Use these links to rapidly review the documentTABLE OF CONTENTSITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FORM 10-K
(Mark one)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-4121
DEERE & COMPANY
(Exact name of registrant as specified in its charter)
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One John Deere Place, Moline, Illinois | | 61265 | | (309) 765-8000 |
(Address of principal executive offices) | | (Zip Code) | | (Telephone Number) |
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
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Title of each class | | Trading symbol | | Name of each exchange on which registered | |||
Common stock, $1 par value | | DE | | New York Stock Exchange | |||
8½% Debentures Due 2022 | | DE22 | | New York Stock Exchange | |||
6.55% Debentures Due 2028 | | DE28 | | New York Stock Exchange |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý☒ No o☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o☐ No ý☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý☒ No o☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ý☒ No o☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | | Accelerated filer | |||
| Non-accelerated filer | | Smaller reporting company | |||
| | | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o☐ No ý☒
The aggregate quoted market price of voting stock of the registrant held by non-affiliates at April 27, 201830, 2021 was $44,528,411,767.$115,521,151,966. At November 30, 2018, 318,570,7882021, 307,407,282 shares of common stock, $1 par value, of the registrant were outstanding.
Documents Incorporated by Reference.Reference. Portions of the proxy statement for the annual meeting of stockholders to be held on February 27, 201923, 2022 are incorporated by reference into Part III of this Form 10-K.
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PART II | | | ||
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 24 | |||
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DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 25 | |||
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PART III | | | ||
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 25 | |||
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 25 | |||
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PART IV | | | ||
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ITEM 1. | BUSINESS. |
This Annual Report on Form 10-K contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Annual Report on Form 10-K are forward-looking statements. Forward-looking statements giveprovide our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance, and business. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, and other important information about forward-looking statements are disclosed under Item 1A, "Risk Factors"“Risk Factors” and Item 7, "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Operations–Safe Harbor Statement"Statement” in this Annual Report on Form 10-K.
Products
In fiscal year 2021, Deere & Company (the Company) and its subsidiaries (collectively, John Deere) have operations that are categorized into three major business segments.
Theagricultureimplemented a new operating model and turf segment primarily manufactures and distributes a full line ofreporting structure. With this change, John Deere’s agriculture and turf operations were divided into two new segments: production and precision agriculture and small agriculture and turf. There were no reporting changes for the construction and forestry and financial services segments. As a result, John Deere’s operations are now categorized into four major business segments:
The production and precision agriculture segment defines, develops, and delivers global equipment and related service parts, including:technology solutions to unlock customer value for production-scale growers of large medium,grains, small grains, cotton, and utility tractors; tractor loaders;sugar. The segment’s main products include large and certain mid-size tractors, combines, cotton pickers, cotton strippers,sugarcane harvesters and sugarcane harvesters; harvesting front-end equipment; sugarcane loaders, and pull-behind scrapers; tillage, seeding and application equipment, including sprayers, nutrient management and soil preparation, machinery;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, including self-propelled forage harvestersriding and attachments, balers and mowers; turf and utility equipment, including ridingcommercial lawn equipment, and walk-behind mowers, golf course equipment, and utility vehicles, and commercial mowing equipment, along with a broad line of associated implements; integrated agricultural management systems technology and solutions; and other outdoor power products.vehicles.
Theconstruction and forestry segment primarily manufacturesdefines, develops, and distributesdelivers a broad range of machines and service parts used in construction,technology solutions organized along the earthmoving, road building, material handlingforestry, and timber harvesting, including: backhoe loaders;roadbuilding production systems. The segment’s primary products include crawler dozers and loaders;loaders, four-wheel-drive loaders; excavators; motor graders; articulated dump trucks; landscape loaders;loaders, excavators, skid-steer loaders;loaders, milling machines; recyclers; slipform pavers; surface miners; asphalt pavers; compactors; tandemmachines, and static rollers; mobile crushers and screens; mobile and stationary asphalt plants; log skidders; feller bunchers; log loaders; log forwarders; log harvesters and related logging attachments.harvesters.
The products and services produced by the segments above are marketed primarily through independent retail dealer networks and major retail outlets.outlets, and, as it relates to roadbuilding products in certain markets outside the U.S. and Canada, primarily through Company-owned sales and service subsidiaries.
Thefinancial servicessegment primarily finances sales and leases by John Deere dealers of new and used production and precision agriculture, 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.
John Deere'sDeere’s worldwide production and precision agriculture operations, small agriculture and turf operations, and construction and forestry operations are sometimes collectively referred to as the "equipment“equipment operations."” The financial services segment is sometimes referred to as the "financial“financial services operations."” The production and precision agriculture and small agriculture and turf segments are sometimes collectively referred to as “agriculture and turf” or the “agriculture and turf operations.”
Additional information is presented in the discussion of business segment and geographic area results on page 21.pages 28 – 30. The John Deere enterprise has manufactured agricultural machineryequipment since 1837. The present Company was incorporated under the laws of Delaware in 1958.
Available Information
The Company'sCompany’s internet address ishttp://www.JohnDeere.comwww.deere.com. Through that address, the Company'sCompany’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge as soon as reasonably practicable after they are filed with the United States Securities and Exchange Commission (Securities and Exchange Commission or Commission). The information contained on the Company'sCompany’s website is not included in, nor incorporated by reference into, this annual reportAnnual Report on Form 10-K.
Market Conditions
Agriculture and Outlook
The Company's equipment sales are projected to increase by about 7 percent for fiscal 2019 compared with 2018. Included will be a full year of Wirtgen sales in 2019 versus 10 months in 2018, adding about 2 percent to the company's sales in the year ahead. Foreign-currency rates are expected to have an unfavorable translation effect on equipment sales of about 2 percent for the year. Net sales and revenues are expected to increase by about 7 percent for fiscal 2019 with net income attributable to Deere & Company forecast to be about $3.6 billion.
Agriculture & Turf. The Company's worldwide sales of agriculture and turf equipment are forecast to be up about 3 percent for fiscal-year 2019, including a negative currency-translation effect of 2 percent. Industry sales of large agricultural equipmentmachinery in the U.S. and Canada are forecastforecasted to be about the sameincrease approximately 15 percent compared to up 5 percent, helped by replacement demand for large equipment and continued demand for small tractors. Full-year industry sales in the EU28 member nations are forecast to be about the same as a result of drought conditions in key markets. South American industry sales of tractors and combines are projected to be about the same to up 5 percent benefiting from strength in Brazil. Asian sales are forecast to be about the same to down slightly.2021. Industry sales of turfsmall agricultural and utilityturf equipment in the U.S. and Canada are expected to be about the same to up 5 percent for 2019.flat in
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Construction & Forestry. The Company's worldwide2022. Industry sales of construction and forestry equipmentagricultural machinery in Europe are anticipatedforecasted to be up about 15 percent for 2019, with foreign-currency rates having an unfavorable translation effect of 2 percent. The forecast includes a full year of Wirtgen sales, versus 10 months in fiscal 2018, with the two additional months adding about 5 percent higher, while South American industry sales of tractors and combines are forecasted to divisionbe roughly 5 percent higher in 2022. Asia industry sales forare forecasted to be nearly the year. The outlook reflects continued growthsame in U.S. housing demand2022 as well as transportation investmentin 2021.
Construction and economic growth worldwide. InForestry. On an industry basis, North American construction equipment and compact construction equipment sales are both expected to be 5 to 10 percent higher in 2022. Global forestry global industry sales are expected to be up aboutincrease 10 percent mainly as a result of improved demand throughout the world, led by the U.S.to 15 percent.
Financial Services. Fiscal-year 2019 net income attributable to the Company for the The Company’s financial services operations is projected to be approximately $630 million. Excluding the 2018 benefit of tax reform, resultsfor full-year fiscal 2022 are expected to benefit from a higher average portfolio, partially offset by higher selling and administrative expenses,experience slightly lower results due to a higher provision for credit losses, lower gains on operating lease residual values, and less-favorable financing spreads. Financial services nethigher selling, administrative, and general expenses. These factors are expected to be partially offset by income for 2018 of $942 million includedearned on a tax benefit related to tax reform of $341 million. Excluding the tax benefit, net income for 2018 would have been $601 million.higher average portfolio.
20182021 Consolidated Results Compared with 20172020
For fiscal 2018,2021, worldwide net income attributable to the Company was $2.368$5.963 billion, or $7.24$18.99 per share, compared with $2.159$2.751 billion, or $6.68$8.69 per share, in 2017. Affecting 2018 net income were increases to the provision for income taxes of $704 million due to the enactment of U.S. tax reform legislation on December 22, 2017 (tax reform).fiscal 2020. Worldwide net sales and revenues increased 2624 percent to $37.358$44.024 billion in 2018,2021, compared with $29.738$35.540 billion in 2017.2020. Net income in 2020 was negatively affected by impairment charges and employee-separation costs of $458 million after-tax (see Notes 4 and 5 to the Consolidated Financial Statements). In addition, net income in 2020 was unfavorably affected by discrete adjustments to the provision for income taxes. Net sales of the worldwide equipment operations increased 29 percent in fiscal 20182021 to $33.351$39.737 billion, compared with $25.885$31.272 billion last year. The Company's acquisition of the Wirtgen Group (see Note 4) in December 2017 added 12 percentProduction and precision agriculture, small agriculture and turf, and construction and forestry sales increased during 2021 due to net sales for the year. Sales includedhigher shipment volumes and price realization of 1 percent, while currency translation did not have a material effect for the year. Equipment net sales in the United States and Canada increased by 25 percent for fiscal 2018, with Wirtgen adding 4 percent. Outside of the U.S. and Canada, net sales rose 34 percent for the year, with Wirtgen adding 22 percent. Currency translation had no material effect for the year.realization.
Worldwide equipment operations had an operating profit of $3.684$6.868 billion in fiscal 2018,2021, compared with $2.859$3.559 billion in fiscal 2017. The Wirtgen Group, whose results are included in these amounts, had operating2020. Operating profit of $116 million for fiscal 2018. Excluding the Wirtgen Group results, the increase was primarily driven byproduction and precision agriculture increased due to price realization, higher shipment volumes price realization,/ sales mix, and lower warranty costs,a favorable indirect tax ruling in Brazil. These items were partially offset by higher production costscosts. The prior year was also impacted by voluntary employee-separation program expenses. Operating profit for small agriculture and researchturf increased largely as a result of higher shipment volumes/sales mix and development expenses. Additionally, fiscal 2017 included an impairment chargeprice realization. Partially offsetting these factors were higher production costs. Results for international construction and forestry operations andthe current year were positively impacted by a gain on the sale of SiteOne Landscapes Supply, Inc. (SiteOne).a factory in China, while results for the prior year were affected by impairments, closure costs, and voluntary employee-separation program expenses. Construction and forestry’s operating profit increased mainly due to higher shipment volumes/sales mix and price realization, partially offset by higher production costs. The prior year was also impacted by employee-separation program expenses and impairments in certain fixed assets and unconsolidated affiliates.
Net income of the Company'sCompany’s equipment operations was $1.404$5.082 billion for fiscal 2018,2021, compared with $1.707$2.185 billion in fiscal 2017. In addition to the operating factors mentioned above,2020. The equipment operations’ provision for income tax adjustments related to tax reform had an unfavorable impact of $1.045 billion for fiscal 2018.taxes and net income in 2020 were adversely affected by non-deductible impairments and charges.
The financial services operations reported net income attributable to the Company of $942.0$881 million for fiscal 20182021 compared with $476.9$566 million in fiscal 2017.2020. The increase was largelymainly due to a higher average portfolio,improvement on operating lease residual values, a lower provision for credit losses, more favorable financing spreads, and lower lossesincome earned on lease residual values, partially offset by less-favorable financing spreads. Additionally, income tax adjustments related to tax reform had a favorable effect of $341.2 million for fiscal 2018.higher average portfolio.
The cost of sales to net sales ratio for 2018 and 20172021 was 76.7 percent. Price73.3 percent, compared with 75.7 percent for 2020. The cost of sales to net sales ratio decreased compared to 2020 mainly due to price realization and lower warranty claims were offset by higher production costs.the impact of impairments and employee-separation expenses recorded in 2020 (see Note 5).
Additional information on fiscal 20182021 results is presented on pages 20–22.27 – 30.
EQUIPMENT OPERATIONS
AgricultureProduction and TurfPrecision Agriculture
The John Deereproduction and precision agriculture segment defines, develops, and turf segment manufactures and distributes a full line of agriculture and turfdelivers global equipment and related service parts. Thetechnology solutions to unlock customer value for production-scale growers of large grains (such as corn and soy), small grains (such as wheat, oats, and barley), cotton, and sugar. Equipment manufactured and distributed by the segment consolidates all markets into four geographical customer focus areas to facilitate deep customer understandingincludes large and deliver world-class customer service. The segment's operations are consolidated into five product platforms – crop harvesting (combines,certain mid-size tractors, combines, cotton pickers, cotton strippers, and sugarcane harvesters, related harvesting front-end equipment, sugarcane loaders, pull-behind scrapers, and pull-behind scrapers); turf and utility (utility vehicles, riding lawn equipment, walk-behind mowers, commercial mowing equipment, golf course equipment, implements for mowing, tilling, snow and debris handling, aerating and many other residential, commercial, golf and sports turf care applications and other outdoor power products); hay and forage (self-propelled forage harvesters and attachments, balers and mowers); crop care (tillage,tillage, seeding, and application equipment, including sprayers and nutrient management and soil preparation machinery); and tractors (loaders and large, medium and utility tractors and related attachments). John Deere also purchases certain products from other manufacturers for resale.machinery.
The segment also provides integrated agricultural solutions and precision agriculture technologies across its portfolio of large equipment. John Deere has developed a leadingunique, production system-level approach designed to precision agriculture technology through advanced communicationsimprove customer profitability, productivity, and telematics, on board sensors and computers, andsustainability. This approach includes precise global navigation satellite systems technology, advanced connectivity and telematics, on-board sensors and computing power, automation software, digital tools, and applications and analytics that together enable seamless integration of information designed to enable farmers to better control input costsimprove customer decision making and yields, improve soil conservation, minimize chemical use, and to gather information.job execution. John Deere'sDeere’s advanced telematics systems remotely connect agricultural equipment owners, business managers, and dealers to agricultural equipment in the field, providing real-time
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alerts and information about equipment location, utilization, performance, and maintenance to improve productivity and efficiency.
Table of Contentsefficiency, as well as to monitor agronomic job execution.
In addition to the John Deere brand, the production and precision agriculture and turf segment purchases and sells a variety of equipment attachments under the Frontier, Kemper and Green Systems brand names. The segment also manufactures and sells sprayers under the Hagie and Mazzotti brand names, planters and cultivators under the Monosem brand name, sprayers and planters under the PLA brand name, and carbon fiber sprayer booms under the King Agro brand name, and walk-behind mowers and scarifiers in select European countriesname. The segment also sells sugarcane harvester aftermarket parts under the SABOUnimil brand name. Aftermarket parts for production and precision agriculture products are also sold under the Vapormatic and A&I brand names. John Deere manufactures its agricultureproduction and turfprecision agriculture equipment for sale primarily through independent retail dealer networks.
Small Agriculture and Turf
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 works to leverage integrated agricultural solutions and precision technologies across its portfolio of equipment. Equipment manufactured and distributed by the segment includes: certain mid-size as well as small and utility tractors and related loaders and attachments; turf and utility equipment, including riding lawn equipment, commercial mowing equipment, golf course equipment, utility vehicles, implements for mowing, tilling, snow and debris handling, aerating, and many other residential, commercial, golf, and sports turf care applications, and other outdoor power products; and hay and forage equipment, including self-propelled forage harvesters and attachments, balers, and mowers. John Deere also purchases certain products from other manufacturers for resale.
In addition to the John Deere brand, the small agriculture and turf segment purchases and sells a variety of equipment attachments under the Frontier, Kemper, and Green Systems brand names. Aftermarket parts for small agriculture and turf products are sold under the Vapormatic, A&I, and Sunbelt brand names. John Deere’s small agriculture and turf equipment is sold primarily through independent retail dealer networks, andalthough the segment also builds turf products for sale by mass retailers, including The Home Depot and Lowe's.Lowe’s.
Agriculture and Turf Operations
Operating Model. John Deere’s production and precision agriculture and small agriculture and turf segments together offer a full line of agriculture and turf equipment and related service parts. The segments are aligned around production systems, enabling focus on delivering equipment, technology, and solutions across all the jobs customers execute during a season. This holistic approach to production systems enables John Deere to invest in the product roadmap and related research and development. Sales and marketing support for both the production and precision agriculture and small agriculture and turf segments continues to be organized around four geographic customer focus areas.
Business Environment. Sales of agricultural equipment are affected by total farm cash receipts, which reflect levels of farm commodity prices, acreage planted, crop yields, and government policies, including global trade policies, and the amount and timing of government payments.payments, and policies related to climate change. Sales are also influenced by general economic conditions, farm landfarmland prices, farmers'farmers’ debt levels and access to financing, interest and exchange rates, agricultural trends, including the production of and demand for renewable fuels, labor availability and costs, energy costs, tax policies, and other input costs associated with farming. Other important factors affecting new agricultural equipment sales are the value and level of used equipment, including tractors, harvesting equipment, self-propelled sprayers, hay and forage equipment, and seeding equipment. Weather and climatic conditions can also affect buying decisions of agricultural equipment purchasers.
Innovations in machinery and technology also influence agricultural equipment purchasing. For example, larger, more productive equipment is well accepted where farmers are striving for more efficiency in their operations. Large, cost-efficient, highly-mechanized agricultural operations account for an important share of worldwide farm output. These customers are increasingly adopting and integrating precision agricultural technologies like guidance, telematics, and data management in their operations. The large-size agricultural equipment used on such farms has been particularly important to John Deere. A large proportion of the equipment operations'operations’ total agricultural equipment sales in the U.S. and Canada, and a significantlarge proportion of sales in many countries outside the U.S. and Canada, are comprised of tractors over 100 horsepower, self-propelled combines, self-propelled cotton pickers, self-propelled forage harvesters, self-propelled sprayers, and seeding equipment. However, small tractors are an increasingly important part of our global tractor business. Further, John Deere offers a number of harvesting solutions to support development of the mechanized harvesting of grain, oilseeds, cotton, sugar, and biomass.
Retail sales of lawn and garden tractors, compact utility tractors, residential and commercial mowers, utility vehicles, and golf and turf equipment are influenced by weather conditions, consumer spending patterns, and general economic conditions.
Seasonality.Seasonality. Seasonal patterns in retail demand for agricultural equipment result in substantial variations in the volume and mix of products sold to retail customers during the year. Seasonal demand must be estimated in advance, and equipment must be
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manufactured in anticipation of such demand in order to achieve efficient utilization of manpowerpersonnel and facilities throughout the year. For certain equipment, John Deere offers early order programs, which include discounts to retail customers.customers that place orders well in advance of the use season. Production schedules are based, in part, on these early order programs. The segment incursproduction and precision agriculture and small agriculture and turf segments incur substantial seasonal variationvariations in cash flows to finance production and inventory of agricultural and turf equipment. The segmentsegments also incursincur costs to finance sales to dealers in advance of seasonal demand. New combine and cotton harvesting equipment has been sold under early order programs with waivers of retail finance charges available to customers who take delivery of machines during off-season periods.non-use seasons. In Australia, Canada, and the U.S., there are typically several used equipment trade-in transactions as part ofthat take place in connection with most new agricultural equipment sales. To provide support to its dealers in these countries for thesecarrying and ultimately selling this used equipment trade-ins,inventory to retail customers, John Deere provides dealers in these countriesdealers with pools of funds awarded to dealers as a percentage of the dealer cost for eligible new equipment sales. Dealers can use these funds to defraysales at the coststime of carrying or marketing usedthe new equipment inventory or to provide financing incentives to customers purchasing the used equipment.settlement.
Retail demand for turf and utility equipment is normally higher in the second and third fiscal quarters. John Deere has pursued a strategy of building and shipping such equipment as close to retail demand as possible. Consequently, to increase asset turnover and reduce the average level of field inventories throughthroughout the year, production and shipment schedules of these product lines are normally proportionately higher in the second and third fiscal quarters of each year, corresponding closely to the seasonal pattern of retail sales.
Construction and Forestry
John Deere'sDeere’s construction and forestry equipment includessegment 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 a broad range of backhoe loaders, crawler dozers and loaders, four-wheel-drive loaders, excavators, motor graders, articulated dump trucks, landscape loaders, skid-steer loaders, milling machines, pavers, compactors, rollers, crushers, screens, asphalt plants, log skidders, log feller bunchers, log loaders, log forwarders, log harvesters, and a variety of attachments. John Deere provides a broad line of construction equipment and the most complete line of forestry machines and attachments available in the world. John Deere also manufactures and distributes road buildingroadbuilding equipment through its wholly-owned subsidiaries of the Wirtgen Group.
The construction and forestry machinessegment’s products are distributed under the John Deere brand name, except for the Wirtgen Group products, which are manufactured and distributed under six brand names: Wirtgen, Vögele, Hamm, Kleeman,Kleemann, Benninghoven, and Ciber. Forestry attachments are distributed under the John Deere and Waratah brand names. In addition to the equipment manufactured by the construction and forestry segment, John Deere purchases certain products from other manufacturers for resale. The segment also provides comprehensive fleet managementadvanced connectivity and telematics solutions designed to improve customer productivity, efficiency, and efficiencyworksite management through access to fleet location, utilization, performance, and maintenance information.
The prevailing levels of residential, commercial, and public construction, investment in infrastructure, and the condition of the forestry products industry influence retail sales of John Deere construction, earthmoving, road building,roadbuilding, material handling, and forestry equipment. General economic conditions, the level of interest rates,rate levels, the availability of credit, and certain commodity prices, such as oil and gas and those applicable to pulp, paper, and saw logs, also influence sales.
John Deere licenses Bell Equipment Limited (Bell) to manufacture and sell certain John Deere-designed construction equipment in specified territories of Africa. Bell is also the distributor ofdistributes certain John Deere-manufactured construction equipment under the Bell brand in certain territories of Africa. Arrangements whereby Bell previously manufactured and sold certain John Deere-designed construction equipment and distributed John Deere-manufactured forestry equipment under the John Deere brand in certainspecified territories of Africa.Africa were terminated in fiscal year 2021.
John Deere and Hitachi Construction Machinery Co., Ltd. (Hitachi) have a joint venture for the manufacture of hydraulic excavators and tracked forestry equipment in the U.S., Canada, and Brazil. Under the joint venture, John Deere distributes Hitachi brands of construction and mining equipment in North, Central, and South America. On August 19, 2021, the Company and Hitachi agreed to voluntarily terminate the joint venture. Following the termination, John Deere will continue to manufacture certain John Deere-branded excavators formerly manufactured by the joint venture and will additionally purchase certain John Deere-branded excavators, components, and service parts from Hitachi under a new supply agreement. The termination transaction is expected to close during the first half of fiscal year 2022, subject to the receipt of certain required regulatory approvals and satisfaction of certain other customary closing conditions.
The segment has a number of initiatives in the rent-to-rent, or short-term rental, market for construction, earthmoving, road buildingroadbuilding, and material handling equipment. These include specially designed rental programs for John Deere dealers and expanded cooperation with major national equipment rental companies.
John Deere also owns Nortrax, Inc. which in turn owns Nortrax Canada Inc. which in turn owns Nortrax Quebec Inc. (collectively called Nortrax). Nortrax is an authorized John Deere dealer for construction, earthmoving, material handling and forestry equipment in a variety of markets in the U.S. and Canada. John Deere also owns retail forestry sales operations in Australia, Brazil, Finland, Ireland, New Zealand, Norway, Sweden, and the United Kingdom. In addition, in many markets worldwide (most significantly in the EU,Europe, India, and Australia), the Wirtgen Group sells its products primarily through company-ownedCompany-owned sales and service subsidiaries.
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Competition
Competition
The equipment operations sell products and services into a variety of highly competitive global and regional markets. The principal competitive factors in all markets include product performance, innovation and quality, distribution, customer service, and price. In North America and many other parts of the world, John Deere'sDeere’s brand recognition is a competitive factor.
The agricultural equipment industry continues to undergo significant changes and is becoming even more competitive through the emergence and expanding global capability of many competitors. The competitive environment for the agriculture and turf segmentoperations includes some global competitors, including AGCO Corporation, CLAAS KGaA mbH, CNH GlobalIndustrial N.V., Kubota Tractor Corporation, Mahindra, and The Toro Company, andas well as many regional and local competitors. These competitors have varying numbers of product lines competing with the segment'sJohn Deere’s products and each has varying degrees of regional focus. An important part of theAdditional competition within the agricultural equipment industry during the past decade has come from a variety of short-line and specialty manufacturers, as well as indigenous regional competitors, with differing manufacturing and marketing methods. Because ofAs technology increasingly enables enhanced productivity in agriculture, the industry conditions,is also attracting non-traditional competitors, including the merger of certain large integrated competitorstechnology-focused companies and the emergence and expanding global capability of many competitors, particularly in emerging and high potential markets such as Brazil, China and India wherestart-up ventures. John Deere seeks to increase market share, the agricultural equipment business continues to undergo significant change and is becoming even more competitive. The segment'sDeere’s turf equipment is sold primarily in the highly competitive North American, and Western European, and Australian markets.
Global competitors of the construction and forestry segment include Caterpillar Inc., CNH GlobalIndustrial N.V., Doosan Infracore Co., Ltd. and its subsidiary Doosan Bobcat Inc., Fayat Group, Komatsu Ltd., Kubota Tractor Corporation, Ponsse Plc, SANY Group Co., Ltd., Terex, Tigercat Industries Inc., Volvo Construction Equipment (part of Volvo Group AB), and XCMG. The construction business operates in highly competitive markets in North and South America andas well as other global markets, including China and Russia.markets. The forestry and road constructionroadbuilding businesses operate globally. The segment manufactures over 90 percent of the types of construction equipment used in the U.S. and Canada, including construction, forestry, earthmoving, road building,roadbuilding, and material handling equipment.
Manufacturing
Manufacturing Plants.Plants. In the U.S. and Canada, the equipment operations own and operate 21 factory locations and lease and operate another two locations, which contain approximately 29.1 million square feet of floor space.locations. Of these 23 factories, 13eight are devoted primarily to production and precision agriculture equipment, five to small agriculture and turf equipment, four to construction and forestry equipment, one to engines, two to engine and component remanufacturing, two to hydraulic and power train components, and one to electronic components. Outside the U.S. and Canada, the equipment operations own or lease and operate:operate 44 factories, including: agriculture and turf equipment factories in Argentina, Brazil, China, France, Germany, India, Israel, Italy, Mexico, the Netherlands, Russia, and Spain; constructionearthmoving equipment factories in Brazil China and Germany;China; engine, engine/power train, hydraulic, or electronic component factories in Argentina, China, France, India, and Mexico; road buildingroadbuilding equipment factories in Brazil, China, Germany, and India; and forestry equipment factories in Finland and New Zealand. These factories and manufacturing operations outside the U.S. and Canada contain approximately 27 million square feet of floor space. The engine factories referred to above manufacture non-road, heavy duty diesel engines.
The equipment operations also have financial interests in other manufacturing organizations, which include agricultural equipment manufacturers in the U.S., Bell in South Africa, the Hitachi joint venture that builds hydraulic excavators and tracked forestry equipment in the U.S., Canada, and Brazil, and ventures that manufacture transaxles and transmissions used in certain agriculture and turf segment products. Following the expected closing of the termination of the Hitachi joint venture in the first half of fiscal 2022, John Deere will fully own and operate the factories formerly owned by the joint venture.
John Deere'sDeere’s facilities are well maintained, in good operating condition, and suitable for their present purposes. These facilities, together with both short-term and long-term planned capital expenditures, are expected to meet John Deere'sDeere’s manufacturing needs in the foreseeable future.
Existing capacity is sufficient to satisfy John Deere'sDeere’s current expectations for retail market demand. The equipment operations'operations’ manufacturing strategy involves the implementation of appropriate levels of technology and automation to allow manufacturing processes to remain profitable at varying production levels. Operations are also designed to be flexible enough to accommodate the product design changes required to meet market conditions and changing customer requirements. Common manufacturing facilities
and techniques are employed in the production of components for production and precision agriculture equipment, small agriculture and turf equipment, and construction and forestry equipment.
In order to utilize manufacturing facilities and technology more effectively, the equipment operations pursue continuous improvements in manufacturing processes. These include steps to streamline manufacturing processes and enhance responsiveness to customers. John Deere has implementedDeere’s flexible assembly lines that can accommodate a wider product mix and deliver products in line with dealer and customer demand. Additionally, considerable effort is being directed to manufacturing cost reduction through process improvement and improvements in product design, advanced manufacturing technology, supply management and logistics, and environment,environmental, health, and safety management systems, as well as compensation incentives related to productivity and organizational structure. John Deere has experienced volatility in the priceprices of many raw materials. John Deere has responded to cost pressures by implementing the cost-reduction measures described above and by increasing prices. Significant cost increases if they occur, could have an adverse effect on the Company's
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Company’s operating results. The equipment operations also pursue external sales of selected parts and components that can be manufactured and supplied to third parties on a competitive basis, including engines, power train components, and electronic components.
Patents, Trademarks, Copyrights, and Trade Secrets
John Deere owns a significant number of patents, trademarks, copyrights, trade secrets, licenses and trademarkslicenses related to John Deere products and services and expects the number to grow as John Deere continues to pursue technological innovations. John Deere'sDeere’s policy is to further its competitive position by filing patent applications in the U.S. and internationally to protect technology and improvements considered important to the business. John Deere believes that, in the aggregate, the rights under these patents and licenses are generally important to its operations and competitive position, but does not regard any of its businesses as being dependent upon any single patent or group of patents. However, certain John Deere trademarks, which contribute to John Deere'sDeere’s identity and the recognition of its products and services, including but not limited to the "John Deere"“John Deere” mark, the leaping deer logo, the "Nothing“Nothing Runs Like a Deere"Deere” slogan, the prefix "JD"“JD” associated with many products, and the green and yellow equipment colors, are an integral part of John Deere'sDeere’s business, and their loss could have a material adverse effect on the Company. For additional information see Risk Factor Factors–Intellectual Property Risks–The potential loss of John Deere intellectual property through trade secret theft, infringement of patents, trademark counterfeiting, or other loss of rights to exclusive use of John Deere intellectual property maycould have a material adverse effect on the Company. Infringement of the intellectual property rights of others by John Deere maycould also have a material adverse effect on the Company.
Marketing
In the U.S. and Canada, the equipment operations distribute equipment and service parts through the following facilities: two agriculture and turf equipment sales and administration offices located in Olathe, Kansas and Cary, North Carolina and one sales branch located in Grimsby, Ontario; one construction, earthmoving, material handling, and forestry equipment sales and administration office located in Moline, Illinois;Illinois and one road buildingsales branch located in Grimsby, Ontario; and one roadbuilding equipment sales, service, and administration office located in Nashville, Tennessee. In addition, the equipment operations operate atwo centralized parts distribution warehousewarehouses in coordination with nine regional parts depots and distribution centers in the U.S. and Canada.
Through these U.S. and Canadian facilities, John Deere markets products to approximately 1,9811,990 independent dealer locations, most of which are independently owned and operated.locations. Of these, approximately 1,5391,545 sell agricultural equipment, while approximately 430445 sell construction, earthmoving, material handling, roadbuilding, and/or forestry equipment. In addition, roadbuilding equipment is sold at approximately 125 roadbuilding-only locations that may carry products that compete with John Deere’s construction, earthmoving, material handling, and/or forestry equipment. Nortrax owns some of the 430 dealer locations. Turf equipment is sold at most John Deere agricultural equipment locations, a few construction, earthmoving, material handling, androadbuilding, and/or forestry equipment locations, and about 392340 turf-only locations, many of which also sell dissimilar lines of non-John Deere products. In addition, certain lawn and garden product lines are sold through The Home Depot and Lowe's.Lowe’s.
Outside the U.S. and Canada, John Deere agriculture and turf equipment is sold to distributors and dealers for resale in over 100 countries. Sales and administrative offices are located in Argentina, Australia, Brazil, China, France, Germany, India, Italy, Mexico, the Netherlands, Poland, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, and the United Kingdom and administrative offices located in Ghana and Kenya. Associated companies doing business in China also sell agricultural equipment.Kingdom. Turf equipment sales outside the U.S. and Canada occur primarily in Western Europe and Australia. Construction, earthmoving, material handling, and forestry equipment is sold to distributors and dealers primarily by sales offices located in Australia, Brazil, China, Finland, New Zealand, Russia, Singapore, and the United States.Kingdom. Some of these dealers are independently owned while John Deere owns others. Road buildingRoadbuilding equipment is sold both directly to endretail customers as well as to independent distributors and dealers for resale. The Wirtgen Group operates company-owned sales and service subsidiaries in Australia, Austria, Belgium, Brazil, Bulgaria, China, Denmark, Estonia, Finland, France, Georgia, Germany, Guinea, Hungary, India, Ireland, Italy, Japan, Kazakhstan, Latvia, Lithuania, Malaysia, the Netherlands, Norway, the Philippines, Poland, Romania, Russia, Serbia, Singapore, South Africa, Sweden, Taiwan, Thailand, Turkey, Ukraine, and the UK.United Kingdom.
The equipment operations operate centralized parts distribution warehouses in Brazil, Germany, India, and Russia in coordination with regional parts depots and distribution centers in Argentina, Australia, China, Mexico, South Africa, Sweden, and the United Kingdom.
John Deere markets engines, power traintrains, and electronic components worldwide through select sales branches or directly to regional and global original equipment manufacturers and independently owned engine distributors.
Raw Materials
John Deere purchases raw materials and some manufactured components and replacement parts for its equipment, engines, and other products from leading suppliers both domestically and internationally. These materials and components include a variety of steel products, steel and iron castings, forgings, plastics, electronics, and ready-to-assemble components made to certain specifications. John Deere also purchases various goods and services used in production, logistics, offices, and research and development processes.
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John Deere maintains strategic sourcing models to meet its production needs and build upon long-term supplier relationships. John Deere uses a variety of agreements with suppliers intended to drive innovation, ensure availability and delivery of industry-leading quality raw materials and components, manage costs on a globally competitive basis, protect John Deere'sDeere’s intellectual property, and minimize other supply-related risks. Supply chain risks monitored by John Deere to minimize the likelihood of the supply base causing business disruption include supplier financial viability, capacity, business continuity, labor availability, quality, delivery, cybersecurity, and weather-related events, including natural disasters. In fiscal 2018, no significant work stoppages occurred due2021, some of John Deere’s operations were affected by certain material or component shortages related to shortagesthe COVID-19 pandemic (COVID) and associated challenges, including those caused by industry capacity constraints, material availability, global logistics delays and constraints arising from, among other things, the transportation capacity of raw materials or other commodities, but John Deere experienced an increasing number of supply chain disruptions linked to supplier materialocean shipping containers, and labor shortages.availability constraints. These challenges are expected to persist into at least the early part of fiscal year 2022.
Backlog Orders
The dollar amount of backlog orders for the agriculture and turf segmentat October 31, 2021 believed to be firm was approximately $6.5$9.6 billion at October 28, 2018,for the production and precision agriculture segment and $5.2 billion for the small agriculture and turf segment, compared with $5.6$4.9 billion and $3.3 billion, respectively, at October 29, 2017.November 1, 2020. The agriculture and turf backlog is generally highest in the second and third quarters due to seasonal buying trends in these industries. The dollar amount of backlog orders for the construction and forestry segment believed to be firm was approximately $3.0$6.7 billion at October 28, 2018,31, 2021, compared with no significant amount$2.1 billion at November 1, 2020. Backlog orders for the equipment operations include all orders deemed to be firm as of backlog orders at October 29, 2017.the referenced date.
Trade Accounts and Notes Receivable
Trade accounts and notes receivable arise primarily from sales of goods to independent dealers. Most trade receivables originated by the equipment operations are purchased by the financial services operations. The equipment operations compensate the financial services operations at approximate market rates of interest for these receivables. Additional information appears in Note 1213 to the Consolidated Financial Statements.
FINANCIAL SERVICES
U.S. and Canada.Canada. The financial services segment primarily provides and administers financing for retail purchases from John Deere dealers of new equipment manufactured by John Deere'sDeere’s production and precision agriculture, small agriculture and turf, and construction and forestry segments and used equipment taken in trade for this equipment.
The Company and John Deere Construction & Forestry Company (a wholly-owned subsidiary of the Company) are referred to as the "sales“sales companies."” John Deere Capital Corporation (Capital Corporation), a U.S. financial services subsidiary, generally purchases retail installment sales and loan contracts (retail notes) from the sales companies. These retail notes are acquired by the sales companies through John Deere retail dealers in the U.S. John Deere Financial Inc., a Canadian financial services subsidiary, purchases and finances retail notes acquired by John Deere Canada ULC, the Company'sJohn Deere’s Canadian sales branch.company. The terms of retail notes and the basis on which the financial services operations acquire retail notes from the sales companies are governed by agreements with the sales companies. The financial services segment also finances and services revolving charge accounts, in most cases acquired from and offered through merchants in the agriculture and turf and construction and forestry markets (revolving charge accounts). Additionally, the financial services operations provide wholesale financing for inventoriesto dealers of John Deere agriculture and turf equipment and construction and forestry equipment owned by dealers(wholesale notes), primarily to finance inventories of equipment for those products (wholesale notes).dealers. The various financing options offered by the financial services operations are designed to enhance sales of John Deere products and generate financing income for the financial services operations. In the U.S., and Canada, certain subsidiaries included in the financial services segment offer extended equipment warranties.
Retail notes acquired by the sales companies are immediately sold to the financial services operations. The equipment operations are the financial services operations'operations’ major source of business, butalthough many retail purchasers of John Deere products finance their purchases outside the John Deere organization through a variety of sources, including commercial banks and finance and leasing companies.
The financial services operations offer retail leases to equipment users in the U.S. A small number of leases are executed with units of local government.governments. Leases are usually written for periods of four monthsranging from less than one year to sixty months,seven years, and typically contain an option permitting the customer to purchase the equipment at the end of the lease term. Retail leases are also offered in a generally similar manner to customers in Canada through John Deere Financial Inc. and John Deere Canada ULC.
The financial services operations'operations’ terms for financing equipment retail sales (other than smaller items financed with unsecured revolving charge accounts) generally provide for retention of a security interest in the equipment financed. The financial services operations'operations’ guidelines for minimum down payments, which vary with the types of equipment financed and repayment provisions, are generally 10range from 0 percent to 3020 percent of the purchase price. Finance charges are sometimes waived for specified periods or
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reduced on certain John Deere products sold or leased in advance of the season of use or in other sales promotions. The financial services operations generally receive compensation from the sales companies at approximate market interest rates for periods during which finance charges are waived or reduced on the retail notes or leases. The cost is accounted for as a deduction in arriving at net sales by the equipment operations.
The Company has an agreement with Capital Corporation 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 any fiscal quarter. For fiscal 2018 and 2017, Capital Corporation's ratios were 1.78 to 1 and 1.95 to 1, respectively, and never less than 1.69 to 1 and 1.79 to 1 for any fiscal quarter of 2018 and 2017, respectively. The Company has also committed to continuecontinuing 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'sCorporation’s consolidated tangible net worth at not less than $50 million. The Company'sCompany’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, the Company'sCompany’s obligations under the agreement are not measured by the amount of Capital Corporation'sCorporation’s indebtedness, obligations, or other liabilities. The Company'sCompany’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. NoThe Company was in compliance with all of its obligations under this agreement as of October 31, 2021, and no payments were required under this agreement in fiscal 20182021 or 2017.2020. At October 31, 2021, the Company indirectly owned 100 percent of the voting shares of Capital Corporation’s capital stock and Capital Corporation’s consolidated tangible net worth was $4,524 million.
Outside the U.S. and Canada.Canada. The financial services operations also offer financing, primarily for John Deere products, in Argentina, Australia, Brazil, China, India, Mexico, New Zealand, Russia, Thailand, and in several other countries in Africa, Asia, Europe, and Latin America. In certain areas,markets, financing is offered through cooperation agreements or joint ventures.ventures with other financial institutions. The manner in which the financial services operations offer financing in these countries is affected by a variety of country-specific laws, regulations, and customs, including those governing property rights and debtor obligations, that are subject to change and that may introduce greater risk to the financial services operations.
The financial services operations also offer to select customers and dealers credit enhanced international export financing primarily for the purchase of John Deere products.
Additional information on the financial services operations appears on pages 20–22, 24,27 – 30 and 26–27.34.
ENVIRONMENTAL MATTERS
John Deere is subject to a wide variety of local, state, and federal environmental laws and regulations in the U.S., as well as the environmental laws and regulations of other countries in which John Deere conducts business. John Deere strives to comply with applicable laws and regulations. However, failureFailure to comply with these regulations, however, could lead to fines and other penalties. John Deere is involved in the evaluation and clean-up of a limited number of sites but does not expect that these matters or other expenses or liabilities John Deere may incur in connection with any noncompliance with environmental laws or regulations or the cleanup of any additional properties will have a material adverse effect on the Company’s consolidated financial position, results of operations, cash flows, or competitive position of John Deere.position. With respect to acquired properties and businesses that have been or properties and businesseswill be acquired, in the future, John Deere conducts due diligence into potential exposure to environmental liabilities, but cannot be certain that it has identified or will identify all adverse environmental conditions. Compliance with these laws and regulations has added, and will continue to add, to the cost of John Deere'sDeere’s products. The Company does not expect to incur material capital expenditures for environmental control facilities during fiscal 2022.
The European Union has issued itsUnion’s Stage V Regulation, parts of which comes into forcebecame effective in 2019 and 2020, forapplies to non-road diesel engines across various power categories for machines used in construction, agriculture, materialsmaterial handling, industrial use, and generator applications. Governmental agencies throughout the world are enacting similar laws to reduce off-road engine emissions, including India’s Bharat Stage IV Regulation that became effective in 2021. These standards continue the reduction of particulate and NOx emissions. Governmental agencies throughout the world are similarly enacting more stringent laws to reduce off-road engine emissions. John Deere has achieved and plans to continue to achieve compliance with these regulations through significant investments in the development of new engine technologies and after-treatment systems. Compliance with emissions regulations has added and will continue to add to the cost of John Deere'sDeere’s products.
Governments are also implementing laws regulating products across their life cycle,cycles, including raw material sourcing and the storage, distribution, sale, use, and disposal of products at their end-of-life. These laws and regulations include green chemistry, right-to-know, restriction of hazardous substances, and product take-back laws.
EMPLOYEESGOVERNMENT REGULATIONS
John Deere is subject to a wide variety of local, state, and federal laws and regulations in the countries where it conducts business. Compliance with these laws and regulations often requires the dedication of time and effort of employees, as well as financial resources. In fiscal 2021, compliance with the regulations applicable to John Deere did not have a material effect on John Deere’s capital expenditures, earnings, or competitive position. The Company does not expect to incur material capital expenditures related to
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compliance with regulations during fiscal year 2022. Additional information about the impact of government regulations on John Deere’s business is included in Item 1A, “Risk Factors” under the headings Geopolitical Uncertainties; Data Security and Privacy Risks; Environmental, Climate, and Weather Risks; and Legal and Regulatory Risks.
HUMAN CAPITAL
Higher Purpose
John Deere’s employees, its human capital, are guided by the Company’s higher purpose: We run so life can leap forward. Employees are further guided by the Company’s code of business conduct (Code), which helps them to uphold and strengthen the standards of honor and integrity that have defined John Deere since its founding. Our world and business may change, but our core values—integrity, quality, commitment, and innovation—are a constant in everything we do. Our values have shaped and guided our vision since 1837.
Employees
At October 28, 2018,31, 2021, John Deere had approximately 74,00075,600 employees, including approximately 31,00029,000 employees in the U.S. and Canada. John Deere also retains consultants, independent contractors, and temporary and part-time workers. Unions are certified as bargaining agents for approximately 8583 percent of John Deere'sDeere’s U.S. production and maintenance employees. Approximately 9,60010,500 of John Deere'sDeere’s active U.S. production and maintenance workers are covered by a collective bargaining agreement with the International Union, United AutoAutomobile, Aerospace and Agricultural Implement Workers of America (UAW), with an expiration date of OctoberNovember 1, 2021.
2027. A small number of U.S. production employees are represented by the International Association of Machinists and Aerospace Workers (IAM). Collective bargaining agreements covering John Deere’s employees in the U.S., other than the agreement with the UAW, expire between 2022 and 2027. Unions also represent the majority of employees at John Deere manufacturing facilities outside the U.S. There is no guarantee that John Deere will be able to renew collective bargaining agreements or whether such agreements will be on terms satisfactory to John Deere. For further discussion, see Risk Factors-Human Capital Risks-Disputes with labor unions have adversely affected John Deere’s ability to operate its facilities as well as its financial results.
Code of Business Conduct
John Deere is committed to conducting business in accordance with the highest ethical standards. This means how we conduct ourselves and our global work is more than just a matter of policy and law; it's a reflection of our core values. The Code, refreshed in 2021, provides specific guidance to all John Deere employees, outlining how they can and must uphold and strengthen the integrity that has defined John Deere since its founding. All employees must complete Code training and, where permitted by law, must also certify each year that they will comply with the Code. The Company maintains a global compliance hotline to allow for concerns to be brought forward.
Health and Safety
John Deere strives to achieve safety excellence through increased focus on leading indicators, risk reduction, health and safety management systems, and prevention. John Deere utilizes a safety balanced scorecard, which includes leading and lagging indicators and is designed to enable continuous measurement of safety performance and drive continuous improvement. Leading indicators include injury/illness corrective action closure rates, near-miss corrective action closure rates, and risk reduction from safety and ergonomic risk assessment projects. Lagging indicators include total recordable incident rate, ergonomic recordable case rate, and near-miss rate. Leading indicators are tracked by most of John Deere’s manufacturing facilities and internally reported. John Deere reported a total recordable incident rate of 1.99 and a lost time frequency rate of .78 in fiscal 2021.
John Deere has taken and continues to take extraordinary measures to protect its workforce in response to COVID. Safety protocols continue to be in place for employees who are required to work onsite, including divider screens and enhanced cleaning and sanitation. Where possible, John Deere has supported flexible work arrangements for employees throughout the pandemic, including by deploying new technologies to strengthen virtual connectivity. John Deere also provided financial support for employees who struggled to provide childcare during the pandemic. John Deere continues to strive to be agile in addressing employee needs in the quickly evolving environment while also being transparent across the workforce.
Diversity, Equity, and Inclusion (DEI)
In order to ensure that each of our employees can bring their full selves to work, John Deere strives to foster a diverse, equitable, and inclusive workplace where all voices are heard and included. John Deere continues to champion policies, practices, and behaviors that amplify innovation on behalf of people, community, and planet. Diversity, equity, and inclusion are critical to John Deere’s success as an organization. Incorporating DEI into our business practices enhances innovation and enables our best talent to thrive in an environment where diverse perspectives are celebrated. This requires deliberate intention and action on the part of every employee
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and leader. We will continue to push forward on the path to a more diverse, equitable, and inclusive culture with our colleagues, customers, suppliers, and distribution channels. In doing so, experience tells us we will be more engaged, innovative, and successful.
John Deere leadership sets a consistent and transparent tone on diversity and inclusion. Leadership training focuses on building an inclusive environment and driving positive behavioral change. To help managers with development and team building, we measure inclusiveness as part of our employee experience survey. We are working to further weave DEI into all aspects of how we lead and do business. In addition to regional councils, we have formed a global diversity and inclusion council with senior leaders who own our DEI journey. This journey is a collective effort that involves every level of our organization. As part of the annual sustainability report available on our website, John Deere has publicly disclosed the number of women and minorities in leadership positions and continues to launch initiatives to increase representation of minorities in the workforce.
John Deere proudly partners with several professional organizations to support our diversity recruitment strategy, including the National Black MBA Association, Inc., the Society of Women Engineers, the Thurgood Marshall College Fund Leadership Institute, the Society of Hispanic Professional Engineers, and Minorities in Agriculture, Natural Resources, and Related Sciences.
Our Company-sponsored employee resource groups (ERGs) are employee-run organizations formed around a common dimension of diversity, interest, or experience that affects the workplace. ERGs bring together individuals with shared interests while serving as resources to our business. The efforts of our ERGs address three key focus areas – employee development, community involvement, and business alignment. John Deere has 12 ERGs with more than 7,500 employees engaged globally.
Compensation & Benefits
To attract and retain talent, John Deere offers competitive compensation and non-financial benefits everywhere we operate. These benefits are tailored to the markets in which our employees are located. The non-compensation benefits we offer focus on all aspects of employee well-being, including physical, social, community, and career. We conduct regular surveys of the market rates for jobs to ensure our compensation is competitive. We offer a variety of working arrangements, including flexible schedules, telecommuting, and job sharing, to help employees manage home and work-life situations.
Training and Development
John Deere provides training and development opportunities for employees at all stages of their careers to empower them to reach their full potential. Employees are critical to the long-term success of John Deere’s business. We encourage employees to identify the paths that can build the skills, experience, knowledge, and competencies needed for career advancement. John Deere supports employees by creating purpose-driven work opportunities, comprehensive performance reviews and development plans, mentoring opportunities, and professional and personal development opportunities. John Deere provided approximately 19.5 training hours per full time equivalent administrative/professional employee globally in fiscal 2021. John Deere’s training programs, which are tailored to different geographic regions and job functions, include among other topics technical operation of equipment, equipment assembly, relationships with customers and dealers, John Deere’s culture and values, compliance with the Code, compliance with anti-bribery/corruption laws and policies, compliance with management of private data and cybersecurity, conflicts of interest, discrimination and workplace harassment policies, and sexual harassment policies.
Human Rights
John Deere honors human rights and respects the individual dignity of all persons globally. Our commitment to human rights requires that we understand and carry out our responsibilities consistent with Company values and practices. We strive to ensure that human rights are upheld for our employees and all workers in our supply chain. Our commitment to human rights is defined in the Code, our supplier code of conduct, our dealer code of conduct, and related policies and practices, which establish clear guidelines for our employees, suppliers, and dealers while helping to inform our business decisions. We do not tolerate human rights abuses, such as forced labor, unlawful child labor, or human trafficking. We are proud to contribute to the places where we work and support the residents of these places.
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
Following are the names and ages of the executive officers of the Company, their positions with the Company, and summaries of their backgrounds and business experience.experiences. All executive officers are elected or appointed by the Board of Directors and hold office until the annual meeting of the Board of Directors following the annual meeting of stockholders in each year.
| | | | | | | | |
Name, age and office (at December 1, 2021), and year elected to office | | Principal occupation during last | ||||||
John C. May | | 52 | | Chairman and Chief Executive Officer | | 2020 | | 2019 Chief Executive Officer and President, 2019 President and Chief Operating Officer, 2018 – 2019 President, Worldwide Agriculture & Turf Division, Global Harvesting and Turf Platforms, Ag Solutions Americas and Australia, 2012 – 2018 President, Agricultural Solutions & Chief Information Officer |
Ryan D. Campbell | | 47 | | Senior Vice President and Chief Financial Officer | | 2019 | | 2018 Deputy Financial Officer, 2017 Vice President and Comptroller, 2016 Deputy Comptroller |
Marc A. Howze | | 58 | | Group President, Lifecycle Solutions and Chief Administrative Officer | | 2020 | | 2016 – 2020 Senior Vice President and Chief Administrative Officer, 2012 – 2016 Vice President, Global Human Resources & Employee Communications |
Mary K.W. Jones | | 53 | | Senior Vice President, General Counsel and Worldwide Public Affairs | | 2019 | | 2013 – 2019 Senior Vice President and General Counsel |
Rajesh Kalathur | | 53 | | President, John Deere Financial, and Chief Information Officer | | 2019 | | 2018 – 2019 Senior Vice President, Chief Financial Officer and Chief Information Officer, 2012 – 2018 Senior Vice President and Chief Financial Officer |
Cory J. Reed | | 51 | | President, Worldwide Agriculture and Turf Division, Production and Precision Ag, Sales and Marketing Regions of the Americas and Australia | | 2020 | | 2019 – 2020 President, Worldwide Agriculture & Turf Division, Americas and Australia, Global Harvesting and Turf Platforms, Agricultural Solutions, 2016 – 2019 President, John Deere Financial, 2013 – 2016 Senior Vice President, Intelligent Solutions Group |
John H. Stone | | 51 | | President, Worldwide Construction and Forestry and Power Systems | | 2020 | | 2016 – 2020 Senior Vice President, Intelligent Solutions Group |
Markwart von Pentz | | 58 | | President, Worldwide Agriculture and Turf Division, Small Ag and Turf, Sales and Marketing Regions of Europe, CIS, Asia, and Africa | | 2020 | | 2019 – 2020 President, Worldwide Agriculture & Turf Division Tractor and Hay & Forage, Regions 1 & 2, and Advanced Engineering, 2018 – 2019 President, Worldwide Agriculture & Turf Division Global Tractor and Hay & Forage Platforms, Europe, CIS, Asia, Africa, 2012 – 2018 President, Agriculture & Turf Division-Europe, Asia, Africa, and Global Tractor Platform |
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Name, age and office (at December 1, 2018), and year elected to office | Principal occupation during last five years other than office of the Company currently held | ||||||||
---|---|---|---|---|---|---|---|---|---|
Samuel R. Allen | 65 | Chairman and Chief Executive Officer | 2010 | Has held this position for the last five years | |||||
James M. Field | 55 | President, Worldwide Construction & Forestry Division | 2018 | 2012 – 2018 President, Agriculture & Turf Division-Global Harvesting & Turf Platforms, Americas and Australia | |||||
Jean H. Gilles | 61 | Senior Vice President, John Deere Power Systems, Worldwide Parts Services, Advanced Technology & Engineering and Global Supply Management and Logistics | 2010 | Has held this position for the last five years | |||||
Marc A. Howze | 55 | Senior Vice President and Chief Administrative Officer | 2016 | 2012 – 2016 Vice President, Global Human Resources & Employee Communications | |||||
Mary K.W. Jones | 50 | Senior Vice President and General Counsel | 2013 | Has held this position for the last five years | |||||
Rajesh Kalathur | 50 | Senior Vice President, Chief Financial Officer and Chief Information Officer | 2018 | 2012 – 2018 Senior Vice President and Chief Financial Officer | |||||
John C. May | 49 | President, Worldwide Agriculture & Turf Division, Global Harvesting and Turf Platforms, Ag Solutions Americas and Australia | 2018 | 2012 – 2018 President, Agricultural Solutions & Chief Information Officer | |||||
Cory J. Reed | 48 | President, John Deere Financial | 2016 | 2013 – 2016 Senior Vice President, Intelligent Solutions Group; 2012 – 2013 Senior Vice President, Global Marketing Services | |||||
Markwart von Pentz | 55 | President, Worldwide Agriculture & Turf Division Global Tractor and Hay & Forage Platforms, Europe, CIS, Asia, Africa | 2018 | 2012 – 2018 President, Agriculture & Turf Division-Europe, Asia, Africa, and Global Tractor Platform |
ITEM 1A. | RISK FACTORS. |
The following risks are considered the most significantmaterial to John Deere'sDeere’s business based upon current knowledge, information, and assumptions. This discussion of risk factors should be considered closely in conjunction with Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 20,27, including the risks and uncertainties described in the Safe Harbor Statement on pages 22 and 23,37 – 39, and the Notes to Consolidated Financial Statements beginning on page 36.49. These risk factors and other forward-looking statements that relate to future events, expectations, trends, and operating periods involve certain factors that are subject to change and important risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the Company'sCompany’s businesses. Although the risks are organized by headings and each risk is discussed separately, many are interrelated. The Company, except as required by law, undertakes no obligation to update or revise this risk factors discussion, whether as a result of new developments or otherwise. The risks described in this Annual Report on Form 10-K and the "Safe“Safe Harbor Statement"Statement” in this report are not the only risks faced by the Company.
Risks Related to the COVID Pandemic
The COVID pandemic resulted in additional risks that could materially adversely affect John Deere’s business, financial condition, results of operations, and/or cash flows.
The virus causing COVID was identified in late 2019 and spread globally (COVID pandemic). Efforts to combat the virus have been complicated by viral variants and uneven access to, and acceptance and effectiveness of, vaccines globally. The pandemic resulted in governments and other authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business closures. These measures have impacted and may continue to impact all or portions of John Deere’s workforce and operations and the operations of customers, dealers, and suppliers. Although certain restrictions related to the COVID pandemic have eased, uncertainty continues to exist regarding such measures and potential future measures. Current material and component shortages have limited and could continue to limit John Deere’s ability to meet customer demand, which could have a material adverse effect on the Company’s financial condition, cash flows, and results of operations.
The COVID pandemic caused a global recession and the sustainability of the economic recovery observed in 2021 remains unclear. The COVID pandemic has also significantly increased economic and demand uncertainty, has caused inflationary pressure in the U.S. and elsewhere, and has led to disruption and volatility in demand for John Deere’s products and services, suppliers’ ability to fill orders, and global capital markets. Economic uncertainties could continue to affect demand for John Deere’s products and services, the value of the equipment financed or leased, the demand for financing, and the financial condition and credit risk of John Deere’s dealers and customers.
Continued uncertainties related to the magnitude, duration, and persistent effects of the COVID pandemic may significantly adversely affect our business and outlook. These uncertainties include, among other things: the duration and impact of the resurgence in COVID cases in any country, state, or region; the emergence, contagiousness, and threat of new and different strains of virus; the availability, acceptance, and effectiveness of vaccines; additional closures or other actions as mandated or otherwise made necessary by governmental authorities, including employee vaccine mandates; disruptions in the supply chain, including those caused by industry capacity constraints, material availability, and global logistics delays and constraints arising from, among other things, the transportation capacity of ocean shipping containers, and a prolonged delay in resumption of operations by one or more key suppliers, or the failure of any key supplier; an increasingly competitive labor market due to a sustained labor shortage or increased turnover caused by the COVID pandemic; John Deere’s ability to meet commitments to customers on a timely basis as a result of increased costs and supply and transportation challenges; increased logistics costs; additional operating costs due to continued remote working arrangements, adherence to social distancing guidelines, and other COVID-related challenges; increased risk of cyberattacks on network connections used in remote working arrangements; increased privacy-related risks due to processing health-related personal information; legal claims related to personal protective equipment designed, made, or provided by John Deere or alleged exposure to COVID on John Deere premises; absence of employees due to illness; and the impact of the pandemic on John Deere’s customers and dealers. These factors, and others that are currently unknown or considered immaterial, could materially and adversely affect the Company’s business, liquidity, results of operations, and financial position.
