
22
$
$
19
15 $ 41
$
19
41 $ 44
102
affiliates
50
2
Other intangible assets – net
Other assets 3
16
1 Related to assessments on the Russian operations, performed at May 1, 2022 and
28
1
6
updated on July 31, 2022 and October 30, 2022.
2 2021 fair value of $41 million at January 31, 2021.
3 2021 fair value as of January 31, 2021.
The following is a description of the valuation methodologies the
company uses to measure certain financial instruments on the
balance sheets at fair value. For more information on asset
impairments, see Note 4.
Marketable securities – The portfolio of investments is valued on a
market approach (matrix pricing model) in which all significant
inputs are observable or can be derived from or corroborated by
observable market data such as interest rates, yield curves,
volatilities, credit risk, and prepayment speeds. Funds are valued
70
26. DERIVATIVE INSTRUMENTS
Cash Flow Hedges
Certain 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
30, 2022 and October 31, 2021 were $1,950 million and $2,700
million, respectively. Fair value gains or losses on cash flow hedges
are recorded in OCI and subsequently reclassified into interest
expense in the same periods during which the hedged transactions
impact earnings. These amounts offset the effects of interest rate
changes on the related borrowings.
The amount of gain recorded in OCI at October 30, 2022 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 $44 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 30,
2022 and October 31, 2021 were $10,112 million and $8,043 million,
respectively. The fair value gains or losses on these contracts were
offset by fair value gains or losses on the hedged items (fixed-rate
borrowings) with both items recorded in interest expense.
The amounts recorded, at October 30, 2022 and October 31, 2021, in
the consolidated balance sheets related to borrowings designated in
fair value hedging relationships were as follows in millions of dollars.
Fair value hedging adjustments are included in the carrying amount
of the hedged item.
Discontinued Hedging
Relationships
Active Hedging
Relationships
Carrying Cumulative
Cumulative
Amount of Fair Value Amount of Fair Value
Hedged
Hedging
Item
Hedging
Amount
Hedged Item Amount
Formerly
Carrying
2022
Short-term borrowings
Long-term borrowings $ 9,060 $
2021
Short-term borrowings $
Long-term borrowings
7,847
191 $
$
(1,006)
2,515 $
5,520
15
(19)
3 $
29
1,997 $
6,287
(2)
223
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 for certain borrowings, purchases or sales of inventory,
and sales incentive programs. The total notional amounts of the
interest rate swaps at October 30, 2022 and October 31, 2021 were
$10,568 million and $10,848 million, the foreign currency
exchange contracts were $8,185 million and $7,584 million, and
the cross-currency interest rate contracts were $260 million and
$238 million, respectively. The fair value gains or losses from
derivatives not designated as hedging instruments were recorded
in the statements of consolidated income, generally offsetting
over time the exposure on the hedged item.
Fair values of derivative instruments in the consolidated balance
sheets at October 30, 2022 and October 31, 2021 in millions of
dollars follow:
Other Assets
Designated as hedging instruments:
Interest rate contracts
$
87 $
166
2022
2021
Not designated as hedging instruments:
Interest rate contracts
Foreign exchange contracts
Cross-currency interest rate contracts
Total not designated
Total derivative assets
$
Accounts Payable and Accrued Expenses
Designated as hedging instruments:
212
66
8
286
373 $
73
31
5
109
275
Interest rate contracts
$
1,004 $
99
Not designated as hedging instruments:
Interest rate contracts
Foreign exchange contracts
Cross-currency interest rate contracts
Total not designated
Total derivative liabilities
$
107
118
2
227
1,231 $
33
94
2
129
228
The classification and gains (losses), including accrued interest
expense, related to derivative instruments on the statements of
consolidated income consisted of the following in millions of
dollars:
Fair Value Hedges
Interest rate contracts – Interest expense
$ (1,144) $ (236) $ 496
2022
2021
2020
Cash Flow Hedges
Recognized in OCI:
Interest rate contracts – OCI (pretax)
89
8
(18)
Reclassified from OCI:
Interest rate contracts – Interest expense
9
(13)
(21)
Not Designated as Hedges
Interest rate contracts – Net sales
Interest rate contracts – Interest expense*
Foreign exchange contracts – Net sales
Foreign exchange contracts – Cost of sales
Foreign exchange contracts – Other
operating expenses*
Total not designated
$
53 $
81
(6)
13 $
14
(23)
(2)
(64)
(101)
93
402
(262)
$ 466 $ (336) $
122
190
* 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
71
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
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 30, 2022 and October 31, 2021, was $1,113 million and
$135 million, respectively. In accordance with the limits established
in these agreements, the company posted $701 million of cash
collateral at October 30, 2022 and no cash collateral at October 31,
2021. In addition, the company paid $8 million of collateral either in
cash or pledged securities that was outstanding at both October
30, 2022 and October 31, 2021 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
30, 2022 and October 31, 2021 in millions of dollars follows:
Gross Amounts
Recognized
Netting
Net
Arrangements Collateral Amount
2022
Assets
Liabilities
2021
Assets
Liabilities
$
$
27. SEGMENT DATA
373 $
1,231
275 $
228
(179) $
(179)
(54) $
(701)
(105)
(105) $
$
(5)
140
351
170
118
The company’s operations are presently organized and reported in
four business segments described as follows. This presentation is
consistent with how the chief operating decision maker (the CEO)
assesses the performance of the segments and makes decisions
about resource allocations.