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Geopolitical Uncertainties
International, national, and regional trade laws, regulations, and policies (particularly those related to or restricting global trade) and government farm programs and policies could significantly impair John Deere'sDeere’s profitability and growth prospects.
International, national, and regional laws, regulations, and policies directly or indirectly related to or restricting the import and export of John Deere'sDeere’s products, services, and technology, or those of our customers, including protectionist policies in particular jurisdictions or for the benefit of favored industries or sectors, could harm John Deere's multinational business and subjectDeere’s global business. John Deere to civil and criminal sanctions for violations. John Deere'sDeere’s profitability and growth prospects are tied directly to the global marketplace. Restricted access to global markets impairs John Deere'sDeere’s ability to export goods and services from its various manufacturing locations around the world and limits the ability to access raw materials and high qualityhigh-quality parts and components at competitive prices on a timely basis. Trade restrictions, including withdrawal from or modification of existing trade agreements, negotiation of new trade agreements, non-tariff trade barriers, local content requirements, and imposition of new (and retaliatory)or retaliatory tariffs against certain countries or covering certain products, including developments in U.S.-China trade relations, could limit John Deere'sDeere’s ability to capitalize on current and future growth opportunities in international markets and impair John Deere'sDeere’s ability to expand the business by offering new technologies, products, and services. These trade restrictions, and changes in – in–or uncertainty surrounding – surrounding–global trade policies, may affect John Deere'sDeere’s competitive position. Furthermore, market access and the ability to export agricultural and forestry commodities is critical to John Deere'sDeere’s agricultural and forestry customers. Policies impacting exchange rates and commodity prices or those limiting
the export or import of commodities could have a material adverse effect on the international flow of agricultural and other commodities that may result in a corresponding negative effect on the demand for agricultural and forestry equipment in many areas of the world. John Deere'sDeere’s agricultural equipment sales could be especially harmed by such policies because farm income strongly influences sales of agricultural equipment around the world, including sales made pursuant to the United States-Mexico-Canada Agreement, which was agreed on September 30, 2018 and which is designed to replace the North American Free Trade Agreement.world. Furthermore, trade restrictions could impede those in developing countries from achieving a higher standard of living, which could negatively impact John Deere'sDeere’s future growth opportunities arising from increasing global demand for food, fuel, and infrastructure. Additionally, changes in government farm programs and policies, including direct payment and other subsidies, can significantly influence demand for agricultural equipment. Furthermore,equipment as well as create unequal competition for multinational companies relative to domestic companies.
Embargoes, sanctions, and export controls imposed by the U.S. and other governments restricting or prohibiting transactions with certain persons or entities, including financial institutions, to certain countries or regions, or involving certain products, exposelimit the sales of John Deere to potential criminalproducts. Embargoes, sanctions, and civil sanctions. Embargoes and sanctionsexport control laws are changing rapidly for certain geographies, including with respect to China, Russia, Iran,Myanmar (Burma), and Venezuela.Belarus. In particular, changing U.S. export controls and sanctions on China, as well as other restrictions affecting transactions involving China and Chinese parties, could affect John Deere’s ability to collect receivables, provide aftermarket and warranty support for John Deere equipment, and sell products, and otherwise impact John Deere’s reputation and business. Although John Deere has a compliance program in place designed to reduce the likelihood of potential violations of import and export laws and sanctions, violations of these laws or sanctions could harm John Deere’s reputation and business, and may subject John Deere to civil and criminal sanctions, any of which could have ana material adverse effect on John Deere's reputation, business,Deere’s results of operations and financial condition.
Changes in government banking, monetary and fiscal policies could have a negative effect on John Deere.
Policies of the U.S. and other governments regarding banking, monetary and fiscal policies intended to promote or maintain liquidity, stabilize financial markets and/or address local deficit or structural economic issues may not be effective and could have a material impact on John Deere's customers and markets. John Deere's operations and results could also be impacted by financial regulatory reform that could have an adverse effect on the financial services segment and on John Deere's customers by limiting their ability to enter into hedging transactions or to finance purchases of John Deere products. Government policies on spending can also affect John Deere, especially the construction and forestry segment due to the impact of government spending on infrastructure development. The Dodd-Frank Wall Street Reform and Consumer Protection Act and its regulations impose, or may impose, additional reporting, stress testing, leverage, liquidity, capital requirements and other supervisory and financial standards and restrictions that increase regulatory compliance costs for John Deere and John Deere's financial services operations and could adversely affect John Deere and its financial services segment's funding activities, liquidity, structure (including relationships with affiliates), operations and performance. Moreover, John Deere's operations, including those outside of the United States, may also be impacted by non-U.S. regulatory reforms being implemented to further regulate non-U.S. financial institutions and markets.
Changes in tax rates, tax legislation, or exposure to additional tax liabilities could have a negative effect on John Deere.
John Deere is subject to income taxes in the U.S. and numerous foreign jurisdictions. The Company's domestic and international tax liabilities are dependent upon the location of earnings among these different jurisdictions. Tax rates in various jurisdictions may be subject to significant change. John Deere's effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation. If the Company's effective tax rates were to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, John Deere's operating results, cash flows and financial condition could be adversely affected.
Changing worldwide demand for food and different forms of bio-energy could have an effect on the price of farm commodities and consequently the demand for certain John Deere equipment and could also result in higher research and development costs related to changing machine fuel requirements.
Changing worldwide demand for farm outputs to meet the world's growing food and bio-energy demands, driven in part by government policies and a growing world population, are likely to result in fluctuating agricultural commodity prices, which directly affect sales of agricultural equipment. Lower farm commodity prices directly affect farm incomes, which could negatively affect sales of agricultural equipment. While higher commodity prices benefit John Deere's crop-producing agricultural equipment customers, higher commodity prices also could result in greater feed costs for livestock and poultry producers which in turn may result in lower levels of equipment purchased by these customers. Furthermore, changing bio-fuel demands may cause farmers to change the types or quantities of the crops they raise, with corresponding changes in equipment demands. Finally, changes in governmental policies regulating bio-fuel utilization could affect demand for John Deere's diesel-fueled equipment and result in higher research and development costs related to equipment fuel standards.
As John Deere seeks to expand its business globally, growth opportunities may be impacted by greaterGreater political, economic, and social uncertainty and the continuing and acceleratingevolving globalization of businesses could significantly change the dynamics of John Deere'sDeere’s competition, customer base, and product offerings.offerings and impact John Deere’s growth opportunities globally.
John Deere'sDeere’s efforts to grow its businesses depend to a large extentin part upon access to additional geographic markets, including, but not limited to, Argentina, Brazil, China, India, Russia, and Russia,South Africa, and its success in developing market share and operating profitably in such markets. In some cases, these countries have greater political and economic volatility, greater vulnerability to infrastructure and labor disruptions, and differing local customer product preferences and requirements than John Deere'sDeere’s other markets. Negative market conditions resulting from economic and political uncertainties in these and other countries could reduce customer confidence, resulting in declines in demand and increases in delinquencies and default rates, which could affect write-offs and provisions for credit losses. Operating and seeking to expand business in a number of different regions and countries exposes John Deere to multiple and potentially conflicting cultural practices, business practices, and legal and regulatory requirements that are subject to change and are often complex and difficult to navigate, including those related to tariffs and trade barriers, investments, property ownership rights, taxation, sanctions and export control requirements, repatriation of earnings, and advanced technologies. Expanding business operations globally also increases exposure to currency fluctuations, which can materially affect the
Company's Company’s financial results. As these emerging geographic markets become more important to John Deere, its competitors are also seeking to expand their production capacities and sales in these same markets. While John Deere maintains a positive corporate image and its brands are widely recognized and valued in its traditional markets, the brands are less well known in some emerging markets, which could impede John Deere'sDeere’s efforts to successfully compete in these markets. Although John Deere is taking measures to adapt to these changing circumstances, John Deere'sDeere’s reputation and/or business results could be negatively affected should these efforts prove unsuccessful.
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Uncertain Economic Conditions
John Deere operates in highly competitive markets.
John Deere operates in a variety of highly competitive global and regional markets. John Deere competes worldwide with a number of other manufacturers and distributors that produce and sell similar products. John Deere competes on the basis of product performance, innovation and quality, distribution, customer service and price. Aggressive pricing or other strategies pursued by competitors, unanticipated product or manufacturing delays or John Deere's failure to price its products competitively could adversely affect John Deere's business, results of operations and financial condition.
John Deere's business results depend largely on its ability to understand its customers' specific preferences and requirements, and to develop, manufacture and market products that meet customer demand.
John Deere's ability to match new product offerings to diverse global customers' anticipated preferences for different types and sizes of equipment and various equipment features and functionality, at affordable prices, is critical to its success. This requires a thorough understanding of John Deere's existing and potential customers on a global basis, particularly in potentially high-growth and emerging markets, including Brazil, China, India and Russia. Failure to deliver quality products that meet customer needs at competitive prices ahead of competitors could have a significant adverse effect on John Deere's business.
Negative economic conditions and outlook can materially weaken demand for John Deere'sDeere’s equipment and services, limit access to funding, and result in higher funding costs.
The demand for John Deere'sDeere’s products and services can be significantly reduced in an economic environment characterized by high unemployment, cautious consumer spending, lower corporate earnings, U.S. budget issues, and lower business investment. Negative or uncertain economic conditions causingthat cause John Deere'sDeere’s customers to lack confidence in the general economic outlook can significantly reduce their likelihood of purchasing John Deere'sDeere’s equipment. As discussed under Risks Related to the COVID Pandemic–The COVID pandemic resulted in additional risks that could materially adversely affect John Deere’s business, financial condition, results of operations, and/or cash flows, the COVID pandemic caused a global recession and significantly increased economic and demand uncertainty. Sustained negative economic conditions and outlook affect housing starts, energy demand, and other construction, which dampens demand for certain construction equipment. John Deere'sDeere’s turf operations and its construction and forestry business are dependent on construction activity and general economic conditions. Decreases in construction activity and housing starts could have a material adverse effect on John Deere'sDeere’s results of operations. If negative economic conditions affect the overall farm economy, there could be a similar effect on John Deere'sDeere’s agricultural equipment sales. In addition, uncertain or negative outlook with respect to ongoingpervasive U.S. budgetfiscal issues as well as general economic conditions and outlook can cause significant changes in market liquidity conditions. Such changes could impact access to funding and associated funding costs, which could reduce the Company'sCompany’s earnings and cash flows. Additionally, the Company'sCompany’s investment management activities could be adversely affected by changes in the equity and bond markets, which would negatively affect earnings.
In addition, demand for John Deere'sDeere’s products and services can be significantly reduced by concerns regarding the diverse economic and political circumstances of the individual countries in the eurozone, the debt burden of certain eurozone countries and their ability to meet future financial obligations, uncertainty related to the anticipated withdrawal of the United Kingdom from the European Union, the risk that one or more other European Union countries could come under increasing pressure to leave the European Union, or the long term stability of the euro as a single common currency. Persistent disparity with respect to the widely varying economic conditions within the individual countries in the eurozone, and its implications for the euro as well as market perceptions concerning these and related issues, could adversely affect the value of the Company'sJohn Deere’s euro-denominated assets and obligations, have an adverse effect on demand for John Deere'sDeere’s products and services in the eurozone, and have an adverse effect on financial markets in Europe and globally. More specifically, it could affect the ability of John Deere'sDeere’s customers, suppliers, and lenders to finance their respective businesses toand access liquidity at acceptable financing costs, if at all, andas well as the availability of supplies and materials and on the demand for John Deere'sDeere’s products.
Financial Risks
Changes in government banking, monetary, and fiscal policies could have a negative effect on John Deere.
Policies of the U.S. and other governments regarding banking, monetary, and fiscal policies intended to promote or maintain liquidity, stabilize financial markets, and/or address local deficit or structural economic issues may not be effective and could have a material impact on John Deere’s customers and markets. Failure of the U.S. federal government to pass a 2022 budget resolution could lead to a U.S. default under its sovereign debt, the consequences of which could have significant and unpredictable effects on global financial markets, which could in turn negatively affect John Deere’s operating results, cash flows, and financial condition. John Deere’s operations and results could also be affected by financial regulatory reform that could have an adverse effect on the financial services segment and on John Deere’s customers by limiting their ability to enter into hedging transactions or to finance purchases of John Deere products. Government policies on spending can also affect John Deere, especially the construction and forestry segment, due to the impact of government spending on infrastructure development. John Deere’s operations, including those outside of the United States, may also be affected by non-U.S. regulatory reforms being implemented to further regulate non-U.S. financial institutions and markets.
Changes in tax rates, tax legislation, or exposure to additional tax liabilities could have a negative effect on John Deere.
John Deere is subject to income taxes in the U.S. and numerous foreign jurisdictions. John Deere’s domestic and international tax liabilities are dependent upon the location of earnings among these different jurisdictions. Tax rates in various jurisdictions may be subject to significant change. John Deere’s effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretations. If John Deere’s effective tax rates were to increase, or if the ultimate determination of its taxes owed is for an amount in excess of amounts previously accrued, John Deere’s operating results, cash flows, and financial condition could be adversely affected.
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The Company'sCompany’s consolidated financial results are reported in U.S. dollars while certain assets and other reported items are denominated in the currencies of other countries, creating currency exchange and translation risk.
John Deere operates in many areas of the world, involving transactions denominated in a variety of currencies. John Deere is subject to currency exchange risk to the extent that its costs are denominated in currencies other than those in which John Deere earns revenues.
Additionally, the reporting currency for the Company'sCompany’s consolidated financial statements is the U.S. dollar. Certain of John Deere'sDeere’s assets, liabilities, expenses, and revenues are denominated in other countries'countries’ currencies. Those assets, liabilities, expenses, and revenues are translated into U.S. dollars at the applicable exchange rates to prepare the Company'sCompany’s consolidated financial statements. Therefore, increases or decreases in exchange rates between the U.S. dollar and those other currencies affect the value of those items as reflected in the Company'sCompany’s consolidated financial statements, even if their value remains unchanged in their original currency.currencies. Substantial fluctuations in the value of the U.S. dollar could have a significant impact on John Deere'sDeere’s results.
Because the financial services segment provides financing for a significant portion of John Deere'sDeere’s sales worldwide, negative economic conditions in the financial industry could materially impact John Deere'sDeere’s operations and financial results could be impacted materially should negative economic conditions affect the financial industry.results.
Negative economic conditions can have an adverse effect on the financial industry in which the financial services segment operates. The financial services segment provides financing for a significant portion of John Deere'sDeere’s sales worldwide. The financial services segment is exposed to the risk that customers and others will default on contractual obligations. The financial services segmentobligations and may experience credit losses that exceed its expectations and adversely affect its financial condition and results of operations. The financial services segment'ssegment’s inability to access funds at cost-effective rates to support its financing activities could have a material adverse effect on John Deere'sDeere’s business. The financial services segment'ssegment’s liquidity and ongoing profitability depend largely on timely access to capital in order to meet future cash flow requirements and to fund operations and costs associated with engaging in diversified funding activities. Additionally, negative market conditions could reduce customer confidence levels, resulting in declines in credit applications and increases in delinquencies and default rates, which could materially impact the financial services segment'ssegment’s write-offs and provision for credit losses. The financial services segment may also experience residual value losses that exceed its expectations caused by lower pricing for used equipment and higher than expectedhigher-than-expected equipment returns at lease maturity.
Because John Deere'sDeere’s equipment operations and financial services segmentssegment are subject to interest rate risks. Changesrisks, changes in interest rates can reduce demand for equipment, adversely affect interest margins, and limit the abilityaccess to access capital markets while increasing borrowing costs.
Rising interest rates could have a dampening effect on overall economic activity and/or the financial condition of John Deere'sDeere’s customers, either or both of which could negatively affect customer demand for John Deere equipment and customers'customers’ ability to repay obligations to John Deere. In addition, credit market dislocations could have an impact on funding costs, which are very important to John Deere'sthe financial services segment because such costs affect the segment'ssegment’s ability to offer customers competitive financing rates. While the Company strives to match the interest rate characteristics of ourits financial assets and liabilities, changing interest rates could have an adverse effect on the Company'sCompany’s net interest rate margin – margin—the difference between the yield the Company earns on its assets and the interest rates the Company pays for funding, which could in turn affect the Company'sCompany’s net interest income and earnings. Actions by credit rating agencies, such as downgrades or negative changes to ratings outlooks, can affect the availability and cost of funding for the Company and can increase the Company'sCompany’s cost of capital and hurt its competitive position.
The transition away from the London Interbank Offered Rate (“LIBOR”) and the adoption of alternative reference rates could adversely affect John Deere’s business and results of operations.
John Deere is exposed to LIBOR-based financial instruments, primarily relating to debt, derivative, and receivables transactions, that have been entered into previously and remain outstanding. The LIBOR benchmark has been subject of national, international, and other regulatory guidance and proposals for reform. In July 2017, the U.K. Financial Conduct Authority announced its intention to stop persuading or compelling banks to submit rates for calculation of LIBOR after 2021. In November 2020, the Intercontinental Exchange announced its intention to cease publication of certain LIBOR settings by the end of 2021 while continuing to publish overnight and one-, three-, six-, and twelve-month U.S. dollar LIBOR rates through June 30, 2023. However, in early 2021, the United States Federal Reserve Board and other regulatory bodies issued guidance encouraging banks and other financial market participants to cease entering into new contracts that use U.S. dollar LIBOR as a reference rate as soon as practicable and in any event no later than December 31, 2021. These actions may cause LIBOR to perform differently than in the past and LIBOR will likely ultimately cease to exist.
To facilitate an orderly transition from LIBOR to alternative benchmark rate(s), John Deere has established an initiative led by internal subject matter experts to assess and mitigate risks associated with the discontinuation of LIBOR. As part of this initiative, several alternative benchmark rates have been, and continue to be, evaluated. At this time, however, the effects of the phase out of LIBOR and the adoption of alternative benchmark rates have not been fully determined. Any new benchmark rate will likely not replicate
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LIBOR exactly, which could affect John Deere’s contracts that mature after a LIBOR cessation date. In addition, there is uncertainty about how applicable laws, the courts, or John Deere will address the replacement of LIBOR with alternative rates on variable rate contracts that do not include, or contain unclear, alternative rate fallback provisions. A failure to properly transition away from LIBOR could expose John Deere to various financial, operational, and regulatory risks, which could affect its results of operations and cash flows. Uncertainty as to the nature of such potential changes may also adversely affect the trading market for the Company’s securities.
Sustained increases in funding obligations under the Company’s pension plans may impair the Company’s liquidity or financial condition.
The Company maintains certain defined benefit pension plans for certain employees, which impose funding obligations. The Company uses many assumptions in calculating its future payment obligations under these plans. Significant adverse changes in credit or market conditions could result in actual rates of return on pension investments being lower than expected. The Company may be required to make significant contributions to its pension plans in the future. These factors could significantly increase the Company’s payment obligations under the plans and adversely affect its business, results of operations, and financial condition.
Market Conditions
John Deere’s ability to adapt in highly competitive markets could affect its business, results of operations, and financial condition.
John Deere operates in a variety of highly competitive global and regional markets. John Deere competes worldwide with a number of other manufacturers and distributors that produce and sell similar products. John Deere competes on the basis of product performance, innovation and quality, distribution, customer service, and price. Aggressive pricing or other strategies pursued by competitors, unanticipated product or manufacturing delays, or John Deere’s failure to price its products competitively could adversely affect its business, results of operations, and financial condition.
John Deere’s ability to understand its customers’ specific preferences and requirements, and to develop, manufacture, and market products that meet customer demand, could significantly affect its business results.
John Deere’s ability to match new product offerings to diverse global customers’ anticipated preferences for different types and sizes of equipment and various equipment features and functionality, at affordable prices, is critical to its success. This requires a thorough understanding of John Deere’s existing and potential customers on a global basis, particularly in growth markets such as Argentina, Brazil, and India. Failure to deliver quality products that meet customer needs at competitive prices ahead of competitors could have a significant adverse effect on John Deere’s business.
Changing worldwide demand for food and different forms of bio-energy could affect the price of farm commodities and consequently the demand for certain John Deere equipment and could also result in higher research and development costs related to changing machine fuel requirements.
Changing worldwide demand for farm outputs to meet the world’s growing food and bio-energy demands, driven in part by government policies, including those related to climate change, and a growing world population, are likely to result in fluctuating agricultural commodity prices, which directly affect sales of agricultural equipment. Lower agricultural commodity prices directly affect farm incomes, which could negatively affect sales of agricultural equipment and result in higher credit losses. While higher commodity prices benefit John Deere’s crop-producing agricultural equipment customers, higher commodity prices also could result in greater feed costs for livestock and poultry producers, which in turn may result in lower levels of equipment purchased by these customers. Furthermore, changing bio-energy demands may cause farmers to change the types or quantities of the crops they raise, with corresponding changes in equipment demands. Finally, changes in governmental policies regulating bio-fuel utilization could affect commodity demand and commodity prices, demand for John Deere’s diesel-fueled equipment, and result in higher research and development costs related to equipment fuel standards.
Manufacturing and Operations
Changes in the availability and price of certain raw materials, components, and whole goods could result in significant disruptions to the supply chain, production disruptions, and increased costs and lower profits on sales of John Deere products.
John Deere requires access to various raw materials, components, and whole goods at competitive prices to manufacture and distribute its products. Changes in the availability and prices of these raw materials, components, and whole goods, which have fluctuated significantly in the past and are more likely to fluctuate during times of economic volatility, regulatory instability, or change in import tariffs or trade agreements, can significantly increase the costs of production, which could have a material negative effect on the profitability of the business, particularly if John Deere, due to pricing considerations or other factors, is unable to recover the increased costs from its customers. Significant disruptions to the supply chain resulting from shortages of raw materials, components,
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and whole goods can adversely affect John Deere’s ability to meet commitments to customers. John Deere relies on suppliers to acquire raw materials, components, and whole goods required to manufacture its products.
Certain components and parts used in John Deere’s products are available from a single supplier and cannot be alternatively sourced quickly. As discussed under Item 1, “Construction and Forestry,” the Company agreed to voluntarily terminate its joint venture agreement with Hitachi in a transaction that is expected to close in the first half of fiscal 2022. In connection with this termination, John Deere Construction & Forestry Company, a wholly-owned subsidiary of the Company, has entered into a supply agreement with Hitachi pursuant to which Hitachi will continue to provide John Deere-branded excavators, components, and service parts. Any delay or failure by Hitachi to deliver these supplies, or failure by Hitachi to produce such supplies in a manner that meets John Deere’s quality and quantity requirements, could adversely affect John Deere’s business, results of operations, cash flow, and financial condition or its ability to meet commitments to its customers.
In 2020, the COVID pandemic caused a significant reduction in global demand for goods, resulting in widespread cuts in manufacturing capacity and the displacement of workers. As economies around the world have reopened in 2021, sharp increases in demand have created significant disruptions to the global supply chain, which have affected John Deere’s ability to receive goods on a timely basis and at anticipated costs. These supply chain disruptions have been caused and compounded by many factors, including changes in supply and demand, industry capacity constraints, weather conditions, natural disasters, business continuity, labor shortages, the COVID pandemic, geopolitical tensions, and trade conflicts. Global logistics network challenges include shortages of shipping containers, ocean freight capacity constraints, international port delays, trucking and chassis shortages, railway and air freight capacity, and labor availability constraints, which have resulted in delays, shortages of key manufacturing components, increased order backlogs, and increased transportation costs. John Deere actively monitors and mitigates supply chain risk, but there can be no assurance that our mitigation plans will be effective to prevent disruptions that may arise from shortages of materials that we use in the production of our products. Uncertainties related to the magnitude and duration of global supply chain disruptions have adversely affected, and may continue to adversely affect, John Deere’s business and outlook.
Supply chain disruptions due to pandemic events, including the COVID pandemic, supplier financial distress, capacity constraints, trade barriers, labor shortages, business continuity, quality, cyberattacks, energy supply, delivery issues, or disruptions due to weather-related events or natural disasters could affect John Deere’s operations and profitability.
Data Security and Privacy Risks
Security breaches and other disruptions to John Deere’s information technology infrastructure could interfere with John Deere’s operations and could compromise the information of John Deere as well as its customers, suppliers, and/or dealers, exposing John Deere to liability that could cause John Deere’s business and reputation to suffer.
In the ordinary course of business, John Deere relies upon information technology networks and systems, some of which are managed by third parties, to process, transmit, and store electronic information and to manage or support a variety of business processes and activities, including supply chain, manufacturing, distribution, invoicing, and collection of payments from dealers and other purchasers of John Deere equipment and from customers of the financial services segment. John Deere uses information technology systems to record, process, and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements. Additionally, John Deere collects and stores sensitive data, including intellectual property, proprietary business information, and the proprietary business information of John Deere’s customers, suppliers, and dealers, as well as personally identifiable information of John Deere’s customers and employees, in data centers, which are often owned by third parties, and on information technology networks. The secure operation of these information technology networks and the processing and maintenance of this information is critical to John Deere’s business operations and strategy. Despite security measures, including a vulnerability disclosure program, and business continuity plans, John Deere’s information technology networks and infrastructure have been and may be vulnerable to damage, disruptions, or shutdowns due to attacks by cyber criminals or breaches due to employee, supplier, or dealer error or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures, terrorist acts, natural disasters, or other catastrophic events. Although John Deere has not suffered any significant cyber incidents that resulted in material business impact, we have from time to time been the target of malicious cyber threat actors. The occurrence of any significant event could compromise John Deere’s networks, and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption to John Deere’s operations, and damage John Deere’s reputation, which could adversely affect John Deere’s business, results of operations, and financial condition. In addition, as security threats continue to evolve and increase in frequency and sophistication, John Deere may need to invest additional resources to protect the security of its systems.
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John Deere is subject to governmental laws, regulations, and other legal obligations related to privacy and data protection and any inability or perceived inability of John Deere to address these requirements could adversely affect our business.
The legislative and regulatory framework for privacy and data protection issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. John Deere collects personal information and other data as integral parts of its business processes and activities. This data is subject to a variety of U.S. and foreign laws and regulations, including oversight by various regulatory and other governmental bodies. Many foreign countries and governmental bodies, including the European Union, China, Canada, and other relevant jurisdictions where John Deere conducts business, have laws and regulations concerning the collection and use of personal information and other data obtained from their residents or by businesses operating within their jurisdictions. The European Union General Data Protection Regulation, the California Consumer Privacy Act, and the China Personal Information Protection Law, among others, impose stringent data protection requirements and provide significant penalties for noncompliance. New privacy laws will continue to come into effect around the world in the future. Any inability or perceived inability to adequately address privacy and data protection concerns, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations, or other legal obligations (including at newly acquired companies) could result in additional cost and liability to the Company or Company officials, damage our reputation, inhibit sales, and otherwise adversely affect our business.
Security breaches with respect to John Deere’s products could interfere with the business of John Deere, its dealers, and/or customers, exposing John Deere to liability that would cause its business and reputation to suffer.
Some of John Deere’s products include connectivity hardware typically used for remote system updates. While John Deere has implemented security measures intended to prevent unauthorized access to its products, malicious actors have reportedly attempted, and may attempt in the future, to gain unauthorized access to such products through such connectivity hardware in order to gain control of the products, change the products’ functionality, user interface, or performance characteristics, or gain access to data stored in or generated by the products. Any unauthorized access to or control of John Deere products or systems or any loss of data could result in legal claims against John Deere or government investigations. In addition, reports of unauthorized access to John Deere’s products, systems, and data, regardless of their veracity, may result in the perception that the products, systems, or data are capable of being hacked, which could harm John Deere’s brand, prospects, and operating results. John Deere has been the subject of such reports in the past.
Intellectual Property Risks
The potential loss of John Deere intellectual property through trade secret theft, infringement of patents, trademark counterfeiting, or other loss of rights to exclusive use of John Deere intellectual property maycould have a material adverse effect on the Company. Infringement of the intellectual property rights of others by John Deere maycould also have a material adverse effect on the Company.
John Deere relies on a combination of patents, trademarks, copyrights, trade secret laws, and confidentiality agreements to protect ourits intellectual property rights. In particular, weJohn Deere heavily relyrelies on certain John Deere trademarks whichthat contribute to John Deere'sDeere’s identity and the recognition of its products and services, including but not limited to the "John Deere"“John Deere” mark, the leaping deer logo, the "Nothing“Nothing Runs Like a Deere"Deere” slogan, the prefix "JD"“JD” associated with many products, and the green and yellow equipment colors. These trademarks, as well as the many patents used in our products, are integral to the John Deere business, and their loss could have a material adverse effect on the Company.
Additionally, third parties may initiate litigation to challenge the validity of ourJohn Deere’s patents or allege that we infringeJohn Deere infringes their patents. WeJohn Deere may incur substantial costs if ourits competitors or other third parties initiate such litigation, or if we initiateJohn Deere initiates any proceedings to protect ourits proprietary rights. If the outcome of any such litigation is unfavorable to us,John Deere, our business could be adversely affected. Similarly, disputes may arise regarding whether ourJohn Deere’s products or technologies infringe the proprietary rights of others. Any such infringement could cause third parties, including our competitors, to bring claims against us,John Deere, resulting in significant costs, possible damages, and substantial uncertainty.
Human Capital Risks
John Deere’s ability to attract, develop, engage, and retain qualified employees could affect its ability to execute its strategy.
John Deere’s continued success depends, in part, on its ability to identify and attract qualified candidates with the requisite education, background, and experience as well as its ability to develop, engage, and retain qualified employees. Failure to attract, develop, engage, and retain qualified employees, whether as a result of an insufficient number of qualified applicants, difficulty in recruiting new employees, or inadequate resources to train, integrate, and retain qualified employees, could impair John Deere’s ability to execute its business strategy, and could adversely affect John Deere’s business. In addition, while John Deere is subject to extensive anti-corruption laws and regulations.
John Deere's global operations must comply with all applicable anti-corruption laws, including the U.S. Foreign Corrupt Practices Act and the UK Bribery Act. These anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage regardless of whether those practices are legal or culturally expected in a particular jurisdiction. Although John Deere has a compliance program in place designedstrives to reduce the likelihoodimpact of potential violationsthe departure of employees, John Deere’s operations or ability to execute its business strategy and meet its business objectives may be affected by the loss of employees, particularly when departures involve larger numbers of employees, such laws, violationsas those John Deere could experience if a surge occurs in the number of these lawsemployees voluntarily leaving their jobs similar to that experienced by
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other employers and industries since 2020. Higher rates of employee separations may adversely affect John Deere through decreased employee morale, the loss of knowledge of departing employees, and the devotion of resources to recruiting and onboarding new employees.
Disputes with labor unions have adversely affected John Deere’s ability to operate its facilities as well as its financial results.
Many of John Deere’s production and maintenance employees are represented by labor unions under various collective bargaining agreements with different expiration dates. The failure of John Deere to successfully renegotiate labor agreements as they expire has from time to time led, and could result in criminalthe future lead, to work stoppages or civil sanctionsother disputes with labor unions. Disruptions to John Deere’s manufacturing and parts-distribution facilities, through various forms of labor disputes, adversely affect the Company. On October 14, 2021, after employees represented by the UAW failed to approve a new collective bargaining agreement between John Deere and the UAW, the UAW initiated a labor strike affecting more than 10,000 workers at 14 John Deere facilities across the U.S., which adversely affected John Deere’s operations in the fourth quarter of fiscal 2021. The strike ended after a new collective bargaining agreement was approved on November 17, 2021. The UAW strike is expected to have an adverse effect on John Deere'sDeere’s results of operations for the three months ending January 30, 2022 as a result of reduced production and shipments. Any strike, work stoppage, or other dispute with a labor union distracts management from operating the business, may displace employees from ordinary job positions to fill in vacant positions, may affect John Deere’s reputation, and could materially adversely affect the Company’s business, and results of operations, and financial condition.
John Deere's business may be directlyEnvironmental, Climate, and indirectly affected by unfavorableWeather Risks
Unfavorable weather conditions or natural disasterscalamities that reduce agricultural production and demand for agriculture and turf equipment.equipment could directly and indirectly affect John Deere’s business.
Poor or unusual weather conditions, particularly during the planting and early growing season, can significantly affect the purchasing decisions of John Deere'sDeere’s customers, particularly the purchasers of agriculture and turf equipment. The timing and quantity of rainfall are two of the most important factors in agricultural production. Insufficient levels of rain prevent farmers from planting new crops and may cause growing crops to die or result in lower yields. Excessive rain or flooding can prevent planting from occurring at optimal times and may cause crop loss through increased disease or mold growth. Temperatures outside normal ranges can also cause crop failure or decreased yields and may also affect disease incidence. Temperature affects the rate of growth, crop maturity, and crop quality.quality of crops. Natural calamities such as regional floods, hurricanes or other storms, droughts, diseases, and droughtspests can have significant negative effects on
agricultural and livestock production. The resulting negative impact on farm income can strongly affect demand for agricultural equipment. Salesequipment and the financial condition and credit risk of turf equipment, particularly during the important spring selling season, can be dramatically impacted by weather.John Deere’s dealers and customers. Adverse weather conditions in a particular geographic region, particularly during the important spring selling season, may adversely affect sales of some turf equipment. Drought conditions can adversely affect sales of certain mowing equipment and unusually rainy weather can similarly cause lower sales volumes.
Changes in the availability and price of certain raw materials, components and whole goods could result in production disruptions or increased costs and lower profits on sales of John Deere products.
John Deere requires access to various raw materials, components and whole goods at competitive prices to manufacture and distribute its products. Changes in the availability and price of these raw materials, components and whole goods, which have fluctuated significantly in the past and are more likely to fluctuate during times of economic volatility, regulatory instability or change in custom tariffs, can significantly increase the costs of production which could have a material negative effect on the profitability of the business, particularly if John Deere, due to pricing considerations or other factors, is unable to recover the increased costs from its customers. John Deere relies on suppliers to acquire raw materials, components and whole goods required to manufacture its products. Certain components and parts used in John Deere's products are available from a single supplier and cannot be alternatively sourced quickly. Supply chain disruptions due to supplier financial distress, capacity constraints, labor shortages, business continuity, quality, delivery or disruptions due to weather-related or natural disaster events could affect John Deere's operations and profitability.
John Deere's operations, suppliers and customers are subject to and affected by increasinglyIncreasingly rigorous environmental, health, and safety laws and regulations of federal, state, and local authorities in the U.S. and various regulatory authorities with jurisdiction overin other jurisdictions apply to John Deere's international operations. In addition, privateDeere’s operations, suppliers, and customers, and enforcement actions or civil litigation on these subjects has increased, primarily in the U.S.related to those requirements could adversely affect John Deere’s business results.
Enforcement actions arising from violations of environmental, health, and safety laws or regulations can lead to investigationinvestigations and defenselegal costs and result in significant fines or penalties. In addition, new or more stringent requirements of governmental authorities, including with respect to disclosure relating to climate change risks, could prevent or restrict John Deere'sDeere’s operations or those of our suppliers and customers, require significant expenditures to achieve compliance, and/or give rise to civil or criminal liability. Further, civil litigation on these subjects continues to increase, primarily in the U.S. There can be no assurance that violations of such legislationlaws and/or regulations, or private civil claims for damages to property or personal injury arising from the environmental, health, or safety impacts of John Deere'sDeere’s operations or those of our suppliers and customers, or other civil claims in which John Deere becomes a party, would not have consequences that result in a material adverse effect on John Deere'sDeere’s business, financial condition or results of operations.operations, or financial condition.
Increasingly stringent engine emission regulations or bans on internal combustion engines could impact John Deere'sDeere’s ability to manufacture and distribute certain engines or equipment, which could negatively affect business results.
John Deere'sDeere’s equipment operations must meet increasingly stringent engine emission reduction regulations throughout the world, including the European Union'sUnion’s Stage V standard. In addition, governmental agencies throughout the world are enacting more stringent laws and regulations to reduce off-road engine emissions. These laws and regulations are applicable to engines manufactured by John Deere, including those used in John Deere agriculture and construction and forestry equipment. John Deere has incurred and continues to incur substantial research and development costs related to the implementation of these more rigorous laws and regulations. While John Deere has developed and is executing comprehensive plans to meet these requirements, these plans are subject to many variables that could delay or otherwise affect John Deere'sDeere’s ability to manufacture and distribute certain equipment or
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engines, which could negatively impact business results.
Additionally, in certain locations governments have banned or may in the future ban internal combustion engines for some types of products completely. To the extent these bans affect products manufactured and sold by John Deere, may incur increased costs due to new or more stringent greenhouse gas emission standardsour business, results of operations, and financial condition could be negatively affected.
Governmental actions designed to address climate change and the emergence of new technologies and business models in connection with the transition to a lower-carbon economy could be further impacted byadversely affect John Deere and its customers. The physical effects attributed to climate change on itscould further impact John Deere’s facilities, suppliers, and customers.
There is global scientific consensus that emissions of greenhouse gases (GHG) continue to alter the composition of Earth'sEarth’s atmosphere in ways that are affecting and are expected to continue to affect the global climate. These considerations may lead to new international, national, regional, or local legislative or regulatory responses in the future.responses. Various stakeholders, including legislators and regulators, shareholders, and non-governmental organizations, as well as companies in many business sectors, including John Deere, are consideringcontinuing to look for ways to reduce GHG emissions. The regulation of GHG emissions from certain stationary or mobile sources or the imposition of carbon pricing mechanisms could result in additional costs to John Deere in the form of taxes or emission allowances, facilities improvements, and energy costs, which would increase John Deere'sDeere’s operating costs through higher utility, transportation, and materials costs. Increased input costs, such as fuel and fertilizer, and compliance-related costs could also impactaffect customer operations and demand for John Deere equipment. Because the impact of any future GHGclimate change-related legislative, regulatory, or product standard requirements on John Deere'sDeere’s global businesses and products is dependent on the timing and design of mandates or standards, John Deere is unable to predict itstheir potential impact at this time.
Furthermore,Customer preferences in the markets served by John Deere could change as these markets transition to less carbon-intensive business models. Demand for electric agricultural, turf, and construction equipment could rise. The development of alternative farming techniques, carbon sequestration technologies, and new low-carbon biofuels could change farmers’ business models and equipment needs. If John Deere fails to properly develop or invest in new technologies to meet changing customer demands, John Deere will be at risk of losing potential sources of revenue, which could affect the Company’s future financial results.
The potential physical impacts of climate change on John Deere'sDeere’s facilities, suppliers, and customers and therefore on John Deere'sDeere’s operations are highly uncertain and will be particular to the circumstances developing in various geographicalgeographic regions. These may include extreme weather events and long-term changes in temperature levels and water availability. These potential physical effects may adversely impactaffect the demand for John Deere'sDeere’s products and the cost, production, sales, and financial performance of John Deere'sDeere’s operations.
TableLegal and Regulatory Risks
John Deere’s global operations are subject to complex and changing laws and regulations, the violation of Contents
Security breaches and other disruptions to John Deere's information technology infrastructurewhich could interfere with John Deere's operations and could compromise John Deere's and its customers' and suppliers' information, exposingexpose John Deere to liability that would cause potential liabilities, increased costs, and other adverse effects.
John Deere's businessDeere’s global operations are subject to numerous international, federal, state, and reputation to suffer.
In the ordinary course of business, John Deere relies upon information technology networkslocal laws and systems, someregulations, many of which are managed by third parties,complex, frequently changing, and subject to process, transmitvarying interpretations. These laws and storeregulations cover a broad spectrum of subject areas, including advertising; anti–money laundering; antitrust; consumer finance; environmental, health, and safety, including proper handling of electronic information,waste, recycling, and to manage or support a variety of business processesclimate change; foreign exchange controls and activities, including supply chain, manufacturing, distribution, invoicingcash repatriation restrictions; foreign ownership and collection of payments from dealers or other purchasers ofinvestment; import/export and trade; human rights, labor, and employment; product liability; and telematics and data privacy and connectivity. These laws may vary substantially within the different markets in which John Deere equipmentoperates. Compliance with these laws and from customersregulations is costly and may further increase the cost of conducting John Deere's financial servicesDeere’s global operations. In addition, John Deere uses information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and tomust comply with regulatory financial reporting,the U.S. Foreign Corrupt Practices Act and all applicable foreign anti-corruption laws, including the U.K. Bribery Act, which generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage, regardless of whether those practices are legal and tax requirements. Additionally,or culturally expected in a particular jurisdiction. Although John Deere collectshas a compliance program in place designed to reduce the likelihood of potential violations of such laws and stores sensitive data, including intellectual property, proprietary business informationregulations, there can be no assurance that John Deere’s employees, contractors, or agents will not violate such laws and the proprietary business information ofregulations or John Deere's customersDeere’s policies and suppliers, as well as personally identifiable information of John Deere's customers and employees, in data centers and on information technology networks. The secure operationprocedures. Violations of these information technology networkslaws and the processing and maintenance of this information is critical to John Deere's business operations and strategy. Despite security measures and business continuity plans, John Deere's information technology networks and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by cyber criminals or breaches due to employee error or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures, terrorist acts, natural disasters or other catastrophic events. The occurrence of any of these events could compromise John Deere's networks, and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of informationregulations could result in legal claimscriminal or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations,civil sanctions and damagehave a materially adverse effect on John Deere'sDeere’s reputation, which could adversely affect John Deere's business, results of operations, and financial condition. In addition, as security threats continue
Changes to evolve and increase in frequency and sophistication, we may need to invest additional resources to protect the security of our systems.
John Deere is subject to governmental laws, regulations and other legal obligations related to privacy and data protection.
The legislative and regulatory framework for privacy and data protection issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. John Deere collects personally identifiable information (PII) and other data as integral parts of its business processes and activities. This data is subject to a variety of U.S. and internationalexisting laws and regulations including oversight by various regulatory or other governmental bodies. Many foreign countries and governmental bodies, includingchanges to how they are interpreted or the European Union, Canada, and other relevant jurisdictions where we conduct business, have laws and regulations concerning the collection and useimplementation of PII and other data obtained from their residents or by businesses operating within their jurisdiction that are more restrictive than those in the U.S. Additionally, in May 2016, the European Union adopted the General Data Protection Regulation that imposesnew, more stringent data protection requirements and provides for greater penalties for noncompliance. Any inability,laws or perceived inability, to adequately address privacy and data protection concerns, even if unfounded, or comply with applicable laws, regulations policies, industry standards, contractual obligations, or other legal obligations (including at newly acquired companies) could result in additional cost and liability to us or company officials, damage our reputation, inhibit sales, and otherwise adversely affect our business.
John Deere's ability to execute its strategy is dependent upon the ability to attract, train and retain qualified personnel.
John Deere's continued success depends, in part, on its ability to identify, attract, motivate, train and retain qualified personnel in key functions. In particular, John Deere is dependent on its ability to identify, attract, motivate, train and retain qualified personnel with the requisite education, background and industry experience. Failure to attract, train and retain qualified personnel, whether as a result of an insufficient number of qualified applicants, difficulty in recruiting new personnel, or the allocation of inadequate resources to training, integration and retention of qualified personnel, could impair John Deere's ability to execute its business strategy and could adversely affect John Deere's business. In addition, whileDeere’s business by increasing compliance costs, limiting John Deere’s ability to offer a product or service, requiring changes to John Deere’s business practices, or otherwise making John Deere’s products and services less attractive to customers. For example, so-called “right to repair” legislation proposals in certain states and at the federal level in the U.S. could require John Deere strives to reduceprovide access to the impact of the departure of employees, John Deere's operations or ability to executesoftware code embedded in its business strategy may be impacted by the loss of personnel.
Sustained increases in funding obligations under the Company's pension plans may impair the Company's liquidity or financial condition.
The Company maintains certain defined benefit pension plans for certain employees,products, which, impose funding obligations. The Company uses many assumptions in calculating its future payment obligations under the plans. Significant adverse changes in credit or market conditionsamong other harmful consequences, could result in actual ratesproduct safety issues, compromise engine emissions and performance controls, adversely affect the protection of returns on pensionJohn Deere’s intellectual property rights, and discourage innovation and investments being lower than expected. The Companyin research and development.
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Legislative and regulatory changes and other actions that could potentially affect John Deere’s business may be requiredannounced with little or no advance notice and John Deere may not be able to make significant contributions to its pension plans in the future. These factors could significantly increase the Company's payment obligations under the plans and adversely affect its business, results of operations and financial condition.effectively mitigate all adverse effects from such measures.
Strategic Performance Risks
John Deere may not realize all of the anticipated benefits of ourits business strategies, including acquisitions, joint ventures, orand divestitures, or these benefits may take longer to realize than expected.
From time to time, the CompanyJohn Deere makes strategic acquisitions and divestitures – such as its acquisition of the Wirtgen Group – orand participates in joint ventures. TransactionsAcquisitions and joint ventures that the CompanyJohn Deere has entered into, or may enter into in the future, may involve significant challenges and risks, including that the transactionsacquisitions or joint ventures do not advance ourJohn Deere’s business strategy or fail to produce satisfactory returns on our investment. The CompanyJohn Deere may encounter difficulties in integrating acquisitions with its operations, in applying internal control processes to these acquisitions, in managing strategic investments, and in assimilating new capabilities to meet the future needs of the Company's business.John Deere’s businesses. Integrating acquisitions is often costly and may require significant attention from management. Furthermore,
John Deere may not realize all of the anticipated benefits of these transactions,acquisitions or joint ventures, or the realized benefits may be significantly delayed. While our evaluation of any potential transaction includes business, legal, and financial due diligence with the goal of identifying and evaluating the material risks involved, ourthese due diligence reviews may not identify all of the issues necessary to accurately estimate the cost and potential risks of a particular transaction,acquisition or joint venture, including potential exposure to regulatory sanctions resulting from an acquisition target'starget’s or joint venture partner’s previous activities or costs associated with any quality issues with an acquisition target's or joint venture’s products or services. John Deere may decide to divest acquired businesses if we determine any such divestiture is in the best interests of our shareholders, and our joint ventures may be terminated at or before their stated terms. Divestitures of businesses or dissolutions of joint ventures may involve significant challenges and risks, including failure to advance our business strategy, costs or disruptions to John Deere, and negative effects on John Deere’s product offerings, which may adversely affect John Deere’s business, results of operations, and financial condition. Divestitures of businesses or dissolutions of joint ventures may result in ongoing financial or legal involvement in the divested business through indemnifications or other financial arrangements, such as retained liabilities, which could affect the Company’s future financial results.
In addition, John Deere may not realize all anticipated benefits of its recent reorganization and the implementation of its operating model within the anticipated timeframe or at all. Factors that could affect these benefits include the adoption of new job types within John Deere, changing job responsibilities of employees, the number of layers of management, the ability of employees to embrace change, anxiety within the workforce, and temporary inefficiencies. Further, the ability of John Deere to execute its business strategies in production systems, precision technologies, and aftermarket support could affect the Company’s results of operations and financial condition.
Precision Technology Risks
If John Deere is unable to deliver precision technology and agricultural solutions to its customers, it could affect its business, results of operations, and financial condition.
John Deere’s approach to precision technology involves hardware and software, guidance, connectivity and digital solutions, automation and machine intelligence, and autonomy. To create and maintain a competitive differentiation through precision technology solutions, John Deere needs to successfully develop and introduce new precision technology solutions that improve profitability and sustainability for customers through the production systems. John Deere may make significant investments in research and development, acquisitions or other business ventures, data security for precision technology solutions, and employee training. These investments may not produce solutions that provide the desired results for customers’ profitability or sustainability outcomes. In addition, John Deere may depend on third parties to supply components, software, and services in support of precision technology solutions. The dealer channel’s ability to support and service precision technology solutions may affect customers’ acceptance and adoption rates of these products. Further, if John Deere is not able to deliver precision technology solutions with differentiated features and functionality, customers may not adopt technology solutions, which could have a material adverse effect on the Company’s reputation and business.
The reallocation of radio frequency (RF) spectrumsbands could disrupt or degrade the reliability of John Deere'sDeere’s high precision augmented Global Positioning System (GPS) or other RF technology, which could impair John Deere'sDeere’s ability to develop and market GPS-basedGPS- and RF-based technology solutions as well as significantly reduce agricultural and construction customers'customers’ profitability.
John Deere'sDeere’s current and planned integrated agricultural business and equipment management systems, as well as its fleet management telematics solutions for construction equipment, depend upon the use of RF signals. These signals include, but are not limited to, GPS signals, other GPS-like satellite signals, augmented GPS services, and other RF equipment whichtechnologies that link equipment, operations, owners, dealers, and technicians. These radio services depend on frequency allocations governed by international and national government agencies. Any international or national reallocation of frequency bands, including frequency bands segmentation
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and band spectrum sharing, or other modifications concerning the regulation of frequency bands, could significantly disrupt or degrade the utility and reliability of John Deere'sDeere’s GPS-based products, which could negatively affect John Deere'sDeere’s ability to develop and market GPS-based technology solutions. For John Deere'sDeere’s agricultural customers, the inability to use high-precision augmented GPS signals or other RF signals could result in lower crop yields and higher equipment maintenance, seed, fertilizer, fuel, and wage costs. For construction customers, disrupting GPS or RF applications could result in higher fuel and equipment maintenance costs, as well as lower construction design and project management efficiencies. These cost increases could significantly reduce customers'customers’ profitability and demand for John Deere products.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
None.
None.
ITEM 2. | PROPERTIES. |
See "Manufacturing"“Manufacturing” in Item 1.
The equipment operations own or lease eleven11 facilities comprised of two locations supporting centralized parts distribution and nine regional parts depots and distribution centers throughout the U.S. and Canada. These facilities contain approximately 5.4 million square feet of floor space. Outside the U.S. and Canada, the equipment operations also own or lease and occupy 12 centralized parts distribution centers in Brazil, Germany, India, and Russia and regional parts depots and distribution centers in Argentina, Australia, China, Mexico, South Africa, Sweden, and the United Kingdom. These facilities contain approximately 3.1 million square feet of floor space. John Deere also owns andor leases eight facilities for the manufacture and distribution of other brands of replacement parts containing approximately 1.3 million square feet.parts.
The Company'sCompany owns or leases 44 administrative offices and research facilities some of which are owned and some of which are leased by John Deere, contain about 4.3 million square feet of floor space globally andas well as many other smaller, miscellaneous other facilities total 7.1 million square feet globally.facilities.
Overall, John Deere owns approximately 68.368.4 million square feet of facilities and leases approximately 9.111.8 million additional square feet in various locations. These properties are adequate and suitable for John Deere’s business as presently conducted and are well maintained.
ITEM 3. LEGAL PROCEEDINGS. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. LEGAL PROCEEDINGS.John DeereThe Company is subject to various unresolved legal actions whichthat arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, and trademark matters. Item 103 of the SEC's Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions that John Deerethe Company reasonably believes could exceed $100,000.$300,000. The following matters arematter is disclosed solely pursuant to that requirement: (a) on July 6, 2017, after self-reporting to the Iowa Department of Natural Resources, the Company received a Notice of Violation alleging that one Iowa facility location exceeded permitted emission limits; the Company responded and is actively cooperating with the Iowa Department of Natural Resources to revise the permits and resolve the notice; (b) on March 19, 2018, the Secretaria de Estado de Meio Ambiente e Desenvolvimento Sustentável in Minas Gerais, Brazil issued a fine of approximately $105,000 at current exchange rates against John Deere Equipamentos do Brasil in connection with an oil spill that occurred after an April 2016 roadway accident involving a Company truck; an administrative defense has been filed to cancel the fine; and (c) on October 3,In 2018, the Provincia Santa Fe Ministerio de Medio Ambiente (MoE) in Argentina issued a Notice of Violation to Industrias John Deere Argentina S.A., an indirect, wholly-owned subsidiary of the Company (IJDA), in connection with alleged groundwater contamination at the site; the Company continues to workcontamination. IJDA worked with the appropriate authorities to implement corrective actions to remediate the relevant site. In 2019, the MoE issued a Notice of Fine, which IJDA contested. On October 12, 2021, IJDA paid an amount equal to approximately $321,000, under protest, to settle the matter. The Company believes the reasonably possible range of losses for these and other unresolved legal actions would not have a material effect on its financial statements. ITEM 4. MINE SAFETY DISCLOSURES.(a) The Company’s common stock is listed on the New York Stock Exchange under the symbol “DE.” The Company has a history of paying quarterly cash dividends. While we currently expect a cash dividend to be paid in the future, future dividend payments will depend on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by our Board of Directors. See the information concerning the number of stockholders in Note 22 to the Consolidated Financial Statements. (b) Not applicable.
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(c) | The Company’s purchases of its common stock during the fourth quarter of 2021 were as follows: |
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
ISSUER PURCHASES OF EQUITY SECURITIES
Period | Total Number of Shares Purchased (2) (thousands) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) (thousands) | Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (1) (millions) | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Jul 30 to Aug 26 | 350 | $ | 142.55 | 350 | 20.8 | ||||||
Aug 27 to Sept 23 | 1,575 | 148.46 | 1,575 | 19.0 | |||||||
Sept 24 to Oct 28 | 1,455 | 151.27 | 1,455 | 17.4 | |||||||
| | | | | | | | | | | |
Total | 3,380 | 3,380 | |||||||||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
ITEM 6. SELECTED FINANCIAL DATA.
| | | | | | | | | | |
|
| |
| | |
| |
| Maximum |
|
| | | | | | | Total Number of | | Number of Shares |
|
| | | | | | | Shares Purchased | | that May Yet Be |
|
| | Total Number of | | | | | as Part of Publicly | | Purchased under |
|
| | Shares | | Average Price | | Announced Plans | | the Plans or |
| |
| | Purchased | | Paid Per | | or Programs (1) | | Programs (1) |
| |
Period | | (thousands) | | Share | | (thousands) | | (millions) |
| |
Aug 2 to Aug 29 |
| 643 | | $ | 371.02 |
| 643 |
| 18.5 | |
Aug 30 to Sept 26 |
| 641 | | | 361.04 |
| 641 |
| 17.8 | |
Sept 27 to Oct 31 |
| 845 | |
| 341.16 |
| 845 |
| 17.0 | |
Total |
| 2,129 | | | |
| 2,129 | | | |
Financial Summary
(Millions of dollars except per share amounts) | October 28 2018 | October 29 2017 | October 30 2016 | November 1 2015 | November 2 2014 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
For the Years Ended: | ||||||||||||||||
Total net sales and revenues | $ | 37,358 | $ | 29,738 | $ | 26,644 | $ | 28,863 | $ | 36,067 | ||||||
Net income attributable to Deere & Company | $ | 2,368 | $ | 2,159 | $ | 1,524 | $ | 1,940 | $ | 3,162 | ||||||
Net income per share – basic | $ | 7.34 | $ | 6.76 | $ | 4.83 | $ | 5.81 | $ | 8.71 | ||||||
Net income per share – diluted | $ | 7.24 | $ | 6.68 | $ | 4.81 | $ | 5.77 | $ | 8.63 | ||||||
Dividends declared per share | $ | 2.58 | $ | 2.40 | $ | 2.40 | $ | 2.40 | $ | 2.22 | ||||||
At Year End: | ||||||||||||||||
Total assets | $ | 70,108 | $ | 65,786 | $ | 57,918 | $ | 57,883 | $ | 61,267 | ||||||
Long-term borrowings | $ | 27,237 | $ | 25,891 | $ | 23,703 | $ | 23,775 | $ | 24,318 |
(1) The Company announced a share repurchase plan in December 2019 to purchase up to $8,000 million of shares of the Company’s common stock. The maximum number of shares that may yet be purchased under this plan was based on the closing share price as at end of the fourth quarter of $342.31 per share. At the end of the fourth quarter of 2021, $5,811 million of common stock remained to be purchased under this plan. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ITEM 6. | [RESERVED] |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
See the information under the caption "Management's“Management’s Discussion and Analysis"Analysis” on pages 20–30.27 – 43.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
The Company is exposed to a variety of market risks, including interest rates and currency exchange rates. The Company attempts to actively manage these risks. See the information under "Management's“Management’s Discussion and Analysis"Analysis” beginning on page 2027, under “Financial Instrument Market Risk Information” on page 43 and in Note 27 to the Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
See the Consolidated Financial Statements and notes thereto and supplementary data on pages 31–73.44 – 84.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES. Disclosure Controls and Procedures The The 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. CONTROLS AND PROCEDURES.Company'sCompany’s principal executive officer and its principal financial officer have concluded that the Company'sCompany’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) were effective as of October 28, 2018,31, 2021, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act.Management'sManagement’s Report on Internal Control Over Financial ReportingCompany'sCompany’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company'sCompany’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.U.S. Securities and Exchange Commission guidance allows companies to exclude acquisitions from management's report on internal control over financial reporting forManagement assessed the first year after the acquisition when it is not possible to conduct an assessment. In December 2017, the Company acquired the stock and certain assets of substantially alleffectiveness of the business of Wirtgen Group Holding GmbH (Wirtgen) (see Note 4). Due to Wirtgen's global operations, management has excluded Wirtgen from the annual assessment of the effectiveness ofCompany’s internal control over financial reporting as of October 28, 2018. Wirtgen represents 9 percent of both the consolidated total assets and consolidated net sales and revenues of Deere & Company as of and for the year ended October 28, 2018.Management assessed the effectiveness of the Company's internal control over financial reporting as of October 28, 2018,31, 2021, using the criteria set forth in Internal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management believes that, as of October 28, 2018,31, 2021, the Company'sCompany’s internal control over financial reporting was effective.
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The Company'sCompany’s independent registered public accounting firm has issued an audit report on the effectiveness of the Company'sCompany’s internal control over financial reporting. That report is included herein.
Changes in Internal Control Over Financial Reporting
During the fourth quarter, there were no changes that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION. |
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. |
Not applicable.
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The information regarding directors required by this Item 10 will be set forth in the definitive proxy statement expectedfor the Company’s 2022 annual meeting of stockholders (proxy statement) to be filed no later than January 11, 2019 (proxy statement), underwith the captions "Item 1–ElectionCommission in advance of Directors" is incorporated herein by reference. The information in the proxy statement required by Items 405, 407(d)(4) and 407(d)(5) of Regulation S-K under the captions "Section 16(a) Beneficial Ownership Reporting Compliance" and "Corporate Governance–Board Committees–Audit Review Committee" is incorporated herein by reference.such meeting. Information regarding executive officers is presented in Item 1 of this report under the caption "Executive Officers of the Registrant."Information about our Executive Officers."
The Company has adopted a code of ethics that applies to its executives, including its principal executive officer, principal financial officer, and principal accounting officer. This code of ethics and the Company's corporate governance policies are posted on the Company's website at http://www.JohnDeere.com/Governance.www.deere.com/governance. The Company intends to satisfy disclosure requirements regarding amendments to or waivers from its code of ethics by posting such information on this website. The charters of the Audit Review, Corporate Governance, Compensation, and Finance committees of the Company's Board of Directors are available on the Company's website as well. This information is also available in print free of charge to any person who requests it.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 11. | EXECUTIVE COMPENSATION. |
The information required by this Item 402 and 407(e)(4) and (e)(5) of Regulation S-K11 will be set forth in the proxy statement underto be filed with the captions "Compensation of Directors," "Compensation Discussion & Analysis," "Compensation Committee Report" and "Executive Compensation Tables" is incorporated herein by reference.Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The information required by this Item 201(d) of Regulation S-K12 will be set forth in the proxy statement underto be filed with the caption "Equity Compensation Plan Information" is incorporated herein by reference. Commission.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
The information required by this Item 403 of Regulation S-K13 will be set forth in the proxy statement underto be filed with the caption "Security Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference.Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by Item 404 of Regulation S-K in the proxy statement under the caption "Review and Approval of Related Person Transactions" is incorporated herein by reference. The information required by Item 407(a) of Regulation S-K in the proxy statement under the caption "Corporate Governance–Director Independence" is incorporated herein by reference.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this Item 14 iswill be set forth in the proxy statement underto be filed with the captions "Ratification of Independent Registered Public Accounting Firm–Fees Paid to the Independent Registered Public Accounting Firm" and "Pre-approval of Services by the Independent Registered Public Accounting Firm" and incorporated herein by reference.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
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ITEM 16.FORM 10-K SUMMARY.
None.
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OVERVIEWThe 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).
OrganizationRESULTS OF OPERATIONS FOR THE YEARS ENDED
OCTOBER 31, 2021, NOVEMBER 1, 2020, AND NOVEMBER 3, 2019
OVERVIEW
Organization
The company'scompany’s equipment operations generate revenues and cash primarily from the sale of equipment to John Deere dealers and distributors. The equipment operations manufacture and distribute a full line of agricultural equipment; a variety of commercial and consumer equipment; and a broad range of equipment for construction, road building,roadbuilding, and forestry. The company'scompany’s financial services primarily provide credit services, which mainly finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the equipment operations. In addition, financial services offers extended equipment warranties. The information in the following discussion is presented in a format that includes information grouped as consolidated, equipment operations, and financial services. The equipment operations represents the enterprise without financial services. The equipment operations includes the company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services. The company also views its operations as consisting of two geographic areas,areas: the U.S. and Canada, and outside the U.S. and Canada. The company'scompany’s operating segments consist of production and precision agriculture, small agriculture and turf, construction and forestry, and financial services.
Trends and Economic Conditions
The company'scompany’s production and precision agriculture equipment and small agriculture and turf equipment sales both increased 1527 percent in 2018 and are forecast to increase about 3 percent for 2019.2021. Industry sales of large agricultural machinery sales in the U.S. and Canada for 20192022 are forecastforecasted to be about the same to 5increase approximately 15 percent higher, compared to 2018. Industry sales in the European Union (EU)28 member nations are forecast to be about the same in 2019, while South American industry sales are projected to be about the same to 5 percent higher from 2018 levels. Asian sales are forecast to be about the same or decrease slightly in 2019.2021. Industry sales of turfsmall agricultural and utilityturf equipment in the U.S. and Canada are expected to be flat in 2022. Industry sales of agricultural machinery in Europe are estimated to be about the same5 percent higher. South American industry sales of tractors and combines are expected to be roughly 5 percent higher for 2019.in 2022. Asia industry sales are forecasted to be nearly the same in 2022 as in 2021. The company'scompany’s construction and forestry sales increased 7827 percent in 2018, with Wirtgen (see Note 4) adding 53 percent for the year. The segment's2021. On an industry basis, North American construction equipment and compact construction equipment sales are forecastboth expected to increase about 15 percent in 2019. The forecast includes a full year of Wirtgen sales comparedbe 5 to 10 monthspercent higher in 2018.2022. Global forestry industry sales are projected to increase 10 to 15 percent. The company’s financial services operations for the full year 2022 are expected to increase about 10 percent in 2019 comparedexperience slightly lower results due to 2018. Net income of the company's financial services operations attributable to Deere & Company in 2019 isa higher provision for credit losses,
lower gains on operating lease residual values, and higher selling, general and administrative expenses. These factors are expected to be approximately $630 million.partially offset by income earned on a higher average portfolio.
Items of concern that could affect the company’s results of operations and liquidity and capital resources include the uncertainty of the effectiveness of governmental and private sector actions in respect to address COVID, supply of critical parts and components, trade agreements, the uncertainty of the results of monetary and fiscal policies, the impact of elevated levels of sovereign debt, eurozone and Argentine issues,state debt, capital market disruptions, trade agreements, changes in demand and pricing for new and used equipment, geopolitical events, and geopolitical events.the other items discussed in the “Safe Harbor Statement” below. Significant fluctuations in foreign currency exchange rates and volatility in the price of many commodities could also impact the company'scompany’s results. The future financial effects of COVID continue to be unknown due to many factors. As a result of these uncertainties, predicting the company’s forecasted financial performance is subject to many assumptions.
The UAW, the union representing the majority of the company’s production and maintenance employees in the U.S., initiated a strike on October 14, 2021. This resulted in a work stoppage affecting employees at 14 U.S. facilities. The work stoppage continued through the approval of a new six-year collective bargaining agreement on November 17, 2021. The company’s operations during the remainder of the fourth quarter were adversely affected by the work stoppage, which reduced production and shipments.
The company’s 2021 full-year performance reflects strong end-market demand and the ability of the company’s dedicated employees, dealers, and suppliers throughout the world, who have helped safely maintain operations, manage supply chain challenges, and continue to serve customers throughout the COVID pandemic. Demand for farm and construction equipment is expected to continue to benefit from positive fundamentals, including favorable crop prices, economic growth, and increased investment in infrastructure. While supply-chain pressures are expected to persist into at least the early part of fiscal year 2022, the company is working closely with key suppliers to secure the parts and components that customers need in order to deliver essential food and infrastructure more profitably and sustainably.
COVID Effects, Actions, and Recent Developments
During 2020 and to a lesser extent in 2021, the effects of COVID and the related actions of governments and other authorities to contain COVID have affected and continue to affect the company’s operations, results, cash flows, and forecasts.
The U.S. government and many other governments in countries where the company operates have designated the company an essential critical infrastructure business. This designation allows the company to operate in support of its customers to the extent possible.
The company’s first priority in addressing the effects of COVID continues to be the health, safety, and overall welfare of its
27
employees. The company effectively activated previously established business continuity plans and proactively implemented health and safety measures at its operations around the world.
The company concluded another successful year in whichbroadened its supply base to minimize the performance benefited from a further improvement in market conditions and a favorableimpact of potential supply chain disruptions on its ability to meet customer response to its products. At the same time, thedemand. The company has experienced shortages of critical parts and components, which caused challenges and production disruptions. The company continues to monitor the situation and work closely with suppliers.
The company continued to face cost pressures for raw materials, which are being addressed
through pricingwork closely with customers in 2021 in connection with short-term payment relief on obligations owed to the company. Financing receivables and cost management.operating leases granted relief since the beginning of the pandemic that remained outstanding at October 31, 2021 represented about 3 percent and about 2 percent of the respective portfolio balances. The company's performance has allowed for significant investmentstrade receivables granted relief that remained outstanding at October 31, 2021 were not material. Additional information is presented in new productsNotes 13 and services, especially those focused on precision technologies,25.
2021 COMPARED WITH 2020
CONSOLIDATED RESULTS
| | | | | | | |
Deere & Company | | | | | | | |
(In millions of dollars, except per share amounts) | | 2021 | | 2020 | | ||
Net sales and revenues | | $ | 44,024 | | $ | 35,540 | |
Net income attributable to Deere & Company | | | 5,963 | | | 2,751 | |
Diluted earnings per share | | | 18.99 | | | 8.69 | |
Net income in 2020 was negatively affected by impairment charges and for providing shareholder returns through dividend paymentsemployee-separation costs of $458 million after-tax (see Notes 4 and share repurchases. The company believes it remains well positioned to capitalize on the growth in the world's agricultural and construction equipment markets.5). In addition, the company is confident in the present direction and believes it is positioned to deliver improved operating performance and value to its customers and investors in the future.
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CONSOLIDATED RESULTS
Worldwide net income attributable to Deere & Company in 20182020 was $2,368 million, or $7.24 per share diluted ($7.34 basic), compared with $2,159 million, or $6.68 per share diluted ($6.76 basic), in 2017. Affecting 2018 net income were increasesless favorably affected by discrete adjustments to the provision for income taxes of $704 million due to the enactment of U.S. tax reform legislationtaxes.
| | | | | | | | | |
Equipment Operations | | | | | | | | | |
(In millions of dollars) | | 2021 | | 2020 | | % Change | | ||
Worldwide: | | | | | | | | | |
Net sales | | $ | 39,737 | | $ | 31,272 | | +27 | |
Operating profit | | | 6,868 | | | 3,559 | | +93 | |
Net income | | | 5,082 | | | 2,185 | | +133 | |
Price realization | | | | | | | | +6 | |
Currency translation | | | | | | | | +2 | |
| | | | | | | | | |
U.S. and Canada: | | | | | | | | | |
Net sales | | $ | 22,476 | | $ | 17,954 | | +25 | |
Price realization | | | | | | | | +5 | |
Currency translation | | | | | | | | +1 | |
| | | | | | | | | |
Outside U.S. and Canada: | | | | | | | | | |
Net sales | | $ | 17,261 | | $ | 13,318 | | +30 | |
Price realization | | | | | | | | +8 | |
Currency translation | | | | | | | | +4 | |
The discussion on December 22, 2017 (tax reform) (see Note 8). Worldwide net sales and revenues increased 26 percent to $37,358 millionoperating profit is included in 2018, compared with $29,738 million in 2017. Net salesthe Business Segment and Geographic Area Results below.
A discussion of the worldwide equipment operations rose 29 percent in 2018 to $33,351 million from $25,885 million last year. The company's acquisitioncost of the Wirtgen Group Holding GmbH (Wirtgen) (see Note 4) in December 2017 added 12 percentsales to net sales for the year. Sales included price realizationratio and other significant statement of 1 percent with no significant currency translation effect. Equipment net sales in the United States and Canada increased 25 percent for 2018, with Wirtgen adding 4 percent. Outside the U.S. and Canada, net sales increased 34 percent for the year, with Wirtgen adding 22 percent. Currency translation had no material effect.consolidated income changes follows:
Worldwide equipment operations reported operating profit of $3,684 million in 2018, compared with $2,859 million in 2017. Wirtgen, whose results are included in 2018 amounts, had operating profit of $116 million in 2018. Excluding Wirtgen results, the operating profit improvement was primarily driven by higher shipment volumes, price realization, and lower warranty costs, partially offset by higher production costs and research and development expenses. Additionally, results in 2017 included an impairment charge for international construction and forestry operations and a gain on the sale of SiteOne Landscapes Supply, Inc. (SiteOne) (see Note 5).
| | | | | | | | | |
Deere & Company | | | | | | | | | |
(In millions of dollars) | | 2021 | | 2020 | | % Change | | ||
Cost of sales to net sales | | | 73.3% | | | 75.7% | | | |
| | | | | | | | | |
Finance and interest income | | $ | 3,296 | | $ | 3,450 | | -4 | |
Other income | | | 991 | | | 818 | | +21 | |
Research and development expenses | | | 1,587 | | | 1,644 | | -3 | |
Selling, administrative and general expenses | | | 3,383 | | | 3,477 | | -3 | |
Interest expense | | | 993 | | | 1,247 | | -20 | |
Other operating expenses | | | 1,343 | | | 1,612 | | -17 | |
Net income of the company's equipment operations was $1,404 million for 2018, compared with $1,707 million in 2017. In addition to the operating factors mentioned above, income tax adjustments related to tax reform had an unfavorable impact of $1,045 million for 2018 (see Note 8).
The financial services operations reported net income attributable to Deere & Company in 2018 of $942 million, compared with $477 million in 2017. Net income benefited from a higher average portfolio, a lower provision for credit losses, and lower losses on lease residual values, partially offset by less favorable financing spreads. Income tax adjustments related to tax reform had a favorable effect of $341 million for 2018. Additional information is presented in the following discussion of the "Worldwide Financial Services Operations."
The cost of sales to net sales ratio for 2018 and 2017 was 76.7 percent. Pricedecreased compared to 2020 mainly due to price realization and lower warranty claims were offset by higher production costs.
the impact of impairments and employee-separation expenses recorded in 2020 (see Note 5). Finance and interest income increasedreduced slightly in 20182021 due to lower average interest rates, largely offset by a largerhigher average credit portfolio and higher average interest rates.portfolio. Other income decreased in 2018increased primarily due to the 2017 gains on the sale of the remaining interest in SiteOne (see Note 5), partially offset by higher service income largely from Wirtgen (see Note 4).operating lease disposition gains. Research and development expenses increased as a result of new productwere lower in 2021 largely due to employee-separation expenses incurred in 2020 (see Note 5) and improvement initiatives, and acquisitions.organizational efficiencies. Selling, administrative and general expenses increased primarilydecreased mostly due to the Wirtgen acquisition and acquisition related costs, partially offset by voluntary employee-separation program expenses recorded in 20172020 (see Note 5) and a lower provision for credit losses.losses, partially offset by higher incentive compensation. Interest expense increaseddecreased in 20182021 due to higherlower average borrowing rates and higher average borrowings.rates. Other operating expenses increased in 2018 primarilywere lower compared to 2020 largely due to higherlower retirement benefit costs, reduced depreciation of equipment on operating leases, increased costand the impact of services, mainly from Wirtgen, and acquisition related costs, partially offset by the favorable effect of currency translation and lower losses onoperating lease residual values.impairments recorded in 2020 (see Note 5).
The company has several funded and unfunded defined benefit pension plans and other postretirement benefit (OPEB) plans, primarily health care and life insurance plans. The company'scompany’s costs for these plans in 20182021 were $353$197 million, compared with $347$341 million in 2017.2020. The long-term expected return on plan assets, which is reflected in these costs, was an expected gain of 6.85.9 percent in 20182021 and 7.26.4 percent in 2017,2020, or $797$876 million and $807$869 million, respectively. The actual return was a gain of $322$3,616 million in 20182021 and $1,563$1,177 million in 2017.2020. In 2019,2022, the expected return will beis approximately 6.55.0 percent. The company'scompany’s costs under these plans in 2019 are expected to decrease approximately $125 million. The company makes any required contributions2022, including the pension expense related to the plan assets under applicable regulationsUAW contract ratification and voluntary contributions from time to time basedthe expected gain on the company's liquidity and ability to make tax-deductible contributions. Total company contributions to the plans were $1,426 million in 2018 and $428 million in 2017, which include voluntary contributions and direct benefit payments. The voluntary contributions to plan assets were $1,305 million in 2018, which included $1,300 million contributions to the U.S. pension and OPEB plans, and $301 million in 2017. Total company contributions in 2019contribution (see Note 29), are expected to be approximately $210 million, which are primarily direct benefit payments. The company has no significant required contributions to U.S. pension plan assets in 2019 under applicable funding regulations.consistent with 2021. See the discussion in "Critical“Critical Accounting Policies"Estimates” for more information about pension and OPEB benefit obligations.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
The following discussion relates to operating results by reportable segment and geographic area. Operating profit is income before corporate expenses, certain external interest expense, certain foreign exchange gains or losses, and income taxes, and corporate expenses.taxes. However, operating profit of the financial services segment operating profit includes the effect of interest expense and foreign currency exchange gains or losses.
Worldwide Agriculture28
In fiscal year 2021, the company implemented a new operating model and Turf Operationsreporting structure. With this change, the company’s agriculture and turf operations were divided into two new segments: production and precision agriculture and small agriculture and turf.
The production and precision agriculture segment defines, develops, and delivers global equipment and technology solutions to unlock customer value for production-scale growers of large grains, small grains, cotton, and sugar. Main products include large and certain mid-size tractors, combines, cotton pickers, sugarcane harvesters and loaders, and soil preparation, seeding, application and crop care equipment.
The small agriculture and turf segment had an operating profit of $2,816 milliondefines, develops, and delivers global equipment and technology solutions to unlock customer value for dairy and livestock producers, high-value crop producers, and turf and utility customers. The segment’s primary products include certain mid-size and small tractors, as well as hay and forage equipment, riding and commercial lawn equipment, golf course equipment, and utility vehicles.
There were no reporting changes for the year, compared with $2,513 million in 2017. Netconstruction and forestry and financial services segments. As a result, the company has four reportable segments.
Worldwide Production and Precision Agriculture Operations
| | | | | | | | | |
(In millions of dollars) | | 2021 | | 2020 | | % Change | | ||
Net sales | | $ | 16,509 | | $ | 12,962 | | +27 | |
Operating profit | | | 3,334 | | | 1,969 | | +69 | |
Operating margin | | | 20.2% | | | 15.2% | | | |
Segment sales increased 15 percent in 2018 due to higher shipment volumes and price realization. Operating profit benefitted from price realization, and lower warranty claims. Currency translation did not have a significant effect on net sales. The operating profit improvement was driven by higher shipment volumes price realization,/ sales mix, and lower warranty related expenses, partially offset by higher production costs and research and development expenses. Operating profita favorable indirect tax ruling in 2017 included gains on the SiteOne sale (see Note 5).
Worldwide Construction and Forestry Operations
The construction and forestry segment operating profit was $868 million in 2018, compared with $346 million in 2017. Wirtgen contributed $116 million to operating profit in 2018. Net sales increased 78 percent in 2018, with Wirtgen adding 53 percent for the year. Net salesBrazil. These items were also affected by higher shipment volumes and lower warranty related claims. Currency translation did not have a material effect on net sales. Excluding Wirtgen, the operating profit improvements were primarily driven by higher shipment volumes and lower warranty expenses, partially offset by higher production costs. Additionally, 2017 included an impairment chargeThe prior year was also impacted by employee-separation program expenses (see Note 5).
Worldwide Small Agriculture and Turf Operations
| | | | | | | | | |
(In millions of dollars) | | 2021 | | 2020 | | % Change | | ||
Net sales | | $ | 11,860 | | $ | 9,363 | | +27 | |
Operating profit | | | 2,045 | | | 1,000 | | +105 | |
Operating margin | | | 17.2% | | | 10.7% | | | |
Segment sales and operating profit were both higher in 2021 due to higher shipment volumes / sales mix and price realization. The operating profit improvement was partially offset by higher production costs. Results for international operationsthe current year were positively impacted by a gain on the sale of a factory in China, while results for the prior year were affected by impairments, closure costs, and employee-separation expenses (see Note 5).
Worldwide Construction and Forestry Operations
| | | | | | | | | |
(In millions of dollars) | | 2021 | | 2020 | | % Change | | ||
Net sales | | $ | 11,368 | | $ | 8,947 | | +27 | |
Operating profit | | | 1,489 | | | 590 | | +152 | |
Operating margin | | | 13.1% | | | 6.6% | | | |
Segment sales increased in 2021 primarily due to higher shipment volumes and price realization. Operating profit increased mainly due to positive shipment volumes / sales mix and price realization, partially offset by higher production costs. The prior year was also impacted by employee-separation program expenses and impairments in certain fixed assets and unconsolidated affiliates (see Note 5).
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Worldwide Financial Services Operations
The operating profit of
| | | | | | | | | |
(In millions of dollars) | | 2021 | | 2020 | | % Change | | ||
Revenue (including intercompany) | | $ | 3,794 | | $ | 3,867 | | -2 | |
Interest expense | | | 687 | | | 942 | | -27 | |
Net income | | | 881 | | | 566 | | +56 | |
While the financial services segment was $792 million in 2018, compared with $715 million in 2017. Operating profit benefited from a higher average portfolio, a lower provision for credit losses, and lower losses on lease residual values, partially offset by less favorable financing spreads. Total revenues of the financial services operations, including intercompany revenues, increased 12 percent in 2018. The average balance of receivables and leases financed was 75 percent higher in 2018, compared with 2017.2021, revenue decreased due to lower average interest rates. Interest expense increased 40 percentdecreased in 20182021 as a result of lower average borrowing rates. Net income in 2021 increased mainly due to an improvement on operating lease residual values, a lower provision for credit losses, more favorable financing spreads, and income earned on a higher average borrowing rates and higher average borrowings. The financial services operations' ratio of earnings to fixed charges was 1.87 to 1 in 2018, compared with 2.12 to 1 in 2017.portfolio.
Equipment Operations
Deere & Company in U.S. and Canada
| | | | | | | | | |
(In millions of dollars) | | 2021 | | 2020 | | % Change | | ||
Net sales and revenues | | $ | 25,829 | | $ | 21,386 | | +21 | |
Operating profit | | | 4,774 | | | 2,775 | | +72 | |
Operating margin | | | 18.5% | | | 13.0% | | | |
Net sales and revenues increased in 2021 due mostly to higher shipment volumes / sales mix and price realization. The equipment operationsgrowth in the U.S. and Canada had an operating profit of $2,356 million in 2018, compared with $1,754 million in 2017. Wirtgen, whose results are included in 2018, had operating profit of $19 million. The increase was due primarily to higherincreased shipment volumes / sales mix and price realization, and lower warranty expenses, partially offset by higher production costscosts. Results in 2020 were negatively impacted by impairment charges and research and developmentemployee-separation expenses. Net sales increased 25 percent in 2018 due primarily to higher shipment volumes, with Wirtgen adding 4 percent. The physical volume of sales, excluding the effect of acquisitions, increased 20 percent, compared with 2017.
Equipment OperationsDeere & Company outside U.S. and Canada
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(In millions of dollars) | | 2021 | | 2020 | | % Change | | ||
Net sales and revenues | | $ | 18,195 | | $ | 14,154 | | +29 | |
Operating profit | | | 3,238 | | | 1,530 | | +112 | |
Operating margin | | | 17.8% | | | 10.8% | | | |
The equipment operations outside the U.S.net sales and Canada operating profit was $1,328 millionrevenue increase in 2018, compared with $1,105 million in 2017. Wirtgen's operating profit outside the U.S. and Canada was $97 million in 2018. The increase was due primarily to higher shipment volumes, partially offset by higher production costs and research and development expenses. Net sales increased 34 percent in 2018, with Wirtgen adding 22 percent,2021 compared to 2017. The increase
2020 was primarily the result of higher shipment volumes. The physical volume ofvolumes / sales excluding the effect of acquisitions, increased 11 percent, compared with 2017.
MARKET CONDITIONS AND OUTLOOK
Company equipment sales are projected to increase by about 7 percent for fiscal 2019 compared with 2018. Included will be a full year of Wirtgen sales in 2019 versus 10 months in 2018, adding about 2 percent to the company's sales in 2019. Foreign currency rates are expected to have an unfavorable translation effect on equipment sales of about 2 percent for the year. Net sales and revenues are projected to increase by about 7 percent for fiscal 2019 with net income attributable to Deere & Company forecast to be about $3.6 billion.
Agriculture and Turf. The company's worldwide sales of agriculture and turf equipment are forecast to increase about 3 percent for fiscal year 2019, including a negative currency translation effect of 2 percent. Industry sales of agricultural equipment in the U.S. and Canada are forecast to be about the same to 5 percent higher, helped by replacement demand for large equipment and continued demand for small tractors. Full year industry sales in the EU28 member nations are forecast to be about the same as a result of drought conditions in key markets. South American industry sales of tractors and combines are projected to be about the same to 5 percent higher benefiting from strength in Brazil. Asian sales are forecast to be about the same to down slightly. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be about the same to 5 percent higher for 2019.
Construction and Forestry. The company's worldwide sales of construction and forestry equipment are anticipated to increase about 15 percent for 2019, with foreign currency rates having an unfavorable translation effect of 2 percent. The forecast includes a full year of Wirtgen sales, versus 10 months in fiscal 2018, with the two additional months adding about 5 percent to division sales for the year. The outlook reflects continued growth in U.S. housing demand as well as transportation investment and economic growth worldwide. In forestry, global industry sales are expected to increase about 10 percent mainly as a result of improved demand throughout the world, led by the U.S.
Financial Services. Fiscal year 2019 net income attributable to Deere & Company for the financial services operations is expected to be approximately $630 million. Excluding the 2018 benefit from tax reform, net income is expected to benefit from a higher average portfolio, partially offset by higher selling and administrative expenses, a higher provision for credit losses, and less favorable financing spreads.
SAFE HARBOR STATEMENT
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under "Overview," "Market Conditions and Outlook," and other forward-looking statements herein that relate to future events, expectations, and trends involve factors that are subject to change, and risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the company's businesses.
The company's agricultural equipment business is subject to a number of uncertainties including the factors that affect
farmers' confidence and financial condition. These factors include demand for agricultural products, world grain stocks, weather conditions, soil conditions, harvest yields, prices for commodities and livestock, crop and livestock production expenses, availability of transport for crops, trade restrictions and tariffs, global trade agreements (e.g, the North American Free Trade Agreement), the level of farm product exports (including concerns about genetically modified organisms), the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production), real estate values, available acreage for farming, the land ownership policies of governments, changes in government farm programs and policies, international reaction to such programs, changes in and effects of crop insurance programs, changes in environmental regulations and their impact on farming practices, animal diseases and their effects on poultry, beef and pork consumption and prices, and crop pests and diseases.
Factors affecting the outlook for the company's turf and utility equipment include consumer confidence, weather conditions, customer profitability, labor supply, consumer borrowing patterns, consumer purchasing preferences, housing starts and supply, infrastructure investment, spending by municipalities and golf courses, and consumable input costs.
Consumer spending patterns, real estate and housing prices, the number of housing starts, interest rates and the levels of public and non-residential construction are important to sales and results of the company's construction and forestry equipment. Prices for pulp, paper, lumber and structural panels are important to sales of forestry equipment.
All of the company's businesses and its results are affected by general economic conditions in the global markets and industries in which the company operates; customer confidence in general economic conditions; government spending and taxing; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates; inflation and deflation rates; changes in weather patterns; the political and social stability of the global markets in which the company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts; natural disasters; and the spread of major epidemics.
Significant changes in market liquidity conditions, changes in the company's credit ratings and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the company's earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of the company's products and customer confidence and purchase decisions, borrowing and repayment practices, and the number and size of customer loan delinquencies and defaults. A debt crisis, in Europe or elsewhere, could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, demand for equipment, and company operations and results. The company's investment management activities could be impaired by changes in the equity, bond and other financial markets, which would negatively affect earnings.
The anticipated withdrawal of the United Kingdom from the European Union and the perceptions as to the impact of the
withdrawal may adversely affect business activity, political stability and economic conditions in the United Kingdom, the European Union and elsewhere. The economic conditions and outlook could be further adversely affected by (i) the uncertainty concerning the timing and terms of the exit, (ii) new or modified trading arrangements between the United Kingdom and other countries, (iii) the risk that one or more other European Union countries could come under increasing pressure to leave the European Union, or (iv) the risk that the euro as the single currency of the Eurozone could cease to exist. Any of these developments, or the perception that any of these developments are likely to occur, could affect economic growth or business activity in the United Kingdom or the European Union, and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, currency exchange rates, interest rates, financial institutions, and political, financial and monetary systems. Any of these developments could affect our businesses, liquidity, results of operations and financial position.
Additional factors that could materially affect the company's operations, access to capital, expenses and results include changes in, uncertainty surrounding and the impact of governmental trade, banking, monetary and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs and other areas, and governmental programs, policies, tariffs and sanctions in particular jurisdictions or for the benefit of certain industries or sectors; retaliatory actions to such changes in trade, banking, monetary and fiscal policies; actions by central banks; actions by financial and securities regulators; actions by environmental, health and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, noise and the effects of climate change; changes to GPS radio frequency bands or their permitted uses; changes in labor and immigration regulations; changes to accounting standards; changes in tax rates, estimates, laws and regulations and company actions related thereto; changes to and compliance with privacy regulations; compliance with U.S. and foreign laws when expanding to new markets and otherwise; and actions by other regulatory bodies.
Other factors that could materially affect results include production, design and technological innovations and difficulties, including capacity and supply constraints and prices; the loss of or challenges to intellectual property rights whether through theft, infringement, counterfeiting or otherwise; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the company's supply chain or the loss of liquidity by suppliers; disruptions of infrastructures that support communications, operations or distribution; the failure of suppliers or the company to comply with laws, regulations and company policy pertaining to employment, human rights, health, safety, the environment, anti-corruption, privacy and data protection and other ethical business practices; events that damage the company's reputation or brand; significant investigations, claims, lawsuits or other legal proceedings; start-up of new plants and products; the success of new
product initiatives; changes in customer product preferences and sales mix; gaps or limitations in rural broadband coverage, capacity and speed needed to support technology solutions; oil and energy prices, supplies and volatility; the availability and cost of freight; actions of competitors in the various industries in which the company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; changes in demand and pricing for used equipment and resulting impacts on lease residual values; labor relations and contracts; changes in the ability to attract, train and retain qualified personnel; acquisitions and divestitures of businesses; greater than anticipated transaction costs; the integration of new businesses; the failure or delay in closing or realizing anticipated benefits of acquisitions, joint ventures or divestitures; the implementation of organizational changes; the failure to realize anticipated savings or benefits of cost reduction, productivity, or efficiency efforts; difficulties related to the conversion and implementation of enterprise resource planning systems; security breaches, cybersecurity attacks, technology failures and other disruptions to the company's and suppliers' information technology infrastructure; changes in company declared dividends and common stock issuances and repurchases; changes in the level and funding of employee retirement benefits; changes in market values of investment assets, compensation, retirement, discount and mortality rates which impact retirement benefit costs; and significant changes in health care costs.
The liquidity and ongoing profitability of John Deere Capital Corporation and other credit subsidiaries depend largely on timely access to capital in order to meet future cash flow requirements, and to fund operations, costs, and purchases of the company's products. If general economic conditions deteriorate or capital markets become more volatile, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses.
The company's outlook is based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The company, except as required by law, undertakes no obligation to update or revise its outlook, whether as a result of new developments or otherwise. Further information concerning the company and its businesses, including factors that could materially affect the company's financial results, is included in the company's other filings with the SEC.
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CONSOLIDATED RESULTS
Worldwide net income attributable to Deere & Company in 2017 was $2,159 million, or $6.68 per share diluted ($6.76 basic), compared with $1,524 million, or $4.81 per share diluted ($4.83 basic), in 2016. Worldwide net sales and revenues increased 12 percent to $29,738 million in 2017, compared with $26,644 million in 2016. Net sales of the worldwide equipment operations rose 11 percent in 2017 to $25,885 million from $23,387 million in 2016. Sales included price realization of 1 percent and a favorable currency translation effect of 1 percent. Equipment net sales in the
United States and Canada increased 5 percent for 2017. Outside the U.S. and Canada, net sales increased 20 percent for the year, with a favorable currency translation effect of 1 percent for 2017.
Worldwide equipment operations had an operating profit of $2,859 million in 2017, compared with $1,908 million in 2016. The operating profit increase was primarily due to higher shipment volumes, a gain on the sale of the remaining interest in SiteOne (see Note 5), price realization, and a favorable product mix, partially offset by increases in production costs, selling, administrative and general expenses, and warranty related expenses.
Net income of the company's equipment operations was $1,707 million for 2017, compared with $1,058 million in 2016. The operating factors mentioned above affected the results.
The financial services operations reported net income attributable to Deere & Company in 2017 of $477 million, compared with $468 million in 2016. The increase was largely due to lower losses on lease residual values, partially offset by less favorable financing spreads and higher selling, administrative and general expenses. Additional information is presented in the following discussion of the "Worldwide Financial Services Operations."
The cost of sales to net sales ratio for 2017 was 76.7 percent, compared with 77.8 percent in 2016. The improvement was due primarily to price realization and a favorable product mix, partially offset by increases in production costs and warranty related expenses.
Finance and interest income increased in 2017 due to a larger average credit portfolio and higher average interest rates. Other income increased due primarily to the gain on the sale of the remaining interest in SiteOne (see Note 5). Selling, administrative and general expenses increased due primarily to higher incentive compensation expense, higher commissions paid to dealers on direct sales, and expenses related to voluntary employee-separation programs. Interest expense increased due to higher average borrowing rates and higher average borrowings. Other operating expenses increased primarily due to higher depreciation of equipment on operating leases, partially offset by lower losses on lease residual values.
The company has several defined benefit pension plans and OPEB plans. The company's costs for these plans in 2017 were $347 million, compared with $312 million in 2016. The long-term expected return on plan assets, which is reflected in these costs, was an expected gain of 7.2 percent in 2017 and 7.3 percent in 2016, or $807 million in 2017 and $810 million in 2016. The actual return was a gain of $1,563 million in 2017 and $645 million in 2016. Total company contributions to the plans were $428 million in 2017 and $127 million in 2016, which include direct benefit payments for unfunded plans and voluntary contributions to plan assets of $301 million in 2017 and $3 million in 2016.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
Worldwide Agriculture and Turf Operations
The agriculture and turf segment had an operating profit of $2,513 million for the year, compared with $1,719 million in
2016. Net sales increased 9 percent in 2017 due to higher shipment volumes, price realization, and the favorable effects of currency translation. Operating profit improvement was higherlargely due primarily to increasedhigher shipment volumes a gain on/ sales mix and price realization, partially offset by increased production costs. Results in 2020 were negatively impacted by impairment charges and employee-separation costs.
2020 COMPARED WITH 2019
CONSOLIDATED RESULTS
| | | | | | | |
Deere & Company | | | | | | | |
(In millions of dollars, except per share amounts) | | 2020 | | 2019 | | ||
Net sales and revenues | | $ | 35,540 | | $ | 39,258 | |
Net income attributable to Deere & Company | | | 2,751 | | | 3,253 | |
Diluted earnings per share | | | 8.69 | | | 10.15 | |
Net income in 2020 was negatively affected by impairment charges and employee-separation costs of $458 million after-tax (see Notes 4 and 5). In 2019, the salesimilar charges were $82 million. In addition, the provision for income taxes was adversely affected by non-deductible impairments and charges in 2020 and less favorably affected by discrete adjustments in 2020 than in 2019.
| | | | | | | | | |
Equipment Operations | | | | | | | | | |
(In millions of dollars) | | 2020 | | 2019 | | % Change | | ||
Worldwide: | | | | | | | | | |
Net sales | | $ | 31,272 | | $ | 34,886 | | -10 | |
Operating profit | | | 3,559 | | | 3,721 | | -4 | |
Net income | | | 2,185 | | | 2,714 | | -19 | |
Price realization | | | | | | | | +3 | |
Currency translation (unfavorable) | | | | | | | | -2 | |
| | | | | | | | | |
U.S. and Canada: | | | | | | | | | |
Net sales | | $ | 17,954 | | $ | 20,264 | | -11 | |
Price realization | | | | | | | | +3 | |
| | | | | | | | | |
Outside U.S. and Canada: | | | | | | | | | |
Net sales | | $ | 13,318 | | $ | 14,622 | | -9 | |
Price realization | | | | | | | | +4 | |
Currency translation (unfavorable) | | | | | | | | -4 | |
The discussion of net sales and operating profit is included in the following Business Segment and Geographic Area Results. The equipment operations’ provision for income taxes and net income were adversely affected by non-deductible impairments and charges in 2020 and were less favorably affected by discrete adjustments to the provision for income taxes in 2020 than in 2019.
A discussion of the remaining interest in SiteOnecost of sales to net sales ratio and other significant statement of consolidated income changes follows:
| | | | | | | | | |
Deere & Company | | | | | | | | | |
(In millions of dollars) | | 2020 | | 2019 | | % Change | | ||
Cost of sales to net sales | | | 75.7% | | | 76.8% | | | |
| | | | | | | | | |
Finance and interest income | | $ | 3,450 | | $ | 3,493 | | -1 | |
Other income | | | 818 | | | 879 | | -7 | |
Research and development expenses | | | 1,644 | | | 1,783 | | -8 | |
Selling, administrative and general expenses | | | 3,477 | | | 3,551 | | -2 | |
Interest expense | | | 1,247 | | | 1,466 | | -15 | |
Other operating expenses | | | 1,612 | | | 1,578 | | +2 | |
The cost of sales to net sales ratio decreased compared to 2019 mainly due to price realization, improved production costs, and lower warranty expenses, partially offset by impairments, employee-separation expenses (see Note 5), price realization, and the unfavorable
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effects of foreign currency exchange. Finance and interest income decreased slightly in 2020 due to lower average interest rates, largely offset by a higher average credit portfolio. Other income declined primarily due to lower service income compared to 2019. Research and development expenses decreased compared to 2019 as a result of targeted project reductions related to COVID spending adjustments. Selling, administrative and general expenses decreased largely due to spending reductions and the favorable sales mix,effects of currency translation, mostly offset by employee-separation expenses (see Note 5) and an increase in the provision for credit losses. Interest expense decreased in 2020 due to lower average borrowing rates, partially offset by increaseshigher average borrowings. Other operating expenses increased compared to 2019 largely due to increased depreciation of equipment on operating leases, employee-separation expenses (see Note 5), and a loss on sale of a business (see Note 4). These items were mostly offset by lower impairments and reduced losses on operating lease residual values and reduced service related expenses.
The company has several funded and unfunded defined benefit pension plans and OPEB plans, primarily health care and life insurance plans. The company’s costs for these plans in production costs,2020 were $341 million, compared with $235 million in 2019. The returns on plan assets were gains of $1,177 million in 2020 and $2,163 million in 2019. Total company contributions to the plans were $951 million in 2020 and $518 million in 2019, which included voluntary contributions and direct benefit payments. The voluntary contributions to plan assets were $700 million in 2020 to a U.S. OPEB plan, and $306 million in 2019, which included $300 million to the same U.S. OPEB plan.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
Worldwide Production and Precision Agriculture Operations
| | | | | | | | | |
(In millions of dollars) | | 2020 | | 2019 | | % Change | | ||
Net sales | | $ | 12,962 | | $ | 13,364 | | -3 | |
Operating profit | | | 1,969 | | | 1,729 | | +14 | |
Operating margin | | | 15.2% | | | 12.9% | | | |
Segment sales decreased due to lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. Operating profit increased largely due to price realization, lower research and development expense, reduced selling, administrative and general expenses, and lower warranty relatedexpenses. These items were partially offset by lower shipment volumes / mix, the unfavorable effects of currency exchange, and employee-separation expenses.
Worldwide Small Agriculture and Turf Operations
| | | | | | | | | |
(In millions of dollars) | | 2020 | | 2019 | | % Change | | ||
Net sales | | $ | 9,363 | | $ | 10,302 | | -9 | |
Operating profit | | | 1,000 | | | 777 | | +29 | |
Operating margin | | | 10.7% | | | 7.5% | | | |
Segment sales decreased due to lower shipment volumes, partially offset by price realization. Operating profit improved due to price realization, favorable production costs, lower selling,
administrative and general expenses, reduced research and development expense, and lower warranty expense, partially offset by lower shipment volumes / mix, employee-separation expenses and impairments.
Worldwide Construction and Forestry Operations
The construction and forestry segment had an operating profit of $346 million
| | | | | | | | | |
(In millions of dollars) | | 2020 | | 2019 | | % Change | | ||
Net sales | | $ | 8,947 | | $ | 11,220 | | -20 | |
Operating profit | | | 590 | | | 1,215 | | -51 | |
Operating margin | | | 6.6% | | | 10.8% | | | |
Segment sales decreased in 2017, compared with $189 million in 2016. Net sales increased 17 percent for the year on account of higher2020 primarily due to lower shipment volumes price realization, and the favorableunfavorable effect of currency translation, partially offset by price realization. Operating profit declined mainly due to lower shipment volumes / mix, employee-separation expenses, impairments, and the unfavorable effects of currency translation. Operatingexchange. The reduction in operating profit increased mainly attributable to improved shipment volumes and price realization,was partially offset by higher warrantyprice realization, lower research and development expenses, increasedreduced selling, administrative and general expenses, and higherimproved production costs.
Worldwide Financial Services Operations
The operating profit of
| | | | | | | | | |
(In millions of dollars) | | 2020 | | 2019 | | % Change | | ||
Revenue (including intercompany) | | $ | 3,867 | | $ | 3,969 | | -3 | |
Interest expense | | | 942 | | | 1,234 | | -24 | |
Net income | | | 566 | | | 539 | | +5 | |
While the financial services segment was $715 million in 2017, compared with $701 million in 2016. The increase was largely due to lower losses on lease residual values, partially offset by less favorable financing spreads and higher selling, administrative and general expenses. Total revenues of the financial services operations, including intercompany revenues, increased 9 percent in 2017. The average balance of receivables and leases financed was 12 percent higher in 2017, compared with 2016.2020, revenue decreased due to lower average interest rates. Interest expense increased 25 percentdecreased in 20172020 as a result of lower average borrowing rates, partially offset by higher average borrowing rates. The financial services operations' ratio of earningsborrowings. Net income in 2020 increased mainly due to fixed charges was 2.12 to 1 in 2017, compared with 2.35 to 1 in 2016.lower impairments and reduced losses on operating lease residual values and income earned on a higher average portfolio, partially offset by a higher provision for credit losses, employee-separation expenses, and unfavorable financing spreads.
Equipment OperationsDeere & Company in U.S. and Canada
| | | | | | | | | |
(In millions of dollars) | | 2020 | | 2019 | | % Change | | ||
Net sales and revenues | | $ | 21,386 | | $ | 23,746 | | -10 | |
Operating profit | | | 2,775 | | | 2,841 | | -2 | |
Operating margin | | | 13.0% | | | 12.0% | | | |
Net sales and revenues decreased in 2020 due primarily to lower shipment volumes, partially offset by price realization. The equipment operationsreduction in the U.S. and Canada had an operating profit of $1,754 million in 2017, compared with $1,328 million in 2016. The increase was due primarily to higherlower shipment volumes a gain on the sale of the remaining interest in SiteOne (see Note 5), a favorable sales/ mix and price realization,employee-separation expenses, partially offset by increases inprice realization, lower research and development costs, reduced selling, general and administrative expenses, improved production costs, selling, administrative and general expenses, andlower warranty related expenses. Net sales increased 5 percent due primarily to higher shipment volumes. The physical volume of sales increased 5 percent, compared with 2016.
Equipment OperationsDeere & Company outside U.S. and Canada
| | | | | | | | | |
(In millions of dollars) | | 2020 | | 2019 | | % Change | | ||
Net sales and revenues | | $ | 14,154 | | $ | 15,512 | | -9 | |
Operating profit | | | 1,530 | | | 1,574 | | -3 | |
Operating margin | | | 10.8% | | | 10.1% | | | |
The equipment operations outside the U.S.net sales and Canada had an operating profit of $1,105 millionrevenues decrease in 2017, compared with $580 million in 2016. The increase was due primarily to higher shipment volumes and price realization, partially offset by higher production costs and increased selling, administrative and general expenses. Net sales increased 20 percent in 20172020 compared to 2016. The increase2019 was primarily the result of higherlower shipment volumes price realization, and the favorable effects of foreign currency translation. The physical volume of sales increased 16 percent, compared with 2016.
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unfavorable effects of currency translation, partially offset by price realization. Operating profit declined primarily due to lower shipment volumes / mix, impairments, employee-separation expenses, and the unfavorable effects of currency exchange, largely offset by price realization, reduced selling, general and administrative expenses, lower research and development costs, improved production costs, and lower warranty expenses.
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CAPITAL RESOURCES AND LIQUIDITY
The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the company'scompany’s consolidated totals, equipment operations, and financial services operations.
CONSOLIDATED
Positive cash flows from consolidated operating activities in 20182021 were $1,820$7,726 million. This resulted primarily from net income adjusted for non-cash provisions, and an increase in accounts payable and accrued expenses, and a decrease in receivables related to sales, which were partially offset by an increase in inventories, an increase in receivables related to sales, a change in net retirement benefits (see Note 7), and a change in accrued income taxes payable/receivable.inventories. Cash outflows from investing activities were $8,154$5,750 million in 2018,2021, due primarilymainly to acquisitions of businesses, net of cash acquired, of $5,245 million (see Note 4), the cost of receivables (excluding receivables related to sales) and cost of equipment on operating leases acquired exceeding the collections of receivables and the proceeds from sales of equipment on operating leases by $1,995$4,332 million, purchases of property and equipment of $896$848 million, a change in collateral on derivatives – net of $281 million, and purchasesacquisition of marketable securities exceeding proceeds from maturities and sales by $56 million, partially offset by proceeds from sales of businesses, and unconsolidated affiliates, net of cash sold,acquired, of $156$244 million (see Note 4). Cash inflowsoutflows from financing activities were $876$1,078 million in 2018,2021, due primarily to repurchases of common stock of $2,538 million and dividends paid of $1,040 million, partially offset by an increase in borrowings of $2,516$2,450 million and proceeds from the issuance of common stock (resulting from the exercise of stock options) of $217 million, partially offset by repurchases of common stock of $958 million and dividends paid of $806$148 million. Cash, and cash equivalents, decreased $5,431and restricted cash increased $953 million during 2018. The decrease in cash primarily related to the Wirtgen acquisition (see Note 4).2021.
In 2018, the company made voluntary contributions of $1,000 million to the U.S. pension and OPEB plans that resulted in a tax deduction applicable to the 2017 tax year. The company also made a voluntary contribution of $300 million in the fourth quarter of 2018 to its U.S. OPEB plans that resulted in a tax deduction in the 2018 tax year.
Over the last three years, operating activities have provided an aggregate of $7,790$18,621 million in cash. In addition,Cash inflows were also provided by increases in borrowings were $5,721 million, proceeds from issuance of common stock (resulting from the exercise of stock options) were $782 million, proceeds from sales of businesses and unconsolidated affiliates were $351 million, and proceeds from maturities and sales exceeded purchases of marketable securities by $228$5,621 million. The aggregate amount of these cash flowsinflows was used mainly to acquire businesses of $5,728 million, acquire receivables (excluding receivables related to sales) and equipment on operating leases that exceeded collections of receivables and the proceeds from sales of equipment on operating leases by $3,500$9,817 million, repurchase common stock of $4,541 million, pay dividends of $2,331$2,939 million, and purchase property and equipment of $2,136 million, and repurchase common stock of $1,170$2,788 million. Cash, and cash equivalents, decreased $258and restricted cash increased $4,110 million over the three-year period.
The company has access to most global capital markets at reasonable costs and expects to have sufficient sources of
global funding and liquidity to meet its funding needs.needs in the short term and long term. Sources of liquidity for the company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets), and committed and uncommitted bank lines of credit. The company'scompany’s commercial paper outstanding at October 28, 201831, 2021 and October 29, 2017November 1, 2020 was $3,857$2,230 million and $3,439$1,238 million, respectively, while the
total cash and cash equivalents and marketable securities position was $4,394$8,745 million and $9,787$7,707 million, respectively. The amount of the total cash and cash equivalents and marketable securities held by foreign subsidiaries was $2,433 million and $3,386$5,817 million at October 28, 201831, 2021 and October 29, 2017, respectively.$5,010 million at November 1, 2020. During November 2021, the company’s foreign subsidiaries returned $3,500 million of cash and cash equivalents to the U.S.
Lines of Credit.The company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled $8,389$8,336 million at October 28, 2018, $3,72431, 2021, $5,770 million of which were unused. For the purpose of computing the unused credit lines, commercial paper and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, were primarily considered to constitute utilization. Included in the total credit lines at October 28, 2018 were31, 2021 was a 364-day credit facility agreementsagreement of $1,750$3,000 million, expiring in fiscal April 2019, and $750 million, expiring in October 2019.2022. In addition, total credit lines included long-term credit facility agreements of $2,500 million, expiring in fiscal April 2021,2025, and $2,500 million, expiring in April 2022.fiscal March 2026. The agreements are mutually extendable and the annual facility fees are not significant. These credit agreements require John Deere Capital Corporation (Capital Corporation) to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholder'sstockholder’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'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'scompany’s excess equity capacity and retained earnings balance free of restriction at October 28, 201831, 2021 was $12,368$15,388 million. Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $22,969$28,579 million at October 28, 2018.31, 2021. All of these requirements of the credit agreementsagreement requirements have been met during the periods included in the consolidated financial statements.
Debt Ratings.To access public debt capital markets, the company relies on credit rating agencies to assign short-term and long-term credit ratings to the company'scompany’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'scompany’s current and future ability to meet interest and principal repayment obligations. Each agency'sagency’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.
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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:
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| Senior | | ||||
| | Long-Term | | Short-Term | | Outlook |
| | | | | | |
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Fitch Ratings | | A | | F1 | | Stable |
Moody’s Investors Service, Inc. | A2 | Prime-1 | Stable | |||
Standard & | A | A-1 | Stable | |||
Trade Accounts and Notes Receivable.Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Trade receivables increased by $1,079$37 million in 2018 due primarily to higher shipment volumes and the Wirtgen acquisition.2021. The ratio of trade accounts and notes receivable at October 28, 201831, 2021 and October 29, 2017November 1, 2020 to fiscal year net sales was 1511 and 13 percent, in both 2018respectively. Total worldwide production and 2017. Totalprecision agriculture receivables decreased $193 million, worldwide small agriculture and turf receivables increased $219$199 million, and construction and forestry receivables increased $860$31 million. The collection period for trade receivables averages less than 12 months. The percentage of trade receivables outstanding for a period exceeding 12 months was 2 percent at October 28, 2018 and 1 percent at October 29, 2017.31, 2021 and 3 percent at November 1, 2020.
Deere & Company's stockholders'Company Stockholders’ Equity. Deere & Company stockholders’ equity was $11,288$18,431 million at October 28, 2018,31, 2021, compared with $9,557$12,937 million at October 29, 2017.November 1, 2020. The increase of $1,731$5,494 million resulted from net income attributable to Deere & Company of $2,368$5,963 million, a change in the retirement benefits adjustment of $1,052$2,884 million, and an increase in common stock of $194 million, which were partially offset by an increase in treasury stock of $851 million, dividends declared of $834$159 million, and a change in the cumulative translation adjustment of $195$118 million, which was partially offset by an increase in treasury stock of $2,468 million and dividends declared of $1,125 million.
Contractual Obligations and Cash Requirements. The company’s material cash requirements include the following contractual and other obligations:
Borrowings – As of October 31, 2021, the equipment operations had $1,497 million of payments due on borrowings and securitization borrowings in the next year, along with interest payments of $329 million. As of the same date, the financial services operations had $11,959 million of payments due on borrowings and securitization borrowings in the next year, along with interest payments of $574 million. The securitization borrowing payments are based on the expected liquidation of the retail notes, as well as the repurchases due to the reduced facility capacity (see Note 29). The financial services borrowings will likely be replaced with new borrowings to finance their receivable and lease portfolios.
Purchase Obligations – As of October 31, 2021, the company’s outstanding purchase obligations were $4,314 million, with $4,190 million payable within one year. These purchase obligations are noncancelable.
Other Cash Requirements –In addition to its contractual obligations, the company’s quarterly cash dividend is $1.05 per share, subject to change at the discretion of the company’s Board of Directors. Total company pension and OPEB contributions in 2022 are expected to be approximately $1,250 million. Fiscal year
2022 contributions include a voluntary U.S. OPEB plan contribution of $1,000 million made on November 30, 2021 (see Note 29). Also anticipated in 2022 is the dissolution of the joint venture agreement between the company and Hitachi. In connection with the termination, the company will purchase all of Hitachi’s shares in the relevant joint venture manufacturing entities and receive certain intellectual property rights. The initial cash consideration consists of $275 million for the shares and an intellectual property license (see Notes 1, 4, and 11). The company will consider share repurchases as a means of deploying excess cash to shareholders once the previously mentioned requirements are met.
EQUIPMENT OPERATIONS
The company'scompany’s equipment businesses are capital intensive and are subject to seasonal variations in financing requirements for inventories and certain receivables from dealers. The equipment operations sell a significant portion of their trade receivables to financial services. To the extent necessary, funds provided from operations are supplemented by external financing sources.
Cash provided by operating activities of the equipment operations during 2018,2021, including intercompany cash flows, was $3,279$5,900 million due primarilylargely to net income adjusted for non-cash provisions and an increase in accounts payable and accrued expenses, and a change in accrued income taxes payable/receivable, partially offset by a change in net retirement benefits (see Note 7), an increase in inventories and an increase in trade, notes, andfinancing receivables and Equipment Operations' financing receivables.related to sales.
Over the last three years, these operating activities, including intercompany cash flows, have provided an aggregate of $8,629$13,860 million in cash.
Trade receivables held by the equipment operations increased by $497$142 million during 2018.2021. The equipment operations sell a significant portion of their trade receivables to financial services (see previous consolidated discussion).
Inventories increased by $2,245$1,782 million in 20182021 due primarily to the Wirtgen acquisition and higherincreased production volumes, partially offset by the effect of foreign currency translation. Mostschedules. A majority of these inventories are valued on the last-in, first-out
(LIFO) method. The ratios of inventories on a first-in, first-out (FIFO) basis (see Note 15), which approximates current cost, to fiscal year cost of sales were 3031 percent and 2728 percent at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, respectively.
Total interest-bearing debt, excluding finance lease liabilities, of the equipment operations was $6,224$10,373 million at the end of 2018,2021, compared with $5,866$10,382 million at the end of 20172020 and $4,814$6,446 million at the end of 2016.2019. The ratio of total debt to total capital (total interest-bearing debt and stockholders'Deere & Company stockholders’ equity) at the end of 2018, 2017,2021, 2020, and 20162019 was 36 percent, 3845 percent, and 4236 percent, respectively.
In 2020, the equipment operations issued three tranches of notes in the U.S. with aggregate principal totaling $2,250 million that are due from 2025 to 2050. The equipment operations also issued Euro notes with aggregate principal totaling €2,000 million (approximately $2,170 million based on the exchange rate at the issue date) that are due from 2024 to 2032 (see Note 20). In 2020, the equipment operations issued commercial paper in the U.S. with aggregate
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principal totaling $466 million, of which $448 million had an original term greater than 90 days. This commercial paper was repaid in 2020 and is presented in “Increase (decrease) in total short-term borrowings” in the statement of consolidated cash flows.
Property and equipment cash expenditures for the equipment operations in 20182021 were $893$845 million, compared with $591$816 million in 2017.2020. Capital expenditures in 20192022 are estimated to be $1,150$1,175 million.
In December 2017, the company acquired Wirtgen for a cash purchase price of $5,136 million, excluding cash acquired. The acquisition and transaction expenses were financed from a combination of cash and new debt financing, which consisted of medium-term notes, including €850 million issued in September 2017 (see Note 4).
FINANCIAL SERVICES
The financial services operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios. Their primary sources of funds for this purpose are a combination of commercial paper, term debt, securitization of retail notes, equity capital, and borrowings from Deere & Company.
The cash provided by operating and financing activities was used for investing activities.primarily to increase receivables and leases. Cash flows from the financial services'services’ operating activities, including intercompany cash flows, were $1,643$1,965 million in 2018.2021. Cash used byfor investing activities totaled $4,839$4,308 million in 20182021 due primarily to the cost of receivables (excluding trade and wholesale) and cost of equipment on operating leases acquired exceeding collections of these receivables and the proceeds from sales of equipment on operating leases by $3,472$5,311 million, an increasea change in trade receivables and wholesale notescollateral on derivatives – net of $1,222$274 million, and purchases of marketable securities exceeding proceeds from maturities and sales by $68$89 million. Partially offsetting the use of cash was a decrease in trade receivables and wholesale notes of $1,364 million. Cash provided by financing activities totaled $2,767$2,238 million in 2018, representing2021, resulting primarily from an increase in external borrowings of $2,515$2,468 million, and an increase in borrowings from Deere & Company of $748$354 million, partially offset by dividends paid to Deere & Company of $464$555 million. Cash, and cash equivalents, and restricted cash decreased $457$91 million.
Over the last three years, the operating activities, including intercompany cash flows, have provided $5,380$6,359 million in cash. In addition, an increase in total borrowings of $4,083$5,476 million, a decrease in trade and wholesale receivables of $2,428 million, and a capital investment from Deere & Companychange in collateral on derivatives – net of $49$59 million provided cash inflows. These amounts have been used mainly to fund receivables (excluding trade and wholesale) and equipment on operating lease acquisitions, which exceeded collections and the proceeds from sales of equipment on operating leases, by $7,264$12,454 million, pay dividends to Deere & Company of $1,391 million, fund an increase in trade receivables and wholesale notes of $1,110$1,368 million, and purchase $104$182 million of marketable securities in excess of maturities and sales. Cash, and cash equivalents, decreased $553and restricted cash increased $112 million over the three-year period.
ReceivablesTrade and financing receivables and equipment on operating leases increased by $2,987$3,401 million in 2018,2021, compared with 2017.2020. Total acquisition volumes of receivables (excluding trade and wholesale notes)wholesale) and cost of equipment on operating leases increased 1116 percent in 2018,2021, compared with 2017.2020. The volumesvolume of financingfinance leases, retail notes, and revolving charge accounts increased 33 percent, 26 percent, and 1 percent, respectively. The volume of operating leases increased approximately 29 percent, 14 percent, 4decreased 2 percent. During 2021, the wholesale notes and
trade receivables portfolios decreased 26 percent and 47 percent, respectively. During 2018, the amount of trade receivables and wholesale notes increased 17 percent and 12 percent, respectively. At October 28, 2018 and October 29, 2017, net receivables and leases administered, which include receivables administered but not owned, were $42,985 million and $40,001 million, respectively.