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 sugarcane. 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.
72
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 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, through company-owned
sales and service subsidiaries.
The financial services segment 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 data.
Intersegment sales and revenues represent sales of products and
components or finance charges, which are based on market prices,
from one operating segment to another operating segment.
Intersegment sales of products and components are eliminated in
all Net sales data presented in this Annual Report.
Intersegment sales and revenues in 2022, 2021, and 2020 were as
follows: production and precision agriculture net sales of $19
million, $27 million, and $22 million; small agriculture and turf net
sales of $10 million, $11 million, and $2 million; construction and
forestry had $1 million, none, and $1 million; and financial services
revenues of $460 million, $246 million, and $278 million,
respectively.
Identifiable assets assigned to the operating segments are those
the units actively manage, consisting of trade receivables,
inventories, property and equipment, intangible assets, and certain
other assets. Corporate assets are managed collectively, including
cash and cash equivalents, retirement benefit net assets, goodwill,
and deferred income tax assets.
Information relating to operations by operating segment in millions
of dollars follows for the years ended October 30, 2022, October 31,
2021 and November 1, 2020.
2022
2021
2020
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*
$22,002 $ 16,509 $ 12,962
11,860 9,363
8,947
11,368
3,589
3,548
679
739
$ 52,577 $44,024 $ 35,540
* Other revenues are primarily the production and precision ag, small ag and turf,
and construction and forestry revenues for finance and interest income, and
other income.
13,381
12,534
3,625
1,035
Total
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
2022
2021
2020
$ 4,386 $ 3,334 $ 1,969
1,000
590
746
4,305
62
(329)
2,045
1,489
1,144
8,012
82
(368)
1,949
2,014
1,159
9,508
159
(390)
equipment operations’ financing activities
(103)
(45)
17
Pension and OPEB benefit (cost),
excluding service cost component
Corporate expenses – net
Income taxes
Total
Net income
Less: Net income (loss) attributable to
noncontrolling interests
Net income attributable to
218
(255)
(2,007)
(2,378)
7,130
183
(241)
(1,658)
(2,047)
5,965
31
(251)
(1,082)
(1,552)
2,753
(1)
2
2
Deere & Company
$ 7,131 $ 5,963 $ 2,751
* 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
$
22 $
24
8
2,245
159
(431)
22
16
12
2,122
62
(272)
$ 2,027 $ 1,854 $ 1,962
21 $
21
10
1,999
82
(279)
* 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
$
122 $
105
72
799
390
(426)
$ 1,062 $
76
84 $
111
87
61
46
942
687
329
368
(279)
(272)
993 $ 1,247
Depreciation* and amortization expense
Production & precision ag
Small ag & turf
Construction & forestry
Financial services
Intercompany
Total
$
523
236
282
1,050
(196)
$
495 $
245
303
1,140
(133)
$ 1,895 $ 2,050 $
480
247
289
1,227
(125)
2,118
* Includes depreciation for equipment on operating leases.