Total external interest-bearing debt of the financial services operations was $36,033$37,978 million at the end of 2018,2021, compared with $34,179$35,556 million at the end of 20172020 and $30,797$38,888 million at the end of 2016.2019. Total external borrowings have changed generally corresponding with the level of the receivable and lease portfolio, the level of cash and cash equivalents, the change in payables owed to Deere & Company, and the change in investment from Deere & Company. The financial services operations'operations’ ratio of total interest-bearing debt to total stockholder'sstockholder’s equity was 7.57.8 to 1 at the end of 2018, and 7.62021, 7.8 to 1 at the end of 20172020, and 2016.8.0 to 1 at the end of 2019.
The Capital Corporation has a revolving credit agreement to utilize bank conduit facilities to securitize retail notes (see Note 13)14). At October 28, 2018,31, 2021, the facilityrevolving credit agreement had a total capacity, or "financing“financing limit,"” of up to $3,500$2,000 million of secured financings at any time. The facility was renewed in November 2018 with a capacityAt October 31, 2021, $1,572 million of $3,500 million. After a two-yearshort-term securitization borrowings were outstanding under the agreement. At the end of the contractual revolving period, unless the banks and Capital Corporation agree to renew, Capital Corporation would liquidate the secured borrowings over time as payments on the retail notes are collected. At October 28, 2018, $1,364The agreement was renewed in November 2021 with an expiration in November 2022 and a capacity of $1,000 million. As a result of the reduced capacity, $511 million of outstanding short-term securitization borrowings was outstanding underwere repurchased by the agreement.company in November 2021, in addition to the normal monthly collection of payments on the retail notes.
During 2018,2021, the financial services operations issued $2,601$2,801 million and retired $2,838$2,861 million of retail note securitization borrowings. During 2018,borrowings, which are presented in “Increase (decrease) in total short-term borrowings” on the statement of consolidated cash flows. The financial services operations also issued $8,139$8,711 million and retired $6,082$6,996 million of long-term borrowings in 2021, which were primarily medium-term notes.
CRITICAL ACCOUNTING ESTIMATES
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At October 28, 2018, the company had approximately $357 million of guarantees issued primarily to banks outside the U.S. and Canada related to third-party receivables for the retail financing of John Deere and Wirtgen equipment. The increase from October 29, 2017 primarily relates to the Wirtgen acquisition. The company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. The maximum remaining term of the receivables guaranteed at October 28, 2018 was approximately seven years.
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The payment schedule for the company's contractual obligations at October 28, 2018 in millions of dollars is as follows:
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| Total | | Less than 1 year | | 2&3 years | | 4&5 years | | More than 5 years | | ||||||
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On-balance-sheet | | | | | | | ||||||||||
Debt* | | | | | | | ||||||||||
Equipment operations** | | $ | 6,252 | | $ | 1,470 | | $ | 594 | | $ | 1,687 | | $ | 2,501 | |
Financial services** | | 36,462 | | 11,756 | | 13,473 | | 7,392 | | 3,841 | | |||||
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Total | | 42,714 | | 13,226 | | 14,067 | | 9,079 | | 6,342 | | |||||
Interest relating to debt*** | | 5,328 | | 1,059 | | 1,592 | | 898 | | 1,779 | | |||||
Accounts payable | | 3,360 | | 3,243 | | 85 | | 29 | | 3 | | |||||
Capital leases | | 30 | | 11 | | 15 | | 3 | | 1 | | |||||
Off-balance-sheet | | | | | | | ||||||||||
Purchase obligations | | 2,937 | | 2,889 | | 21 | | 22 | | 5 | | |||||
Operating leases | | 383 | | 110 | | 143 | | 84 | | 46 | | |||||
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Total | | $ | 54,752 | | $ | 20,538 | | $ | 15,923 | | $ | 10,115 | | $ | 8,176 | |
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The previous table does not include unrecognized tax benefit liabilities of approximately $279 million at October 28, 2018, since the timing of future payments is not reasonably estimable at this time (see Note 8). For additional information regarding pension and OPEB obligations, short-term borrowings, long-term borrowings, and lease obligations, see Notes 7, 18, 20, and 21, respectively.
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The preparation of the company'scompany’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'scompany’s financial statements and require the most difficult, subjective, or complex judgments. The company'scompany’s other accounting policies are described in the Notes to the Consolidated Financial Statements.
Sales Incentives
In certain markets, the company provides sales incentives to dealers. At the time a sale to a dealer is recognized, the company records an estimate of the future sales incentive costs as a reduction to the sales price. These incentives may be based on a
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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 estimateestimated cost of these programs is based on historical data, announced and expected incentive programs, field inventory levels, and retailforecasted sales volumes. The final cost of these programs andis determined at the amountend of accrual requiredthe measurement period for a specific sale are fully determinedvolume-based incentives or when the dealer sells the equipment to the retail customer. This is due to numerous programs available at any particular time and new programs
that may be announced after the company records the equipment sale. Changes in the mix and types of programs affect these estimates, which are reviewed quarterly.
The sales incentive accruals at October 28, 2018, October 29, 2017,31, 2021, November 1, 2020, and October 30, 2016November 3, 2019 were $1,850$1,680 million, $1,581$1,718 million, and $1,391$2,033 million, respectively. The increasestotal accruals recorded were $880 million, $1,109 million, and $1,443 million in 2018trade accounts and 2017 werenotes receivable – net, and $800 million, $609 million, and $590 million in accounts payable and accrued expenses at October 31, 2021, November 1, 2020, and November 3, 2019, respectively. The decrease in 2021 primarily resulted from higher retail demand and the decrease in 2020 primarily related primarily to higherlower sales volumes.volume.
The estimation of the retail sales incentive accrual is impacted by many assumptions. One of the key assumptions is the predictive value of the historical percent of retail sales incentive costs to retail sales from dealers. Over the last five fiscal years, this percent has varied by an average of approximately plus or minus 1.1.5 percent, compared to the average retail sales incentive costs to retail sales percent during that period. Holding other assumptions constant, if this estimated retail incentive cost experience percent were to increase or decrease 1.1.5 percent, the sales incentive accrual at October 28, 201831, 2021 would increase or decrease by approximately $90$31 million.
Product Warranties
For most equipment and parts sales, the company provides a standard warranty to provide assurance that the equipment will function as intended for a specified period of time. At the time a sale is recognized, the company records the estimated future warranty costs. The company generally determines its total warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs and consideration of current quality developments. Variances in claims experience and the type of warranty programs affect these estimates, which are reviewed quarterly.
The product warranty accruals, excluding extended warranty unamortized premiums, at October 28, 2018, October 29, 2017,31, 2021, November 1, 2020, and October 30, 2016November 3, 2019 were $1,146$1,312 million, $1,007$1,105 million, and $779$1,218 million, respectively. The increasesincrease in 2018 and 2017 were due2021 primarily related to higher sales volumes.volume while the decrease in 2020 mainly related to lower sales volume.
Estimates used to determine the product warranty accruals are significantly affected by the historical percent of warranty claims
costs to sales. Over the last five fiscal years, this percent has varied by an average of approximately plus or minus .13.08 percent, compared to the average warranty costs to sales percent during that period. Holding other assumptions constant, if this estimated cost experience percent were to increase or decrease .13.08 percent, the warranty accrual at October 28, 201831, 2021 would increase or decrease by approximately $50$35 million.
Postretirement Benefit Obligations
Pension and other postretirement benefit (OPEB),OPEB, primarily health care and life insurance plans, obligations are based on various assumptions used by the company'scompany’s actuaries in calculating these amounts. These assumptions include discount rates, health care cost trend rates, expected return on plan assets, compensation increases, retirement rates, mortality rates, and other factors. Actual results that differ from the assumptions and changes in assumptions affect future expenses and obligations.
The pension assets, net of pension liabilities, recognized on the balance sheet at October 28, 201831, 2021 were $494$2,665 million. The pension liabilities, net of pension assets, recognized on the balance sheet at October 29, 2017November 1, 2020 and October 30, 2016November 3, 2019 were $1,073$447 million and $1,949$226 million, respectively. The increase in
the pension net assets in 20182021 was primarily due to returns on plan assets. The increase in the pension net liabilities in 2020 was primarily due to increasesdecreases in discount rates and contributions to a U.S. pension plan (see Note 7), partially offset by interest on the liabilities. The decrease in pension net liabilities, in 2017 was due primarily tolargely offset by the return on plan assets, partially offset by interest on the liabilities and service cost. assets.
The OPEB liabilities, net of OPEB assets, at October 28, 2018, October 29, 2017,31, 2021, November 1, 2020, and October 30, 2016November 3, 2019 were $4,753$3,175 million, $5,623$3,892 million, and $6,065$4,686 million, respectively. The decrease in OPEB net liabilities in 20182021 was due primarily to increases in discount ratesreturns on plan assets and contributionsfavorable changes to the U.S. OPEB plans (see Note 7).medical assumptions. The decrease in OPEB net liabilities in 20172020 was due primarily to a contributioncontributions to a U.S. OPEB plan.
The effect of hypothetical changes to selected assumptions on the company'scompany’s major U.S. retirement benefit plans would be as follows in millions of dollars:
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| | | | Increase | | Increase | | |||||||||||||||
| | Percentage | | (Decrease) | | (Decrease) | | |||||||||||||||
| Change | PBO/APBO* | Expense | |||||||||||||||||||
Pension | | | | | | | | | | |||||||||||||
Discount rate** | +/-.5 | | $ | (812)/930 | | $ | (42)/45 | | ||||||||||||||
Expected return on assets | | +/-.5 | | | | | (63)/ | | ||||||||||||||
OPEB | | | | | | | | | | |||||||||||||
Discount rate** | +/-.5 | | (271)/ | | (11)/ | | ||||||||||||||||
Expected return on assets | +/-.5 | | | | | (9)/ | | |||||||||||||||
Health care cost | +/-1.0 | | 512/(429) | | 52/(49) | |
* | 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
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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'sunit’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'sunit’s financial performance, economic conditions, interest rates, growth rates, pricing, changes in business strategies, and competition.
Based on this testing, theThe company has not identified a reporting unit for which the goodwill was impaired in 2018, 2017,2021, 2020, or 2016.2019. For all reporting units, except for the recently acquired Wirtgen reporting unit (see Note 4), 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 2018. The Wirtgen reporting unit exceeded acquisition projections in 2018 and expects to meet future projections.2021.
Allowance for Credit Losses
The allowance for credit losses representsis an estimate of the credit losses inherent inexpected over the company'slife of the receivable portfolio. The level of 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 many quantitative and qualitative factors, including historical net loss experience by product category, portfolio duration, delinquency trends, economic conditions in the company's major markets and geographies,size and credit risk quality. The company has an established process to calculate a range of possible outcomes and determine the adequacy of the allowance.underlying pool of receivables, to estimate expected credit losses. Transition matrix models are used for large and complex retail customer receivable pools, while weighted average remaining maturity models are used for smaller and less complex retail customer receivable pools. Expected credit losses on wholesale receivables are based on historical loss rates, with consideration of current economic conditions and dealer financial risk. The adequacymodeled expected credit losses are adjusted based on reasonable and supportable forecasts, which may include economic indicators such as commodity prices, industry equipment sales, unemployment rates, and housing starts. Management reviews each model’s output quarterly, and qualitative adjustments are incorporated as necessary.
In 2021, the company adopted ASU No. 2016-13, which revised the measurement of credit losses from an incurred loss to an expected loss methodology. Upon adoption the company’s allowance for credit losses increased with an offset to retained earnings (see Note 3). The allowance for credit losses at November 1, 2020 and November 3, 2019 were not restated under the expected loss methodology. The total allowance for credit losses at October 31, 2021, November 1, 2020, and November 3, 2019 was $207 million, $223 million, and $222 million, respectively. The allowance decreased in 2021 compared to 2020 due to lower expected losses
in the construction and forestry market, continued improvement in the agriculture and turf market, and better than expected performance of accounts granted payment relief due to the economic effects of COVID. As previously mentioned, the allowance decrease was partially offset by the adoption of ASU No. 2016-13. The allowance was about the same in 2020 compared to 2019 with an increase in the financing receivable allowance largely offset by a decrease in the allowance for trade accounts and notes receivable (see Note 13).
The assumptions used in evaluating the company’s exposure to credit losses involve estimates and significant judgment. While the company believes its allowance is assessed quarterly. Differentsufficient 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 provision forestimated default balance to calculate the expected credit losses.
The total allowance for credit losses at October 28, 2018, October 29, 2017, and October 30, 2016 was $248 million, $243 million, and $226 million, respectively. The allowance increases in 2018 and 2017 were due primarily to growth in the receivable portfolio.
The assumptions used in evaluating the company's exposure to credit losses involve estimates and significant judgment. The historical loss experience on the receivable portfolio represents one factor used in determining the allowance for credit losses. Compared to the average loss experience over the last five fiscal years, this percent has varied by an average of approximately plus or minus ..06 percent, compared to the average loss experience percent during that period. Holding all other factors constant, if this estimated loss experience ona 10 percent increase in the receivable portfolio weretransition matrix models’ forecasted defaults and a simultaneous 10 percent decrease in recovery rates would have resulted in a $34 million increase to increase or decrease .06 percent, the allowance for credit losses at October 28, 2018 would increase or decrease by approximately $21 million.31, 2021.
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 dependentbased on current economic conditionsseveral factors, including lease term, expected hours of usage, historical wholesale sales prices, return experience, intended equipment use, market dynamics and are reviewedtrends, 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 an evaluation.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 atOctober 28, 2018, October 29, 2017,31, 2021, November 1, 2020, and October 30, 2016November 3, 2019 were $5,089$5,025 million, $4,679$5,254 million, and $4,347$5,259 million, respectively. The changesdecreases in 20182021 and 2017 were due2020 primarily related to the increasing levelsa lower average operating lease portfolio.
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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'scompany’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'scompany’s annual depreciation for equipment on operating leases by approximately $185 million.$80 million, after consideration of dealer residual value guarantees.
Income Taxes
The company'scompany’s income tax provision, deferred income tax assets and liabilities, and liabilities for uncertain tax benefits represent the company'scompany’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'scompany’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.
Tax reform included additional requirements effective for the company in 2019. Those provisions include a tax on global intangible low-taxed income (GILTI), a tax determined by base erosion and anti-abuse tax benefits (BEAT) from certain payments between a U.S. corporation and foreign subsidiaries, a limitation of certain executive compensation, a deduction for foreign derived intangible income (FDII), and interest expense limitations. These new provisions require interpretation and will use estimates to determine the liability and benefits. The company's accounting policy election is to treat the taxes due on future U.S. inclusions in taxable income under GILTI as a period cost when incurred.
A provision for foreign withholding taxes has not been recorded on undistributed profits of the company'scompany’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 89 to the consolidated financial statements.
SAFE HARBOR STATEMENT
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under “Business” (including under
“Market Conditions”), “Risk Factors,” “Management’s Discussion and Analysis” (including under “Overview” and “Trends and Economic Conditions”), and other forward-looking statements herein that relate to future events, expectations, and trends involve factors that are subject to change, and risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the company’s businesses.
The company’s agricultural equipment businesses are subject to a number of uncertainties, including certain factors that affect farmers’ confidence and financial condition. These factors include demand for agricultural products; world grain stocks; weather conditions and the effects of climate change; soil conditions; harvest yields; prices for commodities and livestock; crop and livestock production expenses; availability of transport for crops (including as a result of reduced state and local transportation budgets); trade restrictions and tariffs (e.g., China); global trade agreements; the level of farm product exports (including concerns about genetically modified organisms); the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production); real estate values; available acreage for farming; land ownership policies of governments; changes in government farm programs and policies; international reaction to such programs; changes in and effects of crop insurance programs; changes in environmental regulations and their impact on farming practices; animal diseases (e.g., African swine fever) and their effects on poultry, beef, and pork consumption and prices and on livestock feed demand; crop pests and diseases; and the impact of the COVID pandemic on the agricultural industry including demand for, and production and exports of, agricultural products, and commodity prices.
The production and precision agriculture business is dependent on agricultural conditions, and relies in part on hardware and software, guidance, connectivity and digital solutions, and automation and machine intelligence. Many factors contribute to the company’s precision agriculture sales and results, including the impact to customers’ profitability and/or sustainability outcomes; the rate of adoption and use by customers; availability of technological innovations; speed of research and development; effectiveness of partnerships with third parties; and the dealer channel’s ability to support and service precision technology solutions.
Factors affecting the company’s small agriculture and turf equipment operations include agricultural conditions; consumer confidence; weather conditions and the effects of climate change; customer profitability; labor supply; consumer borrowing patterns; consumer purchasing preferences; housing starts and supply; infrastructure investment; spending by municipalities and golf courses; and consumable input costs.
Factors affecting the company’s construction and forestry equipment operations include consumer spending patterns; real estate and housing prices; the number of housing starts; interest
37
rates; commodity prices such as oil and gas; the levels of public and non-residential construction; and investment in infrastructure. Prices for pulp, paper, lumber, and structural panels affect sales of forestry equipment.
Many of the factors affecting the production and precision agriculture, small agriculture and turf, and construction and forestry segments have been and may continue to be impacted by global economic conditions, including those resulting from the COVID pandemic and responses to the pandemic taken by governments and other authorities.
All of the company’s businesses and its results are affected by general economic conditions in the global markets and industries in which the company operates; customer confidence in general economic conditions; government spending and taxing; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates (including the availability of IBOR reference rates); inflation and deflation rates; changes in weather and climate patterns; the political and social stability of the global markets in which the company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts; natural disasters; and the spread of major epidemics or pandemics (including the COVID pandemic) and government and industry responses to such epidemics or pandemics, such as travel restrictions and extended shut downs of businesses.
Continued uncertainties related to the magnitude, duration, and persistent effects of the COVID pandemic may significantly adversely affect the company’s business and outlook. These uncertainties include, among other things: the duration and impact of the resurgence in COVID cases in any country, state, or region; the emergence, contagiousness, and threat of new and different strains of virus; the availability, acceptance, and effectiveness of vaccines; additional closures as mandated or otherwise made necessary by governmental authorities; disruptions in the supply chain, including those caused by industry capacity constraints, material availability, and global logistics delays and constraints arising from, among other things, the transportation capacity of ocean shipping containers, and a prolonged delay in resumption of operations by one or more key suppliers, or the failure of any key suppliers; an increasingly competitive labor market due to a sustained labor shortage or increased turnover caused by the COVID pandemic; the company’s ability to meet commitments to customers on a timely basis as a result of increased costs and supply and transportation challenges; increased logistics costs; additional operating costs due to continued remote working arrangements, adherence to social distancing guidelines, and other COVID-related challenges; increased risk of cyberattacks on network connections used in remote working arrangements; increased privacy-related risks due to processing health-related personal information; legal claims related to personal protective equipment designed, made, or provided by the company or alleged exposure to COVID on company premises; absence of employees due to illness; and the impact of the pandemic on the
company’s customers and dealers. The sustainability of the economic recovery observed in 2021 remains unclear and significant volatility could continue for a prolonged period. These factors, and others that are currently unknown or considered immaterial, could materially and adversely affect our business, liquidity, results of operations, and financial position.
Significant changes in market liquidity conditions, changes in the company’s credit ratings, and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the company’s earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of the company’s products and customer confidence and purchase decisions, financing and repayment practices, and the number and size of customer delinquencies and defaults. A debt crisis in Europe, Latin America, or elsewhere could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, demand for equipment, and company operations and results. The company’s investment management activities could be impaired by changes in the equity, bond, and other financial markets, which would negatively affect earnings.
Continued effects of the withdrawal of the United Kingdom from the European Union could adversely affect business activity, political stability, and economic conditions in the United Kingdom, the European Union, and elsewhere. The economic conditions and outlook could be further adversely affected by (i) uncertainty regarding any new or modified trade arrangements between the United Kingdom and the European Union and/or other countries; (ii) the risk that one or more other European Union countries could come under increasing pressure to leave the European Union; or (iii) the risk that the euro as the single currency of the eurozone could cease to exist. Any of these developments could affect our businesses, liquidity, results of operations, and financial position.
Additional factors that could materially affect the company’s operations, access to capital, expenses, and results include changes in, uncertainty surrounding, and the impact of governmental trade, banking, monetary, and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs, and other areas; the potential default of the U.S. federal government if Congress fails to pass a 2022 budget resolution; governmental programs, policies, and tariffs for the benefit of certain industries or sectors; sanctions in particular jurisdictions; retaliatory actions to such changes in trade, banking, monetary, and fiscal policies; actions by central banks; actions by financial and securities regulators; actions by environmental, health, and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, noise, and the effects of climate change; changes to GPS radio frequency bands or their permitted uses; changes in labor and immigration regulations; changes to accounting standards; changes in tax rates, estimates, laws, and regulations and
38
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'scompany’s financial services operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to diminish risk due to interest rate and foreign currency fluctuations while responding to favorable financing opportunities. In addition, the company has interest rate exposure at certain equipment operations units for below market retail financing programs that are used as sales incentives and are offered for extended periods. Accordingly, from time to time, these operations enter into interest rate swap agreements to manage their interest rate exposure. The company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling, and financing in currencies other than the functional currencies. The company has entered into agreements related to the management of these foreign currency transaction risks.
Interest Rate Risk
Quarterly, the company uses a combination of cash flow models to assess the sensitivity of its financial instruments with interest rate exposure to changes in market interest rates. The models calculate the effect of adjusting interest rates as follows: cash flows for financing receivables are discounted at the current prevailing rate for each receivable portfolio, cash flows for marketable securities are primarily discounted at the applicable benchmark yield curve plus market credit spreads, cash flows for unsecured borrowings are discounted at the applicable benchmark yield curve plus
market credit spreads for similarly rated borrowers, cash flows for securitized borrowings are discounted at the swap yield curve plus a market credit spread for similarly rated borrowers, and cash flows for interest rate swaps are projected and discounted using forward rates from the swap yield curve at the repricing dates. The net loss in these financial instruments'instruments’ fair values which would be caused by decreasingincreasing the interest rates by 10 percent from the market rates at October 28, 201831, 2021 would have been approximately $21$19 million. The net loss from increasing the interest rates by 10 percent at October 29, 2017November 1, 2020 would have been approximately $4$50 million.
Foreign Currency Risk
In the equipment operations, the company'scompany’s practice is to hedge significant currency exposures. Worldwide foreign currency exposures are reviewed quarterly. Based on the equipment operations'operations’ anticipated and committed foreign currency cash inflows, outflows, and hedging policy for the next twelve months, the company estimates that a hypothetical 10 percent strengthening of the U.S. dollar relative to other currencies through 20192022 would decrease the 20192022 expected net cash inflows by approximately $55$113 million. At October 29, 2017,November 1, 2020, a hypothetical 10 percent strengthening of the U.S. dollar under similar assumptions and calculations indicated a potential $78$90 million adverse effect on the 20182021 net cash inflows.
In the financial services operations, the company'scompany’s policy is to hedge themanage 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.
43
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
INCOM
For the Years Ended October 28, 2018, October 29, 2017,31, 2021, November 1, 2020, and October 30, 2016
November 3, 2019
(In millions of dollars)
| 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Net Sales and Revenues | ||||||||||
Net sales | $ | 33,350.7 | $ | 25,885.1 | $ | 23,387.3 | ||||
Finance and interest income | 3,106.6 | 2,731.5 | 2,511.2 | |||||||
Other income | 900.4 | 1,121.1 | 745.5 | |||||||
| | | | | | | | | | |
Total | 37,357.7 | 29,737.7 | 26,644.0 | |||||||
| | | | | | | | | | |
Costs and Expenses | ||||||||||
Cost of sales | 25,571.2 | 19,866.2 | 18,196.1 | |||||||
Research and development expenses | 1,657.6 | 1,372.5 | 1,393.7 | |||||||
Selling, administrative and general expenses | 3,455.5 | 3,097.8 | 2,791.2 | |||||||
Interest expense | 1,203.6 | 899.5 | 763.7 | |||||||
Other operating expenses | 1,399.1 | 1,347.9 | 1,275.3 | |||||||
| | | | | | | | | | |
Total | 33,287.0 | 26,583.9 | 24,420.0 | |||||||
| | | | | | | | | | |
Income of Consolidated Group before Income Taxes | 4,070.7 | 3,153.8 | 2,224.0 | |||||||
Provision for income taxes | 1,726.9 | 971.1 | 700.1 | |||||||
| | | | | | | | | | |
Income of Consolidated Group | 2,343.8 | 2,182.7 | 1,523.9 | |||||||
Equity in income (loss) of unconsolidated affiliates | 26.8 | (23.5 | ) | (2.4 | ) | |||||
| | | | | | | | | | |
Net Income | 2,370.6 | 2,159.2 | 1,521.5 | |||||||
Less: Net income (loss) attributable to noncontrolling interests | 2.2 | .1 | (2.4 | ) | ||||||
| | | | | | | | | | |
Net Income Attributable to Deere & Company | $ | 2,368.4 | $ | 2,159.1 | $ | 1,523.9 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Per Share Data | ||||||||||
Basic | $ | 7.34 | $ | 6.76 | $ | 4.83 | ||||
Diluted | $ | 7.24 | $ | 6.68 | $ | 4.81 | ||||
Dividends declared | $ | 2.58 | $ | 2.40 | $ | 2.40 | ||||
Average Shares Outstanding | ||||||||||
Basic | 322.6 | 319.5 | 315.2 | |||||||
Diluted | 327.3 | 323.3 | 316.6 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
Net Sales and Revenues | | | | | | | | | | |
Net sales | | $ | 39,737 | | $ | 31,272 | | $ | 34,886 | |
Finance and interest income | |
| 3,296 | |
| 3,450 | |
| 3,493 | |
Other income | |
| 991 | |
| 818 | |
| 879 | |
Total | |
| 44,024 | |
| 35,540 | |
| 39,258 | |
| | | | | | | | | | |
Costs and Expenses | | | | | | | | | | |
Cost of sales | |
| 29,116 | |
| 23,677 | |
| 26,792 | |
Research and development expenses | |
| 1,587 | |
| 1,644 | |
| 1,783 | |
Selling, administrative and general expenses | |
| 3,383 | |
| 3,477 | |
| 3,551 | |
Interest expense | |
| 993 | |
| 1,247 | |
| 1,466 | |
Other operating expenses | |
| 1,343 | |
| 1,612 | |
| 1,578 | |
Total | |
| 36,422 | |
| 31,657 | |
| 35,170 | |
| | | | | | | | | | |
Income of Consolidated Group before Income Taxes | |
| 7,602 | |
| 3,883 | |
| 4,088 | |
Provision for income taxes | |
| 1,658 | |
| 1,082 | |
| 852 | |
| | | | | | | | | | |
Income of Consolidated Group | |
| 5,944 | |
| 2,801 | |
| 3,236 | |
Equity in income (loss) of unconsolidated affiliates | |
| 21 | |
| (48) | |
| 21 | |
| | | | | | | | | | |
Net Income | |
| 5,965 | |
| 2,753 | |
| 3,257 | |
Less: Net income attributable to noncontrolling interests | |
| 2 | |
| 2 | |
| 4 | |
Net Income Attributable to Deere & Company | | $ | 5,963 | | $ | 2,751 | | $ | 3,253 | |
| | | | | | | | | | |
Per Share Data | | | | | | | | | | |
Basic | | $ | 19.14 | | $ | 8.77 | | $ | 10.28 | |
Diluted | | $ | 18.99 | | $ | 8.69 | | $ | 10.15 | |
Dividends declared | | $ | 3.61 | | $ | 3.04 | | $ | 3.04 | |
| | | | | | | | | | |
Average Shares Outstanding | | | | | | | | | | |
Basic | |
| 311.6 | |
| 313.5 | |
| 316.5 | |
Diluted | |
| 314.0 | |
| 316.6 | |
| 320.6 | |
The notes to consolidated financial statements are an integral part of this statement.
44
DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
IN
For the Years Ended October 28, 2018, October 29, 2017,31, 2021, November 1, 2020, and October 30, 2016
November 3, 2019
(In millions of dollars)
| 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Net Income | $ | 2,370.6 | $ | 2,159.2 | $ | 1,521.5 | ||||
| | | | | | | | | | |
Other Comprehensive Income (Loss), Net of Income Taxes | ||||||||||
Retirement benefits adjustment | 1,052.4 | 828.8 | (907.6 | ) | ||||||
Cumulative translation adjustment | (195.4 | ) | 230.6 | 9.0 | ||||||
Unrealized gain on derivatives | 9.1 | 3.7 | 2.9 | |||||||
Unrealized loss on investments | (13.3 | ) | (.6 | ) | (.9 | ) | ||||
| | | | | | | | | | |
Other Comprehensive Income (Loss), Net of Income Taxes | 852.8 | 1,062.5 | (896.6 | ) | ||||||
| | | | | | | | | | |
Comprehensive Income of Consolidated Group | 3,223.4 | 3,221.7 | 624.9 | |||||||
Less: Comprehensive income (loss) attributable to noncontrolling interests | 2.1 | .3 | (2.4 | ) | ||||||
| | | | | | | | | | |
Comprehensive Income Attributable to Deere & Company | $ | 3,221.3 | $ | 3,221.4 | $ | 627.3 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
Net Income | | $ | 5,965 | | $ | 2,753 | | $ | 3,257 | |
| | | | | | | | | | |
Other Comprehensive Income (Loss), Net of Income Taxes | | | | | | | | | | |
Retirement benefits adjustment | |
| 2,884 | |
| (3) | |
| (678) | |
Cumulative translation adjustment | |
| 118 | |
| 55 | |
| (448) | |
Unrealized gain (loss) on derivatives | |
| 16 | |
| 2 | |
| (75) | |
Unrealized gain (loss) on debt securities | |
| (18) | |
| 14 | |
| 29 | |
| | | | | | | | | | |
Other Comprehensive Income (Loss), Net of Income Taxes | |
| 3,000 | |
| 68 | |
| (1,172) | |
| | | | | | | | | | |
Comprehensive Income of Consolidated Group | |
| 8,965 | |
| 2,821 | |
| 2,085 | |
Less: Comprehensive income attributable to noncontrolling interests | |
| 2 | |
| 2 | |
| 4 | |
Comprehensive Income Attributable to Deere & Company | | $ | 8,963 | | $ | 2,819 | | $ | 2,081 | |
The notes to consolidated financial statements are an integral part of this statement.
45
DEERE & COMPANY
CONSOLIDATED BALANCE SHEET
As of October 28, 201831, 2021 and October 29, 2017
November 1, 2020
(In millions of dollars except per share amounts)
| 2018 | 2017 | |||||
---|---|---|---|---|---|---|---|
ASSETS | |||||||
Cash and cash equivalents | $ | 3,904.0 | $ | 9,334.9 | |||
Marketable securities | 490.1 | 451.6 | |||||
Receivables from unconsolidated affiliates | 21.7 | 35.9 | |||||
Trade accounts and notes receivable – net | 5,004.3 | 3,924.9 | |||||
Financing receivables – net | 27,054.1 | 25,104.1 | |||||
Financing receivables securitized – net | 4,021.4 | 4,158.8 | |||||
Other receivables | 1,735.5 | 1,200.0 | |||||
Equipment on operating leases – net | 7,165.4 | 6,593.7 | |||||
Inventories | 6,148.9 | 3,904.1 | |||||
Property and equipment – net | 5,867.5 | 5,067.7 | |||||
Investments in unconsolidated affiliates | 207.3 | 182.5 | |||||
Goodwill | 3,100.7 | 1,033.3 | |||||
Other intangible assets – net | 1,562.4 | 218.0 | |||||
Retirement benefits | 1,298.3 | 538.2 | |||||
Deferred income taxes | 808.0 | 2,415.0 | |||||
Other assets | 1,718.4 | 1,623.6 | |||||
| | | | | | | |
Total Assets | $ | 70,108.0 | $ | 65,786.3 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
LIABILITIES | |||||||
Short-term borrowings | $ | 11,061.4 | $ | 10,035.3 | |||
Short-term securitization borrowings | 3,957.3 | 4,118.7 | |||||
Payables to unconsolidated affiliates | 128.9 | 121.9 | |||||
Accounts payable and accrued expenses | 10,111.0 | 8,417.0 | |||||
Deferred income taxes | 555.8 | 209.7 | |||||
Long-term borrowings | 27,237.4 | 25,891.3 | |||||
Retirement benefits and other liabilities | 5,751.0 | 7,417.9 | |||||
| | | | | | | |
Total liabilities | 58,802.8 | 56,211.8 | |||||
| | | | | | | |
Commitments and contingencies (Note 22) | |||||||
Redeemable noncontrolling interest (Note 4) | 14.0 | 14.0 | |||||
STOCKHOLDERS' EQUITY | |||||||
Common stock, $1 par value (authorized – 1,200,000,000 shares; | 4,474.2 | 4,280.5 | |||||
Common stock in treasury, 217,975,806 shares in 2018 and 214,589,902 shares in 2017, at cost | (16,311.8 | ) | (15,460.8 | ) | |||
Retained earnings | 27,553.0 | 25,301.3 | |||||
Accumulated other comprehensive income (loss) | (4,427.6 | ) | (4,563.7 | ) | |||
| | | | | | | |
Total Deere & Company stockholders' equity | 11,287.8 | 9,557.3 | |||||
Noncontrolling interests | 3.4 | 3.2 | |||||
| | | | | | | |
Total stockholders' equity | 11,291.2 | 9,560.5 | |||||
| | | | | | | |
Total Liabilities and Stockholders' Equity | $ | 70,108.0 | $ | 65,786.3 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
ASSETS | | | | | | | |
Cash and cash equivalents | | $ | 8,017 | | $ | 7,066 | |
Marketable securities | |
| 728 | |
| 641 | |
Receivables from unconsolidated affiliates | |
| 27 | |
| 31 | |
Trade accounts and notes receivable - net | |
| 4,208 | |
| 4,171 | |
Financing receivables - net | |
| 33,799 | |
| 29,750 | |
Financing receivables securitized - net | |
| 4,659 | |
| 4,703 | |
Other receivables | |
| 1,738 | |
| 1,220 | |
Equipment on operating leases - net | |
| 6,988 | |
| 7,298 | |
Inventories | |
| 6,781 | |
| 4,999 | |
Property and equipment - net | |
| 5,820 | |
| 5,817 | |
Investments in unconsolidated affiliates | |
| 175 | |
| 193 | |
Goodwill | |
| 3,291 | |
| 3,081 | |
Other intangible assets - net | |
| 1,275 | |
| 1,327 | |
Retirement benefits | |
| 3,601 | |
| 863 | |
Deferred income taxes | |
| 1,037 | |
| 1,499 | |
Other assets | |
| 1,970 | |
| 2,432 | |
Total Assets | | $ | 84,114 | | $ | 75,091 | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
LIABILITIES | | | | | | | |
Short-term borrowings | | $ | 10,919 | | $ | 8,582 | |
Short-term securitization borrowings | |
| 4,605 | |
| 4,682 | |
Payables to unconsolidated affiliates | |
| 143 | |
| 105 | |
Accounts payable and accrued expenses | |
| 12,205 | |
| 10,112 | |
Deferred income taxes | |
| 576 | |
| 519 | |
Long-term borrowings | |
| 32,888 | |
| 32,734 | |
Retirement benefits and other liabilities | |
| 4,344 | |
| 5,413 | |
Total liabilities | |
| 65,680 | |
| 62,147 | |
| | | | | | | |
Commitments and contingencies (Note 21) | | | | | | | |
| | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | |
Common stock, $1 par value (authorized – 1,200,000,000 shares; | |
| 5,054 | |
| 4,895 | |
Common stock in treasury, 228,366,144 shares in 2021 and 222,775,254 shares in 2020, at cost | |
| (20,533) | |
| (18,065) | |
Retained earnings | |
| 36,449 | |
| 31,646 | |
Accumulated other comprehensive income (loss) | |
| (2,539) | |
| (5,539) | |
Total Deere & Company stockholders’ equity | |
| 18,431 | |
| 12,937 | |
Noncontrolling interests | |
| 3 | |
| 7 | |
Total stockholders’ equity | |
| 18,434 | |
| 12,944 | |
Total Liabilities and Stockholders’ Equity | | $ | 84,114 | | $ | 75,091 | |
The notes to consolidated financial statements are an integral part of this statement.
46
DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
F
For the Years Ended October 28, 2018, October 29, 2017,31, 2021, November 1, 2020, and October 30, 2016
November 3, 2019
(In millions of dollars)
| 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Cash Flows from Operating Activities | ||||||||||
Net income | $ | 2,370.6 | $ | 2,159.2 | $ | 1,521.5 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Provision for credit losses | 90.8 | 98.3 | 94.3 | |||||||
Provision for depreciation and amortization | 1,927.1 | 1,715.5 | 1,559.8 | |||||||
Impairment charges | 39.8 | 85.1 | ||||||||
Share-based compensation expense | 83.8 | 68.1 | 70.6 | |||||||
Gain on sale of affiliates and investments | (25.1 | ) | (375.1 | ) | (74.5 | ) | ||||
Undistributed earnings of unconsolidated affiliates | (26.3 | ) | (14.4 | ) | (1.9 | ) | ||||
Provision for deferred income taxes | 1,479.9 | 100.1 | 282.7 | |||||||
Changes in assets and liabilities: | ||||||||||
Trade, notes and financing receivables related to sales | (1,531.1 | ) | (838.9 | ) | 335.2 | |||||
Inventories | (1,772.3 | ) | (1,305.3 | ) | (106.1 | ) | ||||
Accounts payable and accrued expenses | 722.3 | 968.0 | (155.2 | ) | ||||||
Accrued income taxes payable/receivable | (466.2 | ) | (84.2 | ) | 7.0 | |||||
Retirement benefits | (1,026.1 | ) | (31.9 | ) | 238.6 | |||||
Other | (7.1 | ) | (299.4 | ) | (87.4 | ) | ||||
| | | | | | | | | | |
Net cash provided by operating activities | 1,820.3 | 2,199.8 | 3,769.7 | |||||||
| | | | | | | | | | |
Cash Flows from Investing Activities | ||||||||||
Collections of receivables (excluding receivables related to sales) | 15,589.3 | 14,671.1 | 14,611.4 | |||||||
Proceeds from maturities and sales of marketable securities | 76.6 | 404.2 | 169.4 | |||||||
Proceeds from sales of equipment on operating leases | 1,482.7 | 1,440.8 | 1,256.2 | |||||||
Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold | 155.6 | 113.9 | 81.1 | |||||||
Cost of receivables acquired (excluding receivables related to sales) | (17,013.3 | ) | (15,221.8 | ) | (13,954.5 | ) | ||||
Acquisitions of businesses, net of cash acquired | (5,245.0 | ) | (284.2 | ) | (198.5 | ) | ||||
Purchases of marketable securities | (132.8 | ) | (118.0 | ) | (171.2 | ) | ||||
Purchases of property and equipment | (896.4 | ) | (594.9 | ) | (644.4 | ) | ||||
Cost of equipment on operating leases acquired | (2,053.7 | ) | (1,997.4 | ) | (2,310.7 | ) | ||||
Other | (117.4 | ) | (58.0 | ) | (16.0 | ) | ||||
| | | | | | | | | | |
Net cash used for investing activities | (8,154.4 | ) | (1,644.3 | ) | (1,177.2 | ) | ||||
| | | | | | | | | | |
Cash Flows from Financing Activities | ||||||||||
Increase (decrease) in total short-term borrowings | 473.2 | 1,310.6 | (1,213.6 | ) | ||||||
Proceeds from long-term borrowings | 8,287.8 | 8,702.2 | 5,070.7 | |||||||
Payments of long-term borrowings | (6,245.3 | ) | (5,397.0 | ) | (5,267.6 | ) | ||||
Proceeds from issuance of common stock | 216.9 | 528.7 | 36.0 | |||||||
Repurchases of common stock | (957.9 | ) | (6.2 | ) | (205.4 | ) | ||||
Dividends paid | (805.8 | ) | (764.0 | ) | (761.3 | ) | ||||
Other | (92.5 | ) | (87.8 | ) | (64.7 | ) | ||||
| | | | | | | | | | |
Net cash provided by (used for) financing activities | 876.4 | 4,286.5 | (2,405.9 | ) | ||||||
| | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 26.8 | 157.1 | (13.0 | ) | ||||||
| | | | | | | | | | |
Net Increase (Decrease) in Cash and Cash Equivalents | (5,430.9 | ) | 4,999.1 | 173.6 | ||||||
Cash and Cash Equivalents at Beginning of Year | 9,334.9 | 4,335.8 | 4,162.2 | |||||||
| | | | | | | | | | |
Cash and Cash Equivalents at End of Year | $ | 3,904.0 | $ | 9,334.9 | $ | 4,335.8 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
Cash Flows from Operating Activities | | | | | | | | | | |
Net income | | $ | 5,965 | | $ | 2,753 | | $ | 3,257 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | |
Provision (credit) for credit losses | |
| (6) | |
| 110 | |
| 43 | |
Provision for depreciation and amortization | |
| 2,050 | |
| 2,118 | |
| 2,019 | |
Impairment charges | |
| 50 | |
| 194 | |
| 77 | |
Share-based compensation expense | |
| 82 | |
| 81 | |
| 82 | |
Loss on sales of businesses and unconsolidated affiliates | | | | | | 24 | | | 5 | |
Undistributed earnings of unconsolidated affiliates | |
| 2 | |
| (7) | |
| 9 | |
Credit for deferred income taxes | |
| (441) | |
| (11) | |
| (465) | |
Changes in assets and liabilities: | | | | | | | | | | |
Trade, notes, and financing receivables related to sales | |
| 969 | |
| 2,009 | |
| (869) | |
Inventories | |
| (2,497) | |
| 397 | |
| (780) | |
Accounts payable and accrued expenses | |
| 1,884 | |
| (7) | |
| 46 | |
Accrued income taxes payable/receivable | |
| 11 | |
| 8 | |
| 173 | |
Retirement benefits | |
| 29 | |
| (537) | |
| (233) | |
Other | |
| (372) | |
| 351 | |
| 48 | |
Net cash provided by operating activities | |
| 7,726 | |
| 7,483 | |
| 3,412 | |
| | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | |
Collections of receivables (excluding receivables related to sales) | |
| 18,959 | |
| 17,381 | |
| 16,706 | |
Proceeds from maturities and sales of marketable securities | |
| 109 | |
| 93 | |
| 89 | |
Proceeds from sales of equipment on operating leases | |
| 2,094 | |
| 1,783 | |
| 1,648 | |
Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold | |
| | |
| | |
| 93 | |
Cost of receivables acquired (excluding receivables related to sales) | |
| (23,653) | |
| (19,965) | |
| (18,873) | |
Acquisitions of businesses, net of cash acquired | | | (244) | |
| (66) | |
| | |
Purchases of marketable securities | |
| (194) | |
| (130) | |
| (140) | |
Purchases of property and equipment | |
| (848) | |
| (820) | |
| (1,120) | |
Cost of equipment on operating leases acquired | |
| (1,732) | |
| (1,836) | |
| (2,329) | |
Collateral on derivatives - net | | | (281) | | | 268 | | | 59 | |
Other | |
| 40 | |
| (27) | |
| (57) | |
Net cash used for investing activities | |
| (5,750) | |
| (3,319) | |
| (3,924) | |
| | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | |
Increase (decrease) in total short-term borrowings | |
| 818 | |
| (1,360) | |
| (917) | |
Proceeds from long-term borrowings | |
| 8,722 | |
| 9,271 | |
| 9,986 | |
Payments of long-term borrowings | |
| (7,090) | |
| (7,383) | |
| (6,426) | |
Proceeds from issuance of common stock | |
| 148 | |
| 331 | |
| 178 | |
Repurchases of common stock | |
| (2,538) | |
| (750) | |
| (1,253) | |
Dividends paid | |
| (1,040) | |
| (956) | |
| (943) | |
Other | |
| (98) | |
| (133) | |
| (116) | |
Net cash provided by (used for) financing activities | |
| (1,078) | |
| (980) | |
| 509 | |
| | | | | | | | | | |
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | |
| 55 | |
| 32 | |
| (56) | |
| | | | | | | | | | |
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | |
| 953 | |
| 3,216 | |
| (59) | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Year | |
| 7,172 | |
| 3,956 | |
| 4,015 | |
Cash, Cash Equivalents, and Restricted Cash at End of Year | | $ | 8,125 | | $ | 7,172 | | $ | 3,956 | |
The notes to consolidated financial statements are an integral part of this statement.
47
DEERE & COMPANY
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS'STOCKHOLDERS’ EQUITY
For the Years Ended October 30, 2016, October 29, 2017,November 3, 2019, November 1, 2020, and October 28, 2018
31, 2021
(In millions of dollars)
| | Total Stockholders' Equity | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Deere & Company Stockholders | | | | |||||||||||||||||||
| Total Stockholders' Equity | Common Stock | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | | Redeemable Noncontrolling Interest | ||||||||||||||||
Balance November 1, 2015 | $ | 6,757.6 | $ | 3,825.6 | $ | (15,497.6 | ) | $ | 23,144.8 | $ | (4,729.4 | ) | $ | 14.2 | ||||||||||
Net income (loss) | 1,521.5 | 1,523.9 | (2.4 | ) | ||||||||||||||||||||
Other comprehensive loss | (896.6 | ) | (896.6 | ) | ||||||||||||||||||||
Repurchases of common stock | (205.4 | ) | (205.4 | ) | ||||||||||||||||||||
Treasury shares reissued | 25.9 | 25.9 | ||||||||||||||||||||||
Dividends declared | (758.0 | ) | (757.1 | ) | (.9 | ) | ||||||||||||||||||
Acquisition (Note 4) | $ | 14.0 | ||||||||||||||||||||||
Stock options and other | 85.8 | 86.2 | (.3 | ) | (.1 | ) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance October 30, 2016 | 6,530.8 | 3,911.8 | (15,677.1 | ) | 23,911.3 | (5,626.0 | ) | 10.8 | 14.0 | |||||||||||||||
Net income | 2,159.2 | 2,159.1 | ..1 | |||||||||||||||||||||
Other comprehensive income | 1,062.5 | 1,062.3 | .2 | |||||||||||||||||||||
Repurchases of common stock | (6.2 | ) | (6.2 | ) | ||||||||||||||||||||
Treasury shares reissued | 222.5 | 222.5 | ||||||||||||||||||||||
Dividends declared | (770.4 | ) | (769.2 | ) | (1.2 | ) | ||||||||||||||||||
Stock options and other | 362.1 | 368.7 | .1 | (6.7 | ) | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance October 29, 2017 | 9,560.5 | 4,280.5 | (15,460.8 | ) | 25,301.3 | (4,563.7 | ) | 3.2 | 14.0 | |||||||||||||||
Net income | 2,369.4 | 2,368.4 | 1.0 | 1.2 | ||||||||||||||||||||
Other comprehensive income (loss) | 852.8 | 852.9 | (.1 | ) | ||||||||||||||||||||
Repurchases of common stock | (957.9 | ) | (957.9 | ) | ||||||||||||||||||||
Treasury shares reissued | 106.9 | 106.9 | ||||||||||||||||||||||
Dividends declared | (835.8 | ) | (833.8 | ) | (2.0 | ) | (1.2 | ) | ||||||||||||||||
Acquisition (Note 4) | 1.1 | 1.1 | ||||||||||||||||||||||
Stock options and other | 194.2 | 193.7 | .3 | .2 | ||||||||||||||||||||
ASU No. 2018-02 adoption* | 716.8 | (716.8 | ) | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance October 28, 2018 | $ | 11,291.2 | $ | 4,474.2 | $ | (16,311.8 | ) | $ | 27,553.0 | $ | (4,427.6 | ) | $ | 3.4 | $ | 14.0 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
* See Note 3. | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Total Stockholders’ Equity | | | | | | |||||||||||||
| | | | | Deere & Company Stockholders | | | | | | | | | ||||||||||
|
| | |
| | |
| | |
| | |
| Accumulated |
| | |
|
| | | | |
| | Total | | | | | | | | | | | Other | | | | | Redeemable |
| ||||
| | Stockholders’ | | Common | | Treasury | | Retained | | Comprehensive | | Noncontrolling | | | Noncontrolling | | |||||||
| | Equity | | Stock | | Stock | | Earnings | | Income (Loss) | | Interests | | | Interest | | |||||||
Balance October 28, 2018 | | $ | 11,291 | | $ | 4,474 | | $ | (16,312) | | $ | 27,553 | | $ | (4,427) | | $ | 3 | | | $ | 14 | |
| | | | | | | | | | | | | | | | | | | | | | | |
ASU No. 2016-01 adoption | | | | | | | | | | | | 8 | | | (8) | | | | | | | | |
Net income | |
| 3,257 | | | | | | | | | 3,253 | | | | | | 4 | | | | | |
Other comprehensive loss | |
| (1,172) | | | | | | | | | | | | (1,172) | | | | | |
| | |
Repurchases of common stock | |
| (1,253) | | | | | | (1,253) | | | | | | | | | | | | | | |
Treasury shares reissued | |
| 91 | | | | | | 91 | | | | | | | | | | | | | | |
Dividends declared | |
| (965) | | | | | | | | | (963) | | | | | | (2) | | |
| | |
Stock options and other | |
| 168 | | | 168 | | | | | | 1 | | | | | | (1) | | | | | |
Balance November 3, 2019 | |
| 11,417 | |
| 4,642 | |
| (17,474) | |
| 29,852 | |
| (5,607) | |
| 4 | | |
| 14 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net income | |
| 2,752 | | | | | | | | | 2,751 | | | | | | 1 | | | | 1 | |
Other comprehensive income | |
| 68 | | | | | | | | | | | | 68 | | | | | |
| | |
Repurchases of common stock | |
| (750) | | | | | | (750) | | | | | | | | | | | | | | |
Treasury shares reissued | |
| 159 | | | | | | 159 | | | | | | | | | | | | | | |
Dividends declared | |
| (956) | | | | | | | | | (955) | | | | | | (1) | | |
| (1) | |
Noncontrolling interest redemption (Note 5) | | | | | | | | | | | | | | | | | | | | | | (14) | |
Stock options and other | |
| 254 | | | 253 | | | | | | (2) | | | | | | 3 | | | | | |
Balance November 1, 2020 | |
| 12,944 | |
| 4,895 | |
| (18,065) | |
| 31,646 | |
| (5,539) | |
| 7 | | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | |
ASU No. 2016-13 adoption (Note 3) | | | (35) | | | | | | | | | (35) | | | | | | | | | | | |
Net income | |
| 5,965 | | | | | | | | | 5,963 | | | | | | 2 | | | | | |
Other comprehensive income | |
| 3,000 | | | | | | | | | | | | 3,000 | | | | | |
| | |
Repurchases of common stock | |
| (2,538) | | | | | | (2,538) | | | | | | | | | | | | | | |
Treasury shares reissued | |
| 70 | | | | | | 70 | | | | | | | | | | | | | | |
Dividends declared | |
| (1,127) | | | | | | | | | (1,125) | | | | | | (2) | | |
| | |
Stock options and other | |
| 155 | | | 159 | | | | | | | | | | | | (4) | | | | | |
Balance October 31, 2021 | | $ | 18,434 | | $ | 5,054 | | $ | (20,533) | | $ | 36,449 | | $ | (2,539) | | $ | 3 | | | | | |
The notes to consolidated financial statements are an integral part of this statement.
48
|
Structure of Operations
The information in the notes and related commentary are presented in a format that includes data grouped as follows:
Equipment Operations – Includes the company's agriculture and turf operations and construction and forestry operations with financial services reflected on the equity basis.
Financial Services – Includes primarily the company's financing operations.
Consolidated – Represents the consolidation of the equipment operations and financial services. References to "Deere“Deere & Company"Company” or "the company"“the company” refer to the entire enterprise.
Equipment Operations – Represents the enterprise without financial services, while including the company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services.
Financial Services – Represents the company’s financing operations.
New Segment Reporting Structure
In fiscal year 2021, the company implemented a new operating model and reporting structure. With this change, the company’s agriculture and turf operations were divided into two new segments: production and precision agriculture (PPA) and small agriculture and turf (SAT). There were no changes to the construction and forestry (CF) and financial services (FS) segments. At the beginning of fiscal year 2021, the company also reclassified goodwill from identifiable operating assets to corporate assets for segment reporting, as goodwill is no longer considered in evaluating the operating performance of the segments. Additional information on the new segments and the segment financial results are presented in Note 28. Prior period segment information was recast for a consistent presentation. References to agriculture and turf include both production and precision agriculture and small agriculture and turf.
Principles of Consolidation
The consolidated financial statements represent primarily the consolidation of all companies in which Deere & Company has a controlling interest. Certain variable interest entities (VIEs) are consolidated since the company is the primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the VIEs'VIEs’ economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs. Deere & Company records its investment in each unconsolidated affiliated company (generally 20 to 50 percent ownership) at its related equity in the net assets of such affiliate (see Note 10)11). Other investments (less than 20 percent ownership) are recorded at cost.
Fiscal Year
The company uses a 52/53 week fiscal year ending on the last Sunday in the reporting period.period, which generally occurs in October. An additional week is included in the fourth fiscal quarter every five or six years to realign the company’s fiscal quarters with the calendar. The fiscal year ends for 2018, 2017,2021, 2020, and 20162019 were October 28, 2018, October 29, 2017,31, 2021, November 1, 2020, and October 30, 2016,November 3, 2019, respectively. AllFiscal years 2021 and 2020 contained 52 weeks compared to 53 weeks in fiscal year 2019. Unless otherwise stated,
references to particular years or quarters refer to the company’s fiscal years contained 52 weeks.and the associated periods in those fiscal years.
Wirtgen Reporting Lag Removal
Prior to November 2, 2020, the operating results of the Wirtgen Group (Wirtgen) were incorporated into the company’s consolidated financial statements using a one-month lag period. In 2021, the reporting lag was eliminated resulting in one additional month of Wirtgen activity in fiscal year 2021. The effect was an increase to “Net sales” of $270 million, which the company considers immaterial to construction and forestry’s annual net sales. Prior period results were not restated.
Variable Interest Entities
The company consolidates certain VIEs related to retail note securitizations (see Note 13)14).
The company also has an interest in a joint venture that manufactures construction equipment in Indaiatuba, Brazil for local and overseas markets. The joint venture is a VIE, butVIE; however, the company is not the primary beneficiary. Therefore, the entity'sentity’s financial results are not fully consolidated in the company'scompany’s consolidated financial statements but are included on the equity basis. In 2020, the investment in the joint venture was impaired. The maximum exposure to lossesloss was $9 million and $5 million at October 28, 201831, 2021 and November 1, 2020, respectively. On August 19, 2021, the company announced the dissolution of the joint venture with Hitachi Construction Machinery Co., Ltd. and the purchase of the shares in millionsthe relevant joint venture manufacturing entities, including the above referenced factory in Indaiatuba, Brazil. Refer to Note 4 for more details.
Argentina
The company has equipment operations and financial services operations in Argentina. The U.S. dollar has historically been the functional currency for the company’s Argentina operations, as its business is generally indexed to the U.S. dollar due to the highly inflationary conditions. The Argentine government has certain capital and currency controls that restrict the company’s ability to access U.S. dollars in Argentina and remit earnings from its Argentine operations. As of October 31, 2021, the company's net investment in Argentina was approximately $578 million. The company's net investment in its Argentine operations is likely to increase as Deere generates net income that is unable to be remitted. Net sales and revenues from the company’s Argentine operations represented approximately 1 percent of consolidated net sales and revenues for 2021. The company has employed mechanisms to convert Argentine pesos into U.S. dollars follows:to the extent possible. The net peso exposure as of October 31, 2021 was approximately $3 million. Argentine peso-denominated monetary assets and liabilities are remeasured at each balance sheet date using the official currency exchange rate.
49
| | | | ||
| | October 2018 | | ||
---|---|---|---|---|---|
| | | | ||
Receivables from unconsolidated affiliates | | $ | 2 | | |
Loan guarantee | | 25 | | | |
| | | | | |
Total | | $ | 27 | | |
| | | | | |
| | | | | |
| | | | | |
| | | |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The following are significant accounting policies in addition to those included in other notes to the consolidated financial statements.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. ActualThe COVID pandemic has resulted in uncertainties in the company’s business, which may result in actual results could differdiffering from those estimates.
Revenue Recognition
Sales of equipment and service parts are recordedrecognized when each of the following criteria are met: (1) the company and an independent customer approve a contract with commercial substance, (2) the sales price is determinable and collectability of the payments are probable based on the terms outlined in the contract, and (3) control of the goods has transferred to the independent customer. In most situations, the independent customer is a dealer, which subsequently sells the equipment and service parts purchased from the company to a retail customer, who can finance the equipment with the financial services segment or another source of financing. In some situations, the company sells directly to a retail customer. The term “customer” includes both dealers and retail customers to whom the company makes direct sales. Transfer of control generally occurs for equipment and service parts when the good is delivered as specified in the contract and the risks and rewards of ownership are transferred to independent parties based on the sales agreements in effect.transferred. In the U.S. and most international locations, this transfer occurs primarily when goods are shipped. In Canada and some other international locations, certain goods are shipped to dealers on a consignment basis under which the risks and rewards of ownership are not transferred to the dealer.dealer at the time the goods are shipped. Accordingly, in these locations, sales are not recorded until a retail customer has purchased the goods. In all cases, when a sale is recorded by the company,Generally, no significant uncertainty exists surrounding the purchaser's obligation to pay. No right of return exists on sales of equipment.
In selectlimited instances, equipment is transferred to a customer or a financial institution with a significant residual value guarantee or with an obligation to repurchase the equipment for a specified amount, which is exercisable at the customer'scustomer’s option. ThoseWhen the equipment is expected to be repurchased, those arrangements are accounted for as leases. When the operating lease criteria are met, noNo 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'scustomer’s option expires. When this equipment is not expected to be repurchased, a sale is recorded with a return obligation.
Under the terms of sales agreements with dealers, interest-free periods are determined based on the type of equipment sold and the time of year of the sale. These periods range from one to twelve months for most equipment. Interest-free periods may not be extended. Interest is primarily charged to dealers on outstanding balances, from the earlier of the date when goods are sold to a retail customer by the dealer or the expiration of the interest-free period granted at the time of the sale to the dealer,
until payment is received by the company. Interest charged may not be forgiven and the past due interest rates exceed market rates. In 2020 and to a much lesser extent in 2021, short-term payment relief was provided to dealers due to the economic effects of COVID (see Note 13). Dealers cannot cancel purchases after the company recognizes a sale and are responsible for payment even if the equipment is not sold to retail customers. If the interest-free or below market interest rate period exceeds one year, the company adjusts the expected sales revenue for the effects of the time value of money using a current market interest rate. The revenue related to the financing component is recognized in “Finance and interest income” using the interest method. The company does not adjust the sales price to account for a financing component if the expected interest-free or below market period is one year or less.
Service parts and certain attachments returns are estimable and accrued at the time a sale is recognized. The company makes appropriate provisionsestimated 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 experiencehistorical 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 costs suchmaintenance and repair parts. Revenue for remanufactured components is recognized using the same criteria as doubtful receivables,other parts sales. When a remanufactured part is sold, the company collects a deposit that is repaid if the customer returns a core that meets certain specifications within a defined time period. The deposit received from the customer is recognized as a liability in “Accounts payable and accrued expenses” and the used component that is expected to be returned is recognized in “Other assets” in the consolidated balance sheet. When a customer returns a core, the deposit is repaid, the liability reversed, and the returned core is recorded in inventory to be remanufactured and sold to another customer. If a core is not returned within the required time, the deposit is recognized as revenue in “Net sales, incentives,” and product warranty.the estimated core return is recorded as an expense in “Cost of sales” in the statement of consolidated income.
Certain equipment is sold with precision guidance, telematics, and other information gathering and analyzing capabilities. These technology solutions require hardware, software, and may include an obligation to provide services for a period of time. These solutions are generally bundled with the sale of the equipment but can also be purchased or renewed separately. The revenue related to the hardware and embedded software is generally recognized at the time of the equipment sale and recorded in “Net sales” in the statement of consolidated income. The revenue for the future services is generally deferred and recognized over the service period. The deferred revenue is recorded as a contract liability in “Accounts payable and accrued expenses” in the consolidated balance sheet and is recognized in “Other income” with the
50
associated expenses recognized in “Other operating expenses” in the statement of consolidated income.
Financing revenue is recorded over the lives of the related receivables using the interest method. Extended warranty premiums recorded in other income are generally recognized in proportion to the costs expected to be incurred over the contract period. Deferred costs on the origination of financing receivables are recognized as a reduction in finance revenue“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 revenue.“Finance and interest income.”
Sales Incentives
At the time a sale is recognized,In certain markets, the company records an estimate of the futureprovides sales incentives to dealers. These incentives may be based on a dealer’s purchase volume or on retail sales incentive costsprograms for allowances and financing programs that will be due when athe dealer sells the equipment to a retail customer. At the time of the sale to a dealer, the company records an estimated cost of these programs as a reduction to the sales price. The estimateestimated cost is based on historical data, announced and expected incentive programs, field inventory levels, and retailforecasted 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 company records the estimated future warranty costs. These costs are usually estimated based onrecorded. 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 developmentsdevelopments. 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 22)21).
Sales and Transaction Taxes
The company collects and remits taxes assessed by different governmental authorities that are both imposed on and concurrent with revenue producing transactions between the company and its customers. These taxes may include sales, use, value-added, and some excise taxes. The company reports the collection ofelected to exclude these taxes on a net basisfrom the determination of the sales price (excluded from revenues).
Shipping and HandlingContract Costs
Shipping and handlingIncremental costs related toof obtaining an equipment revenue contract are recognized as an expense when incurred since the sales of the company's equipment are included in cost of sales.amortization period would be one year or less.
Advertising Costs
Advertising costs are charged to expense as incurred. This expense was $188$212 million in 2018, $1692021, $196 million in 2017,2020, and $169$215 million in 2016.2019.
Depreciation and Amortization
Property and equipment, capitalized software, and other intangible assets are generally stated at cost less accumulated depreciation or amortization. These assets are depreciated over their estimated useful lives generally using the straight-line method. Equipment on operating leases is depreciated over the terms of the leases using the straight-line method. Property and equipment expenditures for new and revised products, increased capacity, and the replacement or major renewal of significant items are capitalized. Expenditures for maintenance, repairs, and minor renewals are generally charged to expense as incurred.
Securitization of Receivables
Certain financing receivables are periodically transferred to special purpose entities (SPEs) in securitization transactions (see Note 13)14). These securitizations qualify as collateral for secured borrowings and no gains or losses are recognized at the time of securitization. The receivables remain on the balance sheet and are classified as "Financing“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 charge-offs,write-offs, the allowance for credit losses, and any unamortized deferred fees or costs on originated financing receivables. AllowancesThe company also records an allowance and provision for credit losses are maintained in amounts considered to be appropriate in relationrelated to the receivables outstandingfrom sales (trade receivables and certain financing receivables). The allowance is a reduction to the receivable balances and the provision is recorded in “Selling, administrative and general expenses.” The allowance represents an estimate of the credit losses expected over the life of the receivable portfolio. The company measures expected credit losses on a collective basis when similar risk characteristics exist. Risk characteristics considered by the company include finance product category, market, geography, credit risk, and remaining duration. Receivables that do not share risk characteristics with other receivables in the portfolio are evaluated on an individual basis.
The company utilizes loss forecast models, which are selected based on collection experience, economic conditions in the company's major markets and geographies,size and credit risk quality. Receivablesof the underlying pool of receivables, to estimate expected credit losses. Transition matrix models are used for large and complex retail customer receivable pools, while weighted average remaining maturity models are used for smaller and less complex retail customer receivable pools. Expected credit losses on wholesale receivables are based on historical loss rates, with consideration of current economic conditions and dealer financial risk. The modeled expected credit losses are adjusted based on reasonable and supportable forecasts, which may include economic indicators such as commodity prices, industry equipment sales, unemployment rates, and housing
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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 12)13).
Impairment of Long-Lived Assets, Goodwill, and Other Intangible Assets
The company evaluates the carrying value of long-lived assets (including equipment on operating leases, property and equipment, goodwill, and other intangible assets) when events or circumstances warrant such a review. Goodwill and unamortized intangible assets with indefinite lives 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 units, which consist primarily of the operating segments and certain other reporting units.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'sunit’s carrying value over the fair value, with a limit of the goodwill allocated to that reporting unit. If the carrying value of the long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset (see Notes 5 and 26).
Derivative Financial Instruments
ItThe company’s policy 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'scompany’s financial services operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. The company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling, and financing in currencies other than the functional currencies. In addition, the company has interest rate exposure at certain equipment operations units for below market retail financing programs that are used as sales incentives and are offered for extended periods.
All derivatives are recorded at fair value on the balance sheet. Cash collateral received or paid is not offset against the derivative fair values on the balance sheet. Each derivative is designated as either a cash flow hedge, or a 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 to the extent the hedge was effective by fair value changes related to the risk being hedged on the hedged item. Changes in the fair value of undesignated hedges are recognized currently in the income statement. All ineffective changes in derivative fair values are recognized currently in net income.
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, the hedge accounting discussed above is discontinued (see Note 27).
Foreign Currency Translation
The functional currencies for most of the company'scompany’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 forwardderivative contracts are included in net income. The pretax net lossgain (loss) for foreign exchange in 2018, 2017,2021, 2020, and 20162019 was $8$(134) million, $62$18 million, and $38$(13) million, respectively.
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3. NEW ACCOUNTING STANDARDS
New Accounting Standards Adopted
In the first quarter of 2018,2021, the company early adopted Financial Accounting Standards Board (FASB) Accounting StandardStandards Update (ASU) No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends Accounting Standards Codification (ASC) 715, Compensation – Retirement Benefits. This ASU required that employers report only the service cost component of the total defined benefit pension and OPEB cost in the same income statement lines as compensation for the participating employees. The other components of these benefit costs are reported outside of operating profit in the income statement line other operating expenses. The ASU was adopted on a retrospective basis that increased operating profit in fiscal years 2018, 2017, and 2016 by $15 million, $31 million, and $20 million, respectively. The income statement line changes for fiscal years 2017 and 2016 were cost of sales decreased $67 million and $53 million, research and development expenses increased $5 million and $5 million, selling, administrative and general expenses increased $31 million and $28 million, and other operating expenses increased $31 million and $20 million, respectively. In addition, only the service cost component of the benefit costs is eligible for capitalization, which was adopted beginning the first quarter of 2018.
In the first quarter of 2018, the company adopted ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which amends ASC 323, Investments – Equity Method and Joint Ventures, which did not have a material effect on the company's consolidated financial statements.
In March 2018, the FASB issued ASU No. 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which amends ASC 740, Income Taxes. This ASU incorporates SEC Staff Accounting Bulletin No. 118, which was also issued in December 2017, into the ASC. The ASU provides guidance on when to record and
disclose provisional amounts related to tax reform. In addition, the ASU allows for a measurement period up to one year after the enactment date of tax reform to complete the related accounting requirements and was effective when issued. The company will complete the adjustments related to tax reform within the allowed period. The effects of tax reform on the company's consolidated financial statements are outlined in Note 8.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends ASC 220, Income Statement – Reporting Comprehensive Income. Included in the provisions of tax reform is a reduction of the corporate income tax rate from 35 percent to 21 percent. Accounting principles generally accepted in the U.S. require that deferred taxes are remeasured to the new corporate tax rate in the period legislation is enacted. The deferred tax adjustment is recorded in the provision for income taxes, including items for which the tax effects were originally recorded in OCI. This treatment results in the items in OCI not reflecting the appropriate tax rate, which are referred to as stranded tax effects. This ASU allows a reclassification from accumulated OCI to retained earnings for stranded tax effects resulting from tax reform. The company early adopted this ASU in the fourth quarter of 2018. The stranded tax effects reclassified from OCI to retained earnings were $717 million.
New Accounting Standards to be Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue. The FASB issued several amendments clarifying various aspects of the ASU, including revenue transactions that involve a third party, goods or services that are immaterial in the context of the contract, and licensing arrangements. The company will adopt the ASU effective the first quarter of fiscal year 2019 using a modified-retrospective approach. The ASU requires that a gross asset and liability rather than a net liability be recorded for the value of estimated service parts returns and the related refund liability. The gross asset will be recorded in other assets for the inventory value of estimated parts returns and the gross liability will be recorded in accounts payable and accrued expenses for the estimated dealer refund. The estimated increase in other assets and accounts payable and accrued expenses will be approximately $110 million. In addition, certain revenue disclosures will be expanded to include contract liabilities and disaggregated revenue by geographic regions and major product and services lines. The adoption will not have other material effects on the company's consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends ASC 825-10, Financial Instruments – Overall. This ASU changes the treatment for available-for-sale equity investments by recognizing unrealized
fair value changes directly in net income and no longer in other comprehensive income. The effective date will be the first quarter of fiscal year 2019. The ASU will be adopted with a cumulative-effect adjustment to the balance sheet. The available-for-sale equities balance at October 28, 2018 is $46 million with an unrealized gain of $10 million. As a result, the adoption will not have a material effect on the company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. The ASU's primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset during the term of operating lease arrangements. The ASU does not significantly change the lessee's recognition, measurement, and presentation of expenses and cash flows from the previous accounting standard. Lessors' accounting under the ASC is largely unchanged from the previous accounting standard. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases: Targeted Improvements. Both ASUs amend ASC 842, Leases. The provisions impacting the company in these ASUs are an option that will not require prior periods to be restated at the adoption date and an option for lessors, if certain criteria are met, to avoid separating the lease and nonlease components (such as preventative maintenance services) in an agreement. In December 2018, the FASB issued ASU No. 2018-20, Narrow-Scope Improvements for Lessors. This ASU provides an election for lessors to exclude sales and related taxes from consideration in the contract, requires lessors to exclude from revenue and expense lessor costs paid directly to a third party by lessees, and clarifies lessors' accounting for variable payments related to both lease and nonlease components. The effective date will be the first quarter of fiscal year 2020, with early adoption permitted. The company is evaluating the potential effects on the consolidated financial statements and plans to adopt the ASU using the modified-retrospective approach that will not require prior periods to be restated.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASCAccounting Standards Codification (ASC) 326, Financial Instruments –- Credit Losses. This ASU was adopted using a modified-retrospective approach. The ASU, revisesalong with related amendments, revised the measurement of credit losses for financial assets measured at amortized cost from an incurred loss methodology to an expected loss methodology. The ASU affects trade receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates
The company holds deposits from dealers (dealer deposits), which are recorded in “Accounts payable and accrued expenses” to absorb certain credit quality are also required. In November 2018,losses. Prior to adopting this ASU, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. This ASU clarifies that receivablesallowance for credit losses was estimated on probable credit losses incurred after consideration of recoveries from operating leases are accounted for using the lease guidance and not as financial instruments. The effective date will be the first quarter of fiscal year 2021, with early adoption permitted beginning in fiscal year 2020.dealer deposits. The ASU will be adopted usingconsiders dealer deposits and certain credit insurance contracts as freestanding credit enhancements. As a modified-retrospective approach.result, after adoption, credit losses recovered from dealer deposits and certain credit insurance contracts are presented in “Other income” and no longer as part of the allowance for credit losses or the provision for credit losses. The companyASU also modified the treatment of the estimated write-off of delinquent receivables by no longer including the estimated benefit of charges to the dealer deposits in the write-off amount. This change increases the estimated write-offs on delinquent financing receivables with the benefit of credit losses recovered from dealer deposits presented in “Other income.” This benefit, in both situations, is evaluatingrecorded when the potentialdealer deposits are charged and no longer based on estimated recoveries.
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The effects of adopting the ASU on the consolidated financial statements.balance sheet were as follows in millions of dollars:
In August 2016,
| | | | | | | | | | |
| | November 1 | | Cumulative Effect | | November 2 | | |||
| | 2020 | | from Adoption | | 2020 | | |||
Assets | | | | | | | | | | |
Trade accounts and note receivable - net | | $ | 4,171 | | $ | 2 | | $ | 4,173 | |
Financing receivables - net | | | 29,750 | | | (27) | | | 29,723 | |
Financing receivables securitized - net | | | 4,703 | | | (4) | | | 4,699 | |
Deferred income taxes | | | 1,499 | | | 1 | | | 1,500 | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 10,112 | | $ | 14 | | $ | 10,126 | |
Deferred income taxes | | | 519 | | | (7) | | | 512 | |
| | | | | | | | | | |
Stockholders’ equity | | | | | | | | | | |
Retained earnings | | $ | 31,646 | | $ | (35) | | $ | 31,611 | |
Note 13 contains additional disclosures, while the FASB issued ASU No. 2016-15, Classificationcompany’s updated allowance for credit losses accounting policy is included in Note 2 and the MD&A’s Critical Accounting Estimates.
The company also adopted the following standards in 2021, none of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU
provides guidancehad a material effect on the statementcompany’s consolidated financial statements:
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Accounting Standards Updates | |
No. 2018-15 — Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software | |
No. 2019-04 — Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments | |
No. 2021-01 — Reference Rate Reform (Topic 848): Scope | |
New Accounting Standards to be Adopted
The company will adopt the following standards in future periods, none of cash flows presentation of certain transactions where diversity in practice exists. The effective date will be the first quarter of fiscal year 2019 and will be adopted using a retrospective transition approach. The adoption will notwhich are expected to have a material effect on the company'scompany’s consolidated financial statements.statements:
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Accounting Standards Updates | |
No. 2019-12 — Simplifying the Accounting for Income Taxes, which amends ASC 740, Income Taxes | |
No. 2020-08 — Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs | |
4. ACQUISITIONS AND DISPOSITIONS
Pending Acquisitions
In October 2016,August 2021, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory,company and Hitachi Construction Machinery Co., Ltd. (Hitachi) entered into a Joint Venture Dissolution Agreement (Dissolution Agreement) pursuant to which amends ASC 740, Income Taxes. This ASU requires that the income tax consequences of an intra-entity asset transfer other than inventory are recognized atparties agreed to voluntarily terminate (Termination) the timejoint venture agreement dated May 16, 1988 between the company and Hitachi. The joint venture agreement governs the terms of the transfer.joint venture between the company and Hitachi for the manufacture and distribution of excavators in North, Central, and South America under the John Deere and Hitachi trademarks and
tradenames. In connection with the Termination, the company will purchase all of Hitachi’s shares in the relevant joint venture manufacturing entities located in Kernersville, North Carolina, U.S.; Langley, British Columbia, Canada; and Indaiatuba, Brazil. The effective datecompany will receive certain intellectual property rights relating to certain manufacturing processes under a perpetual license agreement. The initial cash consideration consists of $275 million for the shares and an intellectual property license. The cash consideration will be offset by cash acquired and the settlement of intercompany balances. The company will also assume substantially all liabilities and debt of the joint venture entities. In addition to the foregoing payments, Hitachi will pay the book value of certain pre-existing inventory. Following the Termination, the company will purchase John Deere-branded excavators, components, and service parts from Hitachi under a new supply agreement with a duration that ranges from 5 to 30 years. The company will also continue to manufacture 10-50 metric ton John Deere-branded excavators. The Termination is expected to close during the first quarterhalf of fiscal year 2019. The ASU will be adopted using a modified-retrospective transition approach. The adoption will not have a material effect on the company's consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amends ASC 230, Statement of Cash Flows. This ASU requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. The effective date will be the first quarter of fiscal year 2019 and will be adopted using a retrospective transition approach. The adoption will not have a material effect on the company's consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which amends ASC 805, Business Combinations. This ASU provides further guidance on the definition of a business to determine whether transactions should be accounted for as acquisitions of assets or businesses. The effective date will be the first quarter of fiscal year 2019. The ASU will be adopted on a prospective basis and will not have a material effect on the company's consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amends ASC 310-20, Receivables – Nonrefundable Fees and Other Costs. This ASU reduces the amortization period for certain callable debt securities held at a premium2022, subject to the earliest call date.receipt of certain required regulatory approvals and satisfaction of certain other customary closing conditions. The treatment of securities held at a discount is unchanged. The effective date iscompany expects to fund the first quarter of fiscal year 2020, with early adoption permitted. The adoption will not have a material effect on the company's consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, which amends ASC 718, Compensation – Stock Compensation. This ASU provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change,initial consideration and the classification as an equity or liability instrument does not change. The ASU will be adoptedtransaction expenses from cash on a prospective basis. The effective date is the first quarter of fiscal year 2019. The adoption will not have a material effect on the company's consolidated financial statements.hand.
Acquisitions
Bear Flag
In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815, Derivatives and Hedging. The purpose of
this ASU is to better align a company's risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements. The effective date is fiscal year 2020, with early adoption permitted. The company will adopt the ASU in the first quarter of fiscal year 2019 and the adoption will not have a material effect on the company's consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which amends ASC 718, Compensation – Stock Compensation. This ASU requires that most of the guidance related to stock compensation granted to employees be followed for non-employees, including the measurement date, valuation approach, and performance conditions. The expense is recognized in the same period as though cash were paid for the good or service. The effective date is the first quarter of fiscal year 2020, with early adoption permitted, including in interim periods. The ASU will be adopted using a modified-retrospective transition approach. The adoption will not have a material effect on the consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The effective date is the first quarter of fiscal year 2021, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2021 permitted for the new disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The company will early adopt the ASU in the first quarter of fiscal year 2019. The adoption will not have a material effect on the company's consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715-20, Compensation – Retirement Benefits – Defined Benefit Plans – General. This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated OCI expected to be recognized in net periodic benefit costs over the next fiscal year and (b) the effects of a one-percentage-point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for postretirement health care benefits. The new disclosures include the interest crediting rates for cash balance plans, and an explanation of significant gains and losses related to changes in benefit obligations. The effective date is fiscal year 2021, with early adoption permitted. The company will early adopt the ASU in fiscal year 2019. The adoption will not have a material effect on the company's consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract, which amends ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software. This ASU requires customers in a hosting arrangement that is a service contract to evaluate the implementation costs of the hosting arrangement using the guidance to develop internal-use software. The project development stage determines the implementation costs that are capitalized or expensed. Capitalized implementation costs are amortized over the term of the service arrangement and are presented in the same income statement line item as the service contract costs. The effective date will be the first quarter of fiscal year 2021, with early adoption permitted. The company will adopt the ASU on a prospective basis. The company is evaluating the potential effects on the company's consolidated financial statements.
In October 2018, the FASB issued ASU No. 2018-16, Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which amends ASC 815, Derivatives and Hedging. This ASU adds the OIS rate based on SOFR to the list of permissible benchmark rates for hedge accounting purposes. The company will early adopt the ASU in the first quarter of fiscal year 2019. The adoption will not have a material effect on the company's consolidated financial statements.
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Acquisitions
PLA
On September 26, 2018, the company acquired PLA, a privately-held manufacturerBear Flag Robotics, Inc. (Bear Flag) to further accelerate Deere’s development and delivery of sprayers, planters,advanced technology. Bear Flag’s technology is complementary to other Deere technology efforts and specialty products for agriculture. PLA is based in Argentina, with manufacturing facilities in Las Rosas, Argentina and Canoas, Brazil.enables autonomous tractor operations. The total cash purchase price before the final adjustment,adjustments, net of cash acquired of $1$4 million, was $74$225 million, with $4an additional $25 million retained byto be recognized as compensation expense over the company as escrow to secure indemnity obligations.four-year post-acquisition service period. In addition to the cash purchase price, the company assumed $30$19 million of liabilities.liabilities were assumed. The preliminary asset and liability fair values at the acquisition date in millions of dollars follow:
| | | | ||
| | September 2018 | | ||
---|---|---|---|---|---|
| | | | ||
Trade accounts and notes receivable | | $ | 6 | | |
Other receivables | | 14 | | | |
Inventories | | 19 | | | |
Property and equipment | | 1 | | | |
Goodwill | | 43 | | | |
Other intangible assets | | 21 | | | |
| | | | | |
Total assets | | $ | 104 | | |
| | | | | |
| | | | | |
| | | | | |
Short-term borrowings | | $ | 8 | | |
Accounts payable and accrued expenses | | 17 | | | |
Deferred income taxes | | 5 | | | |
| | | | | |
Total liabilities | | $ | 30 | | |
| | | | | |
| | | | | |
| | | | | |
| | | |
| | | | |
| | August 2021 | | |
Property and equipment | | $ | 1 | |
Goodwill | | | 189 | |
Other intangible assets | | | 54 | |
Total assets | | $ | 244 | |
| | | | |
Accounts payable and accrued expenses | | $ | 1 | |
Deferred income taxes | | | 18 | |
Total liabilities | | $ | 19 | |
The identified intangible assets were primarilywas related to technology trademarks, and customer relationships.with a seven-year amortization period. The goodwill iswill not expected to be deductible for tax purposes.
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King AgroUnimil
In March 2018,September 2020, the company acquired King Agro,Unimil, a privately held manufacturer of carbon fiber technology products with headquartersleading Brazilian company in Valencia, Spain and a production facilitythe after-sales service parts business for sugarcane harvesters, which is based in Campana, Argentina.Piracicaba, Brazil. The total cash purchase price, net of cash acquired of $3$5 million, was $40$66 million, excluding a loanwith $6 million funded to King Agro of $4 million that was forgiven on the acquisition date.an escrow to secure certain indemnity obligations. In addition to the cash purchase price, the company assumed $11$14 million of liabilities.liabilities were assumed. The asset and liability fair values at the acquisition date in millions of dollars follow:
| | | | ||
| | March 2018 | | ||
---|---|---|---|---|---|
| | | | ||
Trade accounts and notes receivable | | $ | 2 | | |
Other receivables | | 2 | | | |
Inventories | | 5 | | | |
Property and equipment | | 5 | | | |
Goodwill | | 28 | | | |
Other intangible assets | | 13 | | | |
| | | | | |
Total assets | | $ | 55 | | |
| | | | | |
| | | | | |
| | | | | |
Short-term borrowings | | $ | 2 | | |
Accounts payable and accrued expenses | | 4 | | | |
Deferred income taxes | | 4 | | | |
Long-term borrowings | | 1 | | | |
| | | | | |
Total liabilities | | $ | 11 | | |
| | | | | |
| | | | | |
| | | | | |
| | | |
| | | | |
| | September 2020 | | |
Trade accounts and notes receivable | | $ | 5 | |
Other receivables | | | 2 | |
Inventories | | | 10 | |
Property and equipment | | | 22 | |
Goodwill | | | 28 | |
Other intangible assets | | | 13 | |
Total assets | | $ | 80 | |
| | | | |
Accounts payable and accrued expenses | | $ | 5 | |
Deferred income taxes | | | 9 | |
Total liabilities | | $ | 14 | |
The identifiableidentified intangibles were primarily related to customer relationships, trade name, and technology, which have a non-compete agreement. The weighted-average amortization period of ten years. The goodwill is not expected to be deductible for tax purposes.
Wirtgen
In December 2017, the company acquired Wirtgen, which was a privately-held international company and is the leading manufacturer worldwide of road construction equipment. Headquartered in Germany, Wirtgen has six brands across the road construction sector spanning processing, mixing, paving, compaction, and rehabilitation. Wirtgen sells products in more than 100 countries and had approximately 8,200 employees at the acquisition date.
The total cash purchase price, net of cash acquired of $191 million, was $5,136 million, a portion of which is held in escrow to secure certain indemnity obligations of Wirtgen. In addition to the cash purchase price, the company assumed $1,641 million in liabilities, which represented substantially all of Wirtgen's liabilities. The company financed the acquisition and associated transaction expenses from a combination of cash and new debt financing, which consisted of medium-term notes, including €850 million issued in September 2017. The
asset and liability fair values at the acquisition date in millions of dollars follow:
| | | | ||
| | December 2017 | | ||
---|---|---|---|---|---|
| | | | ||
Receivables from unconsolidated affiliates | | $ | 5 | | |
Trade accounts and notes receivable | | 449 | | | |
Financing receivables | | 43 | | | |
Financing receivables securitized | | 125 | | | |
Other receivables | | 98 | | | |
Inventories | | 1,536 | | | |
Property and equipment | | 752 | | | |
Investments in unconsolidated affiliates | | 19 | | | |
Goodwill | | 2,068 | | | |
Other intangible assets | | 1,442 | | | |
Deferred income taxes | | 26 | | | |
Other assets | | 215 | | | |
| | | | | |
Total assets | | $ | 6,778 | | |
| | | | | |
| | | | | |
| | | | | |
Short-term borrowings | | $ | 285 | | |
Short-term securitization borrowings | | 127 | | | |
Accounts payable and accrued expenses | | 719 | | | |
Deferred income taxes | | 430 | | | |
Long-term borrowings | | 50 | | | |
Retirement benefits and other liabilities | | 30 | | | |
| | | | | |
Total liabilities | | $ | 1,641 | | |
| | | | | |
| | | | | |
| | | | | |
Noncontrolling interests | | $ | 1 | | |
| | | | | |
| | | | | |
| | | | | |
| | | |
The identifiable intangible assets' fair values in millions of dollars and weighted-average useful lives in years follows:
| | | | | | |||||
| Weighted- Average Useful Lives | | Fair Values | | ||||||
| | | | | | |||||
Customer lists and relationships | | | 16 | | | $ | 519 | | | |
Technology, patents, trademarks, and other | | | 19 | | | $ | 923 | | | |
| | | | | |
The goodwill is not deductible for tax purposes.
Wirtgen's results are incorporated in the company's consolidated financial statements using a one-month lag period and are included in the construction and forestry segment. The net sales and revenues and operating profit included in the company's statement of consolidated income in 2018 was $3,181 million and $116 million, respectively. During 2018, the company recognized $56 million of acquisition related costs, which were recorded $30 million in selling, administrative and general expenses and $26 million in other operating expenses.
The unaudited pro forma consolidated net sales and revenues and net income are prepared as if the acquisition closed at the beginning of fiscal year 2017 and follow in millions of dollars:
| | | | | | ||||
| 2018 | | 2017 | | |||||
| | | | | | ||||
Net sales and revenues | | $ | 37,822 | | | $ | 32,946 | | |
Net income attributable to Deere & Company | | $ | 2,637 | | | $ | 2,272 | | |
| | | | | |
The pro forma amounts have been calculated using policies consistent with the company's accounting policies and include the additional expense from the amortization from the allocated purchase price adjustments. The pro forma results exclude acquisition related costs incurred in both years and assume the medium-term notes used to fund the acquisition were issued in fiscal year 2016 at the interest rate of the actual notes. In addition, the pro forma results for the year ended October 29, 2017 include nonrecurring pretax expenses of $291 million for the higher cost basis from the inventory fair value adjustment and $84 million for the amortization of identifiable intangible assets. Anticipated synergies or other expected benefits of the acquisition are not included in the pro forma results. As a result, the unaudited pro forma financial information may not be indicative of the results for future operations or the results if the acquisition closed at the beginning of fiscal year 2017.
Blue River
In September 2017, the company acquired Blue River Technology (Blue River), which is based in Sunnyvale, California for an acquisition cost of approximately $284 million, net of cash acquired of $4 million and $21 million funded to escrow for post-acquisition expenses. Blue River has designed and integrated computer vision and machine learning technology to optimize the use of farm inputs. Machine learning technologies could eventually be applied to a wide range of the company's products. The asset and liability fair values at the acquisition date in millions of dollars follow:
| | | | ||
| | September 2017 | | ||
---|---|---|---|---|---|
| | | | ||
Trade accounts and notes receivable | | $ | 1 | | |
Property and equipment | | 2 | | | |
Goodwill | | 193 | | | |
Other intangible assets | | 125 | | | |
| | | | | |
Total assets | | $ | 321 | | |
| | | | | |
| | | | | |
| | | | | |
Accounts payable and accrued expenses | | $ | 1 | | |
Deferred income taxes | | 36 | | | |
| | | | | |
Total liabilities | | $ | 37 | | |
| | | | | |
| | | | | |
| | | | | |
| | | |
The identifiable intangibles were primarily related to in-process research and development, which will not be amortized until the research and development efforts are complete or end.
The goodwill is not deductible for tax purposes. Blue River is included in the company's agriculture and turf operating segment.
Hagie
In March 2016, the company acquired an 80 percent interest in Hagie Manufacturing Company, LLC, the U.S. market leader in high-clearance sprayers located in Clarion, Iowa, for a cost of approximately $53 million, net of cash acquired of
$3 million. The asset and liability fair values at the acquisition date in millions of dollars follow:
| | | | ||
| | March 2016 | | ||
---|---|---|---|---|---|
| | | | ||
Trade accounts and notes receivable | | $ | 2 | | |
Inventories | | 33 | | | |
Property and equipment | | 17 | | | |
Goodwill | | 33 | | | |
Other intangible assets | | 22 | | | |
Other assets | | 3 | | | |
| | | | | |
Total assets | | $ | 110 | | |
| | | | | |
| | | | | |
| | | | | |
Accounts payable and accrued expenses, and Total liabilities | | $ | 43 | | |
| | | | | |
| | | | | |
| | | | | |
Redeemable noncontrolling interest | | $ | 14 | | |
| | | | | |
| | | | | |
| | | | | |
| | | |
The identifiable intangibles were primarily related to technology, trade name and customer relationships, which have a weighted average amortization period of eight years. The goodwill is deductible for tax purposes. If certain events occur, the minority interest holder has the right to exercise a put option that would require the company to purchase the holder's membership interest. The company also has a call option exercisable after a certain period of time. The put and call options cannot be separated from the noncontrolling interest. Due to the redemption features, the minority interest holder's value is classified as a redeemable noncontrolling interest in the company's consolidated balance sheet.
Monosem
In February 2016, the company acquired Monosem for a cost of approximately $146 million, net of cash acquired of $20 million. Monosem, with four facilities in France and two in the U.S., is the European market leader in precision planters. The asset and liability fair values at the acquisition date in millions of dollars follow:
| | | | |
| February 2016 | |||
---|---|---|---|---|
| | | | |
Trade accounts and notes receivable | $ | 5 | ||
Other receivables | 2 | |||
Inventories | 29 | |||
Property and equipment | 24 | |||
Goodwill | 62 | |||
Other intangible assets | 42 | |||
Other assets | 23 | |||
| | | | |
Total assets | $ | 187 | ||
| | | | |
| | | | |
| | | | |
Accounts payable and accrued expenses | $ | 22 | ||
Deferred income taxes | 19 | |||
| | | | |
Total liabilities | $ | 41 | ||
| | | | |
| | | | |
| | | | |
| | | | |
The identifiable intangibles were primarily related to trade name, customer relationships and technology, which have a weighted average amortization period of 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. For the acquisitions other than Wirtgen, theThe results of these operations have been included in the company'scompany’s consolidated financial statements in the agricultureproduction and turfprecision agriculture operating segment and the pro forma results of operations as if these acquisitions had occurred at the beginning of the current or comparative fiscal year would not differ significantly from the reported results.
Dispositions
Dispositions
In May 2018,September 2020, the company sold construction and forestry retail locations in Michigan, Minnesota, and Wisconsin.its German lawn mower business. At the time of the sale, total assets were $74$26 million, which were recorded in “Other assets,” and total liabilities were approximately $2 million. $5 million, which were recorded in “Accounts payable and accrued expenses.” NaN cash proceeds were received, resulting in a loss on sale, including transaction costs, of $24 million pretax and after-tax.The loss was recorded with a pretax and after-tax accrual recognized in the third quarter of 2020 when a definitive sale agreement was finalized. The loss was recorded in “Other operating expenses” in the small agriculture and turf segment.
In October 2019, the company sold its construction and forestry retail locations in Canada. At the time of the sale, total assets consistedwere $187 million consisting of trade accounts and notes receivable – net of $3 million, inventory of $52$138 million, property and equipment – net of $11$24 million, other assets of $3 million, and goodwill of $8$22 million. The liabilities consisted of $2$10 million of accounts payable and accrued expenses. In addition, the company accrued $15 million for transaction expenses and related costs. The total proceeds from the sale will bewere approximately $84$187 million, with $67$93 million received in 2018.2019. The remaining sales price iswas due based on standard payment terms of new equipment sales to independent dealers or refinanced wholesale terms.and separately negotiated terms ranging from 12 months to five years. A pretax gainloss of $12approximately $5 million was recorded in other income“Other operating expenses” in the construction and forestry segment.
In November 2017, the company sold its construction and forestry retail locations in Florida. At the time of the sale, total assets were $93 million and liabilities were $1 million. The assets consisted of inventory of $61 million, property and equipment – net of $21 million, goodwill of $10 million, and $1 million of other assets. The liabilities consisted of $1 million of accounts payable and accrued expenses. The total proceeds from the sale will be approximately $105 million, with $89 million received in 2018. The remaining sales price is due based on standard payment terms of new equipment sales to independent dealers or refinanced wholesale terms. A pretax gain of $13 million was recorded in other income in the construction and forestry segment.
For the retail location dispositions,disposition, the company sells equipment, service parts, and provides other services to the purchaserspurchaser as an independent dealers.dealer.
|
Impairments5. SPECIAL ITEMS
In the fourth quarter of 2017,2021, the company recordedsold a non-cash charge of $40closed factory that previously produced small agricultural equipment in China, resulting in a $27 million pretax in equity in loss of unconsolidated affiliates for an other than temporary decline in value of an investmentgain. The fixed assets in an international construction equipment manufacturer with a $14 million income tax benefit recordedasphalt plant factory in the provision for income taxes (see Note 26).
In the fourth quarter of 2016, the company recorded a non-cash charge in cost of sales for the impairment of long-lived assets of $13Germany were impaired by $38 million, pretax and after-tax.after-tax. The assets are partcompany also continued to assess its manufacturing locations, resulting in additional long-lived asset impairments of the company's construction and forestry operations in China.$12 million pretax. The impairment isimpairments were the result of a decline in forecasted financial performance that indicated it was probable the future cash flows would not cover the carrying amount of assets used to manufacture constructionthe net assets. The company recognized a favorable indirect tax ruling in Brazil of $58 million pretax. See Note 26 for fair value measurement information.
| | | | | | | | | | | | | |
Expense (benefit): | | PPA | | SAT | | CF | | Total | | ||||
Gain on sale – Other income | | | | | $ | (27) | | | | | $ | (27) | |
Long-lived asset impairments – Cost of sales | | $ | 5 | | | 3 | | $ | 42 | | | 50 | |
Brazil indirect tax – Cost of sales | | | (53) | | | | | | (5) | | | (58) | |
Total pretax expense (benefit) | | $ | (48) | | $ | (24) | | $ | 37 | | $ | (35) | |
54
In 2020, the company closed a factory that produced small agricultural equipment in that country. In addition,China, recognized impairments in the company recorded a non-cash charge of $12 million, pretax and after-tax,fixed assets in equityan asphalt plant factory in loss of unconsolidated affiliates for an other than temporary decline in value of an investment inGermany, a construction equipment joint venturefactory in Brazil, (seeand other international locations, recorded impairments of equipment on operating leases and matured lease inventory, as well as impairments of the investment in certain affiliate companies. See Note 26).26 for a description of the valuation methodologies used to measure these impairments.
| | | | | | | | | | | | | | | | |
| | PPA | | SAT | | CF | | FS | | Total | | |||||
Factory closure – Cost of sales | | | | | $ | 20 | | | | | | | | $ | 20 | |
Long-lived asset impairments: | | | | | | | | | | | | | | | | |
Cost of sales | | | | | | 13 | | $ | 80 | | | | | | 93 | |
SA&G expenses | | $ | 2 | | | 2 | | | | | | | | | 4 | |
Other operating expenses | | | | | | | | | | | $ | 32 | | | 32 | |
Affiliate company impairments – Equity in loss of unconsolidated affiliates | | | | | | | | | 50 | | | | | | 50 | |
Total pretax impairments and closure costs | | $ | 2 | | $ | 35 | | $ | 130 | | $ | 32 | | $ | 199 | |
In 2016,the fourth quarter of 2019, the company recorded non-cash charges in other“Other operating expensesexpenses” of approximately $31$59 million pretax for the impairment of equipment on operating leases and approximately $29$18 million pretax on matured operating lease inventory recorded in other“Other assets.” The impairment was the result of lower estimated values of used agriculture and construction equipment than originally estimated with the probable effect that the future cash flows would not cover
the carrying amount of the net assets. The assets are part of the financial services operations (see Note 26).
Voluntary Employee-Separation Programs
During the fourth quarter of 2016,2020, the company announced voluntaryimplemented employee-separation programs as part of its effortfor the company’s salaried workforce in several geographic areas, including the U.S., Europe, Asia, and Latin America. The programs’ main purpose was to reduce operating costs.improve efficiency through a leaner, more flexible organization. The programs were largely voluntary in nature with the expense recorded primarily in the period in which the employees irrevocably accepted a separation offer. For the limited involuntary employee-separation programs, the expense was recorded when management committed to a plan, the plan was communicated to the employees, and the employees were not required to provide service beyond the legal notification period. The programs provided for cash payments based on previousyears 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:
| | | | | | | | | | | | | | | | |
| | PPA | | SAT | | CF | | FS | | Total | | |||||
Cost of sales | | $ | 51 | | $ | 31 |
| $ | 22 |
| | |
| $ | 104 | |
Research and development expenses | | | 29 | | | 18 | | | 8 | | | | | | 55 | |
Selling, administrative and general expenses | | | 53 | | | 43 | | | 24 | | $ | 15 | | | 135 | |
Total operating profit impact | | $ | 133 | | $ | 92 | | $ | 54 | | $ | 15 | | | 294 | |
Non-operating profit impact* | | | | | | | | | | | | | | | 41 | |
Total pretax expense | | | | | | | | | | | | | | $ | 335 | |
* Relates primarily to non-cash charges of $34 million from curtailments in certain OPEB plans (see Note 8) and other corporate expenses, both of which were recorded outside of operating profit. Approximately $6 million of the curtailment charge was recorded by financial services.
During 2019, the company also completed certain employee-separation programs designed for specific functions and geographic areas as part of its on-going efforts to create a more efficient organizational structure. These programs provided for cash payments based on years of service. The expense wasexpenses were recorded in the period the employees irrevocably accepted the separation offer. The programs'offer with the following total pretax expenses were $113 million, of which $11 million was recordedexpenses:
| | | | | | | | | | | | | | | | |
| | PPA | | SAT | | CF | | FS | | Total | | |||||
Cost of sales | | $ | 3 | | $ | 2 |
| | |
| | |
| $ | 5 | |
Research and development expenses | | | 1 | | | | | | | | | | | | 1 | |
Selling, administrative and general expenses | | | 7 | | | 6 | | $ | 2 | | $ | 9 | | | 24 | |
Total pretax expense | | $ | 11 | | $ | 8 | | $ | 2 | | $ | 9 | | $ | 30 | |
Redeemable Noncontrolling Interest
In 2020, the minority interest holder in Hagie Manufacturing Company, LLC exercised its right to sell the fourth quarter of 2016 and $102 million in 2017. The total 2017 expenses were allocated approximately 30remaining 20 percent cost of sales, 16 percent research and development, and 54 percent selling, administrative and general. In addition, the expenses were allocated 75 percent to agriculture and turf operations, 17 percentinterest to the construction and forestry operations, and 8 percent to the financial services operations. Savings from these programs were estimated to be approximately $70 million in 2017.
Sale of Investment in Unconsolidated Affiliate
In December 2016, the company sold approximately 38 percent of its interest in SiteOne Landscape Supply, Inc. (SiteOne) resulting in gross proceeds of $114 million and a gain of $105 million pretax or $66 million after-tax. In April 2017, the company sold an additional 68 percent of its then remaining interest in SiteOne resulting in gross proceeds of $184 million and a gain of $176 million pretax or $111 million after-tax. In July 2017, the company sold its remaining interest in SiteOne resulting in gross proceeds of $98 million and a gain of $94 million pretax or $59 million after-tax.for $14 million. The gains were recorded in other income in the agriculture and turf operating segment.
After the December 2016 sale, the company retained approximately a 15 percent ownership interest in SiteOne and approximately a 5 percent ownership interest after the April sale. Prior to April 2017, the company's representation on the SiteOne board of directors allowed the company to exercise significant influence, and therefore, the investment in SiteOnearrangement was accounted for using the equity method. In March 2017, the company reduced its representation on the SiteOne board of directors. As a result, beginning April 2017 the investment in SiteOne was recorded as an available-for-sale security and presented in marketable securities.
In May 2016, the company received a distribution of $60 million from SiteOne that reduced the company's investment in unconsolidated affiliates. The distribution included $4 million of a return on investment, which is shownequity transaction with 0 gain or loss recorded in the statement of consolidated cash flowsincome. This operation is included in undistributed earningsthe company’s production and precision agriculture segment.
55
6. REVENUE RECOGNITION
The company’s net sales and revenues by primary geographic market, major product line, and timing of revenue recognition in millions of dollars follow:
| | | | | | | | | | | | | | | | |
| | PPA | | SAT | | CF | | FS | | Total | | |||||
2021 | | | | | | | | | | | | | | | | |
Primary geographic markets: | | | | | | | | | | | | | | | | |
United States | | $ | 8,223 | | $ | 6,505 | | $ | 5,697 | | $ | 2,389 | | $ | 22,814 | |
Canada | | | 853 | | | 498 | | | 1,047 | | | 617 | | | 3,015 | |
Western Europe | | | 2,086 | | | 2,433 | | | 1,807 | | | 103 | | | 6,429 | |
Central Europe and CIS | | | 1,322 | | | 475 | | | 828 | | | 39 | | | 2,664 | |
Latin America | | | 2,916 | | | 456 | | | 903 | | | 247 | | | 4,522 | |
Asia, Africa, Australia, New Zealand, and Middle East | | | 1,417 | | | 1,679 | | | 1,331 | | | 153 | | | 4,580 | |
Total | | $ | 16,817 | | $ | 12,046 | | $ | 11,613 | | $ | 3,548 | | $ | 44,024 | |
| | | | | | | | | | | | | | | | |
Major product lines: | | | | | | | | | | | | | | | | |
Production agriculture | | $ | 16,248 | | | | | | | | | | | $ | 16,248 | |
Small agriculture | | | | | $ | 8,619 | | | | | | | | | 8,619 | |
Turf | | | | | | 2,853 | | | | | | | | | 2,853 | |
Construction | | | | | | | | $ | 4,684 | | | | | | 4,684 | |
Compact construction | | | | | | | | | 1,489 | | | | | | 1,489 | |
Roadbuilding | | | | | | | | | 3,749 | | | | | | 3,749 | |
Forestry | | | | | | | | | 1,280 | | | | | | 1,280 | |
Financial products | | | 55 | | | 46 | | | 20 | | $ | 3,548 | | | 3,669 | |
Other | | | 514 | | | 528 | | | 391 | | | | | | 1,433 | |
Total | | $ | 16,817 | | $ | 12,046 | | $ | 11,613 | | $ | 3,548 | | $ | 44,024 | |
| | | | | | | | | | | | | | | | |
Revenue recognized: | | | | | | | | | | | | | | | | |
At a point in time | | $ | 16,659 | | $ | 11,969 | | $ | 11,522 | | $ | 105 | | $ | 40,255 | |
Over time | | | 158 | | | 77 | | | 91 | | | 3,443 | | | 3,769 | |
Total | | $ | 16,817 | | $ | 12,046 | | $ | 11,613 | | $ | 3,548 | | $ | 44,024 | |
| | | | | | | | | | | | | | | | |
| | PPA | | SAT | | CF | | FS | | Total | | |||||
2020 | | | | | | | | | | | | | | | | |
Primary geographic markets: | | | | | | | | | | | | | | | | |
United States | | $ | 6,889 | | $ | 5,059 | | $ | 4,548 | | $ | 2,500 | | $ | 18,996 | |
Canada | | | 640 | | | 350 | | | 802 | | | 598 | | | 2,390 | |
Western Europe | | | 1,827 | | | 1,937 | | | 1,479 | | | 90 | | | 5,333 | |
Central Europe and CIS | | | 898 | | | 493 | | | 646 | | | 35 | | | 2,072 | |
Latin America | | | 1,902 | | | 334 | | | 553 | | | 234 | | | 3,023 | |
Asia, Africa, Australia, New Zealand, and Middle East | | | 1,119 | | | 1,322 | | | 1,153 | | | 132 | | | 3,726 | |
Total | | $ | 13,275 | | $ | 9,495 | | $ | 9,181 | | $ | 3,589 | | $ | 35,540 | |
| | | | | | | | | | | | | | | | |
Major product lines: | | | | | | | | | | | | | | | | |
Production agriculture | | $ | 12,662 | | | | | | | | | | | $ | 12,662 | |
Small agriculture | | | | | $ | 6,827 | | | | | | | | | 6,827 | |
Turf | | | | | | 2,390 | | | | | | | | | 2,390 | |
Construction | | | | | | | | $ | 3,521 | | | | | | 3,521 | |
Compact construction | | | | | | | | | 1,269 | | | | | | 1,269 | |
Roadbuilding | | | | | | | | | 2,924 | | | | | | 2,924 | |
Forestry | | | | | | | | | 1,100 | | | | | | 1,100 | |
Financial products | | | 69 | | | 37 | | | 25 | | $ | 3,589 | | | 3,720 | |
Other | | | 544 | | | 241 | | | 342 | | | | | | 1,127 | |
Total | | $ | 13,275 | | $ | 9,495 | | $ | 9,181 | | $ | 3,589 | | $ | 35,540 | |
| | | | | | | | | | | | | | | | |
Revenue recognized: | | | | | | | | | | | | | | | | |
At a point in time | | $ | 13,106 | | $ | 9,439 | | $ | 9,071 | | $ | 106 | | $ | 31,722 | |
Over time | | | 169 | | | 56 | | | 110 | | | 3,483 | | | 3,818 | |
Total | | $ | 13,275 | | $ | 9,495 | | $ | 9,181 | | $ | 3,589 | | $ | 35,540 | |
| | | | | | | | | | | | | | | | |
| | PPA | | SAT | | CF | | FS | | Total | | |||||
2019 | | | | | | | | | | | | | | | | |
Primary geographic markets: | | | | | | | | | | | | | | | | |
United States | | $ | 6,772 | | $ | 5,590 | | $ | 6,082 | | $ | 2,482 | | $ | 20,926 | |
Canada | | | 675 | | | 421 | | | 1,107 | | | 617 | | | 2,820 | |
Western Europe | | | 1,813 | | | 2,053 | | | 1,586 | | | 87 | | | 5,539 | |
Central Europe and CIS | | | 859 | | | 564 | | | 749 | | | 37 | | | 2,209 | |
Latin America | | | 2,527 | | | 367 | | | 719 | | | 272 | | | 3,885 | |
Asia, Africa, Australia, New Zealand, and Middle East | | | 1,039 | | | 1,449 | | | 1,265 | | | 126 | | | 3,879 | |
Total | | $ | 13,685 | | $ | 10,444 | | $ | 11,508 | | $ | 3,621 | | $ | 39,258 | |
| | | | | | | | | | | | | | | | |
Major product lines: | | | | | | | | | | | | | | | | |
Production agriculture | | $ | 13,001 | | | | | | | | | | | $ | 13,001 | |
Small agriculture | | | | | $ | 7,422 | | | | | | | | | 7,422 | |
Turf | | | | | | 2,650 | | | | | | | | | 2,650 | |
Construction | | | | | | | | $ | 5,188 | | | | | | 5,188 | |
Compact construction | | | | | | | | | 1,279 | | | | | | 1,279 | |
Roadbuilding | | | | | | | | | 3,193 | | | | | | 3,193 | |
Forestry | | | | | | | | | 1,403 | | | | | | 1,403 | |
Financial products | | | 78 | | | 22 | | | 30 | | $ | 3,621 | | | 3,751 | |
Other | | | 606 | | | 350 | | | 415 | | | | | | 1,371 | |
Total | | $ | 13,685 | | $ | 10,444 | | $ | 11,508 | | $ | 3,621 | | $ | 39,258 | |
| | | | | | | | | | | | | | | | |
Revenue recognized: | | | | | | | | | | | | | | | | |
At a point in time | | $ | 13,509 | | $ | 10,406 | | $ | 11,391 | | $ | 111 | | $ | 35,417 | |
Over time | | | 176 | | | 38 | | | 117 | | | 3,510 | | | 3,841 | |
Total | | $ | 13,685 | | $ | 10,444 | | $ | 11,508 | | $ | 3,621 | | $ | 39,258 | |
56
Following is a description of the company’s major product lines:
Production Agriculture – Includes net cash provided by operating activitiessales of large and $56 millioncertain 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 returnbroad range of investmentmachines used in construction, earthmoving, and material handling, including backhoe loaders, crawler dozers and loaders, four-wheel-drive loaders, excavators, motor graders, articulated dump trucks, and related attachments and service parts.
Compact Construction – Includes net sales of smaller construction equipment, including compact excavators, compact track loaders, compact wheel loaders, skid steers, landscape loaders, and related attachments and service parts.
Roadbuilding – Includes net sales of equipment used in roadbuilding and renovation, including milling machines, recyclers, slipform pavers, surface miners, asphalt pavers, compactors, tandem and static rollers, mobile crushers and screens, mobile and stationary asphalt plants, and related attachments and service parts.
Forestry – Includes net sales of equipment used in timber harvesting, including log skidders, feller bunchers, log loaders, log forwarders, log harvesters, and related attachments and service parts.
Financial Products – Includes finance and interest income primarily from retail notes related to sales of John Deere equipment to retail customers, wholesale financing to dealers of John Deere equipment, and revolving charge accounts; lease income from retail leases of John Deere equipment; and revenue from extended warranties.
Other – Includes sales of components to other equipment manufacturers that are included in “Net sales”; and revenue earned over time from precision guidance, telematics, and other information enabled solutions, revenue from service performed at company owned dealerships and service centers, gains on disposition of property and businesses, trademark licensing revenue, and other miscellaneous revenue items that are included in “Other income.”
The company invoices in advance of recognizing the sale of certain products and the revenue for certain services. These items are
primarily for extended warranty premiums, advance payments for future equipment sales, and subscription and service revenue related to precision guidance and telematic services. These advanced customer payments are presented as deferred revenue, a contract liability, in “Accounts payable and accrued expenses” in the consolidated balance sheet. The deferred revenue received, but not recognized in revenue, including extended warranty premiums also shown in other cash flowsNote 21, was $1,344 million and $1,090 million at October 31, 2021 and November 1, 2020, respectively. The contract liability is reduced as the revenue is recognized. Revenue recognized from investing activities. In May 2016,deferred revenue that was recorded as a contract liability at the beginning of the fiscal year was $485 million in 2021, $425 million in 2020, and $444 million in 2019.
The amount of unsatisfied performance obligations for contracts with an original duration greater than one year is $1,062 million at October 31, 2021. The estimated revenue to be recognized by fiscal year follows in millions of dollars: 2022 - $339, 2023 - $289, 2024 - $199, 2025 - $101, 2026 - $64, and later years - $70. As permitted, the company also sold approximately 30 percentelected only to disclose remaining performance obligations with an original contract duration greater than one year. The contracts with an expected duration of its interest in SiteOne in an initial public offeringone year or less are generally for sales to dealers and terminated aretail customers for equipment, service agreement resulting in gross proceeds of approximately $81 million with a total gain of $75 million pretax or $47 million after-tax. The gain was recorded in other income in the agricultureparts, repair services, and turf operating segment. certain telematics services.
7. CASH FLOW INFORMATION
The company retained approximately a 24 percent ownership interest in SiteOne after the May 2016 sale.
|
For purposes of the statement of consolidated cash flows, the company considers investments with purchased maturities of three months or less to be cash equivalents. Substantially all of the company'scompany’s short-term borrowings, excluding the current maturities of finance lease obligations and long-term borrowings, mature or may require payment within three months or less.
The equipment operations sell a significant portion of their trade receivables to financial services. These intercompany cash flows are eliminated in the consolidated cash flows.
All cash flows from the changes in trade accounts and notes receivable (see Note 12)13) are classified as operating activities in the statement of consolidated cash flows as these receivables arise from sales to the company'scompany’s customers. Cash flows from financing receivables that are related to sales to the company'scompany’s customers (see Note 12)13) are also included in operating activities. The remaining financing receivables are related to the financing of equipment sold by independent dealers and are included in investing activities.
The company had the following non-cash operating and investing activities that were not included in the statement of consolidated cash flows. The company transferred inventory to equipment on operating leases of $855$662 million, $801$614 million, and $685$678 million in 2018, 2017,2021, 2020, and 2016,2019, respectively. The company also had accounts payable related to purchases of property and equipment of $183$121 million, $108$98 million, and $114$152 million at October 28, 2018,31, 2021, November 1, 2020, and November 3, 2019, respectively.
57
The company’s restricted cash held at October 29, 2017,31, 2021, November 1, 2020, and October 30, 2016, respectively.November 3, 2019 was as follows in millions of dollars:
| | | | | | | | | | |
| | 2021 | | 2020 | | 2019 | | |||
Equipment operations | | $ | 12 | | $ | 11 | | $ | 21 | |
Financial services | | | 96 | | | 95 | | | 78 | |
Total | | $ | 108 | | $ | 106 | | $ | 99 | |
The restricted cash, recorded in “Other assets” in the consolidated balance sheet, primarily relates to securitization of financing receivables (see Note 14).
Cash payments for interest and income taxes consisted of the following in millions of dollars:
| | | | | | | | | | |
| 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
Interest: | ||||||||||
Equipment operations | $ | 581 | $ | 506 | $ | 442 | ||||
Financial services | 926 | 665 | 524 | |||||||
Intercompany eliminations | (331 | ) | (268 | ) | (240 | ) | ||||
| | | | | | | | | | |
Consolidated | $ | 1,176 | $ | 903 | $ | 726 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Income taxes: | ||||||||||
Equipment operations | $ | 625 | $ | 898 | $ | 314 | ||||
Financial services | 387 | 92 | (26 | ) | ||||||
Intercompany eliminations | (300 | ) | (9 | ) | 104 | |||||
| | | | | | | | | | |
Consolidated | $ | 712 | $ | 981 | $ | 392 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2021 2020 2019 Interest: Equipment operations $ 584 $ 553 $ 666 Financial services 736 998 1,154 Intercompany eliminations (279) (272) (360) Consolidated $ 1,041 $ 1,279 $ 1,460 Income taxes: Equipment operations $ 1,996 $ 1,000 $ 1,018 Financial services 348 297 (57) Intercompany eliminations (269) (228) 150 Consolidated $ 2,075 $ 1,069 $ 1,111 8. PENSION AND OTHER POSTRETIREMENT BENEFITS |
The company has several funded and unfunded defined benefit pension plans and other postretirement benefit (OPEB) plans, primarily health care and life insurance plans, covering its U.S. employees and employees in certain foreign countries. The company uses an October 31 measurement date for these plans.