OPERATING SEGMENTS
Equity in income (loss) of
unconsolidated affiliates
Small ag & turf
Construction & forestry
Financial services
Total
Identifiable operating assets
Production & precision ag
Small ag & turf
Construction & forestry
Financial services
Corporate
Total
Capital additions
Production & precision ag
Small ag & turf
Construction & forestry
Financial services
Total
2022
2021
2020
$
$
1 $
5
4
10 $
2 $
16
3
21 $
2
(52)
2
(48)
$ 8,414 $ 7,021 $ 5,708
3,266
6,322
48,719
11,076
$ 90,030 $ 84,114 $ 75,091
4,451
6,754
58,864
11,547
3,959
6,457
51,624
15,053
$ 649 $ 458 $
329
217
2
253
183
3
$
1,197 $ 897 $
431
223
157
4
815
Investments in unconsolidated affiliates
Production & precision ag
Small ag & turf
Construction & forestry
Financial services
Total
$
$
10
84 $
23
117 $
$
31
122
22
175 $
1
29
144
19
193
28. SUBSEQUENT EVENTS
On December 7, 2022, a quarterly dividend of $1.20 per share was
declared at the Board of Directors meeting, payable on February 8,
2023 to stockholders of record on December 30, 2022.
In December 2022, the Board of Directors authorized the
repurchase of up to $18,000 million of additional common stock.
This repurchase program will supplement the existing $8,000
million share repurchase program, which had $2,228 million
remaining at October 30, 2022. Repurchases of the company’s
common stock will be made at the company’s discretion in the
open market.
73
DEERE & COMPANY
SELECTED FINANCIAL DATA
(Dollars in millions except per share amounts)
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
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
39,737
3,296
1,587
3,383
$ 52,577 $ 44,024 $ 35,540 $ 39,258 $ 37,358 $ 29,738 $ 26,644 $ 28,863 $ 36,067 $ 37,795
31,272 34,886 33,351 25,885 23,387 25,775 32,961 34,998
2,115
3,450
1,445
1,644
3,558
3,477
1,247
741
3,537
2,751
10.1%
8.8%
47,917
3,365
1,912
3,863
1,062
7,131
14.9%
3,107
1,658
3,455
1,204
2,368
7.1%
3,493
1,783
3,551
1,466
3,253
9.3%
2,511
1,394
2,791
764
2,381
1,410
2,868
2,732
1,373
3,098
2,282
1,437
3,266
899
2,159
8.3%
664
3,162
9.6%
5,963
15.0%
1,940
7.5%
1,524
6.5%
680
993
stockholders’ equity
Comprehensive income*
38.7%
6,629
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
$ 23.42 $ 19.14 $
18.99
3.61
3.32
23.28
4.36
4.28
8.77 $ 10.28 $ 7.34 $ 6.76 $
6.68
8.69
2.40
3.04
2.40
3.04
10.15
3.04
2.97
7.24
2.58
2.49
4.83 $
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
304.5
306.3
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
4,171
3,011
29,750
3,051
$ 90,030 $ 84,114 $ 75,091 $ 73,011 $ 70,108 $ 65,786 $ 57,918 $ 57,883 $ 61,267 $ 59,454
3,758
25,633
4,153
3,152
4,935
5,467
8,787
4,103
21,518
10,266
4,208
33,799
4,659
6,988
6,781
5,820
10,919
4,605
32,888 32,734 30,229 27,237 25,891 23,703 23,775 24,318
18,431
4,703
7,298
4,999
5,817
8,582 10,784 11,062 10,035
4,682
5,230 5,004
29,195 27,054
4,383
7,567
5,975
5,973
6,410
36,634
5,936
6,623
8,495
6,056
12,592
5,711
33,596
20,262
3,278
27,422
4,602
4,016
4,210
5,578
8,018
4,553
3,925
25,104
4,159
6,594
3,904
5,068
4,835
4,970
3,817
5,181
8,425
4,585
5,127
5,902
3,341
5,171
6,911
4,022
7,165
6,149
5,868
24,809
23,702
12,937
4,998
11,288
9,063
6,520
6,743
9,557
3,957
11,413
4,321
4,119
$ 67.82 $ 59.83 $ 41.25 $ 36.45 $ 35.45 $ 29.70 $ 20.71 $ 21.29 $ 26.23 $ 27.46
1,132
$
75,550 69,634 73,489 74,413 60,476 56,767 57,180 59,623 67,044
762 $ 1,084 $ 969 $
655 $ 1,004 $
82,239
1,176 $
668 $
586 $
867 $
Net income per share – basic*
– diluted*
Dividends declared per share
Dividends paid per share
Average number of common shares
outstanding (in millions) – basic
– diluted
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
Short-term securitization borrowings
Long-term borrowings
Total Deere & Company stockholders’ equity
Book value per share*
Capital expenditures
Number of employees (at year end)
* Attributable to Deere & Company.
74
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Deere & Company
One John Deere Place, Moline, Illinois 61265
(309) 765-8000
www.JohnDeere.com
2022
Annual Report
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