The components of net periodic pension cost and the assumptions related to the cost consisted of the following in millions of dollars and in percents:percentages:
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
Pensions | | | | | | | | | | |
Service cost |
| $ | 332 | | $ | 321 | | $ | 261 | |
Interest cost | |
| 276 | |
| 347 | |
| 447 | |
Expected return on plan assets | |
| (799) | |
| (819) | |
| (802) | |
Amortization of actuarial loss | |
| 259 | |
| 256 | |
| 148 | |
Amortization of prior service cost | |
| 12 | |
| 13 | |
| 11 | |
Settlements/curtailments | |
| 21 | |
| 25 | |
| 5 | |
Net cost | | $ | 101 | | $ | 143 | | $ | 70 | |
Weighted-average assumptions | | | | | | | | | | |
Discount rates - service cost | | | 2.5% | | | 2.9% | | | 4.0% | |
Discount rates - interest cost | | | 2.1% | | | 2.7% | | | 4.0% | |
Rate of compensation increase | | | 3.7% | | | 3.8% | | | 3.8% | |
Expected long-term rates of return | | | 6.0% | | | 6.4% | | | 6.5% | |
Interest crediting rate - U.S. cash balance plan | | | 1.7% | | | 2.1% | | | 3.3% | |
| | | | | | | | ||||||
| | 2018 | | 2017 | | 2016 | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | ||||||
Pensions | | | | | | | | ||||||
Service cost | | $ | 293 | | | $ | 274 | | | $ | 254 | | |
Interest cost | | 390 | | | 361 | | | 391 | | | |||
Expected return on plan assets | | (775 | ) | | (790 | ) | | (775 | ) | | |||
Amortization of actuarial loss | | 226 | | | 247 | | | 211 | | | |||
Amortization of prior service cost | | 12 | | | 12 | | | 16 | | | |||
Other postemployment benefits | | | | | | 2 | | | |||||
Settlements/curtailments | | 8 | | | 2 | | | 11 | | | |||
| | | | | | | | | | | |||
Net cost | | $ | 154 | | | $ | 106 | | | $ | 110 | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
Weighted-average assumptions | | | | | | | | ||||||
Discount rates – service cost | | 3.5% | | | 3.5% | | | 4.3% | | | |||
Discount rates – interest cost | | 3.2% | | | 3.0% | | | 3.4% | | | |||
Rate of compensation increase | | 3.8% | | | 3.8% | | | 3.8% | | | |||
Expected long-term rates of return | | 6.9% | | | 7.3% | | | 7.3% | | | |||
| | | | | | | |
The components of net periodic OPEB cost and the assumptions related to the cost consisted of the following in millions of dollars and in percents:percentages:
| | | | | | | | | | |
| 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
OPEB | ||||||||||
Service cost | $ | 45 | $ | 42 | $ | 38 | ||||
Interest cost | 191 | 194 | 204 | |||||||
Expected return on plan assets | (22 | ) | (17 | ) | (35 | ) | ||||
Amortization of actuarial loss | 62 | 99 | 73 | |||||||
Amortization of prior service credit | (77 | ) | (77 | ) | (78 | ) | ||||
| | | | | | | | | | |
Net cost | $ | 199 | $ | 241 | $ | 202 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Weighted-average assumptions | ||||||||||
Discount rates – service cost | 4.3% | 4.7% | 5.0% | |||||||
Discount rates – interest cost | 3.3% | 3.2% | 3.5% | |||||||
Expected long-term rates of return | 5.7% | 6.3% | 6.6% | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
OPEB | | | | | | | | | | |
Service cost | | $ | 48 | | $ | 49 | | $ | 41 | |
Interest cost | |
| 102 | |
| 140 | |
| 216 | |
Expected return on plan assets | |
| (77) | |
| (50) | |
| (36) | |
Amortization of actuarial loss | |
| 27 | |
| 29 | |
| 16 | |
Amortization of prior service credit | |
| (4) | |
| (4) | |
| (72) | |
Curtailments | |
| | | | 34 | | | | |
Net cost | | $ | 96 | | $ | 198 | | $ | 165 | |
Weighted-average assumptions | | | | | | | | | | |
Discount rates - service cost | | | 3.4% | | | 3.7% | | | 4.8% | |
Discount rates - interest cost | | | 2.1% | | | 2.7% | | | 4.2% | |
Expected long-term rates of return | | | 5.4% | | | 5.7% | | | 5.7% | |
The 2020 OPEB curtailments were a result of the employee-separation programs (see Note 5).
The spot yield curve approach is used to estimate the service and interest cost components of the net periodic pension and OPEB costs by applying the specific spot rates along the yield curve used to determine the benefit plan obligations to relevant projected cash outflows. The components of net periodic pension and OPEB cost excluding the service component are primarily included in the line item other“Other operating expensesexpenses” in the Statementstatement of Consolidated Income.consolidated income.
The previous pension cost in net income and other changes in plan assets and benefit obligations in other comprehensive income in millions of dollars were as follows:
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
Pensions | | | | | | | | | | |
Net cost | | $ | 101 | | $ | 143 | | $ | 70 | |
Retirement benefit adjustments included | | | | | | | | | | |
Net actuarial (gain) loss | |
| (2,821) | |
| 438 | |
| 887 | |
Amortization of actuarial loss | |
| (256) | |
| (249) | |
| (143) | |
Amortization of prior service cost | |
| (12) | |
| (11) | |
| (11) | |
Settlements | |
| (22) | |
| (26) | |
| (3) | |
Total (gain) loss recognized in other comprehensive (income) loss | |
| (3,111) | |
| 152 | |
| 730 | |
Total recognized in comprehensive (income) loss | | $ | (3,010) | | $ | 295 | | $ | 800 | |
58
| | | | | | | | | | |
| 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
Pensions | ||||||||||
Net cost | $ | 154 | $ | 106 | $ | 110 | ||||
Retirement benefit adjustments included in other comprehensive (income) loss: | ||||||||||
Net actuarial (gain) loss | (553 | ) | (702 | ) | 1,140 | |||||
Prior service cost | 1 | |||||||||
Amortization of actuarial loss | (226 | ) | (247 | ) | (211 | ) | ||||
Amortization of prior service cost | (12 | ) | (12 | ) | (16 | ) | ||||
Settlements/curtailments | (8 | ) | (2 | ) | (14 | ) | ||||
| | | | | | | | | | |
Total (gain) loss recognized in other comprehensive (income) loss | (799 | ) | (963 | ) | 900 | |||||
| | | | | | | | | | |
Total recognized in comprehensive (income) loss | $ | (645 | ) | $ | (857 | ) | $ | 1,010 | ||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The previous OPEB cost in net income and other changes in plan assets and benefit obligations in other comprehensive income in millions of dollars were as follows:
| | | | | | | | |||||
| | 2018 | | 2017 | | 2016 | | |||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | |||||
OPEB | | | | | | | ||||||
Net cost | | $ | 199 | | $ | 241 | | | $ | 202 | | |
Retirement benefit adjustments included in other comprehensive (income) loss: | | | | | | | ||||||
Net actuarial (gain) loss | | (608 | ) | (309 | ) | | 496 | | | |||
Prior service cost (credit) | | 5 | | | | (3 | ) | | ||||
Amortization of actuarial loss | | (62 | ) | (99 | ) | | (73 | ) | | |||
Amortization of prior service credit | | 77 | | 77 | | | 78 | | | |||
| | | | | | | | | | |||
Total (gain) loss recognized in other comprehensive (income) loss | | (588 | ) | (331 | ) | | 498 | | | |||
| | | | | | | | | | |||
Total recognized in comprehensive (income) loss | | $ | (389 | ) | $ | (90 | ) | | $ | 700 | | |
| | | | | | | | | | |||
| | | | | | | | | | |||
| | | | | | | | | | |||
| | | | | | | |
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
OPEB | | | | | | | | | | |
Net cost | | $ | 96 | | $ | 198 | | $ | 165 | |
Retirement benefit adjustments included in other comprehensive (income) loss: | | | | | | | | | | |
Net actuarial (gain) loss | |
| (671) | |
| (136) | |
| 141 | |
Amortization of actuarial loss | |
| (27) | |
| (29) | |
| (16) | |
Amortization of prior service credit | |
| 4 | |
| 4 | |
| 72 | |
Total (gain) loss recognized in other comprehensive (income) loss | |
| (694) | |
| (161) | |
| 197 | |
Total recognized in comprehensive (income) loss | | $ | (598) | | $ | 37 | | $ | 362 | |
The benefit plan obligations, funded status, and the assumptions related to the obligations at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, respectively, in millions of dollars follow:
| | | | | | | | | | ||||||||
| Pensions | | OPEB | | |||||||||||||
| 2018 | | 2017 | | 2018 | | 2017 | | |||||||||
| | | | | | | | | | ||||||||
Change in benefit obligations | | | | | | | | | | ||||||||
Beginning of year balance | | $ | (13,166 | ) | | $ | (13,086 | ) | | $ | (6,162 | ) | | $ | (6,500 | ) | |
Service cost | | (293 | ) | | (274 | ) | | (45 | ) | | (42 | ) | | ||||
Interest cost | | (390 | ) | | (361 | ) | | (191 | ) | | (194 | ) | | ||||
Actuarial gain (loss) | | 1,012 | | | (35 | ) | | 624 | | | 280 | | | ||||
Amendments | | | | | | (5 | ) | | | | |||||||
Benefits paid | | 711 | | | 704 | | | 317 | | | 312 | | | ||||
Health care subsidies | | | | | | (12 | ) | | (9 | ) | | ||||||
Settlements/curtailments | | | | 2 | | | | | | | |||||||
Acquisition* | | (29 | ) | | | | | | | | |||||||
Foreign exchange and other | | 47 | | | (116 | ) | | 2 | | | (9 | ) | | ||||
| | | | | | | | | | | | | | ||||
End of year balance | | (12,108 | ) | | (13,166 | ) | | (5,472 | ) | | (6,162 | ) | | ||||
| | | | | | | | | | | | | | ||||
Change in plan assets (fair value) | | | | | | | | | | ||||||||
Beginning of year balance | | 12,093 | | | 11,137 | | | 539 | | | 435 | | | ||||
Actual return on plan assets | | 316 | | | 1,517 | | | 6 | | | 46 | | | ||||
Employer contribution | | 938 | | | 62 | | | 488 | | | 366 | | | ||||
Benefits paid | | (711 | ) | | (704 | ) | | (317 | ) | | (312 | ) | | ||||
Settlements | | | | (2 | ) | | | | | | |||||||
Foreign exchange and other | | (34 | ) | | 83 | | | 3 | | | 4 | | | ||||
| | | | | | | | | | | | | | ||||
End of year balance | | 12,602 | | | 12,093 | | | 719 | | | 539 | | | ||||
| | | | | | | | | | | | | | ||||
Funded status | | $ | 494 | | | $ | (1,073 | ) | | $ | (4,753 | ) | | $ | (5,623 | ) | |
| | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | ||||
Weighted-average assumptions | | | | | | | | | | ||||||||
Discount rates | | 4.1% | | | 3.6% | | | 4.5% | | | 3.7% | | | ||||
Rate of compensation increase | | 3.8% | | | 3.8% | | | | | | |
| | | | | | | | | | | | | |
| | Pensions | | OPEB | | ||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | | ||||
Change in benefit obligations | | |
|
| |
|
| |
|
| |
| |
Beginning of year balance | | $ | (15,021) | | $ | (14,250) | | $ | (5,410) | | $ | (5,622) | |
Service cost | |
| (332) | |
| (321) | |
| (48) | |
| (49) | |
Interest cost | |
| (276) | |
| (347) | |
| (102) | |
| (140) | |
Actuarial gain (loss) | |
| 373 | |
| (771) | |
| 381 | |
| 119 | |
Benefits paid | |
| 755 | |
| 749 | |
| 290 | |
| 297 | |
Health care subsidies | | | | | | | |
| (29) | |
| (28) | |
Settlements/curtailments | |
| 1 | |
| 15 | | | | | | | |
Foreign exchange and other | |
| (25) | |
| (96) | |
| (12) | |
| 13 | |
End of year balance | |
| (14,525) | |
| (15,021) | |
| (4,930) | |
| (5,410) | |
| | | | | | | | | | | | | |
Change in plan assets (fair value) | | | | | | | | | | | | | |
Beginning of year balance | |
| 14,574 | |
| 14,024 | |
| 1,518 | |
| 936 | |
Actual return on plan assets | |
| 3,249 | |
| 1,144 | |
| 367 | |
| 33 | |
Employer contribution | |
| 101 | |
| 108 | |
| 157 | |
| 843 | |
Benefits paid | |
| (755) | |
| (749) | |
| (290) | |
| (297) | |
Settlements | |
| | |
| (12) | | | | | | | |
Foreign exchange and other | |
| 21 | |
| 59 | |
| 3 | |
| 3 | |
End of year balance | |
| 17,190 | |
| 14,574 | |
| 1,755 | |
| 1,518 | |
Funded status | | $ | 2,665 | | $ | (447) | | $ | (3,175) | | $ | (3,892) | |
| | | | | | | | | | | | | |
Weighted-average assumptions | | | | | | | | | | | | | |
Discount rates | | | 2.7% | | | 2.5% | | | 2.8% | | | 2.7% | |
Rate of compensation increase | | | 3.7% | | | 3.7% | | | | | | | |
Interest crediting rate - U.S. cash balance plan | | | 1.8% | | | 1.7% | | | | | | | |
The company remeasured the U.S. hourly pension plan as of November 30, 2021 due to the new collective bargaining agreement, which decreased the plan’s funded status and increased pension expense in 2022. See Note 4.
In 2018, the company made voluntary contributions of $870 millionThe actuarial gain for pension for 2021 was primarily due to an increase in discount rates. The actuarial gain for OPEB for 2021 was primarily due to a decrease in health care trend rates, favorable mortality assumptions, and an increase in discount rates. The actuarial loss for pension for 2020 was primarily due to a decrease in discount rates partially offset by favorable mortality
assumptions. The actuarial gain for OPEB for 2020 was primarily due to the U.S. pension planenactment of the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) that repealed the health insurance provider fee effective in 2021, favorable mortality assumptions, and $430 million to its U.S. OPEB plans.a decrease in health care trend rates, partially offset by a decrease in discount rates.
The mortality assumptions for the 20182021 and 20172020 benefit plan obligations reflectused the most recent tables and scales issued by the Society of Actuaries at that time. The 2021 mortality assumption includes an adjustment to the scale related to COVID.
The amounts recognized at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, respectively, in millions of dollars consistconsisted of the following:
| | | | | | | | | | | | | |
| | Pensions | | OPEB | | ||||||||
| | 2021 | | 2020 | | 2021 | | 2020 | | ||||
Amounts recognized in | | |
| | |
|
| |
|
| |
| |
Noncurrent asset | | $ | 3,601 |
| $ | 863 | | | |
| | | |
Current liability | |
| (51) | |
| (72) | | $ | (36) | | $ | (36) | |
Noncurrent liability | |
| (885) | |
| (1,238) | |
| (3,139) | |
| (3,856) | |
Total | | $ | 2,665 | | $ | (447) | | $ | (3,175) | | $ | (3,892) | |
Amounts recognized in accumulated other comprehensive income – pretax | | | | | | | | | | | | | |
Net actuarial loss | | $ | 1,376 | | $ | 4,475 | | $ | 49 | | $ | 747 | |
Prior service cost (credit) | |
| 9 | |
| 21 | |
| (20) | |
| (24) | |
Total | | $ | 1,385 | | $ | 4,496 | | $ | 29 | | $ | 723 | |
| | | | | | | | | | ||||||||
| Pensions | | OPEB | | |||||||||||||
| 2018 | | 2017 | | 2018 | | 2017 | | |||||||||
| | | | | | | | | | ||||||||
Amounts recognized in balance sheet | | | | | | | | | | ||||||||
Noncurrent asset | | $ | 1,298 | | | $ | 538 | | | | | | | ||||
Current liability | | (36 | ) | | (40 | ) | | $ | (34 | ) | | $ | (63 | ) | | ||
Noncurrent liability | | (768 | ) | | (1,571 | ) | | (4,719 | ) | | (5,560 | ) | | ||||
| | | | | | | | | | | | | | ||||
Total | | $ | 494 | | | $ | (1,073 | ) | | $ | (4,753 | ) | | $ | (5,623 | ) | |
| | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | ||||
Amounts recognized in accumulated other comprehensive income – pretax | | | | | | | | | | ||||||||
Net actuarial loss | | $ | 3,571 | | | $ | 4,358 | | | $ | 787 | | | $ | 1,457 | | |
Prior service cost (credit) | | 43 | | | 55 | | | (100 | ) | | (182 | ) | | ||||
| | | | | | | | | | | | | | ||||
Total | | $ | 3,614 | | | $ | 4,413 | | | $ | 687 | | | $ | 1,275 | | |
| | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | ||||
| | | | | | | | | |
The total accumulated benefit obligations for all pension plans at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, were $11,485$13,787 million and $12,416$14,257 million, respectively.
The accumulated benefit obligations and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $1,710$2,012 million and $1,015$1,207 million, respectively, at October 28, 201831, 2021 and $8,234$2,107 million and $7,345$1,100 million, respectively, at October 29, 2017.November 1, 2020. The projected benefit obligations and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets were $1,833$2,163 million and $1,029$1,227 million, respectively, at October 28, 201831, 2021 and $9,059$10,792 million and $7,448$9,482 million, respectively, at October 29, 2017.November 1, 2020.
The amounts in accumulated other comprehensive income that are expected to be amortized as net expense (income) and reported outside of income from operations during fiscal 2019 in millions of dollars follow:
| | | | | | ||
| Pensions | | OPEB | | |||
| | | | | | ||
Net actuarial loss | | $ | 141 | | $ | 20 | |
Prior service cost (credit) | | 12 | | (72 | ) | ||
| | | | | | ||
Total | | $ | 153 | | $ | (52 | ) |
| | | | | | ||
| | | | | | ||
| | | | | | ||
| | | | | |
Actuarial gains and losses are recorded in accumulated other comprehensive income (loss). To the extent unamortized gains and losses exceed 10%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'splan’s participants are inactive, the amortization period is the remaining life expectancy of the inactive participants.
The company makes any required contributions to the plan assets under applicable regulations and voluntary contributions after evaluating the company’s liquidity position and ability to make tax-deductible contributions. Total company contributions to the plans were $258 million in 2021 and $951 million in 2020, which included both required and voluntary contributions and direct benefit payments. The voluntary contributions to plan assets were $700 million in 2020.
59
The company expects to contribute approximately $70$100 million to its pension plans and approximately $140$1,150 million to its OPEB plans in 2019,2022. Fiscal year 2022 OPEB contributions include a voluntary contribution of $1,000 million to a U.S. plan made on November 30, 2021 (see Note 29), which arewill increase plan assets. The pension and OPEB contributions exceeding the voluntary amounts primarily include direct benefit payments.payments from company funds. The company has no significant required contributions to U.S. pension plan assets in 2022 under applicable funding regulations.
The benefits expected to be paid from the benefit plans, which reflect expected future years of service, are as follows in millions of dollars:
| | | | | | | |
|
| Pensions |
| OPEB* |
| ||
2022 | | $ | 730 | | $ | 280 | |
2023 | |
| 710 | |
| 279 | |
2024 | |
| 701 | |
| 279 | |
2025 | |
| 693 | |
| 278 | |
2026 | |
| 698 | |
| 278 | |
2027 to 2031 | |
| 3,426 | |
| 1,374 | |
| | | | | | ||
| Pensions | | OPEB* | | |||
| | | | | | ||
2019 | | $ | 712 | | $ | 320 | |
2020 | | 743 | | 334 | | ||
2021 | | 703 | | 339 | | ||
2022 | | 699 | | 345 | | ||
2023 | | 693 | | 345 | | ||
2024 to 2028 | | 3,465 | | 1,729 | |
The annual rates of increase in the per capita cost of covered health care benefits (the health care cost trend rates) used to determine accumulated postretirement benefit obligations were based on the trends for medical and prescription drug claims for pre- and post-65 age groups due to the effects of Medicare. For the 2018 actuarial valuation,2021 obligation, the weighted-average composite trend rates for these obligations were assumed to be an 8.9a 2.1 percent increase from 20182021 to
2019, 2022, followed by an increase of 8.4 percent from 2022 to 2023, gradually decreasing to 4.8 percent4.7 from 20242028 to 20252029 and all future years. The 2017lower estimated increase from 2021 to 2022 resulted from a decrease in Medicare Advantage premiums. The 2020 obligations and the cost in 20182021 assumed an 8.9a 4.0 percent increase from 20172020 to 2018,2021, followed by an increase of 7.6 percent from 2021 to 2022, gradually decreasing to 4.84.7 percent from 20242027 to 20252028 and all future years. AnThe lower estimated increase of one percentage pointfrom 2020 to 2021 resulted from the SECURE Act that repealed the health insurance provider fee effective in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligations by $644 million and the aggregate of service and interest cost component of net periodic OPEB cost for the year by $33 million. A decrease of one percentage point would decrease the obligations by $511 million and the cost by $26 million.2021.
The discount rate assumptions used to determine the pension and OPEB obligations for all periods presented were primarily based on hypothetical AA yield curves represented by a series of annualized individual discount rates. These discount rates represent the rates at which the company'scompany’s benefit obligations could effectively be settled at the October 31 measurement dates.
Fair value measurement levels in the following tables are defined in Note 26.
The fair values of the pension plan assets at October 28, 201831, 2021 follow in millions of dollars:
| | | | | | | | ||||||
| Total | | Level 1 | | Level 2 | | |||||||
| | | | | | | | ||||||
Cash and short-term investments | | $ | 868 | | | $ | 377 | | | $ | 491 | | |
Equity: | | | | | | | | ||||||
U.S. equity securities | | 1,495 | | | 1,466 | | | 29 | | | |||
International equity securities | | 1,143 | | | 1,136 | | | 7 | | | |||
Fixed Income: | | | | | | | | ||||||
Government and agency securities | | 764 | | | 500 | | | 264 | | | |||
Corporate debt securities | | 1,626 | | | | | 1,626 | | | ||||
Mortgage-backed securities | | 53 | | | | | 53 | | | ||||
Real estate | | 76 | | | 72 | | | 4 | | | |||
Derivative contracts – assets* | | 102 | | | 3 | | | 99 | | | |||
Derivative contracts – liabilities** | | (115 | ) | | (40 | ) | | (75 | ) | | |||
Receivables, payables, and other | | (9 | ) | | (10 | ) | | 1 | | | |||
Securities lending collateral | | 561 | | | | | 561 | | | ||||
Securities lending liability | | (561 | ) | | | | (561 | ) | | ||||
Securities sold short | | (333 | ) | | (330 | ) | | (3 | ) | | |||
| | | | | | | | | | | |||
Total of Level 1 and Level 2 assets | | 5,670 | | | $ | 3,174 | | | $ | 2,496 | | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
Investments at net asset value: | | | | | | | | ||||||
Short-term investments | | 219 | | | | | | | |||||
U.S. equity funds | | 1,526 | | | | | | | |||||
International equity funds | | 802 | | | | | | | |||||
Corporate debt funds | | 28 | | | | | | | |||||
Fixed income funds | | 1,262 | | | | | | | |||||
Real estate | | 654 | | | | | | | |||||
Hedge funds | | 724 | | | | | | | |||||
Private equity/venture capital | | 1,680 | | | | | | | |||||
Other investments | | 37 | | | | | | | |||||
| | | | | | | | | | | |||
Total net assets | | $ | 12,602 | | | | | | | ||||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | |
| | | | | | | | | | |
|
| Total |
| Level 1 |
| Level 2 |
| |||
Cash and short-term investments | | $ | 378 | | $ | 355 | | $ | 23 | |
Equity: | | | | | | | | | | |
U.S. equity securities | |
| 1,151 | |
| 1,123 | | | 28 | |
International equity securities and funds | |
| 951 | |
| 931 | | | 20 | |
Fixed Income: | | | | | | | | | | |
Government and agency securities | |
| 1,475 | |
| 1,159 | |
| 316 | |
Corporate debt securities | |
| 4,841 | |
| | |
| 4,841 | |
Mortgage-backed securities | |
| 144 | |
| | |
| 144 | |
Real estate investment trusts | |
| 62 | |
| 55 | |
| 7 | |
Derivative contracts - assets | |
| 116 | |
| 37 | |
| 79 | |
Derivative contracts - liabilities | |
| (75) | |
| (15) | |
| (60) | |
Receivables, payables, and other | |
| (155) | |
| (177) | | | 22 | |
Securities lending collateral | |
| 982 | | | 107 | |
| 875 | |
Securities lending liability | |
| (982) | | | (107) | |
| (875) | |
Securities sold short | |
| (139) | |
| (128) | | | (11) | |
Total of Level 1 and Level 2 assets | | | 8,749 | | $ | 3,340 | | $ | 5,409 | |
Investments at net asset value: | | | | | | | | | | |
Short-term investments | | | 815 | | | | | | | |
U.S. equity funds | | | 796 | | | | | | | |
International equity funds | | | 528 | | | | | | | |
Fixed income funds | | | 1,701 | | | | | | | |
Real estate funds | | | 566 | | | | | | | |
Hedge funds | | | 751 | | | | | | | |
Private equity | | | 1,385 | | | | | | | |
Venture capital | | | 1,537 | | | | | | | |
Other investments | | | 362 | | | | | | | |
Total net assets | | $ | 17,190 | | | | | | | |
The fair values of the health care assets at October 28, 201831, 2021 follow in millions of dollars:
| | | | | | | | | | |
|
| Total |
| Level 1 |
| Level 2 |
| |||
Cash and short-term investments | | $ | 55 | | $ | 55 | | | | |
Equity securities and funds | | | 30 | | | 29 | | $ | 1 | |
Fixed Income: | | | | | | | | | | |
Government and agency securities | |
| 243 | |
| 215 | | | 28 | |
Corporate debt securities | |
| 307 | | | | |
| 307 | |
Mortgage-backed securities | |
| 10 | | | | |
| 10 | |
Securities lending collateral | |
| 64 | | | 20 | |
| 44 | |
Securities lending liability | |
| (64) | | | (20) | |
| (44) | |
Securities sold short | |
| (3) | |
| (3) | | | | |
Total of Level 1 and Level 2 assets | | | 642 | | $ | 296 | | $ | 346 | |
Investments at net asset value: | | | | | | | | | | |
Short-term investments | | | 20 | | | | | | | |
U.S. equity funds | | | 619 | | | | | | | |
International equity funds | | | 358 | | | | | | | |
Fixed income funds | | | 18 | | | | | | | |
Real estate funds | | | 42 | | | | | | | |
Hedge funds | | | 13 | | | | | | | |
Private equity | | | 18 | | | | | | | |
Venture capital | | | 20 | | | | | | | |
Other investments | | | 5 | | | | | | | |
Total net assets | | $ | 1,755 | | | | | | | |
60
| | | | | | | | ||||||
| Total | | Level 1 | | Level 2 | | |||||||
| | | | | | | | ||||||
Cash and short-term investments | | $ | 78 | | | $ | 73 | | | $ | 5 | | |
Equity: | | | | | | | | ||||||
U.S. equity securities and funds | | 54 | | | 54 | | | | | ||||
International equity securities | | 10 | | | 10 | | | | | ||||
Fixed Income: | | | | | | | | ||||||
Government and agency securities | | 57 | | | 53 | | | 4 | | | |||
Corporate debt securities | | 29 | | | | | 29 | | | ||||
Mortgage-backed securities | | 11 | | | | | 11 | | | ||||
Real estate | | 1 | | | 1 | | | | | ||||
Foreign currency derivative contracts – assets | | 1 | | | | | 1 | | | ||||
Equity derivative contracts – liabilities | | (1 | ) | | (1 | ) | | | | ||||
Securities lending collateral | | 24 | | | | | 24 | | | ||||
Securities lending liability | | (24 | ) | | | | (24 | ) | | ||||
Securities sold short | | (3 | ) | | (3 | ) | | | | ||||
| | | | | | | | | | | |||
Total of Level 1 and Level 2 assets | | 237 | | | $ | 187 | | | $ | 50 | | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
Investments at net asset value: | | | | | | | | ||||||
Short-term investments | | 2 | | | | | | | |||||
U.S. equity funds | | 220 | | | | | | | |||||
International equity funds | | 146 | | | | | | | |||||
Fixed income funds | | 83 | | | | | | | |||||
Real estate funds | | 7 | | | | | | | |||||
Hedge funds | | 7 | | | | | | | |||||
Private equity/venture capital | | 17 | | | | | | | |||||
| | | | | | | | | | | |||
Total net assets | | $ | 719 | | | | | | | ||||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | |
The fair values of the pension plan assets at October 29, 2017November 1, 2020 follow in millions of dollars:
| | | | | | | | ||||||||
| Total | | Level 1 | | Level 2 | | |||||||||
| | | | | | | | ||||||||
Cash and short-term investments | | | $ | 618 | | | $ | 349 | | | | $ | 269 | | |
Equity: | | | | | | | | | | ||||||
U.S. equity securities | | | 1,871 | | | 1,850 | | | | 21 | | | |||
International equity securities | | | 1,551 | | | 1,541 | | | | 10 | | | |||
Fixed Income: | | | | | | | | | | ||||||
Government and agency securities | | | 483 | | | 241 | | | | 242 | | | |||
Corporate debt securities | | | 1,285 | | | | | | 1,285 | | | ||||
Mortgage-backed securities | | | 42 | | | | | | 42 | | | ||||
Real estate | | | 103 | | | 101 | | | | 2 | | | |||
Derivative contracts – assets* | | | 159 | | | 28 | | | | 131 | | | |||
Derivative contracts – liabilities** | | | (76 | ) | | (2 | ) | | | (74 | ) | | |||
Receivables, payables, and other | | | 1 | | | 1 | | | | | | ||||
Securities lending collateral | | | 420 | | | | | | 420 | | | ||||
Securities lending liability | | | (420 | ) | | | | | (420 | ) | | ||||
Securities sold short | | | (379 | ) | | (375 | ) | | | (4 | ) | | |||
| | | | | | | | | | | | | |||
Total of Level 1 and Level 2 assets | | | $ | 5,658 | | | $ | 3,734 | | | | $ | 1,924 | | |
| | | | | | | | | | | | | |||
| | | | | | | | | | | | | |||
| | | | | | | | | | | | |
(continued)
| | | | | | | | ||||||
| Total | | Level 1 | | Level 2 | | |||||||
| | | | | | | | ||||||
Investments at net asset value: | | | | | | | | ||||||
Short-term investments | | $ | 203 | | | | | | | ||||
U.S. equity funds | | 1,704 | | | | | | | |||||
International equity funds | | 921 | | | | | | | |||||
Corporate debt funds | | 28 | | | | | | | |||||
Fixed income funds | | 772 | | | | | | | |||||
Real estate | | 567 | | | | | | | |||||
Hedge funds | | 651 | | | | | | | |||||
Private equity/venture capital | | 1,560 | | | | | | | |||||
Other investments | | 29 | | | | | | | |||||
| | | | | | | | | | | |||
Total net assets | | $ | 12,093 | | | | | | | ||||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | |
| | | | | | | | | | |
|
| Total |
| Level 1 |
| Level 2 |
| |||
Cash and short-term investments | | $ | 309 | | $ | 276 | | $ | 33 | |
Equity: | | | | | | | | | | |
U.S. equity securities | |
| 1,184 | |
| 1,135 | | | 49 | |
International equity securities | |
| 947 | |
| 937 | | | 10 | |
Fixed Income: | | | | | | | | | | |
Government and agency securities | |
| 1,133 | |
| 824 | |
| 309 | |
Corporate debt securities | |
| 3,534 | | | | |
| 3,534 | |
Mortgage-backed securities | |
| 136 | |
| | |
| 136 | |
Real estate investment trusts | |
| 49 | |
| 48 | |
| 1 | |
Derivative contracts - assets | |
| 94 | |
| 2 | |
| 92 | |
Derivative contracts - liabilities | |
| (79) | |
| (43) | |
| (36) | |
Receivables, payables, and other | |
| (163) | |
| (184) | | | 21 | |
Securities lending collateral | |
| 449 | | | 90 | |
| 359 | |
Securities lending liability | |
| (449) | | | (90) | |
| (359) | |
Securities sold short | |
| (149) | |
| (144) | | | (5) | |
Total of Level 1 and Level 2 assets | | | 6,995 | | $ | 2,851 | | $ | 4,144 | |
Investments at net asset value: | | | | | | | | | | |
Short-term investments | | | 510 | | | | | | | |
U.S. equity funds | | | 1,246 | | | | | | | |
International equity funds | | | 674 | | | | | | | |
Fixed income funds | | | 1,321 | | | | | | | |
Real estate funds | | | 618 | | | | | | | |
Hedge funds | | | 750 | | | | | | | |
Private equity | | | 1,064 | | | | | | | |
Venture capital | | | 974 | | | | | | | |
Other investments | | | 422 | | | | | | | |
Total net assets | | $ | 14,574 | | | | | | | |
The fair values of the health care assets at October 29, 2017November 1, 2020 follow in millions of dollars:
| | | | | | | | |||||||
| Total | | Level 1 | | Level 2 | | ||||||||
| | | | | | | | |||||||
Cash and short-term investments | | | $ | 30 | | | $ | 28 | | | $ | 2 | | |
Equity: | | | | | | | | | ||||||
U.S. equity securities and funds | | | 42 | | | 42 | | | | | ||||
International equity securities | | | 9 | | | 9 | | | | | ||||
Fixed Income: | | | | | | | | | ||||||
Government and agency securities | | | 40 | | | 37 | | | 3 | | | |||
Corporate debt securities | | | 21 | | | | | 21 | | | ||||
Mortgage-backed securities | | | 10 | | | | | 10 | | | ||||
Real estate | | | 1 | | | 1 | | | | | ||||
Interest rate derivative contracts – assets | | | 1 | | | | | 1 | | | ||||
Securities lending collateral | | | 25 | | | | | 25 | | | ||||
Securities lending liability | | | (25 | ) | | | | (25 | ) | | ||||
Securities sold short | | | (2 | ) | | (2 | ) | | | | ||||
| | | | | | | | | | | | |||
Total of Level 1 and Level 2 assets | | | 152 | | | $ | 115 | | | $ | 37 | | | |
| | | | | | | | | | | | |||
| | | | | | | | | | | | |||
| | | | | | | | | | | | |||
Investments at net asset value: | | | | | | | | | ||||||
Short-term investments | | | 1 | | | | | | | |||||
U.S. equity funds | | | 164 | | | | | | | |||||
International equity funds | | | 117 | | | | | | | |||||
Fixed income funds | | | 87 | | | | | | | |||||
Real estate funds | | | 4 | | | | | | | |||||
Hedge funds | | | 4 | | | | | | | |||||
Private equity/venture capital | | | 10 | | | | | | | |||||
| | | | | | | | | | | | |||
Total net assets | | | $ | 539 | | | | | | | ||||
| | | | | | | | | | | | |||
| | | | | | | | | | | | |||
| | | | | | | | | | | |
| | | | | | | | | | |
|
| Total |
| Level 1 |
| Level 2 |
| |||
Cash and short-term investments | | $ | 117 | | $ | 117 | | | | |
Equity securities and funds | | | 44 | | | 43 | | $ | 1 | |
Fixed Income: | | | | | | | | | | |
Government and agency securities | |
| 180 | |
| 168 | | | 12 | |
Corporate debt securities | |
| 66 | | | | |
| 66 | |
Mortgage-backed securities | |
| 13 | | | | |
| 13 | |
Other | | | (1) | | | (1) | | | | |
Securities lending collateral | |
| 49 | | | 8 | |
| 41 | |
Securities lending liability | |
| (49) | | | (8) | |
| (41) | |
Securities sold short | |
| (3) | |
| (3) | | | | |
Total of Level 1 and Level 2 assets | | | 416 | | $ | 324 | | $ | 92 | |
Investments at net asset value: | | | | | | | | | | |
Short-term investments | | | 9 | | | | | | | |
U.S. equity funds | | | 539 | | | | | | | |
International equity funds | | | 320 | | | | | | | |
Fixed income funds | | | 185 | | | | | | | |
Hedge funds | | | 12 | | | | | | | |
Private equity | | | 13 | | | | | | | |
Venture capital | | | 12 | | | | | | | |
Other investments | | | 12 | | | | | | | |
Total net assets | | $ | 1,518 | | | | | | | |
Investments at net asset value in the preceding tables are measured at fair value using the net asset value per share practical expedient and therefore, are not classified in the fair value hierarchy.
Fair values are determined as follows:
Cash and Short-Term Investments – IncludesThe investments include (1) cash accounts that are valued based on the account value, which approximates fair value, and investment fundsvalue; (2) investments that are valued based on a constant fund net asset value (NAV)at quoted prices in the active markets in which the investment trades or on the fund's NAV based on the fair value of the underlying securities. Also included are securities that are valued 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.
Equity Securities and Funds– The values are determined primarily by closingquoted prices in the active market in which the equity investment trades, or the fund'sfund’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 closingquoted prices in the active market in which the fixed income investment trades. Fixed income and other funds are valued using the fund'sfund’s NAV, based on the fair value of the underlying securities.
Real Estate, Venture Capital, Private Equity, and Hedge Funds and Other– The investments that are structured as limited partnerships are valued at estimated fair value based on their proportionate share of the limited partnership'spartnership’s fair value that is determined by the respective general partner. These investments are valued using a combinationthe fund’s NAV, which is based on the fair value of NAV, an income approach (primarily estimated cash flows discounted over the expected holding period), or market approach (primarily the valuation of similar securities and properties).underlying investments. Real estate investment trusts are primarily valued at the closingquoted prices in the active markets in which the investment trades. Real estate funds and other investments are primarily valued at NAV, based on the fair value of the underlying securities.
Interest Rate, Foreign Currency, and Other 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 (closing(quoted prices in the active market in which the derivative instrument trades).
The primary investment objective for the pension and health care plans assets is to maximize the growth of these assets to supportfulfill the projected obligations to the beneficiaries over a long period of time, and to do so in a manner that is consistent withwhile meeting the company's risk tolerance.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'scompany’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 4226 percent for equity, securities, 3455 percent for debt, securities, 64 percent for real estate, and 1815 percent for other investments. The target allocations for health care assets are approximately 5758 percent for equity, securities, 3035 percent for debt, securities, 12 percent for real estate, and 125 percent for other
61
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'scompany’s diversified investment policy, there were no significant concentrations of risk.
The expected long-term rate of return on plan assets reflects management'smanagement’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'scompany’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'scompany’s expectations for returns over an extended period of time (i.e., 10 to 20 years). The average annual return of the company'scompany’s U.S. pension fund was approximately 9.211.0 percent during the past ten years and approximately 8.29.3 percent during the past 20 years. Since return premiums over inflation and total returns for major asset classes vary widely even over ten-year periods, recent history is not necessarily indicative of long-term future expected returns. The company'scompany’s systematic methodology for determining the long-term rate of return for the company'scompany’s investment strategies supports its long-term expected return assumptions.
The company has created certain Voluntary Employees'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'scompany’s pension plan trust.
The company has defined contribution plans related to employee investment and savings plans primarily in the U.S. The company'scompany’s contributions and costs under these plans were $206$207 million in 2018, $1882021, $160 million in 2017,2020, and $193$192 million in 2016.2019. The contribution rate varies primarily based on the company'scompany’s performance in the prior year and employee participation in the plans.
|
On December 22, 2017, the U.S. government enacted tax reform. The primary provisions of tax reform affecting the company in 2018 were a reduction to the corporate income tax rate from 35 percent to 21 percent and a transition from a worldwide corporate tax system to a primarily territorial tax system. The reduction in the corporate income tax rate required the company to remeasure its U.S. net deferred tax assets to the new corporate tax rate and the transition to a territorial tax system requires payment of a one-time tax on the deemed repatriation of undistributed and previously untaxed non-U.S. earnings. Under current tax law, the company plans to pay the deemed earnings repatriation tax (repatriation tax) in 2019 with an expected U.S. income tax overpayment.
The income tax expense (benefit) for the net deferred tax asset remeasurement and the repatriation tax in 2018 in millions of dollars follow:
| | | | | | | | ||||||||
| Equipment Operations | | Financial Services | | Total | | |||||||||
| | | | | | | | ||||||||
Net deferred tax asset remeasurement | | | $ | 768 | | | | $ | (354 | ) | | $ | 414 | | |
Deemed earnings repatriation tax | | | 277 | | | | 13 | | | 290 | | | |||
| | | | | | | | | | | | | |||
Total discrete tax expense (benefit) | | | $ | 1,045 | | | | $ | (341 | ) | | $ | 704 | | |
| | | | | | | | | | | | | |||
| | | | | | | | | | | | | |||
| | | | | | | | | | | | | |||
| | | | | | | |
Included in the Equipment Operations' repatriation tax amount is an accrual of approximately $63 million for foreign withholding taxes on earnings of subsidiaries outside the U.S. that were previously expected to be indefinitely reinvested outside the U.S. The provision for income taxes was also affected primarily by the lower corporate income tax rate on current year income.
The 21 percent corporate income tax rate was effective January 1, 2018. Based on the company's October fiscal year end, the U.S. statutory income tax rate for fiscal year 2018 was approximately 23.3 percent.
The 2018 repatriation tax expense is based on interpretations of existing laws, regulations, and certain assumptions. Further regulatory guidance is expected, which could affect the recorded expense. The company continues to analyze the repatriation tax provisions, and monitor legislative and regulatory developments.9. INCOME TAXES
The provision for income taxes by taxing jurisdiction and by significant component consisted of the following in millions of dollars:
| | | | | | | | | | |
| 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
Current: | ||||||||||
U.S.: | ||||||||||
Federal | $ | (268 | ) | $ | 360 | $ | 51 | |||
State | 123 | 48 | 26 | |||||||
Foreign | 392 | 463 | 340 | |||||||
| | | | | | | | | | |
Total current | 247 | 871 | 417 | |||||||
| | | | | | | | | | |
Deferred: | ||||||||||
U.S.: | ||||||||||
Federal | 1,233 | 59 | 297 | |||||||
State | (40 | ) | 7 | 11 | ||||||
Foreign | 287 | 34 | (25 | ) | ||||||
| | | | | | | | | | |
Total deferred | 1,480 | 100 | 283 | |||||||
| | | | | | | | | | |
Provision for income taxes | $ | 1,727 | $ | 971 | $ | 700 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
Current: | | |
| | |
| | |
| |
U.S.: | | | | | | | | | | |
Federal | | $ | 899 | | $ | 400 | | $ | 545 | |
State | |
| 183 | |
| 53 | |
| 72 | |
Foreign | |
| 1,017 | |
| 640 | |
| 700 | |
Total current | |
| 2,099 | |
| 1,093 | |
| 1,317 | |
Deferred: | | | | | | | | | | |
U.S.: | | | | | | | | | | |
Federal | |
| (303) | |
| (68) | |
| (345) | |
State | |
| (45) | |
| 9 | |
| (26) | |
Foreign | |
| (93) | |
| 48 | |
| (94) | |
Total deferred | |
| (441) | |
| (11) | |
| (465) | |
Provision for income taxes | | $ | 1,658 | | $ | 1,082 | | $ | 852 | |
Based upon the location of the company'scompany’s operations, the consolidated income before income taxes in the U.S. in 2018, 2017,2021, 2020, and 20162019 was $2,275$4,061 million, $1,607$2,082 million, and $967$2,166 million, respectively, and in foreign countries was $1,796$3,541 million, $1,547$1,801 million, and $1,257$1,922 million, respectively. Certain foreign operations are branches or partnerships of Deere & Company and are subject to U.S. as well as foreign income tax regulations. The pretax income by location and the preceding analysis of the income tax provision by taxing jurisdiction are not directly related.
A comparison of the statutory and effective income tax provision and reasons for related differences in millions of dollars follow:
| | | | | | | | | | |
| 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
U.S. federal income tax provision at the U.S. statutory rate (2018 – 23.3 percent, 2017 and 2016 – 35 percent) | $ | 950 | $ | 1,104 | $ | 778 | ||||
Increase (decrease) resulting from: | ||||||||||
Net deferred tax asset remeasurement | 414 | |||||||||
Deemed earnings repatriation tax | 290 | |||||||||
Other effects of tax reform | 42 | |||||||||
Differences in taxability of foreign earnings | (92 | ) | (83 | ) | (107 | ) | ||||
Valuation allowance on deferred taxes | 50 | 89 | 79 | |||||||
Research and business tax credits | (43 | ) | (63 | ) | (57 | ) | ||||
State and local income taxes, net of federal income tax benefit | 59 | 37 | 26 | |||||||
Excess tax benefits on equity compensation | (49 | ) | (30 | ) | ||||||
Tax rates on foreign earnings | 44 | (84 | ) | (27 | ) | |||||
Unrecognized tax benefits | 30 | 9 | 11 | |||||||
Nondeductible impairment charges | 4 | |||||||||
Other - net | 32 | (8 | ) | (7 | ) | |||||
| | | | | | | | | | |
Provision for income taxes | $ | 1,727 | $ | 971 | $ | 700 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
U.S. federal income tax provision at the U.S. statutory rate (21 percent) | | $ | 1,597 | | $ | 815 | | $ | 859 | |
State and local taxes, net of federal effect | | | 119 | | | 59 | | | 47 | |
Other Impacts of Tax Cuts and Jobs Act of 2017 | | | (85) | | | 39 | | | (101) | |
Rate differential on foreign subsidiaries | |
| 148 | |
| 106 | |
| 89 | |
Research and business tax credits | |
| (48) | |
| (50) | |
| (85) | |
Excess tax benefits on equity compensation | | | (79) | | | (87) | | | (40) | |
Valuation allowances | |
| 18 | |
| 139 | |
| 28 | |
Other - net | |
| (12) | | | 61 | | | 55 | |
Provision for income taxes | | $ | 1,658 | | $ | 1,082 | | $ | 852 | |
At October 28, 2018,31, 2021, accumulated earnings in certain subsidiaries outside the U.S. totaled $2,559 million, which were subject to the repatriation tax. No$2,155 million. A provision for foreign withholding taxes has 0t been made because it is expected thatsince these earnings willare expected to remain indefinitely reinvested outside the U.S. Determination of the amount of a foreign withholding tax liability on these unremitted earnings is not practicable.
62
An additional $4,270 million of earnings in subsidiaries outside the U.S., which were previously expected to be reinvested outside the U.S., were also subject to the repatriation tax. In the fourth quarter of 2018, the company reviewed its global funding requirements and determined those earnings would no longer be indefinitely reinvested. Although the earnings will not be subject to U.S. income tax when repatriated to the U.S., in the fourth quarter of 2018 an accrual of $63 million was recorded for foreign withholding taxes.
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 28, 201831, 2021 and October 29, 2017November 1, 2020 in millions of dollars follows:
| | | | | | | | | | ||||||||||
| 2018 | | 2017 | | |||||||||||||||
| Deferred Tax Assets | | Deferred Tax Liabilities | | Deferred Tax Assets | | Deferred Tax Liabilities | | |||||||||||
| | | | | | | | | | ||||||||||
OPEB liabilities | | $ | 984 | | | | | | $ | 2,011 | | | | | | ||||
Lease transactions | | | | | $ | 850 | | | | | | $ | 933 | | | ||||
Tax loss and tax credit carryforwards | | 713 | | | | | | 677 | | | | | | ||||||
Accrual for sales allowances | | 464 | | | | | | 680 | | | | | | ||||||
Tax over book depreciation | | | | | 357 | | | | | | 569 | | | ||||||
Goodwill and other intangible assets | | | | | 458 | | | | | | 130 | | | ||||||
Pension liability – net | | 45 | | | | | | 420 | | | | | | ||||||
Allowance for credit losses | | 115 | | | | | | 107 | | | | | | ||||||
Accrual for employee benefits | | 72 | | | | | | 141 | | | | | | ||||||
Share-based compensation | | 58 | | | | | | 116 | | | | | | ||||||
Deferred compensation | | 35 | | | | | | 59 | | | | | | ||||||
Undistributed foreign earnings | | | | | 6 | | | | | | 21 | | | ||||||
Foreign unrealized losses | | 10 | | | | | | 7 | | | | | | ||||||
Other items | | 346 | | | | 261 | | | 432 | | | | 172 | | | ||||
Less valuation allowances | | (658 | ) | | | | | (620 | ) | | | | | ||||||
| | | | | | | | | | | | | | | | ||||
Deferred income tax assets and liabilities | | $ | 2,184 | | | | $ | 1,932 | | | $ | 4,030 | | | | $ | 1,825 | | |
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | |
| | | | | | | | | | | | | |
| | 2021 | | 2020 | | ||||||||
| | Deferred | | Deferred | | Deferred | | Deferred | | ||||
| | Tax | | Tax | | Tax | | Tax | | ||||
|
| Assets |
| Liabilities |
| Assets |
| Liabilities |
| ||||
OPEB liabilities | | $ | 676 | | | | | $ | 804 | | | | |
Lessor lease transactions | | | | | $ | 399 | | | | | $ | 489 | |
Tax loss and tax credit carryforwards | |
| 1,542 | | | | |
| 937 | | | | |
Accrual for sales allowances | |
| 466 | | | | |
| 362 | | | | |
Tax over book depreciation | | | | | | 154 | | | | | | 196 | |
Goodwill and other intangible assets | | | | |
| 337 | | | | |
| 368 | |
Pension - net | |
| | | | 448 | |
| 316 | | | | |
Allowance for credit losses | |
| 78 | | | | |
| 81 | | | | |
Accrual for employee benefits | |
| 298 | | | | |
| 249 | | | | |
Share-based compensation | |
| 53 | | | | |
| 41 | | | | |
Deferred compensation | |
| 49 | | | | |
| 40 | | | | |
Lessee lease transactions | | | 46 | | | 43 | | | 56 | | | 56 | |
Unearned revenue | | | 172 | |
| | | | 22 | |
| | |
Other items | |
| 333 | |
| 341 | |
| 344 | |
| 305 | |
Less valuation allowances | |
| (1,530) | | | | |
| (858) | | | | |
Deferred income tax assets and liabilities | | $ | 2,183 | | $ | 1,722 | | $ | 2,394 | | $ | 1,414 | |
Deere & Company files a consolidated federal income tax return in the U.S., which includes the wholly-owned financial services subsidiaries. These subsidiaries account for income taxes generally as if they filed separate income tax returns, with a modification for realizability of certain tax benefits.
At October 28, 2018,31, 2021, tax loss and tax credit carryforwards of $713$1,542 million were available with $289$1,068 million expiring from 20192022 through 20382041 and $424$474 million with an indefinite carryforward period.
A reconciliation of the total amounts of unrecognized tax benefits at October 28, 2018, October 29, 2017,31, 2021, November 1, 2020, and October 30, 2016November 3, 2019 in millions of dollars follows:
| | | | | | | | | | |
| 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
Beginning of year balance | $ | 221 | $ | 198 | $ | 229 | ||||
Increases to tax positions taken during the current year | 36 | 35 | 14 | |||||||
Increases to tax positions taken during prior years | 62 | 13 | 11 | |||||||
Decreases to tax positions taken during prior years | (39 | ) | (17 | ) | (36 | ) | ||||
Decreases due to lapse of statute of limitations | (15 | ) | (11 | ) | (7 | ) | ||||
Acquisitions* | 31 | |||||||||
Settlements | (5 | ) | (1 | ) | (5 | ) | ||||
Foreign exchange | (12 | ) | 4 | (8 | ) | |||||
| | | | | | | | | | |
End of year balance | $ | 279 | $ | 221 | $ | 198 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
Beginning of year balance | | $ | 668 | | $ | 553 | | $ | 279 | |
Increases to tax positions taken during the current year | |
| 81 | |
| 63 | |
| 30 | |
Increases to tax positions taken during prior years | |
| 100 | |
| 95 | |
| 357 | |
Decreases to tax positions taken during prior years | |
| (23) | |
| (30) | |
| (30) | |
Decreases due to lapse of statute of limitations | |
| (12) | |
| (9) | |
| (6) | |
Settlements | |
| (3) | |
| (1) | |
| (75) | |
Foreign exchange | |
| | |
| (3) | |
| (2) | |
End of year balance | | $ | 811 | | $ | 668 | | $ | 553 | |
The amount of unrecognized tax benefits at October 28, 201831, 2021 and October 29, 2017November 1, 2020 that would affectimpact the effective tax rate if the tax benefits were recognized was $128$227 million and $86$134 million, respectively. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was
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'scompany’s federal income tax returns for periods prior to 2015.The years 2008 through 2014federal income tax returns are subject to final approval on limited issues, of which the tax effects are recorded. Thefor years 2015, 2016, and 2017 federal income tax return are currently under examination. Various state and foreign income tax returns, including major tax jurisdictions in Argentina, Australia, Brazil, Canada, China, Finland, France, Germany, India, Luxembourg, Mexico, Russia, Singapore, and Spain also remain subject to examination by taxing authorities.
The company'scompany’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 2018, 2017,2021 and 2016,2019, the total amount of expense from interest and penalties was $23 million, $6$7 million and none$13 million. During 2020, interest and thepenalties previously recorded were reversed when tax positions were effectively settled resulting in a $3 million net benefit. The interest income in 2021, 2020, and 2019 was $12$8 million, $6$11 million, and none,$25 million, respectively. At October 28, 201831, 2021 and October 29, 2017,November 1, 2020, the liability for accrued interest and penalties totaled $90$75 million and $66$72 million, respectively, and there was nothe receivable for interest at either year-end.
The company will be subject to additional requirements of tax reform beginning in 2019. Those provisions include a tax on global intangible low-taxed income (GILTI), a tax determined by base erosionwas $11 million and anti-abuse tax benefits (BEAT) from certain payments between a U.S. corporation and foreign subsidiaries, a limitation of certain executive compensation, a deduction for foreign derived intangible income (FDII), and interest expense limitations. Through the preliminary review of these provisions, the company does not expect the net effect to be significant for the 2019 provision for income taxes.$6 million, respectively.
10. OTHER INCOME AND OTHER OPERATING EXPENSES
|
The major components of other income and other operating expenses consisted of the following in millions of dollars:
| | | | | | | | | | |
| 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
Other income | ||||||||||
Revenues from services | $ | 347 | $ | 288 | $ | 270 | ||||
Insurance premiums and fees earned** | 217 | 211 | 195 | |||||||
SiteOne investment gains* | 375 | 75 | ||||||||
Investment income | 14 | 17 | 16 | |||||||
Other | 322 | 230 | 190 | |||||||
| | | | | | | | | | |
Total | $ | 900 | $ | 1,121 | $ | 746 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Other operating expenses | ||||||||||
Depreciation of equipment on operating leases | $ | 928 | $ | 853 | $ | 742 | ||||
Insurance claims and expenses** | 175 | 187 | 188 | |||||||
Cost of services | 211 | 168 | 162 | |||||||
Other | 85 | 140 | 183 | |||||||
| | | | | | | | | | |
Total | $ | 1,399 | $ | 1,348 | $ | 1,275 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
Other income | | |
| | |
| | |
| |
Revenues from services | | $ | 322 | | $ | 314 | | $ | 348 | |
Insurance premiums and fees earned* | | | 227 | | | 223 | | | 214 | |
Trademark licensing income | | | 87 | | | 73 | | | 66 | |
Operating lease disposition gains | |
| 65 | |
| | |
| | |
Investment income | |
| 41 | |
| 26 | |
| 25 | |
Other | |
| 249 | |
| 182 | |
| 226 | |
Total | | $ | 991 | | $ | 818 | | $ | 879 | |
| | | | | | | | | | |
Other operating expenses | | | | | | | | | | |
Depreciation of equipment on operating leases | | $ | 983 | | $ | 1,083 | | $ | 981 | |
Insurance claims and expenses* | |
| 235 | |
| 231 | |
| 210 | |
Cost of services | |
| 202 | |
| 188 | |
| 228 | |
Operating lease residual losses and impairments | | | | | | 52 | | | 159 | |
Pension and OPEB benefit, excluding service cost component | | | (183) | | | (31) | | | (67) | |
Other | |
| 106 | |
| 89 | |
| 67 | |
Total | | $ | 1,343 | | $ | 1,612 | | $ | 1,578 | |
*
63 |
Unconsolidated affiliated companies are companies in which Deere & Company generally owns 20 percent to 50 percent of the outstanding voting shares. Deere & Company does not control these companies and accounts for its investments in them on the equity basis. The investments in these companies primarily consist of Bell Equipment Limited (31 percent ownership), Deere-Hitachi Construction Machinery Corporation (50 percent ownership), and Deere-Hitachi Maquinas de Construcao do Brasil S.A. (50 percent ownership). In 2017,During 2021, the company sold its interestinvestment in SiteOneBell Equipment Limited, resulting in no material gain or loss. The company also entered into a Dissolution Agreement with Hitachi to terminate the joint venture agreement. The termination is expected to occur in 2022 (see Note 5)4). The unconsolidated affiliated companies primarily manufacture or market equipment. Deere & Company'sCompany’s share of the income or loss of these companies is reported in the consolidated income statement under "Equity“Equity in income (loss) of unconsolidated affiliates."” In 2020, the company recorded impairments on certain unconsolidated affiliates. The impairments were the result of an other-than-temporary decline in value (see Note 5). The investment in these companies is reported in the consolidated balance sheet under "Investments“Investments in unconsolidated affiliates."”
Combined financial information of the unconsolidated affiliated companies in millions of dollars follows:
| | | | | | | | | | |
Operations | 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
Sales | $ | 2,313 | $ | 2,638 | $ | 3,206 | ||||
Net income | 91 | 7 | 30 | |||||||
Deere & Company's equity in net income (loss) | 27 | (24 | ) | (2 | ) |
| | | | | | | |
Financial Position | 2018 | 2017 | |||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Total assets | $ | 1,648 | $ | 1,488 | |||
Total external borrowings | 453 | 451 | |||||
Total net assets | 620 | 542 | |||||
Deere & Company's share of the net assets | 207 | 182 | |||||
| | | | | | | |
| | | | | | | | | | |
Operations |
| 2021 |
| 2020 |
| 2019 |
| |||
Sales | | $ | 2,095 | | $ | 1,793 | | $ | 2,483 | |
Net income | |
| 51 | |
| 7 | |
| 50 | |
Deere & Company’s equity in net income (loss) | |
| 21 | | | (48) | |
| 21 | |
| | | | | | | |
Financial Position |
| 2021 |
| 2020 |
| ||
Total assets | | $ | 1,289 | | $ | 1,541 | |
Total external borrowings | |
| 497 | |
| 540 | |
Total net assets | |
| 366 | |
| 598 | |
Deere & Company’s share of the net assets | |
| 175 | |
| 193 | |
Consolidated retained earnings at October 28, 201831, 2021 include undistributed earnings of the unconsolidated affiliates of $152$48 million. Dividends from unconsolidated affiliates were $12$21 million in 2018, $42021, NaN in 2020, and $30 million in 2017, and $64 million in 2016 (see Note 5).2019.
In the ordinary course of business, the company purchases and sells components and finished goods to the unconsolidated affiliated companies. Transactions with unconsolidated affiliated companies reported in the statement of consolidated income in millions of dollars follow:
| | | | | | | | | | |
| | 2021 |
| 2020 |
| 2019 | | |||
Net sales | | $ | 78 | | $ | 81 | | $ | 143 | |
Purchases | | | 1,605 | | | 1,288 | | | 1,937 | |
| | | | | | | | | | |
| 2018 | 2017 | 2016 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
Net sales | $ | 161 | $ | 84 | $ | 45 | ||||
Purchases | 1,682 | 1,331 | 1,016 | |||||||
| | | | | | | | | | |
12. MARKETABLE SECURITIES
|
All marketable securities are classified as available-for-sale, with unrealized gains and losses shown as a component of stockholders' equity.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 28, 201831, 2021 and October 29, 2017November 1, 2020 in millions of dollars follow:
| | | | | | | | | | | | | |
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||
| | | | | | | | | | | | | |
2018 | |||||||||||||
Equity fund | $ | 36 | $ | 10 | $ | 46 | |||||||
U.S. government debt securities | 113 | 1 | $ | 3 | 111 | ||||||||
Municipal debt securities | 49 | 3 | 46 | ||||||||||
Corporate debt securities | 143 | 1 | 4 | 140 | |||||||||
International debt securities | 11 | 1 | 10 | ||||||||||
Mortgage-backed securities* | 144 | 7 | 137 | ||||||||||
| | | | | | | | | | | | | |
Marketable securities | $ | 496 | $ | 12 | $ | 18 | $ | 490 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
2017 | |||||||||||||
Equity fund | $ | 37 | $ | 11 | $ | 48 | |||||||
Fixed income fund | 15 | 15 | |||||||||||
U.S. government debt securities | 76 | 1 | 77 | ||||||||||
Municipal debt securities | 39 | 1 | $ | 1 | 39 | ||||||||
Corporate debt securities | 133 | 3 | 1 | 135 | |||||||||
International debt securities | 22 | 2 | 20 | ||||||||||
Mortgage-backed securities* | 119 | 1 | 2 | 118 | |||||||||
| | | | | | | | | | | | | |
Marketable securities | $ | 441 | $ | 17 | $ | 6 | $ | 452 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
| | |
| Gross |
| Gross |
| | |
| ||
| | Amortized | | Unrealized | | Unrealized | | Fair |
| ||||
| | Cost | | Gains | | Losses | | Value |
| ||||
2021 | | | | | | | | | | | | | |
U.S. equity fund | | | | | | | | | | | $ | 75 | |
International equity securities | | | | | | | | | | | | 2 | |
Total equity securities | | | | | | | | | | | | 77 | |
U.S. government | | $ | 196 | | $ | 5 | | $ | 3 | |
| 198 | |
Municipal debt securities | |
| 69 | |
| 4 | | | | |
| 73 | |
Corporate debt securities | |
| 215 | |
| 11 | | | 2 | |
| 224 | |
International debt securities | | | 5 | | | | | | 3 | | | 2 | |
Mortgage-backed securities* | |
| 152 | |
| 3 | |
| 1 | |
| 154 | |
Total debt securities | | $ | 637 | | $ | 23 | | $ | 9 | | | 651 | |
Marketable securities | | | | | | | | | | | $ | 728 | |
2020 | | | | | | | | | | | | | |
U.S. equity fund | | | | | | | | | | | $ | 62 | |
International equity securities | | | | | | | | | | | | 2 | |
Total equity securities | | | | | | | | | | | | 64 | |
U.S. government | | $ | 159 | | $ | 10 | | $ | 1 | |
| 168 | |
Municipal debt securities | |
| 63 | |
| 5 | | | | |
| 68 | |
Corporate debt securities | |
| 173 | |
| 15 | | | | |
| 188 | |
International debt securities | | | 9 | | | | | | 3 | | | 6 | |
Mortgage-backed securities* | |
| 140 | |
| 7 | |
| | |
| 147 | |
Total debt securities | | $ | 544 | | $ | 37 | | $ | 4 | | | 577 | |
Marketable securities | | | | | | | | | | | $ | 641 | |
*
Equity Securities
Proceeds of Contentsequity securities sold during 2021, 2020, and 2019 were not material. Unrealized gains on equity securities during 2021 and 2020 in millions of dollars follow:
| | | | | | | |
| | 2021 |
| 2020 | | ||
Net gain recognized on equity securities | | $ | 24 | | $ | 8 | |
Less: Net gain on equity securities sold | | | 2 | | | 1 | |
Unrealized gains on equity securities | | $ | 22 | | $ | 7 | |
Debt Securities
The contractual maturities of debt securities at October 28, 201831, 2021 in millions of dollars follow:
| | | | | | | |
|
| Amortized |
| Fair |
| ||
|
| Cost |
| Value | | ||
Due in one year or less | | $ | 28 | | $ | 28 | |
Due after one through five years | |
| 80 | |
| 82 | |
Due after five through 10 years | |
| 144 | |
| 147 | |
Due after 10 years | |
| 233 | |
| 240 | |
Mortgage-backed securities | |
| 152 | |
| 154 | |
Debt securities | | $ | 637 | | $ | 651 | |
64
| | | | | | | |
Amortized Cost | Fair Value | ||||||
| | | | | | | |
Due in one year or less | $ | 24 | $ | 23 | |||
Due after one through five years | 117 | 115 | |||||
Due after five through 10 years | 99 | 96 | |||||
Due after 10 years | 76 | 73 | |||||
Mortgage-backed securities | 144 | 137 | |||||
| | | | | | | |
Debt securities | $ | 460 | $ | 444 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
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 available-for-saledebt securities, were $40 million in 2018, $403 million in 2017, and $62 million in 2016. Realizedrealized gains, were not significant in 2018 and 2016 and were $275 million in 2017 (see Note 5). Realizedrealized losses, the increase (decrease) in net unrealized gains or losses, and unrealized losses that have been continuous for over twelve months were not significant in 2018, 2017,2021, 2020, and 2016.2019. Unrealized losses at October 28, 201831, 2021 and October 29, 2017 were primarily the result of an increase in interest rates andNovember 1, 2020 were not recognized in income due to the ability and intent to hold to maturity. There were no0 significant impairment write-downs in the periods reported.
|
13. RECEIVABLES
Trade Accounts and Notes Receivable
Trade accounts and notes receivable at October 28, 201831, 2021 and October 29, 2017November 1, 2020 in millions of dollars follows:follow:
| | | | | | | |
| 2018 | 2017 | |||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Trade accounts and notes: | |||||||
Agriculture and turf | $ | 3,210 | $ | 2,991 | |||
Construction and forestry | 1,794 | 934 | |||||
| | | | | | | |
Trade accounts and notes receivable – net | $ | 5,004 | $ | 3,925 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
Trade accounts and notes receivable: | | | | | | | |
Production & precision ag | | $ | 1,204 | | $ | 1,397 | |
Small ag & turf | | | 1,683 | | | 1,484 | |
Construction & forestry | |
| 1,321 | |
| 1,290 | |
Trade accounts and notes receivable – net | | $ | 4,208 | | $ | 4,171 | |
Trade accounts and notes receivable have significant concentrations of credit risk in the agriculture and turf market and construction and forestry market as shown in the previous table. On a geographic basis, there is no disproportionate concentration of credit risk in any area.
The allowance for credit losses on trade accounts and notes receivable was $70 million, $56 million,at October 31, 2021, November 1, 2020, and $50 million, respectively, with a provision for credit lossNovember 3, 2019, as well as the related activity, in millions of $37 million, $11 million, and $11 million in fiscal years 2018, 2017, and 2016,
respectively. The net write-offs were $16 million, $3 million, and $7 million in fiscal years 2018, 2017, and 2016, respectively. Currency translation impacted the allowance for credit losses by $7 million, $2 million, and $(5) million in fiscal years 2018, 2017, and 2016, respectively.dollars follow:
| | | | | | | | | | |
| | 2021 | | 2020 | | 2019 | | |||
Beginning of year balance | | $ | 39 | | $ | 72 | | $ | 70 | |
ASU No. 2016-13 | | | (2) | | | | | | | |
Provision | | | 10 | | | | | | 8 | |
Write-offs | | | (7) | | | (23) | | | (14) | |
Recoveries | | | | | | 1 | | | 4 | |
Translation adjustments | | | 1 | | | (11) | | | 4 | |
End of year balance | | $ | 41 | | $ | 39 | | $ | 72 | |
The equipment operations sell a significant portion of their trade receivables to financial services and provide compensation to these operationsfinancial services at approximate market rates of interest.interest rates.
Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. UnderSee Note 2 for the terms of the sales to dealers, interest is primarily charged to dealers on outstanding balances, from the earlier of the date when goods are sold to retail customers by the dealer or the expiration of certain interest-free periods granted at the time of the sale to the dealer, until payment is received by the company. Dealers cannot cancel purchases after the equipment is shipped and are responsible for payment even if the equipment is not sold to retail customers. The 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 charged may not be forgiven and the past due interest rates exceed market rates.company’s revenue recognition policy. The company evaluates and assesses dealers on an ongoing basis as to their creditworthiness and generally retainssecures the receivables by retaining a security interest in the goods associated with the trade receivables.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'sdealer’s contract for such causes as change in ownership and closeout of the business.
TradeDuring 2020 and to a much lesser extent in 2021, the company provided short-term payment relief on trade accounts and notes
receivable include receivables from sales to certain retail customers that were negatively affected by the economic effects of COVID. The relief was provided both in regional programs and case-by-case situations with creditworthy customers. This relief generally included payment terms less than twelvedeferrals not exceeding three months, extending interest-free periods for up to an additional three months with the total interest-free period not to exceed one year, or reducing interest rates for a maximum of three months. The customer cannot cancel purchasestrade receivables granted relief that remained outstanding at October 31, 2021 were not material. This balance at November 1, 2020 was $75 million, or returnapproximately 2 percent of the equipment after delivery. Thetrade receivable portfolio. Outside of these actions, the company evaluatesdid not modify its normal sales terms with customers that are outlined in Note 2.
For customers who obtained payment relief, subsequent sales transactions are evaluated to confirm the revenue recognition criteria are met, including that the sales price is determinable and assesses retail customers atcollectability of the time of purchase as to their creditworthiness and generally retains a security interestpayments is probable based on the terms outlined in the goods associated withcontract.
Financing Receivables
While the receivables.
Trade accountscompany implemented a new operating model in fiscal year 2021 resulting in new operating segments, assets managed by financial services, including most financing receivables and notes receivable have significant concentrations of credit risk in the agricultureequipment on operating leases, continue to be evaluated by market (agriculture and turf sector andor construction and forestry sector as shown in the previous table. On a geographic basis, there is not a disproportionate concentration of credit risk in any area.
Financing Receivablesforestry).
Financing receivables at October 28, 201831, 2021 and October 29, 2017November 1, 2020 in millions of dollars follow:
| | | | | | | | | | | | | |
2018 | 2017 | ||||||||||||
Unrestricted/Securitized | Unrestricted/Securitized | ||||||||||||
| | | | | | | | | | | | | |
Retail notes: | |||||||||||||
Agriculture and turf | $ | 15,885 | $ | 3,441 | $ | 15,200 | $ | 3,651 | |||||
Construction and forestry | 2,776 | 675 | 2,297 | 599 | |||||||||
| | | | | | | | | | | | | |
Total | 18,661 | 4,116 | 17,497 | 4,250 | |||||||||
Wholesale notes | 4,009 | 3,665 | |||||||||||
Revolving charge accounts | 3,907 | 3,676 | |||||||||||
Financing leases (direct and sales-type) | 1,948 | 1,613 | |||||||||||
| | | | | | | | | | | | | |
Total financing receivables | 28,525 | 4,116 | 26,451 | 4,250 | |||||||||
| | | | | | | | | | | | | |
Less: | |||||||||||||
Unearned finance income: | |||||||||||||
Retail notes | 1,069 | 84 | 972 | 78 | |||||||||
Wholesale notes | 10 | 12 | |||||||||||
Revolving charge accounts | 45 | 47 | |||||||||||
Financing leases | 179 | 142 | |||||||||||
| | | | | | | | | | | | | |
Total | 1,303 | 84 | 1,173 | 78 | |||||||||
| | | | | | | | | | | | | |
Allowance for credit losses | 168 | 10 | 174 | 13 | |||||||||
| | | | | | | | | | | | | |
Financing receivables – net | $ | 27,054 | $ | 4,022 | $ | 25,104 | $ | 4,159 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The 2017 amounts in the table above for wholesale notes and revolving charge accounts were adjusted to be comparable with 2018 by separately presenting the unearned finance income. In the prior year, these balances were shown net of unearned finance income. The total financing receivables – net balance did not change. The residual values for investments in financing leases at October 28, 2018 and October 29, 2017 totaled $294 million and $244 million, respectively.
| | | | | | | | | | | | | |
| | 2021 | | 2020 |
| ||||||||
|
| Unrestricted/Securitized |
| Unrestricted/Securitized | | ||||||||
Retail notes: | | |
|
| |
| | |
|
| |
| |
Agriculture and turf | | $ | 21,736 | | $ | 4,041 | | $ | 17,780 | | $ | 4,134 | |
Construction and forestry | |
| 4,334 | |
| 712 | |
| 3,629 | |
| 680 | |
Total | |
| 26,070 | |
| 4,753 | |
| 21,409 | |
| 4,814 | |
Wholesale notes | |
| 2,577 | | | | |
| 3,547 | | | | |
Revolving charge accounts | |
| 3,880 | | | | |
| 3,962 | | | | |
Financing leases (direct | |
| 2,879 | | | | |
| 2,364 | | | | |
Total financing receivables | |
| 35,406 | |
| 4,753 | |
| 31,282 | |
| 4,814 | |
Less: | | | | | | | | | | | | | |
Unearned finance income: | | | | | | | | | | | | | |
Retail notes | |
| 1,131 | |
| 80 | |
| 1,066 | |
| 98 | |
Wholesale notes | | | 11 | | | | | | 18 | | | | |
Revolving charge accounts | | | 55 | | | | | | 60 | | | | |
Financing leases | |
| 258 | | | | |
| 217 | | | | |
Total | |
| 1,455 | |
| 80 | |
| 1,361 | |
| 98 | |
Allowance for credit losses | |
| 152 | |
| 14 | |
| 171 | |
| 13 | |
Financing receivables – net | | $ | 33,799 | | $ | 4,659 | | $ | 29,750 | | $ | 4,703 | |
Financing receivables have significant concentrations of credit risk in the agriculture and turf sector and construction and forestry sectormarkets as shown in the previous table. On a geographic basis, there is not ano disproportionate concentration of credit risk in any area. The company generally retains as collateral a security interest in the equipment associated with retail notes, wholesale notes, and financing leases.
65
Financing receivables at October 28, 201831, 2021 and October 29, 2017November 1, 2020 related to the company'scompany’s sales of equipment that were
included in the table above consisted of the following in millions of dollars:
| | | | | | | | | | |
2018 | 2017 | |||||||||
Unrestricted/Securitized | Unrestricted | |||||||||
| | | | | | | | | | |
Retail notes*: | ||||||||||
Agriculture and turf | $ | 2,312 | $ | 2,099 | ||||||
Construction and forestry | 441 | $ | 77 | 368 | ||||||
| | | | | | | | | | |
Total | 2,753 | 77 | 2,467 | |||||||
Wholesale notes | 4,009 | 3,665 | ||||||||
Sales-type leases | 878 | 763 | ||||||||
| | | | | | | | | | |
Total | 7,640 | 77 | 6,895 | |||||||
| | | | | | | | | | |
Less: | ||||||||||
Unearned finance income: | ||||||||||
Retail notes | 261 | 1 | 231 | |||||||
Wholesale notes | 10 | 12 | ||||||||
Sales-type leases | 68 | 53 | ||||||||
| | | | | | | | | | |
Total | 339 | 1 | 296 | |||||||
| | | | | | | | | | |
Financing receivables related to the company's sales of equipment | $ | 7,301 | $ | 76 | $ | 6,599 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| | 2021 | | 2020 |
| ||||||||
|
| Unrestricted/Securitized |
| Unrestricted/Securitized | | ||||||||
Retail notes*: | | | | | | | | | | | | | |
Agriculture and turf | | $ | 1,977 | | | | | $ | 1,971 | | | | |
Construction and forestry | | | 368 | | $ | 10 | |
| 335 | | $ | 27 | |
Total | | | 2,345 | |
| 10 | |
| 2,306 | | | 27 | |
Wholesale notes | | | 2,577 | |
| | |
| 3,547 | |
| | |
Sales-type leases | | | 1,269 | |
| | |
| 1,045 | |
| | |
Total | | | 6,191 | | | 10 | | | 6,898 | | | 27 | |
Less: | | | | | | | | | | | | | |
Unearned finance income: | | | | | | | | | | | | | |
Retail notes | | | 159 | | | | | | 178 | | | | |
Wholesale notes | | | 11 | | | | | | 18 | | | | |
Sales-type leases | | | 98 | |
| | |
| 82 | |
| | |
Total | |
| 268 | |
| | |
| 278 | | | | |
Financing receivables related to the company’s sales of equipment | | $ | 5,923 | | $ | 10 | | $ | 6,620 | | $ | 27 | |
*
Financing receivable installments, including unearned finance income, at October 28, 201831, 2021 and October 29, 2017 areNovember 1, 2020 were scheduled as follows in millions of dollars:
| | | | | | | | | | ||||
| 2018 | | 2017 | | |||||||||
| Unrestricted/Securitized | | Unrestricted/Securitized | | |||||||||
| | | | | | | | | | ||||
Due in months: | | | | | | ||||||||
0 – 12 | | $ | 14,658 | | $ | 1,922 | | $ | 13,293 | | $ | 2,027 | |
13 – 24 | | 5,355 | | 1,160 | | 5,059 | | 1,256 | | ||||
25 – 36 | | 3,911 | | 652 | | 3,708 | | 672 | | ||||
37 – 48 | | 2,663 | | 315 | | 2,518 | | 243 | | ||||
49 – 60 | | 1,480 | | 65 | | 1,398 | | 50 | | ||||
Thereafter | | 458 | | 2 | | 475 | | 2 | | ||||
| | | | | | | | | | ||||
Total | | $ | 28,525 | | $ | 4,116 | | $ | 26,451 | | $ | 4,250 | |
| | | | | | | | | | ||||
| | | | | | | | | | ||||
| | | | | | | | | | ||||
| | | | | | | | | |
| | | | | | | | | | | | | |
| | 2021 | | 2020 |
| ||||||||
| | Unrestricted/Securitized |
| Unrestricted/Securitized |
| ||||||||
Due in months: |
| |
|
| |
|
| |
|
| |
| |
0 – 12 | | $ | 15,205 | | $ | 1,904 | | $ | 14,983 | | $ | 1,971 | |
13 – 24 | |
| 7,412 | |
| 1,323 | |
| 6,180 | |
| 1,354 | |
25 – 36 | |
| 5,629 | |
| 885 | |
| 4,556 | |
| 889 | |
37 – 48 | |
| 3,991 | |
| 478 | |
| 3,145 | |
| 460 | |
49 – 60 | |
| 2,397 | |
| 150 | |
| 1,794 | |
| 129 | |
Thereafter | |
| 772 | |
| 13 | |
| 624 | |
| 11 | |
Total | | $ | 35,406 | | $ | 4,753 | | $ | 31,282 | | $ | 4,814 | |
The maximum terms for retail notes are generally seven years for agriculture and turf equipment, and five years for construction and forestry equipment. The maximum term for financing leases is generally sixseven years while the. The average term for wholesale notes is less than twelve months.
At October 28, 2018 and October 29, 2017, worldwide financing receivables administered, which include financing receivables administered but not owned, totaled $31,082 million and $29,273 million, respectively.
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. TheseThe company ceases accruing finance income when these receivables are generally 90 days delinquent. Generally, when receivables are 120 days delinquent and the estimated uncollectible amount after chargingfrom the dealer's withholding account, has beencustomer is written off to the allowance for credit losses. Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.
TableDue to the significant, negative effects of ContentsCOVID on dealers and retail customers, the company provided short-term payment relief to dealers and retail customers during 2020, and to a much lesser extent in 2021. The relief was provided in regional programs and case-by-case situations with customers that were generally current in their payment obligations. This relief generally included payment deferrals or reduced financing rates of three months or less. The financing receivables granted relief that remained outstanding at October 31, 2021 and November 1, 2020 represented approximately 3 percent and 4 percent of the financing receivable portfolio, respectively. The majority of financing receivables granted short-term relief are beyond the deferral period and have either resumed making payments or are reported as delinquent based on the modified payment schedule.
An ageThe company monitors the credit quality of financing receivables based on delinquency status. The credit quality analysis of past dueretail notes, financing receivables that are still accruing interestleases, and non-performing financing receivables at October 28, 2018 and October 29, 2017revolving charge accounts (collectively, retail customer receivables) was as follows in millions of dollars:dollars at October 31, 2021:
| | | | | | | | | | | | | |
| | Year of Origination | | ||||||||||
| | 2021 | | 2020 | | 2019 | | 2018 | | ||||
Retail customer receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf | | | | | | | | | | | | | |
Current | | $ | 12,877 | | $ | 6,676 | | $ | 3,463 | | $ | 1,738 | |
30-59 days past due | | | 43 | | | 53 | | | 29 | | | 16 | |
60-89 days past due | | | 16 | | | 23 | | | 12 | | | 6 | |
90+ days past due | | | | | | 1 | | | | | | | |
Non-performing | | | 23 | | | 57 | | | 53 | | | 32 | |
Construction and forestry | | | | | | | | | | | | | |
Current | | | 3,122 | | | 1,575 | | | 754 | | | 273 | |
30-59 days past due | | | 50 | | | 40 | | | 27 | | | 7 | |
60-89 days past due | | | 15 | | | 11 | | | 9 | | | 6 | |
90+ days past due | | | 1 | | | 2 | | | 3 | | | 3 | |
Non-performing | | | 26 | | | 56 | | | 39 | | | 17 | |
Total retail customer receivables | | $ | 16,173 | | $ | 8,494 | | $ | 4,389 | | $ | 2,098 | |
| | | | | | | | | | | | | |
| | Year of Origination | | ||||||||||
| | 2017 | | Prior Years | | Revolving Charge Accounts | | Total | | ||||
Retail customer receivables: | | | | | | | | | | | | | |
Agriculture and turf | | | | | | | | | | | | | |
Current | | $ | 728 | | $ | 211 | | $ | 3,704 | | $ | 29,397 | |
30-59 days past due | | | 7 | | | 3 | | | 14 | | | 165 | |
60-89 days past due | | | 3 | | | 1 | | | 4 | | | 65 | |
90+ days past due | | | | | | | | | | | | 1 | |
Non-performing | | | 17 | | | 23 | | | 7 | | | 212 | |
Construction and forestry | | | | | | | | | | | | | |
Current | | | 57 | | | 7 | | | 92 | | | 5,880 | |
30-59 days past due | | | 4 | | | 1 | | | 3 | | | 132 | |
60-89 days past due | | | 1 | | | | | | 1 | | | 43 | |
90+ days past due | | | 4 | | | 2 | | | | | | 15 | |
Non-performing | | | 7 | | | 3 | | | | | | 148 | |
Total retail customer receivables | | $ | 828 | | $ | 251 | | $ | 3,825 | | $ | 36,058 | |
66
| | | | | | | | | | | | | |
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | ||||||||||
| | | | | | | | | | | | | |
2018 | |||||||||||||
Retail Notes: | |||||||||||||
Agriculture and turf | $ | 133 | $ | 74 | $ | 63 | $ | 270 | |||||
Construction and forestry | 79 | 45 | 52 | 176 | |||||||||
Other: | |||||||||||||
Agriculture and turf | 36 | 16 | 8 | 60 | |||||||||
Construction and forestry | 18 | 5 | 3 | 26 | |||||||||
| | | | | | | | | | | | | |
Total | $ | 266 | $ | 140 | $ | 126 | $ | 532 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total Past Due | Total Non- Performing | Current | Total Financing Receivables | ||||||||||
| | | | | | | | | | | | | |
Retail Notes: | |||||||||||||
Agriculture and turf | $ | 270 | $ | 201 | $ | 17,836 | $ | 18,307 | |||||
Construction and forestry | 176 | 40 | 3,101 | 3,317 | |||||||||
Other: | |||||||||||||
Agriculture and turf | 60 | 15 | 8,274 | 8,349 | |||||||||
Construction and forestry | 26 | 3 | 1,252 | 1,281 | |||||||||
| | | | | | | | | | | | | |
Total | $ | 532 | $ | 259 | $ | 30,463 | 31,254 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Less allowance for credit losses | 178 | ||||||||||||
| | | | | | | | | | | | | |
Total financing receivables – net | $ | 31,076 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | ||||||||||
| | | | | | | | | | | | | |
2017 | |||||||||||||
Retail Notes: | |||||||||||||
Agriculture and turf | $ | 118 | $ | 54 | $ | 49 | $ | 221 | |||||
Construction and forestry | 75 | 33 | 39 | 147 | |||||||||
Other: | |||||||||||||
Agriculture and turf | 27 | 14 | 7 | 48 | |||||||||
Construction and forestry | 11 | 6 | 2 | 19 | |||||||||
| | | | | | | | | | | | | |
Total | $ | 231 | $ | 107 | $ | 97 | $ | 435 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
(continued)
The credit quality analysis of retail customer receivables was as follows in millions of dollars at November 1, 2020:
| | | | | | | | | | |
| | 2020 | | |||||||
| | Retail Notes & Financing Leases | | Revolving Charge Accounts | | Total | | |||
Retail customer receivables: | | | | | | | | | | |
Agriculture and turf | | | | | | | | | | |
Current | | $ | 21,597 | | $ | 3,787 | | $ | 25,384 | |
30-59 days past due | | | 135 | | | 13 | | | 148 | |
60-89 days past due | | | 64 | | | 4 | | | 68 | |
90+ days past due | | | 2 | | | | | | 2 | |
Non-performing | | | 263 | | | 6 | | | 269 | |
Construction and forestry | | | | | | | | | | |
Current | | | 4,859 | | | 88 | | | 4,947 | |
30-59 days past due | | | 111 | | | 2 | | | 113 | |
60-89 days past due | | | 55 | | | 1 | | | 56 | |
90+ days past due | | | 14 | | | | | | 14 | |
Non-performing | | | 106 | | | 1 | | | 107 | |
Total retail customer receivables | | $ | 27,206 | | $ | 3,902 | | $ | 31,108 | |
The credit quality analysis of wholesale receivables was as follows in millions of dollars at October 31, 2021:
| | | | | | | | | | | | | |
| | Year of Origination | | ||||||||||
| | 2021 | | 2020 | | 2019 | | 2018 | | ||||
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf | | | | | | | | | | | | | |
Current | | $ | 346 | | $ | 80 | | $ | 22 | | $ | 9 | |
30-59 days past due | | | | | | | | | | | | | |
60-89 days past due | | | | | | | | | | | | | |
90+ days past due | | | | | | | | | | | | | |
Non-performing | | | | | | | | | 12 | | | | |
Construction and forestry | | | | | | | | | | | | | |
Current | | | 41 | | | 7 | | | 7 | | | | |
30-59 days past due | | | | | | | | | | | | | |
60-89 days past due | | | | | | | | | | | | | |
90+ days past due | | | | | | | | | | | | | |
Non-performing | | | | | | | | | | | | | |
Total wholesale receivables | | $ | 387 | | $ | 87 | | $ | 41 | | $ | 9 | |
| | | | | | | | | | | | | |
| | Year of Origination | | ||||||||||
| | 2017 | | Prior Years | | Revolving | | Total | | ||||
Wholesale receivables: | |
|
|
|
|
|
|
|
|
|
|
| |
Agriculture and turf | | | | | | | | | | | | | |
Current | | $ | 3 | | | | | $ | 1,696 | | $ | 2,156 | |
30-59 days past due | | | | | | | | | | | | | |
60-89 days past due | | | | | | | | | | | | | |
90+ days past due | | | | | | | | | | | | | |
Non-performing | | | | | | | | | | | | 12 | |
Construction and forestry | | | | | | | | | | | | | |
Current | | | 1 | | $ | 1 | | | 340 | | | 397 | |
30-59 days past due | | | | | | | | | | | | | |
60-89 days past due | | | | | | 1 | | | | | | 1 | |
90+ days past due | | | | | | | | | | | | | |
Non-performing | | | | | | | | | | | | | |
Total wholesale receivables | | $ | 4 | | $ | 2 | | $ | 2,036 | | $ | 2,566 | |
| | | | | | | | | | | | | |
Total Past Due | Total Non- Performing | Current | Total Financing Receivables | ||||||||||
| | | | | | | | | | | | | |
Retail Notes: | |||||||||||||
Agriculture and turf | $ | 221 | $ | 173 | $ | 17,508 | $ | 17,902 | |||||
Construction and forestry | 147 | 30 | 2,618 | 2,795 | |||||||||
Other: | |||||||||||||
Agriculture and turf | 48 | 12 | 7,610 | 7,670 | |||||||||
Construction and forestry | 19 | 5 | 1,059 | 1,083 | |||||||||
| | | | | | | | | | | | | |
Total | $ | 435 | $ | 220 | $ | 28,795 | 29,450 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Less allowance for credit losses | 187 | ||||||||||||
| | | | | | | | | | | | | |
Total financing receivables – net | $ | 29,263 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The credit quality analysis of wholesale receivables was as follows in millions of dollars at November 1, 2020:
| | | | |
| | 2020 | | |
Wholesale receivables: | | | | |
Agriculture and turf | | | | |
Current | | $ | 3,010 | |
30-59 days past due | | | | |
60-89 days past due | | | | |
90+ days past due | | | | |
Non-performing | | | 47 | |
Construction and forestry | | | | |
Current | | | 472 | |
30-59 days past due | | | | |
60-89 days past due | | | | |
90+ days past due | | | | |
Non-performing | | | | |
Total wholesale receivables | | $ | 3,529 | |
An analysis of the allowance for credit losses and investment in financing receivables follows in millions of dollars:
| | | | | | | | | | ||||||
| Retail Notes | | Revolving Charge Accounts | | Other | | Total | | |||||||
| | | | | | | | | | ||||||
2018 | | | | | | | | ||||||||
Allowance: | | | | | | | | ||||||||
Beginning of year balance | | $ | 121 | | | $ | 40 | | | $ | 26 | | $ | 187 | |
Provision | | 14 | | | 38 | | | 2 | | 54 | | ||||
Write-offs | | (33 | ) | | (55 | ) | | (6 | ) | (94 | ) | ||||
Recoveries | | 17 | | | 20 | | | 1 | | 38 | | ||||
Translation adjustments | | (6 | ) | | | | (1 | ) | (7 | ) | |||||
| | | | | | | | | | | | ||||
End of year balance* | | $ | 113 | | | $ | 43 | | | $ | 22 | | $ | 178 | |
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
Financing receivables: | | | | | | | | ||||||||
End of year balance | | $ | 21,624 | | | $ | 3,862 | | | $ | 5,768 | | $ | 31,254 | |
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
Balance individually evaluated | | $ | 122 | | | $ | 2 | | | $ | 12 | | $ | 136 | |
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
2017 | | | | | | | | ||||||||
Allowance: | | | | | | | | ||||||||
Beginning of year balance | | $ | 113 | | | $ | 40 | | | $ | 23 | | $ | 176 | |
Provision | | 46 | | | 33 | | | 9 | | 88 | | ||||
Write-offs | | (56 | ) | | (53 | ) | | (7 | ) | (116 | ) | ||||
Recoveries | | 20 | | | 20 | | | 1 | | 41 | | ||||
Translation adjustments | | (2 | ) | | | | | (2 | ) | ||||||
| | | | | | | | | | | | ||||
End of year balance* | | $ | 121 | | | $ | 40 | | | $ | 26 | | $ | 187 | |
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
Financing receivables: | | | | | | | | ||||||||
End of year balance | | $ | 20,697 | | | $ | 3,629 | | | $ | 5,124 | | $ | 29,450 | |
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
Balance individually evaluated | | $ | 86 | | | $ | 3 | | | $ | 20 | | $ | 109 | |
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
2016 | | | | | | | | ||||||||
Allowance: | | | | | | | | ||||||||
Beginning of year balance | | $ | 95 | | | $ | 40 | | | $ | 22 | | $ | 157 | |
Provision | | 43 | | | 36 | | | 5 | | 84 | | ||||
Write-offs | | (43 | ) | | (55 | ) | | (5 | ) | (103 | ) | ||||
Recoveries | | 11 | | | 19 | | | 1 | | 31 | | ||||
Translation adjustments | | 7 | | | | | | 7 | | ||||||
| | | | | | | | | | | | ||||
End of year balance* | | $ | 113 | | | $ | 40 | | | $ | 23 | | $ | 176 | |
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
Financing receivables: | | | | | | | | ||||||||
End of year balance | | $ | 20,682 | | | $ | 3,135 | | | $ | 5,188 | | $ | 29,005 | |
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
Balance individually evaluated | | $ | 108 | | | $ | 8 | | | $ | 20 | | $ | 136 | |
| | | | | | | | | | | | ||||
| | | | | | | | | | | | ||||
| | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Retail Notes | | Revolving | | | | |
| ||||
| | & Financing | | Charge | | Wholesale | | |
| ||||
|
| Leases |
| Accounts |
| Receivables |
| Total |
| ||||
2021 |
| | | | |
| | | |
| | |
|
Allowance: | | | | | | | | | | | | | |
Beginning of year balance | | $ | 133 | | $ | 43 | | $ | 8 | | $ | 184 | |
ASU No. 2016-13 | | | 44 | | | (13) | | | | | | 31 | |
Provision (credit) | |
| | |
| (17) | |
| (1) | |
| (18) | |
Write-offs | |
| (60) | |
| (28) | |
| | |
| (88) | |
Recoveries | |
| 20 | |
| 36 | | | | |
| 56 | |
Translation adjustments | |
| 1 | | | | |
| | |
| 1 | |
End of year balance* | | $ | 138 | | $ | 21 | | $ | 7 | | $ | 166 | |
| | | | | | | | | | | | | |
Financing receivables: | | | | | | | | | | | | | |
End of year balance | | $ | 32,233 | | $ | 3,825 | | $ | 2,566 | | $ | 38,624 | |
| | | | | | | | | | | | | |
2020 |
| | |
| |
|
| | |
| | |
|
Allowance: | | | | | | | | | | | | | |
Beginning of year balance | | $ | 107 | | $ | 40 | | $ | 3 | | $ | 150 | |
Provision | |
| 81 | |
| 26 | |
| 3 | |
| 110 | |
Write-offs | |
| (65) | |
| (53) | |
| | |
| (118) | |
Recoveries | |
| 17 | |
| 30 | | | | |
| 47 | |
Translation adjustments | |
| (7) | | | | |
| 2 | |
| (5) | |
End of year balance* | | $ | 133 | | $ | 43 | | $ | 8 | | $ | 184 | |
| | | | | | | | | | | | | |
Financing receivables: | | | | | | | | | | | | | |
End of year balance | | $ | 27,206 | | $ | 3,902 | | $ | 3,529 | | $ | 34,637 | |
| | | | | | | | | | | | | |
2019 | | | | | | | | | | | | | |
Allowance: | | | | | | | | | | | | | |
Beginning of year balance | | $ | 129 | | $ | 43 | | $ | 6 | | $ | 178 | |
Provision | |
| 6 | |
| 29 | |
| | |
| 35 | |
Write-offs | |
| (47) | |
| (58) | |
| | |
| (105) | |
Recoveries | |
| 23 | |
| 26 | | | | |
| 49 | |
Translation adjustments | |
| (4) | | | | |
| (3) | |
| (7) | |
End of year balance* | | $ | 107 | | $ | 40 | | $ | 3 | | $ | 150 | |
| | | | | | | | | | | | | |
Financing receivables: | | | | | | | | | | | | | |
End of year balance | | $ | 25,151 | | $ | 3,943 | | $ | 4,634 | | $ | 33,728 | |
*
67
In 2021, the allowance for credit losses on retail notes and financing lease receivables increased due to the adoption of ASU No. 2016-13. This was partially offset by lower expected losses in the construction and forestry market and better than expected performance of accounts granted payment relief due to the economic effects of COVID. The allowance for credit losses on revolving charge accounts decreased in 2021, reflecting a decrease due to the adoption of ASU No. 2016-13 and continued improvement in the agricultural and turf market. In 2020, the negative economic effects related to COVID and other macroeconomic issues significantly affected certain retail customers, particularly purchasers of construction equipment.
Past-due amounts over 30 days represented 1.701.09 percent and 1.481.16 percent of the receivables financed at October 28, 2018
the financing receivables at October 31, 2021 and October 29, 2017,November 1, 2020, respectively. The allowance for credit losses represented .57.43 percent and .64.53 percent of financing receivables outstanding at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, respectively. In addition, at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, the company'scompany’s financial services operations had $156$154 million and $155$136 million, respectively, of deposits primarily withheld from dealers and merchants available for potentialas credit losses.enhancements.
Financing receivables are considered impaired when it is probable the company will be unable to collect all amounts due according to the contractual terms. Receivables reviewed for impairment generally include those that are past due, have provided bankruptcy notification, or require significant collection efforts. Receivables that are impaired are generally classified as non-performing.
An analysis of the impaired financing receivables at October 28, 2018 and October 29, 2017 follows in millions of dollars:
| | | | | | | | | | ||||||||||
| Recorded Investment | | Unpaid Principal Balance | | Specific Allowance | | Average Recorded Investment | | |||||||||||
| | | | | | | | | | ||||||||||
2018* | | | | | | | | | | | | ||||||||
Receivables with specific allowance** | | | $ | 28 | | | $ | 27 | | | $ | 10 | | | | $ | 30 | | |
Receivables without a specific allowance** | | | 37 | | | 35 | | | | | | 41 | | | |||||
| | | | | | | | | | | | | | | | ||||
Total | | | $ | 65 | | | $ | 62 | | | $ | 10 | | | | $ | 71 | | |
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
Agriculture and turf | | | $ | 50 | | | $ | 48 | | | $ | 9 | | | | $ | 54 | | |
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
Construction and forestry | | | $ | 15 | | | $ | 14 | | | $ | 1 | | | | $ | 17 | | |
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
2017* | | | | | | | | | | | | ||||||||
Receivables with specific allowance** | | | $ | 36 | | | $ | 33 | | | $ | 10 | | | | $ | 30 | | |
Receivables without a specific allowance*** | | | 28 | | | 27 | | | | | | 24 | | | |||||
| | | | | | | | | | | | | | | | ||||
Total | | | $ | 64 | | | $ | 60 | | | $ | 10 | | | | $ | 54 | | |
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
Agriculture and turf | | | $ | 49 | | | $ | 46 | | | $ | 10 | | | | $ | 38 | | |
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
Construction and forestry | | | $ | 15 | | | $ | 14 | | | | | | $ | 16 | | | ||
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | |
A troubled debt restructuring is generally the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During 2018, 2017,2021, 2020, and 2016,2019, the company identified 587, 474,397, 574, and 167 financing522 receivable contracts primarily retail notes, as troubled debt restructurings with aggregate balances of $34$18 million, $16$108 million, and $19$36 million pre-modification and $34$17 million, $15$95 million, and $18$35 million post-modification, respectively. Troubled debt restructurings in 2021 and 2019 primarily related to retail notes, while 2020 modifications primarily related to wholesale receivables in Argentina.The short-term relief related to COVID did not meet the definition of a troubled debt restructuring.In 2017,2021 and 2020, there were $3 million ofno significant troubled debt restructurings that subsequently defaulted and were written off. In 2018 and 2016, there were no significant troubled debt restructurings
that subsequently defaulted and were written off. At October 28, 2018,31, 2021, the company had 0 commitments to lend approximately $10 million to borrowerscustomers whose accounts were modified in troubled debt restructurings.
Other Receivables
Other receivables at October 28, 201831, 2021 and October 29, 2017November 1, 2020 consisted of the following in millions of dollars:
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
Taxes receivable | | $ | 1,436 | | $ | 931 |
|
Other | |
| 302 | |
| 289 | |
Other receivables |
| $ | 1,738 |
| $ | 1,220 | |
| | | | | | | |
| 2018 | 2017 | |||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Taxes receivable | $ | 1,370 | $ | 876 | |||
Other | 366 | 324 | |||||
| | | | | | | |
Other receivables | $ | 1,736 | $ | 1,200 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
14. SECURITIZATION OF FINANCING RECEIVABLES
|
The company, as a part of its overall funding strategy, periodically transfers certain financing receivables (retail notes) into VIEs that are SPEs, or non-VIE banking operations, as part of its asset-backed securities programs (securitizations). The structure of these transactions is such that the transfer of the retail notes diddoes 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'scompany’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 in turn issue debt to investors. The debt securities issuedprovide funding directly to the third party investorscompany. The funding provided by these third-parties result in secured borrowings, which are recorded as "Short-term“Short-term securitization borrowings"borrowings” on the consolidated balance sheet. The securitized retail notes are recorded as "Financing“Financing receivables securitized – net"- net” on the balance sheet. The total restricted assets on the balance sheet related to these securitizations include the financing receivables securitized, less an allowance for credit losses, and other assets primarily representing restricted cash. Restricted cash results from contractual requirements in securitized borrowing arrangements and serves as a credit enhancement. The restricted cash is used to satisfy payment deficiencies, if any, in the required payments on secured borrowings. The balance of restricted cash is contractually stipulated and is either a fixed amount as determined by the initial balance of the financing receivables securitized or a fixed percentage of the outstanding balance of the securitized financing receivables. The restriction is removed either after all secured borrowing payments are made or proportionally as these receivables are collected and borrowing obligations reduced. For those securitizations in which retail notes are transferred into SPEs, the SPEs supporting the secured borrowings are consolidated unless the company does not have both the power to direct the activities that most significantly impact the SPEs'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'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 $2,593$3,094 million and $2,631$2,898 million at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, respectively. The liabilities (short-term securitization borrowings and accrued
interest) of these SPEs totaled $2,520 $3,024
68
million and $2,571$2,856 million at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, respectively. The credit holders of these SPEs do not have legal recourse to the company'scompany’s general credit.
In certain securitizations,The company has a revolving credit agreement to utilize bank conduit facilities to secure retail notes, described further in the following paragraphs. At October 31, 2021, the revolving credit agreement had a total capacity, or “financing limit,” of up to $2,000 million of secured financings at any time. The agreement was renewed in November 2021 with an expiration in November 2022 and a capacity of $1,000 million. As a result of the reduced capacity, the company transfers retail notes to non-VIE banking operations, which are not consolidated since the company does not have a controlling interestrepurchased $511 million of outstanding short-term securitization borrowings in the entities. The company's carrying values and interests relatedNovember 2021, in addition to the securitizations withnormal monthly liquidations as a result of payments collected on the unconsolidated non-VIEs were restricted assets (retail notes securitized, allowance forretail notes.
Through the revolving credit losses and other assets) of $504 million and $478 million at October 28, 2018 and October 29, 2017, respectively. The liabilities (short-term securitization borrowings and accrued interest) were $475 million and $454 million at October 28, 2018 and October 29, 2017, respectively.
In certain securitizations,agreement, the company transfers retail notes into bank-sponsored, multi-seller, commercial paper conduits, which are SPEs that are not consolidated. The company does not service a significant portion of the conduits'conduits’ receivables, and therefore, does not have the power to direct the activities that most significantly impact the conduits'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'scompany’s carrying values and variable interest related to these conduits were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of $1,033$1,176 million and $1,155$1,327 million at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, respectively. The liabilities (short-term securitization borrowings and accrued interest) related to these conduits were $965$1,113 million and $1,096$1,275 million at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, respectively.
The company'scompany’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 2831, 2021 in millions of dollars:
| | | | |
| 2018 | |||
---|---|---|---|---|
| | | | |
Carrying value of liabilities | $ | 965 | ||
Maximum exposure to loss | 1,033 | |||
| | | | |
| | | | |
|
| 2021 |
| |
Carrying value of liabilities | | $ | 1,113 |
|
Maximum exposure to loss | |
| 1,176 | |
The total assets of the unconsolidated VIEsconduits related to securitizations were approximately $35$40 billion at October 28, 2018.31, 2021.
In addition, through the revolving credit agreement, the company transfers retail notes to banks, which may elect to fund the retail notes through the use of their own funding sources. These non-VIE banking operations are not consolidated since the company does not have a controlling interest in them. The company’s carrying values and interests related to the securitizations with the unconsolidated non-VIEs were restricted assets (retail notes securitized, allowance for credit losses and other assets) of $496 million and $576 million at October 31, 2021 and November 1, 2020, respectively. The liabilities (short-term securitization borrowings and accrued interest) were $470 million and $554 million at October 31, 2021 and November 1, 2020, respectively.
The components of consolidated restricted assets related to secured borrowings in securitization transactions at October 28, 201831, 2021 and October 29, 2017November 1, 2020 were as follows in millions of dollars:
| | | | | | | |
| 2018 | 2017 | |||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Financing receivables securitized (retail notes) | $ | 4,032 | $ | 4,172 | |||
Allowance for credit losses | (10 | ) | (13 | ) | |||
Other assets | 108 | 105 | |||||
| | | | | | | |
Total restricted securitized assets | $ | 4,130 | $ | 4,264 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
Financing receivables securitized (retail notes) | | $ | 4,673 | | $ | 4,716 |
|
Allowance for credit losses | |
| (14) | |
| (13) | |
Other assets | |
| 107 | |
| 98 | |
Total restricted securitized assets |
| $ | 4,766 |
| $ | 4,801 | |
The components of consolidated secured borrowings and other liabilities related to securitizations at October 28, 201831, 2021 and October 29, 2017November 1, 2020 were as follows in millions of dollars:
| | | | | | | |
| 2018 | 2017 | |||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Short-term securitization borrowings | $ | 3,957 | $ | 4,119 | |||
Accrued interest on borrowings | 3 | 2 | |||||
| | | | | | | |
Total liabilities related to | $ | 3,960 | $ | 4,121 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
Short-term securitization borrowings | | $ | 4,605 | | $ | 4,682 |
|
Accrued interest on borrowings | |
| 2 | |
| 3 | |
Total liabilities related to restricted securitized assets |
| $ | 4,607 |
| $ | 4,685 | |
The secured borrowings related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash flows generated by the restricted assets. Due to the company'scompany’s short-term credit rating, cash collections from these restricted assets are not required to be placed into a segregated collection account until immediately prior to the time payment is required to the secured creditors. At October 28, 2018,31, 2021, the maximum remaining term of all securitized retail notes was approximately sixseven years.
|
Operating leases arise primarily from the leasing of John Deere equipment to retail customers. Initial lease terms generally range from 12 to 60 months. Net equipment on operating leases at October 28, 2018 and October 29, 2017 consisted of the following in millions of dollars:
| | | | | | | |
| 2018 | 2017 | |||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Equipment on operating leases: | |||||||
Agriculture and turf | $ | 5,682 | $ | 5,385 | |||
Construction and forestry | 1,483 | 1,209 | |||||
| | | | | | | |
Equipment on operating leases – net | $ | 7,165 | $ | 6,594 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The equipment is depreciated on a straight-line basis over the term of the lease. The accumulated depreciation on this equipment was $1,515 million and $1,315 million at October 28, 2018 and October 29, 2017, respectively. The corresponding depreciation expense was $928 million in 2018, $853 million in 2017, and $742 million in 2016.
Future payments to be received on operating leases totaled $2,309 million at October 28, 2018 and are scheduled in millions of dollars as follows: 2019 – $980, 2020 – $688, 2021 – $400, 2022 – $198, and 2023 – $43. At October 28, 2018 and October 29, 2017, the company's financial services operations had $34 million and $52 million, respectively, of deposits withheld from dealers available for potential losses on residual values.
15. INVENTORIES
|
A majority of inventory owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost, on the "last-in, first-out"“last-in, first-out” (LIFO) basis. Remaining inventories are generally valued at the lower of cost, on the "first-in, first-out"“first-in, first-out” (FIFO) basis, or net realizable value. The value of gross inventories on the LIFO basis at October 28, 201831, 2021 and October 29, 2017November 1, 2020 represented 54 percent and 6152 percent, respectively, of worldwide gross inventories at FIFO value. The pretax favorable income effect from the liquidation of LIFO inventory during 2020 was $33 million. If all inventories had been valued on a FIFO basis, estimated inventories by major classification at October 28, 201831, 2021 and October 29, 2017November 1, 2020 in millions of dollars would have been as follows:
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
Raw materials and supplies |
| $ | 3,524 |
| $ | 1,995 |
|
Work-in-process | |
| 994 | |
| 648 | |
Finished goods and parts | |
| 4,373 | |
| 4,006 | |
Total FIFO value | |
| 8,891 | |
| 6,649 | |
Less adjustment to LIFO value | |
| 2,110 | |
| 1,650 | |
Inventories |
| $ | 6,781 |
| $ | 4,999 | |
69
| | | | | | | |
| 2018 | 2017 | |||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Raw materials and supplies | $ | 2,233 | $ | 1,688 | |||
Work-in-process | 776 | 495 | |||||
Finished goods and parts | 4,777 | 3,182 | |||||
| | | | | | | |
Total FIFO value | 7,786 | 5,365 | |||||
Less adjustment to LIFO value | 1,637 | 1,461 | |||||
| | | | | | | |
Inventories | $ | 6,149 | $ | 3,904 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
A summary of property and equipment at October 28, 201831, 2021 and October 29, 2017November 1, 2020 in millions of dollars follows:
| | | | | | | ||
| Useful Lives* (Years) | | 2018 | | 2017 | |||
| | | | | | | ||
Equipment Operations | | | | |||||
Land | | | $ | 283 | | $ | 122 | |
Buildings and building equipment | | 23 | | 3,848 | | 3,396 | ||
Machinery and equipment | | 11 | | 5,570 | | 5,378 | ||
Dies, patterns, tools, etc. | | 8 | | 1,564 | | 1,647 | ||
All other | | 5 | | 1,032 | | 942 | ||
Construction in progress | | | 619 | | 358 | |||
| | | | | | | ||
Total at cost | | | 12,916 | | 11,843 | |||
Less accumulated depreciation | | | 7,095 | | 6,826 | |||
| | | | | | | ||
Total | | | 5,821 | | 5,017 | |||
| | | | | | | ||
Financial Services | | | | |||||
Land | | | 4 | | 4 | |||
Buildings and building equipment | | 26 | | 74 | | 74 | ||
All other | | 6 | | 34 | | 38 | ||
| | | | | | | ||
Total at cost | | | 112 | | 116 | |||
Less accumulated depreciation | | | 65 | | 65 | |||
| | | | | | | ||
Total | | | 47 | | 51 | |||
| | | | | | | ||
Property and equipment - net | | | $ | 5,868 | | $ | 5,068 | |
| | | | | | | ||
| | | | | | | ||
| | | | | | |
| | | | | | | | | |
| | Useful Lives* | | | | | | |
|
|
| (Years) |
| 2021 |
| 2020 |
| ||
Equipment Operations | | | | | | | | | |
Land | | | | $ | 293 | | $ | 282 |
|
Buildings and building equipment |
| 22 | |
| 4,287 | |
| 4,114 | |
Machinery and equipment |
| 11 | |
| 6,123 | |
| 5,936 | |
Dies, patterns, tools, etc. |
| 8 | |
| 1,679 | |
| 1,662 | |
All other |
| 5 | |
| 1,165 | |
| 1,115 | |
Construction in progress | | | |
| 527 | |
| 440 | |
Total at cost | | | |
| 14,074 | |
| 13,549 | |
Less accumulated depreciation | | | |
| 8,291 | |
| 7,771 | |
Total | | | |
| 5,783 | |
| 5,778 | |
Financial Services | | | | | | | | | |
Land | | | |
| 4 | |
| 4 | |
Buildings and building equipment |
| 26 | |
| 65 | |
| 65 | |
All other |
| 6 | |
| 32 | |
| 34 | |
Total at cost | | | |
| 101 | |
| 103 | |
Less accumulated depreciation | | | |
| 64 | |
| 64 | |
Total | | | |
| 37 | |
| 39 | |
Property and equipment - net | | |
| $ | 5,820 |
| $ | 5,817 | |
*
Total property and equipment additions in 2018, 2017,2021, 2020, and 20162019 were $985$897 million, $602$815 million, and $674$1,107 million and depreciation was $754$830 million, $726$800 million, and $701$779 million, respectively. Capitalized interest was $4 million, $3 million, $6 million, and $3$7 million in the same periods, respectively. The cost of leased property and equipment under capitalfinance leases of $52$131 million and $40$99 million and accumulated depreciation of $22$60 million and $15$36 million at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, respectively, is included in property and equipment.
Capitalized software has an estimated useful life of three years. The amounts of total capitalized software costs,
including purchased and internally developed software, classified as "Other Assets"“Other assets” at October 28, 201831, 2021 and October 29, 2017November 1, 2020 were $1,207$1,326 million and $1,078$1,339 million, less accumulated amortization of $910$1,044 million and $826$1,070 million, respectively. Capitalized interest on software was $3$2 million and $1$3 million at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, respectively. Amortization of these software costs in 2018, 2017,2021, 2020, and 20162019 was $145$121 million, $118$133 million, and $102$150 million, respectively.
The cost of compliance with foreseeable environmental requirements has been accrued and did not have a material effect on the company'scompany’s consolidated financial statements.
The changes in amounts of goodwill by operating segments were as follows in millions of dollars:
| | | | | | | | ||||||||
| Agriculture and Turf | | Construction and Forestry | | Total | | |||||||||
| | | | | | | | ||||||||
Goodwill at October 30, 2016 | | | $ | 323 | | | | $ | 493 | | | $ | 816 | | |
Acquisitions* | | | 193 | | | | | | 193 | | | ||||
Translation adjustments and other | | | 5 | | | | 19 | | | 24 | | | |||
| | | | | | | | | | | | | |||
Goodwill at October 29, 2017 | | | 521 | | | | 512 | | | 1,033 | | | |||
Acquisitions* | | | 71 | | | | 2,068 | | | 2,139 | | | |||
Divestitures* | | | | | | (18 | ) | | (18 | ) | | ||||
Translation adjustments | | | (9 | ) | | | (44 | ) | | (53 | ) | | |||
| | | | | | | | | | | | | |||
Goodwill at October 28, 2018 | | | $ | 583 | | | | $ | 2,518 | | | $ | 3,101 | | |
| | | | | | | | | | | | | |||
| | | | | | | | | | | | | |||
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Production & | | Small Ag | | Construction | | | |
| |||
|
| Precision Ag |
| & Turf |
| & Forestry |
| Total |
| ||||
November 3, 2019 | | $ | 310 | | $ | 264 | | $ | 2,343 | | $ | 2,917 |
|
Acquisitions (Note 4) | | | 28 | | | | | | | | | 28 | |
Translation adjustments and other | | | (5) | | | 4 | | | 137 | |
| 136 | |
November 1, 2020 | | | 333 | | | 268 | | | 2,480 | |
| 3,081 | |
Acquisitions (Note 4) | | | 201 | | | | | | | | | 201 | |
Translation adjustments and other | | | 8 | | | (3) | | | 4 | |
| 9 | |
October 31, 2021 | | $ | 542 | | $ | 265 | | $ | 2,484 | | $ | 3,291 | |
There were no0 accumulated goodwill impairment losses in the reported periods.
The components of other intangible assets are as follows in millions of dollars:
| | | | | | | | |||||||
| Useful Lives* (Years) | | 2018 | | 2017 | | ||||||||
| | | | | | | | |||||||
Amortized intangible assets: | | | | | | | | | ||||||
Customer lists and relationships | | | 16 | | | $ | 542 | | | $ | 42 | | | |
Technology, patents, trademarks, and other | | | 18 | | | 1,080 | | | 139 | | | |||
| | | | | | | | | | | | |||
Total at cost | | | | | 1,622 | | | 181 | | | ||||
Less accumulated amortization** | | | | | 183 | | | 86 | | | ||||
| | | | | | | | | | | | |||
Total | | | | | 1,439 | | | 95 | | | ||||
Unamortized intangible assets: | | | | | | | | | ||||||
In-process research and development*** | | | | | 123 | | | 123 | | | ||||
| | | | | | | | | | | | |||
Other intangible assets - net | | | | | $ | 1,562 | | | $ | 218 | | | ||
| | | | | | | | | | | | |||
| | | | | | | | | | | | |||
| | | | | | | | | | | |
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
Amortized intangible assets: | | | | | | |
|
Customer lists and relationships | | $ | 542 | | $ | 535 |
|
Technology, patents, trademarks, and other | |
| 1,104 | |
| 1,056 | |
Total at cost | |
| 1,646 | |
| 1,591 | |
Less accumulated amortization: | |
| | |
| | |
Customer lists and relationships | | | 151 | | | 113 | |
Technology, patents, trademarks, and other | | | 343 | | | 274 | |
Total accumulated amortization | | | 494 | | | 387 | |
Amortized intangible assets | |
| 1,152 | | | 1,204 | |
Unamortized intangible assets: | | | | | | | |
In-process research and development | |
| 123 | | | 123 | |
Other intangible assets - net |
| $ | 1,275 |
| $ | 1,327 | |
Other intangible assets are stated at cost less accumulated amortization. The amortization of other intangible assets in 2018, 2017,2021, 2020, and 20162019 was $100$116 million, $18$102 million, and $15$109 million, respectively.
The estimated amortization expense for the next five years is as follows in millions of dollars: 2019 – $117, 2020 –2022 - $113, 2023 - $112, 2024 - $108, 2025 - $105, 2021 – $101, 2022 – $100, and 2023 – $98.2026 - $103.
70
|
Total short-term borrowings at October 28, 201831, 2021 and October 29, 2017November 1, 2020 consisted of the following in millions of dollars:
| | | | | | | |
| 2018 | 2017 | |||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Equipment Operations | |||||||
Notes payable to banks | $ | 464 | $ | 221 | |||
Long-term borrowings due within one year | 970 | 154 | |||||
| | | | | | | |
Total | 1,434 | 375 | |||||
| | | | | | | |
Financial Services | |||||||
Commercial paper | 3,857 | 3,439 | |||||
Notes payable to banks | 344 | 157 | |||||
Long-term borrowings due within one year* | 5,427 | 6,064 | |||||
| | | | | | | |
Total | 9,628 | 9,660 | |||||
| | | | | | | |
Short-term borrowings | 11,062 | 10,035 | |||||
| | | | | | | |
Short-term securitization borrowings | |||||||
Equipment Operations | 75 | ||||||
Financial Services | 3,882 | 4,119 | |||||
| | | | | | | |
Total | 3,957 | 4,119 | |||||
| | | | | | | |
Total short-term borrowings | $ | 15,019 | $ | 14,154 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
Equipment Operations | | |
| | |
| |
Notes payable to banks | | $ | 273 |
| $ | 192 | |
Finance lease obligations due within one year | | | 23 | | | 21 | |
Long-term borrowings due within one year | |
| 1,213 | |
| 79 | |
Total | |
| 1,509 | |
| 292 | |
Financial Services | | | | | | | |
Commercial paper | |
| 2,230 | |
| 1,238 | |
Notes payable to banks | |
| 63 | |
| 182 | |
Long-term borrowings due within one year* | |
| 7,117 | |
| 6,870 | |
Total | |
| 9,410 | |
| 8,290 | |
Short-term borrowings | |
| 10,919 | |
| 8,582 | |
Short-term securitization borrowings | | |
| | |
| |
Equipment Operations | | | 10 | | | 26 | |
Financial Services | | | 4,595 | | | 4,656 | |
Total | | | 4,605 | |
| 4,682 | |
Total short-term borrowings |
| $ | 15,524 |
| $ | 13,264 | |
*
The short-term securitization borrowings are secured by financing receivables (retail notes) on the balance sheet (see Note 13).14) and presented net of debt acquisition costs. Although these securitization borrowings are classified as short-term since payment is required if the retail notes are liquidated early, the payment schedule for these borrowings which are net of debt acquisition costs, at October 28, 201831, 2021 based on the expected liquidation of the retail notes in millions of dollars is as follows: 2019 – $2,161, 2020 – $1,076, 2021 – $546, 2022 – $168,- $2,556, 2023 – $11,- $1,150, 2024 - $623, 2025 - $231, 2026 - $44, and 2024 – $1.later years - $6.
The weighted-average interest rates on total short-term borrowings, excluding current maturities of finance lease obligations and long-term borrowings, at October 28, 201831, 2021 and October 29, 2017November 1, 2020 were 3.0.9 percent and 1.81.6 percent, respectively.
Lines of credit available from U.S. and foreign banks were $8,389$8,336 million at October 28, 2018.31, 2021. At October 28, 2018, $3,72431, 2021, $5,770 million of these worldwide lines of credit were unused. For the purpose of computing the unused credit lines, commercial paper and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, were primarily considered to constitute utilization. Included in the total credit lines at October 28, 2018 were31, 2021 was a 364-day credit facility agreementsagreement of $1,750 million, expiring
in April 2019, and $750$3,000 million, expiring in October 2019.fiscal April 2022. In addition, total credit lines included long-term credit facility agreements of $2,500 million, expiring in fiscal April 2021,2025, and $2,500 million, expiring in April 2022.fiscal March 2026. The agreements are mutually extendable and the annual facility fees are not significant. These credit agreements require Capital Corporation to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholder'sstockholder’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'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'scompany’s excess equity capacity and retained earnings balance free of restriction at October 28, 201831, 2021 was $12,368$15,388 million. Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $22,969$28,579 million at October 28, 2018.31, 2021. All of these requirements of the credit agreementsagreement 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'sCorporation’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'sCompany’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'sCompany’s obligations under the agreement are not measured by the amount of Capital Corporation'sCorporation’s indebtedness, obligations, or other liabilities. Deere & Company'sCompany’s obligations to make payments under this agreement are expressly stated not to be a guaranty of any specific indebtedness, obligation, or liability of Capital Corporation and are enforceable only by or in the name of Capital Corporation. No payments were required under this agreement during the periods included in the consolidated financial statements. At October 31, 2021, Deere & Company indirectly owned 100 percent of the voting shares of Capital Corporation’s capital stock and Capital Corporation’s consolidated tangible net worth was $4,524 million.
71
|
Accounts payable and accrued expenses at October 28, 201831, 2021 and October 29, 2017November 1, 2020 consisted of the following in millions of dollars:
| | | | | | | |
| 2018 | 2017 | |||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Equipment Operations | |||||||
Accounts payable: | |||||||
Trade payables | $ | 2,465 | $ | 2,069 | |||
Dividends payable | 223 | 194 | |||||
Other | 243 | 164 | |||||
Accrued expenses: | |||||||
Dealer sales discounts | 1,801 | 1,559 | |||||
Product warranties | 1,146 | 1,007 | |||||
Employee benefits | 1,038 | 861 | |||||
Accrued taxes | 836 | 503 | |||||
Unearned revenue | 665 | 520 | |||||
Other | 965 | 841 | |||||
| | | | | | | |
Total | 9,382 | 7,718 | |||||
| | | | | | | |
Financial Services | |||||||
Accounts payable: | |||||||
Deposits withheld from dealers and merchants | 190 | 207 | |||||
Other | 239 | 275 | |||||
Accrued expenses: | |||||||
Unearned revenue | 885 | 797 | |||||
Accrued interest | 163 | 148 | |||||
Employee benefits | 63 | 55 | |||||
Other | 516 | 345 | |||||
| | | | | | | |
Total | 2,056 | 1,827 | |||||
| | | | | | | |
Eliminations* | 1,327 | 1,128 | |||||
| | | | | | | |
Accounts payable and accrued expenses | $ | 10,111 | $ | 8,417 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
Equipment Operations | | |
| | |
| |
Accounts payable: | | | | | | | |
Trade payables |
| $ | 2,967 |
| $ | 1,926 |
|
Dividends payable | |
| 329 | |
| 244 | |
Operating lease liabilities | | | 279 | | | 297 | |
Other | |
| 155 | |
| 251 | |
Accrued expenses: | | | | | | | |
Dealer sales discounts | |
| 1,636 | |
| 1,682 | |
Product warranties | |
| 1,312 | |
| 1,105 | |
Employee benefits | |
| 1,448 | |
| 1,086 | |
Accrued taxes | | | 933 | | | 730 | |
Unearned revenue | |
| 825 | |
| 679 | |
Other | |
| 1,171 | |
| 1,114 | |
Total | | | 11,055 | | | 9,114 | |
| | | | | | | |
Financial Services | | | | | | | |
Accounts payable: | | | | | | | |
Deposits withheld from dealers and merchants | | | 157 | | | 141 | |
Collateral on derivatives | | | | | | 274 | |
Other | |
| 210 | |
| 194 | |
Accrued expenses: | | | | | | | |
Unearned revenue | |
| 1,013 | |
| 968 | |
Accrued interest | |
| 165 | |
| 181 | |
Employee benefits | |
| 83 | |
| 60 | |
Other | |
| 387 | |
| 309 | |
Total | |
| 2,015 | |
| 2,127 | |
Eliminations* | |
| 865 | |
| 1,129 | |
Accounts payable and accrued expenses |
| $ | 12,205 |
| $ | 10,112 | |
*
20. LONG-TERM BORROWINGS
|
Long-term borrowings at October 28, 201831, 2021 and October 29, 2017November 1, 2020 consisted of the following in millions of dollars:
| | | | | | | |
| 2018 | 2017 | |||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Equipment Operations | |||||||
U.S. dollar notes and debentures: | |||||||
4.375% notes due 2019 | $ | 750 | |||||
8-1/2% debentures due 2022 | $ | 105 | 105 | ||||
2.60% notes due 2022 | 1,000 | 1,000 | |||||
6.55% debentures due 2028 | 200 | 200 | |||||
5.375% notes due 2029 | 500 | 500 | |||||
8.10% debentures due 2030 | 250 | 250 | |||||
7.125% notes due 2031 | 300 | 300 | |||||
3.90% notes due 2042 | 1,250 | 1,250 | |||||
Euro notes: | |||||||
Medium-term notes due 2020 – 2023: (€850 principal) Average interest rates of .4% - 2018, ..3% - 2017 | 967 | 990 | |||||
Other notes | 159 | 166 | |||||
Less debt issuance costs | 17 | 20 | |||||
| | | | | | | |
Total | 4,714 | 5,491 | |||||
| | | | | | | |
Financial Services | |||||||
Notes and debentures: | |||||||
Medium-term notes due 2019 – 2028: (principal $21,221 - 2018, $18,678 - 2017) Average interest rates of 2.8% - 2018, 2.0% - 2017 | 20,865 | * | 18,601 | * | |||
2.75% senior note due 2022: ($500 principal) Swapped $500 to variable interest rate of 3.5% – 2018, 2.0% – 2017 | 489 | * | 502 | * | |||
Other notes | 1,215 | 1,339 | |||||
Less debt issuance costs | 46 | 42 | |||||
| | | | | | | |
Total | 22,523 | 20,400 | |||||
| | | | | | | |
Long-term borrowings** | $ | 27,237 | $ | 25,891 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
Equipment Operations | | |
| | |
| |
U.S. dollar notes and debentures: | | | | | | | |
8½% debentures due 2022 | | | | | $ | 105 | |
2.60% notes due 2022 | | | | |
| 1,000 | |
2.75% notes due 2025 | | $ | 700 | | | 700 | |
6.55% debentures due 2028 | |
| 200 | |
| 200 | |
5.375% notes due 2029 | |
| 500 | |
| 500 | |
3.10% notes due 2030 | | | 700 | | | 700 | |
8.10% debentures due 2030 | |
| 250 | |
| 250 | |
7.125% notes due 2031 | |
| 300 | |
| 300 | |
3.90% notes due 2042 | |
| 1,250 | |
| 1,250 | |
2.875% notes due 2049 | | | 500 | | | 500 | |
3.75% notes due 2050 | | | 850 | | | 850 | |
Euro notes: | | | | | | | |
.5% notes due 2023 (€500 principal) | | | 584 | | | 584 | |
1.375% notes due 2024 (€800 principal) | | | 934 | | | 934 | |
1.85% notes due 2028 (€600 principal) | | | 701 | | | 700 | |
2.20% notes due 2032 (€600 principal) | | | 701 | | | 700 | |
1.65% notes due 2039 (€650 principal) | | | 759 | | | 759 | |
Finance lease obligations and other notes | |
| 40 | |
| 153 | |
Less debt issuance costs and debt discounts | | | (54) | | | (61) | |
Total |
| | 8,915 |
| | 10,124 | |
Financial Services |
| | |
| | | |
Notes and debentures: | | | | | | | |
Medium-term notes due 2022 - 2031: (principal $22,647 - 2021, $20,996 - 2020) Average interest rates of 1.2% - 2021, 1.7% - 2020 |
| | 22,899 | * | | 21,661 | * |
Other notes | |
| 1,138 | |
| 1,003 | |
Less debt issuance costs and debt discounts | | | (64) | | | (54) | |
Total | |
| 23,973 | |
| 22,610 | |
Long-term borrowings** |
| $ | 32,888 | | $ | 32,734 | |
*
**
The approximate principal amounts of the equipment operations'operations’ long-term borrowings maturing in each of the next five years in millions of dollars are as follows: 2019 – $970, 2020 – $536, 2021 – $25, 2022 – $1,108,- $1,214, 2023 - $585, 2024 - $935, 2025 - $700, and 2023 – $571.2026 - $0. The approximate principal amounts of the financial services'services’ long-term borrowings maturing in each of the next five years in millions of dollars are as follows: 2019 – $5,430, 2020 – $6,185, 2021 – $5,699, 2022 – $3,567,- $7,120, 2023 - $6,834, 2024 - $6,089, 2025 - $2,305, and 2023 – $3,654.2026 - $3,373.
72 |
At October 28, 2018, future minimum lease payments under capital leases amounted to $30 million as follows: 2019 – $11, 2020 – $9, 2021 – $6, 2022 – $2, 2023 – $1, and later years $1. Total rental expense for operating leases was $167 million in 2018, $167 million in 2017, and $185 million in 2016. At October 28, 2018, future minimum lease payments under operating leases amounted to $383 million as follows: 2019 – $110, 2020 – $83, 2021 – $60, 2022 – $50, 2023 – $34, and later years $46.
|
The company generally determines its total warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs and current quality developments.
The premiums for extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. The unamortized extended warranty premiums (deferred revenue) included in the following table totaled $506$774 million and $461$638 million at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, respectively.
A reconciliation of the changes in the warranty liability and unearned premiums in millions of dollars follows:
| | | | | | ||||
| Warranty Liability/ Unearned Premiums | | |||||||
| 2018 | | 2017 | | |||||
| | | | | | ||||
Beginning of year balance | | $ | 1,468 | | | $ | 1,226 | | |
Payments | | (907 | ) | | (743 | ) | | ||
Amortization of premiums received | | (217 | ) | | (207 | ) | | ||
Accruals for warranties | | 978 | | | 959 | | | ||
Premiums received | | 270 | | | 224 | | | ||
Acquisition* | | 80 | | | | | |||
Foreign exchange | | (20 | ) | | 9 | | | ||
| | | | | | | | ||
End of year balance | | $ | 1,652 | | | $ | 1,468 | | |
| | | | | | | | ||
| | | | | | | | ||
| | | | | | | |
| | | | | | | |
| | Warranty Liability/ |
| ||||
| | Unearned Premiums |
| ||||
|
| 2021 |
| 2020 |
| ||
Beginning of year balance |
| $ | 1,743 |
| $ | 1,800 |
|
Payments | |
| (864) | |
| (942) | |
Amortization of premiums received | |
| (227) | |
| (222) | |
Accruals for warranties | |
| 1,071 | |
| 851 | |
Premiums received | |
| 358 | |
| 276 | |
Foreign exchange | |
| 5 | |
| (20) | |
End of year balance |
| $ | 2,086 |
| $ | 1,743 | |
At October 28, 2018,31, 2021, the company had approximately $357$409 million of guarantees issued primarily to banks outside the U.S. and Canada related to third-party receivables for the retail financing of John Deere and Wirtgen equipment. The increase from October 29, 2017 primarily relates to the Wirtgen acquisition. The company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At October 28, 2018,31, 2021, the company recorded a liabilityhad accrued losses of approximately $14$6 million under these agreements. The maximum remaining term of the receivables guaranteed at October 28, 201831, 2021 was approximately sevenabout six years.
At October 28, 2018,31, 2021, the company had commitments of approximately $289$254 million for the construction and acquisition of property and equipment. Also at October 28, 2018,31, 2021, the company had restricted assets of $111$68 million, classified as "Other Assets".“Other assets.” See Note 1314 for additional restricted assets associated with borrowings related to securitizations.
The company also had other miscellaneous contingent liabilities totaling approximately $155$75 million at October 28, 2018.31, 2021. The accrued liability for these contingencies was approximately $20 millionnot material at October 28, 2018.31, 2021.
The company has commitments to extend credit to customers through lines of credit and other pre-approved credit arrangements. The amount of unused commitments to extend credit to John Deere dealers was approximately $14 billion at October 31, 2021. The amount of unused commitments to extend credit to retail customers was approximately $30 billion at October 31, 2021, primarily related to revolving charge accounts. A significant portion of these commitments is not expected to be
fully drawn upon; therefore, the total commitment amounts likely do not represent a future cash requirement. The company generally has the right to unconditionally cancel, alter, or amend the terms of these commitments at any time. The company recorded a provision for credit losses on unused commitments that are not unconditionally cancellable of $2 million in 2021.
The company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos related liability), retail credit, employment, patent, and trademark matters. The company believes the reasonably
possible range of losses for these unresolved legal actions would not have a material effect on its financial statements.
|
Changes in the22. CAPITAL STOCK
The $1 par value common stock account in millionsof Deere & Company is listed on the New York Stock Exchange under the symbol “DE”. At October 31, 2021, there were as follows:18,466 holders of record of the company’s common stock.
| | | | | | | |
Number of Shares Issued | Amount | ||||||
| | | | | | | |
Balance at November 1, 2015 | 536.4 | $ | 3,826 | ||||
Stock options and other | 86 | ||||||
| | | | | | | |
Balance at October 30, 2016 | 536.4 | 3,912 | |||||
Stock options and other | 369 | ||||||
| | | | | | | |
Balance at October 29, 2017 | 536.4 | 4,281 | |||||
Stock options and other | 193 | ||||||
| | | | | | | |
Balance at October 28, 2018 | 536.4 | $ | 4,474 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The number of common shares the company is authorized to issue is 1,200 million. The number of common shares issued at October 31, 2021, November 1, 2020, and November 3, 2019 was 536.4 million. The number of authorized preferred shares, noneNaN of which has been issued, is nine9 million.
The Board of Directors at itsa meeting in December 20132019 authorized the repurchase of up to $8,000 million of common stock (60.2stock. At the end of fiscal year 2021, this repurchase program had $5,811 million (17.0 million shares based on the fiscal year end closing common stock price of $133.00$342.31 per share). At the end of the fiscal year, this repurchase program had $2,312 million (17.4 million shares at the same price) remaining to be repurchased. Repurchases of the company'scompany’s common stock under this plan will be made from time to time, at the company'scompany’s discretion, in the open market.
A reconciliation of basic and diluted net income per share attributable to Deere & Company follows in millions, except per share amounts:
| | | | | | | | |||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | |||
| | 2018 | | 2017 | | 2016 | | |||
| | | | | | | | |||
Net income attributable to | | $ | 2,368.4 | | $ | 2,159.1 | | $ | 1,523.9 | |
Less income allocable to participating securities | | .4 | | .6 | | .7 | | |||
| | | | | | | | |||
Income allocable to common stock | | $ | 2,368.0 | | $ | 2,158.5 | | $ | 1,523.2 | |
| | | | | | | | |||
| | | | | | | | |||
| | | | | | | | |||
Average shares outstanding | | 322.6 | | 319.5 | | 315.2 | | |||
| | | | | | | | |||
| | | | | | | | |||
| | | | | | | | |||
Basic per share | | $ | 7.34 | | $ | 6.76 | | $ | 4.83 | |
| | | | | | | | |||
| | | | | | | | |||
| | | | | | | | |||
Average shares outstanding | | 322.6 | | 319.5 | | 315.2 | | |||
Effect of dilutive stock options | | 4.7 | | 3.8 | | 1.4 | | |||
| | | | | | | | |||
Total potential shares outstanding | | 327.3 | | 323.3 | | 316.6 | | |||
| | | | | | | | |||
| | | | | | | | |||
| | | | | | | | |||
Diluted per share | | $ | 7.24 | | $ | 6.68 | | $ | 4.81 | |
| | | | | | | | |||
| | | | | | | | |||
| | | | | | | | |||
| | | | | | | |
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
Net income attributable to Deere & Company |
| $ | 5,963 |
| $ | 2,751 |
| $ | 3,253 | |
Average shares outstanding | |
| 311.6 | |
| 313.5 | |
| 316.5 | |
Basic per share |
| $ | 19.14 |
| $ | 8.77 |
| $ | 10.28 | |
Average shares outstanding | |
| 311.6 | |
| 313.5 | |
| 316.5 | |
Effect of dilutive stock options | |
| 2.4 | |
| 3.1 | |
| 4.1 | |
Total potential shares outstanding | |
| 314.0 | |
| 316.6 | |
| 320.6 | |
Diluted per share |
| $ | 18.99 |
| $ | 8.69 |
| $ | 10.15 | |
All stock options outstanding were included in the computation during 2018, 2017, and 2016, except .4.6 million in 2018, .22020 and .7 million in 2017, and 9.9 million in 20162019 that had an antidilutive effect under the treasury stock method.
23. STOCK OPTION AND RESTRICTED STOCK AWARDS |
The company issues stock options and restricted stock unit awards to key employees under plans approved by stockholders. Restricted stock isunits are also issued to nonemployee directors for their services as directors under a plan approved by stockholders. Options are awarded with the exercise price
equal to the market
73
price and become exercisable in one to three years after grant. Options expire ten years after the date of grant. Restricted stock awards generally vest after three years. The compensation cost for stock options service based restricted stock units, and market/service basedservice-based restricted stock units, which is based on the fair value at the grant date, is recognized on a straight-line basis over the requisite period the employee is required to render service. The compensation cost for performance/service basedservice-based units, which is based on the fair value at the grant date excluding dividends, is recognized over the employees'employees’ requisite service period and periodically adjusted for the probable number of shares to be awarded. The company recognizes the effect of award forfeitures as an adjustment to compensation expense in the period the forfeiture occurs. According to these plans, at October 28, 2018,31, 2021, the company is authorized to grant an additional 10.017.7 million shares related to stock options or restricted stock.stock units. The company currently uses shares that have been repurchased through its stock repurchase programs to satisfy share option exercises.
The fair value of each option award was estimated on the date of grant using a binomial lattice option valuation model. Expected volatilities are based on implied volatilities from traded call options on the company'scompany’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'options’ time to maturity. The company uses historical data to estimate option exercise behavior and employee termination within the valuation model.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:
| | | | | | |
| 2018 | 2017 | 2016 | |||
---|---|---|---|---|---|---|
| | | | | | |
Risk-free interest rate | 1.69% – 2.7% | .88% – 2.5% | .23% – 2.3% | |||
Expected dividends | 1.6% | 2.4% | 2.8% | |||
Expected volatility | 22.3% – 23.0% | 24.0% – 24.8% | 25.2% – 29.0% | |||
Weighted-average volatility | 22.8% | 24.5% | 26.5% | |||
Expected term (in years) | 7.9 – 8.6 | 7.8 – 8.6 | 7.0 – 8.6 | |||
| | | | | | |
| | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
|
Risk-free interest rate* |
| .47% |
| 1.67% |
| 2.85% | |
Expected dividends | | 1.2% | | 1.8% | | 2.0% | |
Volatility* | | 31.0% | | 26.0% | | 30.0% | |
Expected term (in years)* |
| 5.5 |
| 5.7 |
| 8.2 | |
* Weighted-averages
Stock option activity at October 28, 201831, 2021, and changes during 20182021 in millions of dollars and shares follow:
| | | | | | | | | | | |
| | | | | | | Remaining | | | |
|
| | | | | | | Contractual | | Aggregate |
| |
| | | | Exercise | | Term | | Intrinsic |
| ||
| | Shares |
| Price* |
| (Years) |
| Value |
| ||
Outstanding at beginning of year |
| 3.7 | | $ | 107.30 | | | | | | |
Granted |
| .3 | |
| 254.83 | | | | | | |
Exercised |
| (1.5) | |
| 99.38 | | | | | | |
Outstanding at end of year |
| 2.5 | |
| 127.82 |
| 5.07 |
| $ | 527.3 | |
Exercisable at end of year |
| 1.9 | |
| 103.25 |
| 4.00 | |
| 445.0 | |
* Weighted-averages
| | | | | | | | | | ||||||||||
| Shares | | Exercise Price* | | Remaining Contractual Term (Years) | | Aggregate Intrinsic Value | | |||||||||||
| | | | | | | | | | ||||||||||
Outstanding at beginning of year | | | 11.2 | | | $ | 81.39 | | | | | | | | |||||
Granted | | | .5 | | | 151.95 | | | | | | | | ||||||
Exercised | | | (2.9 | ) | | 75.62 | | | | | | | | ||||||
| | | | | | | | | | | | | | | | ||||
Outstanding at end of year | | | 8.8 | | | 87.08 | | | 5.80 | | | | $ | 413.6 | | | |||
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | ||||
Exercisable at end of year | | | 7.0 | | | 82.92 | | | 5.26 | | | | 349.4 | | |
The weighted-average grant-date fair values of options granted during 2018, 2017,2021, 2020, and 20162019 were $39.11, $24.46,$62.73, $35.83, and $16.88,$46.96, respectively. The total intrinsic values of options exercised during 2018, 2017,2021, 2020, and 20162019 were $229$318 million, $225$398 million, and $23$186 million, respectively. During 2018, 2017,2021, 2020, and 2016,2019, cash received from stock option exercises was $217$148 million, $529$331 million, and $36$178 million, respectively, with tax benefits of $54$71 million, $83$93 million, and $8$44 million, respectively.
The company granted 415 thousand, 579 thousand, and 255 thousand restricted stock units to employees and nonemployee directors in 2018, 2017, and 2016, of which 330 thousand, 465 thousand, and 113 thousand are subject to serviceservice-only based only conditions, 85 thousand, 57 thousand, and 71 thousand are subject to performance/service based conditions, and none, 57 thousand, and 71 thousand are subject to market/service based conditions, respectively. The service based only units award one share of common stock for each unit at the end of the vesting period and include dividend equivalent payments.
The performance/service based units are subject to a performance metric based on the company'scompany’s compound annual revenue growth rate, compared to a benchmark group of companies over the vesting period. The market/service based units are subject to a market related metric based on total shareholder return, compared to the same benchmark group of companies over the vesting period. The performance/service based units and the market/service based units both award common stock in a range of zero0 to 200 percent for each unit granted based on the level of the metric achieved and do notinclude dividend equivalent payments over the vesting period. The weighted-average fair values of the serviceservice-only based only units at the grant dates during 2018, 2017,2021, 2020, and 20162019 were $151.67, $101.03,$258.86, $168.94, and $79.84$149.54 per unit, respectively, based on the market price of a share of underlying common stock. The fair value of the performance/service based units at the grant date during 2018, 2017,2021, 2020, and 20162019 were $145.33, $93.86,$245.73, $160.81, and $72.93$140.49 per unit, respectively, based on the market price of a share of underlying common stock excluding dividends.
The fair value of the market/service basedcompany’s restricted stock units at the grant date during 2017 and 2016 were $129.70 and $103.66 per unit, respectively, based on a lattice valuation model excluding dividends.
The company's restricted shares at October 28, 201831, 2021 and changes during 20182021 in millions of shares follow:
| | | | | | |||||
| Shares | | Grant-Date Fair Value* | | ||||||
| | | | | | |||||
Service based only | | | | | | | ||||
Nonvested at beginning of year | | .7 | | | | $ | 95.90 | | | |
Granted | | .3 | | | | 151.67 | | | ||
Vested | | (.1 | ) | | | 91.92 | | | ||
| | | | | | | | | ||
Nonvested at end of year | | .9 | | | | 117.47 | | | ||
| | | | | | | | | ||
| | | | | | | | | ||
| | | | | | | | | ||
Performance/service and market/service based | | | | | | | ||||
Nonvested at beginning of year | | .4 | | | | $ | 98.46 | | | |
Granted | | .1 | | | | 145.33 | | | ||
Vested | | (.2 | ) | | | 113.97 | | | ||
| | | | | | | | | ||
Nonvested at end of year | | .3 | | | | 110.56 | | | ||
| | | | | | | | | ||
| | | | | | | | | ||
| | | | | | | | |
| | | | | | |
| | | | Grant-Date |
| |
| | Shares | | Fair Value* |
| |
Service-only based | | | | | | |
Nonvested at beginning of year |
| .9 | | $ | 155.47 | |
Granted |
| .2 | |
| 258.86 | |
Vested |
| (.5) | |
| 190.87 | |
Forfeited | | (.1) | | | 163.16 | |
Nonvested at end of year |
| .5 | |
| 190.87 | |
Performance/service based | | | | | | |
Nonvested at beginning of year |
| .2 | | $ | 147.55 | |
Granted |
| .1 | |
| 245.73 | |
Vested |
| (.2) | |
| 145.16 | |
Performance change |
| .1 | |
| 144.98 | |
Nonvested at end of year |
| .2 | |
| 171.82 | |
*
During 2018, 2017,2021, 2020, and 2016,2019, the total share-based compensation expense was $84$82 million, $68$81 million, and $71$82 million, respectively, with recognized income tax benefits of $20$16 million, $25$19 million, and $26$20 million, respectively. At October 28, 2018,31, 2021, there was $47$63 million of total unrecognized compensation cost from share-based compensation arrangements granted under the plans, which is related to restricted shares and options. This compensation is expected to be recognized over a weighted-average period of approximately two years. The total grant-date fair values of stock options and restricted shares vested during 2018, 2017,2021, 2020, and 20162019 were $63$93 million, $72$79 million, and $69$66 million, respectively.
The company currently uses shares that have been repurchased through its stock repurchase programs to satisfy share option exercises. At fiscal year end, the company had 218 million shares in treasury stock and 17 million shares remaining to be repurchased under its current publicly announced repurchase program (see Note 23).
74 |
The after-tax changes incomponents of accumulated other comprehensive income at October 31, 2021, November 1, 2015, October 30, 2016, October 29, 2017,2020, and October 28, 2018November 3, 2019 in millions of dollars follow:
| | | | | | | | | | | | |||||||||||||||
| Retirement Benefits Adjustment | | Cumulative Translation Adjustment | | Unrealized Gain (Loss) on Derivatives | | Unrealized Gain (Loss) on Investments | | Total Accumulated Other Comprehensive Income (Loss) | | ||||||||||||||||
| | | | | | | | | | | | |||||||||||||||
2015 | | | $ | (3,501 | ) | | | $ | (1,238 | ) | | | $ | (2 | ) | | | $ | 12 | | | | $ | (4,729 | ) | |
Period Change | | | (908 | ) | | | 9 | | | | 3 | | | | (1 | ) | | | (897 | ) | | |||||
| | | | | | | | | | | | | | | | | | | | | | |||||
2016 | | | (4,409 | ) | | | (1,229 | ) | | | 1 | | | | 11 | | | | (5,626 | ) | | |||||
Period Change | | | 829 | | | | 230 | | | | 4 | | | | (1 | ) | | | 1,062 | | | |||||
| | | | | | | | | | | | | | | | | | | | | | |||||
2017 | | | (3,580 | ) | | | (999 | ) | | | 5 | | | | 10 | | | | (4,564 | ) | | |||||
Period Change | | | 1,052 | | | | (195 | ) | | | 9 | | | | (13 | ) | | | 853 | | | |||||
ASU No. 2018-02* | | | (709 | ) | | | (10 | ) | | | 1 | | | | 1 | | | | (717 | ) | | |||||
| | | | | | | | | | | | | | | | | | | | | | |||||
2018 | | | $ | (3,237 | ) | | | $ | (1,204 | ) | | | $ | 15 | | | | $ | (2 | ) | | | $ | (4,428 | ) | |
| | | | | | | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | | | | | | | | | | | |||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2019 | |
Retirement benefits adjustment | | $ | (1,034) | | $ | (3,918) | | $ | (3,915) | |
Cumulative translation adjustment | | | (1,478) | | | (1,596) | | | (1,651) | |
Unrealized loss on derivatives | | | (42) | | | (58) | | | (60) | |
Unrealized gain on debt securities | | | 15 | | | 33 | | | 19 | |
Total accumulated other comprehensive income (loss) | | $ | (2,539) | | $ | (5,539) | | $ | (5,607) | |
Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, in millions of dollars:
| | | | | | | | |||||||
| Before Tax Amount | | Tax (Expense) Credit | | After Tax Amount | | ||||||||
| | | | | | | | |||||||
2018 | | | | | | | | | ||||||
Cumulative translation adjustment | | $ | (188 | ) | | | $ | (7 | ) | | $ | (195 | ) | |
| | | | | | | | | | | | |||
Unrealized gain (loss) on derivatives: | | | | | | | | | ||||||
Unrealized hedging gain (loss) | | 18 | | | | (4 | ) | | 14 | | | |||
Reclassification of realized (gain) loss to: | | | | | | | | | ||||||
Interest rate contracts – Interest expense | | (5 | ) | | | 1 | | | (4 | ) | | |||
Foreign exchange contracts – Other operating expenses | | (1 | ) | | | | | (1 | ) | | ||||
| | | | | | | | | | | | |||
Net unrealized gain (loss) on derivatives | | 12 | | | | (3 | ) | | 9 | | | |||
| | | | | | | | | | | | |||
Unrealized gain (loss) on investments: | | | | | | | | | ||||||
Unrealized holding gain (loss) | | (17 | ) | | | 5 | | | (12 | ) | | |||
Reclassification of realized (gain) loss – Other income | | (1 | ) | | | | | (1 | ) | | ||||
| | | | | | | | | | | | |||
Net unrealized gain (loss) on investments | | (18 | ) | | | 5 | | | (13 | ) | | |||
| | | | | | | | | | | | |||
Retirement benefits adjustment: | | | | | | | | | ||||||
Pensions | | | | | | | | | ||||||
Net actuarial gain (loss) | | 553 | | | | (128 | ) | | 425 | | | |||
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses:* | | | | | | | | | ||||||
Actuarial (gain) loss | | 226 | | | | (63 | ) | | 163 | | | |||
Prior service (credit) cost | | 12 | | | | (4 | ) | | 8 | | | |||
Settlements/curtailments | | 8 | | | | (2 | ) | | 6 | | | |||
OPEB | | | | | | | | | ||||||
Net actuarial gain (loss) and prior service credit (cost) | | 603 | | | | (142 | ) | | 461 | | | |||
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses:* | | | | | | | | | ||||||
Actuarial (gain) loss | | 62 | | | | (17 | ) | | 45 | | | |||
Prior service (credit) cost | | (77 | ) | | | 21 | | | (56 | ) | | |||
| | | | | | | | | | | | |||
Net unrealized gain (loss) on retirement benefits adjustment | | 1,387 | | | | (335 | ) | | 1,052 | | | |||
| | | | | | | | | | | | |||
Total other comprehensive income (loss) | | $ | 1,193 | | | | $ | (340 | ) | | $ | 853 | | |
| | | | | | | | | | | | |||
| | | | | | | | | | | | |||
| | | | | | | | | | | |
| | | | | | | | | | |
| | Before | | Tax | | After |
| |||
| | Tax | | (Expense) | | Tax |
| |||
|
| Amount |
| Credit |
| Amount |
| |||
2021 | | | | | | | | | | |
Cumulative translation adjustment: |
| | | | | | | | | |
Unrealized translation gain (loss) |
| $ | 112 | | | | | $ | 112 | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Equity in (income) loss of unconsolidated affiliates | | | 6 | | | | | | 6 | |
Net unrealized translation gain (loss) | | | 118 | | | | | | 118 | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | |
Unrealized hedging gain (loss) | |
| 8 | | $ | (2) | |
| 6 | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Interest rate contracts – Interest expense | |
| 13 | |
| (3) | |
| 10 | |
Net unrealized gain (loss) on derivatives | |
| 21 | |
| (5) | |
| 16 | |
Unrealized gain (loss) on debt securities: | | | | | | | | | | |
Unrealized holding gain (loss) | |
| (21) | |
| 3 | |
| (18) | |
Net unrealized gain (loss) on debt securities | |
| (21) | |
| 3 | |
| (18) | |
Retirement benefits adjustment: | | | | | | | | | | |
Net actuarial gain (loss) | |
| 3,492 | |
| (845) | |
| 2,647 | |
Reclassification to other operating expenses through amortization of: * | | | | | | | | | | |
Actuarial (gain) loss | |
| 283 | |
| (69) | |
| 214 | |
Prior service (credit) cost | |
| 8 | |
| (2) | |
| 6 | |
Settlements | |
| 22 | |
| (5) | |
| 17 | |
Net unrealized gain (loss) on retirement benefits adjustment | |
| 3,805 | |
| (921) | |
| 2,884 | |
Total other comprehensive income (loss) |
| $ | 3,923 |
| $ | (923) |
| $ | 3,000 | |
*
| | | | | | | | | | |
| | Before | | Tax | | After |
| |||
| | Tax | | (Expense) | | Tax |
| |||
|
| Amount |
| Credit |
| Amount |
| |||
2020 |
| | |
| | |
| | | |
Cumulative translation adjustment: | | | | | | | | | | |
Unrealized translation gain (loss) |
| $ | 18 | | $ | 1 | | $ | 19 | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Other operating expenses | | | 13 | | | | | | 13 | |
Equity in (income) loss of unconsolidated affiliates | | | 23 | | | | | | 23 | |
Net unrealized translation gain (loss) | | | 54 | | | 1 | | | 55 | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | |
Unrealized hedging gain (loss) | |
| (18) | |
| 2 | |
| (16) | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Interest rate contracts – Interest expense | |
| 21 | |
| (3) | |
| 18 | |
Net unrealized gain (loss) on derivatives | |
| 3 | |
| (1) | |
| 2 | |
Unrealized gain (loss) on debt securities: | | | | | | | | | | |
Unrealized holding gain (loss) | |
| 17 | |
| (3) | |
| 14 | |
Net unrealized gain (loss) on debt securities | |
| 17 | |
| (3) | |
| 14 | |
Retirement benefits adjustment: | | | | | | | | | | |
Net actuarial gain (loss) | |
| (302) | |
| 65 | |
| (237) | |
Reclassification primarily to other operating expenses through amortization of: * | | | | | | | | | | |
Actuarial (gain) loss | |
| 278 | |
| (68) | |
| 210 | |
Prior service (credit) cost | |
| 7 | |
| (2) | |
| 5 | |
Settlements | |
| 26 | |
| (7) | |
| 19 | |
Net unrealized gain (loss) on retirement benefits adjustment | |
| 9 | |
| (12) | |
| (3) | |
Total other comprehensive income (loss) |
| $ | 83 |
| $ | (15) |
| $ | 68 | |
* These accumulated other comprehensive income amounts are primarily included in net periodic pension and OPEB costs. See Note 8 for additional detail.
| | | | | | | | |||||||
| Before Tax Amount | | Tax (Expense) Credit | | After Tax Amount | | ||||||||
| | | | | | | | |||||||
2017 | | | | | | | | | ||||||
Cumulative translation adjustment | | $ | 232 | | | | $ | (2 | ) | | $ | 230 | | |
| | | | | | | | | | | | |||
Unrealized gain (loss) on derivatives: | | | | | | | | | ||||||
Unrealized hedging gain (loss) | | 3 | | | | (1 | ) | | 2 | | | |||
Reclassification of realized (gain) loss to: | | | | | | | | | ||||||
Interest rate contracts – Interest expense | | 2 | | | | (1 | ) | | 1 | | | |||
Foreign exchange contracts – Other operating expenses | | 1 | | | | | | 1 | | | ||||
| | | | | | | | | | | | |||
Net unrealized gain (loss) on derivatives | | 6 | | | | (2 | ) | | 4 | | | |||
| | | | | | | | | | | | |||
Unrealized gain (loss) on investments: | | | | | | | | | ||||||
Unrealized holding gain (loss) | | 274 | | | | (101 | ) | | 173 | | | |||
Reclassification of realized (gain) loss – Other income | | (275 | ) | | | 101 | | | (174 | ) | | |||
| | | | | | | | | | | | |||
Net unrealized gain (loss) on investments | | (1 | ) | | | | | (1 | ) | | ||||
| | | | | | | | | | | | |||
Retirement benefits adjustment: | | | | | | | | | ||||||
Pensions | | | | | | | | | ||||||
Net actuarial gain (loss) | | 702 | | | | (248 | ) | | 454 | | | |||
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses:* | | | | | | | | | ||||||
Actuarial (gain) loss | | 247 | | | | (89 | ) | | 158 | | | |||
Prior service (credit) cost | | 12 | | | | (4 | ) | | 8 | | | |||
Settlements/curtailments | | 2 | | | | (1 | ) | | 1 | | | |||
OPEB | | | | | | | | | ||||||
Net actuarial gain (loss) | | 309 | | | | (115 | ) | | 194 | | | |||
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses:* | | | | | | | | | ||||||
Actuarial (gain) loss | | 99 | | | | (36 | ) | | 63 | | | |||
Prior service (credit) cost | | (77 | ) | | | 28 | | | (49 | ) | | |||
| | | | | | | | | | | | |||
Net unrealized gain (loss) on retirement benefits adjustment | | 1,294 | | | | (465 | ) | | 829 | | | |||
| | | | | | | | | | | | |||
Total other comprehensive income (loss) | | $ | 1,531 | | | | $ | (469 | ) | | $ | 1,062 | | |
| | | | | | | | | | | | |||
| | | | | | | | | | | | |||
| | | | | | | | | | | |
| | | | | | | | | | |
| | Before | | Tax | | After |
| |||
| | Tax | ��� | (Expense) | | Tax |
| |||
|
| Amount |
| Credit |
| Amount |
| |||
2019 | | | | | | | | | | |
Cumulative translation adjustment |
| $ | (447) |
| $ | (1) | | $ | (448) | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | |
Unrealized hedging gain (loss) | |
| (92) | |
| 21 | |
| (71) | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Interest rate contracts – Interest expense | |
| (5) | |
| 1 | |
| (4) | |
Net unrealized gain (loss) on derivatives | |
| (97) | |
| 22 | |
| (75) | |
Unrealized gain (loss) on debt securities: | | | | | | | | | | |
Unrealized holding gain (loss) | |
| 36 | |
| (7) | |
| 29 | |
Net unrealized gain (loss) on debt securities | |
| 36 | |
| (7) | |
| 29 | |
Retirement benefits adjustment: | | | | | | | | | | |
Net actuarial gain (loss) | |
| (1,028) | |
| 274 | |
| (754) | |
Reclassification to other operating expenses through amortization of: * | | | | | | | | | | |
Actuarial (gain) loss | |
| 159 | |
| (39) | |
| 120 | |
Prior service (credit) cost | |
| (61) | |
| 15 | |
| (46) | |
Settlements | |
| 3 | |
| (1) | |
| 2 | |
Net unrealized gain (loss) on retirement benefits adjustment | |
| (927) | |
| 249 | |
| (678) | |
Total other comprehensive income (loss) |
| $ | (1,435) |
| $ | 263 |
| $ | (1,172) | |
*
75
| | | | | | | | ||||||||
| Before Tax Amount | | Tax (Expense) Credit | | After Tax Amount | | |||||||||
| | | | | | | | ||||||||
2016 | | | | | | | | | | ||||||
Cumulative translation adjustment | | $ | 8 | | | | $ | 1 | | | | $ | 9 | | |
| | | | | | | | | | | | | |||
Unrealized gain (loss) on derivatives: | | | | | | | | | | ||||||
Unrealized hedging gain (loss) | | (2 | ) | | | 1 | | | | (1 | ) | | |||
Reclassification of realized (gain) loss to: | | | | | | | | | | ||||||
Interest rate contracts – Interest expense | | 7 | | | | (2 | ) | | | 5 | | | |||
Foreign exchange contracts – Other operating expenses | | (1 | ) | | | | | | (1 | ) | | ||||
| | | | | | | | | | | | | |||
Net unrealized gain (loss) on derivatives | | 4 | | | | (1 | ) | | | 3 | | | |||
| | | | | | | | | | | | | |||
Unrealized gain (loss) on investments: | | | | | | | | | | ||||||
Unrealized holding gain (loss) | | 2 | | | | | | | 2 | | | ||||
Reclassification of realized (gain) loss – Other income | | (4 | ) | | | 1 | | | | (3 | ) | | |||
| | | | | | | | | | | | | |||
Net unrealized gain (loss) on investments | | (2 | ) | | | 1 | | | | (1 | ) | | |||
| | | | | | | | | | | | | |||
Retirement benefits adjustment: | | | | | | | | | | ||||||
Pensions | | | | | | | | | | ||||||
Net actuarial gain (loss) and prior service credit (cost) | | (1,141 | ) | | | 397 | | | | (744 | ) | | |||
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses:* | | | | | | | | | | ||||||
Actuarial (gain) loss | | 211 | | | | (77 | ) | | | 134 | | | |||
Prior service (credit) cost | | 16 | | | | (6 | ) | | | 10 | | | |||
Settlements/curtailments | | 14 | | | | (4 | ) | | | 10 | | | |||
OPEB | | | | | | | | | | ||||||
Net actuarial gain (loss) and prior service credit (cost) | | (493 | ) | | | 178 | | | | (315 | ) | | |||
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses:* | | | | | | | | | | ||||||
Actuarial (gain) loss | | 73 | | | | (27 | ) | | | 46 | | | |||
Prior service (credit) cost | | (78 | ) | | | 29 | | | | (49 | ) | | |||
| | | | | | | | | | | | | |||
Net unrealized gain (loss) on retirement benefits adjustment | | (1,398 | ) | | | 490 | | | | (908 | ) | | |||
| | | | | | | | | | | | | |||
Total other comprehensive income (loss) | | $ | (1,388 | ) | | | $ | 491 | | | | $ | (897 | ) | |
| | | | | | | | | | | | | |||
| | | | | | | | | | | | | |||
| | | | | | | | | | | | |
25. LEASES
The company is both a lessee and a lessor. The company leases for its own use primarily warehouse facilities, office space, production equipment, information technology equipment, and vehicles. The expected use periods generally range from less than one year to 20 years. The company’s financial services segment leases to users equipment produced or sold by the company, and a limited amount of other equipment. These accumulated other comprehensive incomeleases are usually written for periods of less than one year to seven years. The company determines if an arrangement is or contains a lease at the contract inception.
Lessee
The company recognizes on the balance sheet a lease liability and a right of use asset for leases with a term greater than one year for both operating and finance leases.
The amounts of the lease liability and right of use asset are determined at lease commencement and are based on the present value of the lease payments over the lease term. The lease payments are discounted using the company’s incremental borrowing rate since the rate implicit in the lease is generally not readily determinable. The company determines the incremental borrowing rate for each lease based primarily on the lease term and the economic environment of the country where the asset will be used, adjusted as if the borrowings were collateralized. Leases with contractual periods greater than one year and that do not meet the finance lease criteria are classified as operating leases.
Certain real estate leases contain one or more options to terminate or renew, with terms that can generally extend the lease term from one to ten years. Options that the company is reasonably certain to exercise are included in the lease term.
The company has elected to combine lease and nonlease components, such as maintenance and utilities costs included in a lease contract, for all asset classes. Leases with an initial term of one year or less are expensed on a straight-line basis over the lease term and recorded in short-term lease expense. Variable lease expense primarily includes warehouse facilities leases with payments based on utilization exceeding contractual minimum amounts and leases with payments indexed to inflation when the index changes after lease commencement.
The lease expense by type consisted of the following in millions of dollars:
| | | | | | | |
| | | 2021 | | | 2020 | |
Operating lease expense | | $ | 116 | | $ | 126 | |
Short-term lease expense | | | 29 | | | 23 | |
Variable lease expense | | | 53 | | | 41 | |
Finance lease: | | | | | | | |
Depreciation expense | | | 26 | | | 20 | |
Interest on lease liabilities | | | 1 | | | 2 | |
Total lease expense | | $ | 225 | | $ | 212 | |
Operating and finance lease right of use assets and lease liabilities follow in millions of dollars:
| | | | | | | |
| | | 2021 | | | 2020 | |
Operating leases: | | | | | | | |
Other assets | | $ | 291 | | $ | 324 | |
Accounts payable and accrued expenses | | | 279 | | | 305 | |
| | | | | | | |
Finance leases: | | | | | | | |
Property and equipment — net | | $ | 71 | | $ | 63 | |
| | | | | | | |
Short-term borrowings | | | 23 | | | 21 | |
Long-term borrowings | | | 38 | | | 39 | |
Total finance lease liabilities | | $ | 61 | | $ | 60 | |
The weighted-average remaining lease terms in years and discount rates follows:
| | | | | | | |
| | | 2021 | | | 2020 | |
Weighted-average remaining lease terms: | | | | | | | |
Operating leases | | | 5 | | | 5 | |
Finance leases | | | 2 | | | 3 | |
| | | | | | | |
Weighted-average discount rates: | | | | | | | |
Operating leases | | | 2.3% | | | 2.1% | |
Finance leases | | | 2.3% | | | 2.2% | |
Lease payment amounts in each of the next five years at October 31, 2021 follow in millions of dollars:
| | | | | | | |
| | Operating | | Finance | | ||
Due in: | | Leases | | Leases | | ||
2022 | | $ | 83 | | $ | 25 | |
2023 | | | 69 | | | 19 | |
2024 | | | 54 | | | 11 | |
2025 | | | 32 | | | 5 | |
2026 | | | 15 | | | 1 | |
Later years | | | 41 | | | 3 | |
Total lease payments | | | 294 | | | 64 | |
Less imputed interest | | | 15 | | | 3 | |
Total lease liabilities | | $ | 279 | | $ | 61 | |
Cash paid for amounts included in the measurement of lease liabilities follows in millions of dollars:
| | | | | | | |
| | | 2021 | | | 2020 | |
Operating cash flows from operating leases | | $ | 104 | | $ | 124 | |
Operating cash flows from finance leases | | | 1 | | | 2 | |
Financing cash flows from finance leases | | | 25 | | | 17 | |
Right of use assets obtained in exchange for lease liabilities follow in millions of dollars:
| | | | | | | |
| | | 2021 | | | 2020 | |
Operating leases | | $ | 101 | | $ | 40 | |
Finance leases | | | 27 | | | 46 | |
76
Lessor
The company leases equipment manufactured or sold by the company and a limited amount of non-John Deere equipment to retail customers through sales-type, direct financing, and operating leases. Sales-type and direct financing leases are reported in “Financing receivables - net” on the consolidated balance sheet. Operating leases are reported in “Equipment on operating leases - net” on the consolidated balance sheet.
Leases offered by the company may include early termination and renewal options. At the end of a lease, the lessee generally has the option to purchase the underlying equipment for a fixed price or return it to the dealer. If the equipment is returned to the dealer, the dealer also has the option to purchase the equipment or return it to the company for remarketing.
The company estimates the residual values for operating leases at lease inception based on several factors, including lease term, expected hours of usage, historical wholesale sale prices, return experience, intended use of the equipment, market dynamics and trends, and dealer residual guarantees. The company reviews residual value estimates during the lease term and tests the carrying value of its operating lease assets for impairment when events or circumstances necessitate. The depreciation is adjusted on a straight-line basis over the remaining lease term if residual value estimates change. Lease agreements include usage limits and specifications on machine condition, which allow the company to assess lessees for excess use or damages to the underlying equipment. In 2020 and 2019, the company recorded impairment losses on operating leases of $22 million and $59 million, respectively, due to higher expected equipment return rates and lower estimated values of used construction equipment. Operating lease impairments were recorded in “Other operating expenses.”
The company has elected to combine lease and nonlease components. The nonlease components primarily relate to preventative maintenance and extended warranty agreements financed by the retail customer. The company has also elected to report consideration related to sales and value added taxes net periodic pensionof the related tax expense. Property taxes on leased assets are recorded on a gross basis in “Finance and OPEB costs.interest income” and “Other operating expenses” on the statement of consolidated income. Variable lease revenues primarily relate to property taxes on leased assets in certain markets and late fees. Variable lease revenues also include excess use and damage fees of $7 million and $8 million for 2021 and 2020, respectively, which were reported in “Other income” on the statement of consolidated income.
Due to the significant, negative effects of COVID, the company provided short-term relief to lessees during 2020, and to a much lesser extent in 2021. The relief, which included payment deferrals of three months or less, was provided in regional programs and on a case-by-case basis with customers that were generally current in their payment obligations. The operating leases granted relief represented approximately 2 percent and 4 percent of the company’s operating lease portfolio at October 31, 2021 and November 1, 2020, respectively. The majority of operating leases granted short-term relief are beyond the deferral period and have
Lease revenues earned by the company follow in millions of dollars:
| | | | | | | |
| | | 2021 | | | 2020 | |
Sales-type and direct finance lease revenues | | $ | 145 | | $ | 135 | |
Operating lease revenues | | | 1,423 | | | 1,469 | |
Variable lease revenues | | | 30 | | | 31 | |
Total lease revenues | | $ | 1,598 | | $ | 1,635 | |
At the time of accepting a lease that qualifies as a sales-type or direct financing lease, the company records the gross amount of lease payments receivable, estimated residual value of the leased equipment, and unearned finance income. The unearned finance income is recognized as revenue over the lease term using the interest method.
Sales-type and direct financing lease receivables by market follow in millions of dollars:
| | | | | | | |
| | | 2021 | | | 2020 | |
Agriculture and turf | | $ | 1,131 | | $ | 985 | |
Construction and forestry | | | 1,284 | | | 1,030 | |
Total | | | 2,415 | | | 2,015 | |
Guaranteed residual values | | | 394 | | | 278 | |
Unguaranteed residual values | | | 70 | | | 71 | |
Less unearned finance income | | | (258) | | | (217) | |
Financing lease receivables | | $ | 2,621 | | $ | 2,147 | |
Scheduled payments, including guaranteed residual values, on sales-type and direct financing lease receivables at October 31, 2021 follow in millions of dollars:
| | | | |
Due in: | | 2021 | | |
2022 | | $ | 1,223 | |
2023 | | | 712 | |
2024 | | | 461 | |
2025 | | | 229 | |
2026 | | | 161 | |
Later years | | | 23 | |
Total | | $ | 2,809 | |
Lease payments from operating leases are recorded as income on a straight-line method over the lease terms. Operating lease assets are recorded at cost and depreciated to their estimated residual value on a straight-line method over the terms of the leases.
The noncontrolling interests' comprehensive income (loss)cost of equipment on operating leases by market follow in millions of dollars:
| | | | | | | |
| | | 2021 | | | 2020 | |
Agriculture and turf | | $ | 7,317 | | $ | 7,366 | |
Construction and forestry | | | 1,616 | | | 1,921 | |
Total | | | 8,933 | | | 9,287 | |
Less accumulated depreciation | | | (1,945) | | | (1,989) | |
Equipment on operating leases - net | | $ | 6,988 | | $ | 7,298 | |
The total operating lease residual values at October 31, 2021 and November 1, 2020 were $5,025 million and $5,254 million, respectively. Certain operating leases are subject to residual value
77
guarantees. The total residual value guarantees were $950 million and $757 million at October 31, 2021 and November 1, 2020, respectively. The residual value guarantees at October 31, 2021 and November 1, 2020 include $3 million and $5 million, respectively, of dealer deposits available for potential losses on residual values.
The equipment is depreciated on a straight-line basis over the term of the lease. The corresponding depreciation expense was $2.1$983 million in 2018, $.32021, $1,083 million in 2017,2020, and $(2.4)$981 million in 2016, which consisted2019.
Lease payments for equipment on operating leases at October 31, 2021 were scheduled as follows in millions of dollars:
| | | | |
Due in: | | 2021 | | |
2022 | | $ | 1,027 | |
2023 | | | 693 | |
2024 | | | 409 | |
2025 | | | 207 | |
2026 | | | 50 | |
Later years | | | 6 | |
Total | | $ | 2,392 | |
Past due balances of operating leases represent the total balance held (net book value plus accrued lease payments) and still accruing financing income with any payment amounts 30 days or more past the contractual payment due date. These amounts were $70 million and $87 million at October 31, 2021 and November 1, 2020, respectively. The delinquency status of operating leases granted relief due to COVID is based on the modified payment schedule.
The company discusses with lessees and dealers options to purchase the equipment or extend the lease prior to lease maturity. Equipment returned to the company upon termination of leases is remarketed by the company and recorded in “Other assets” at the lower of net income (loss)book value or estimated fair value of $2.2the equipment less costs to sell and is not depreciated. The matured operating lease inventory balances at October 31, 2021 and November 1, 2020 were $30 million and $70 million, respectively. In 2020, the company recorded impairment losses on matured operating lease inventory of $10 million due to lower estimated values of used construction equipment. Impairment losses on matured operating lease inventory were included in 2018, $.1 million in 2017, and $(2.4) million in 2016 and cumulative translation adjustments of $(.1) million in 2018, $.2 million in 2017, and none in 2016.“Other operating expenses.”
|
26. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine fair value, the company uses various methods including market and income approaches. The company utilizes valuation models and techniques that maximize the use of observable inputs. The models are industry-standard models that consider various assumptions including time values and yield curves as well as other
economic measures. These valuation techniques are consistently applied.
Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs. Level 3 measurements include significant unobservable inputs.
The fair values of financial instruments that do not approximate the carrying values at October 28, 201831, 2021 and October 29, 2017November 1, 2020 in millions of dollars follow:
| | | | | | | | | | | | | |
2018 | 2017 | ||||||||||||
Carrying Value | Fair Value* | Carrying Value | Fair Value* | ||||||||||
| | | | | | | | | | | | | |
Financing receivables – net: | |||||||||||||
Equipment operations** | $ | 93 | $ | 91 | |||||||||
Financial services | 26,961 | 26,722 | $ | 25,104 | $ | 24,946 | |||||||
| | | | | | | | | | | | | |
Total | $ | 27,054 | $ | 26,813 | $ | 25,104 | $ | 24,946 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Financing receivables securitized – net: | |||||||||||||
Equipment operations** | $ | 76 | $ | 73 | |||||||||
Financial services | 3,946 | 3,895 | $ | 4,159 | $ | 4,130 | |||||||
| | | | | | | | | | | | | |
Total | $ | 4,022 | $ | 3,968 | $ | 4,159 | $ | 4,130 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Short-term securitization borrowings: | |||||||||||||
Equipment operations** | $ | 75 | $ | 75 | |||||||||
Financial services | 3,882 | 3,870 | $ | 4,119 | $ | 4,118 | |||||||
| | | | | | | | | | | | | |
Total | $ | 3,957 | $ | 3,945 | $ | 4,119 | $ | 4,118 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Long-term borrowings due within one year: | |||||||||||||
Equipment operations** | $ | 970 | $ | 979 | $ | 154 | $ | 154 | |||||
Financial services | 5,427 | 5,411 | 6,064 | 6,079 | |||||||||
| | | | | | | | | | | | | |
Total | $ | 6,397 | $ | 6,390 | $ | 6,218 | $ | 6,233 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Long-term borrowings: | |||||||||||||
Equipment operations** | $ | 4,714 | $ | 4,948 | $ | 5,491 | $ | 6,026 | |||||
Financial services | 22,523 | 22,590 | 20,400 | 20,606 | |||||||||
| | | | | | | | | | | | | |
Total | $ | 27,237 | $ | 27,538 | $ | 25,891 | $ | 26,632 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | 2021 | | 2020 | | ||||||||
| | Carrying | | Fair | | Carrying | | Fair | | ||||
|
| Value |
| Value* |
| Value |
| Value* |
| ||||
Financing receivables – net: |
| | |
| | |
| | |
| | | |
Equipment operations | | $ | 73 | | $ | 68 | | $ | 105 | | $ | 103 | |
Financial services | | | 33,726 | | | 33,650 | | | 29,645 | | | 29,838 | |
Total | | $ | 33,799 | | $ | 33,718 | | $ | 29,750 | | $ | 29,941 | |
Financing receivables securitized – net: |
| | |
| | |
| | |
| | | |
Equipment operations | | $ | 10 | | $ | 10 | | $ | 26 | | $ | 26 | |
Financial services | | | 4,649 | | | 4,694 | | | 4,677 | | | 4,773 | |
Total | | $ | 4,659 | | $ | 4,704 | | $ | 4,703 | | $ | 4,799 | |
Short-term securitization borrowings: |
| | |
| | |
| | |
| | | |
Equipment operations | | $ | 10 | | $ | 10 | | $ | 26 | | $ | 26 | |
Financial services | | | 4,595 | | | 4,600 | | | 4,656 | | | 4,698 | |
Total | | $ | 4,605 | | $ | 4,610 | | $ | 4,682 | | $ | 4,724 | |
Long-term borrowings due within one year:** | | | | | | | | | | | | | |
Equipment operations |
| $ | 1,213 |
| $ | 1,222 |
| $ | 79 |
| $ | 78 | |
Financial services | |
| 7,117 | |
| 7,142 | |
| 6,870 | |
| 6,936 | |
Total |
| $ | 8,330 |
| $ | 8,364 |
| $ | 6,949 |
| $ | 7,014 | |
Long-term borrowings:** | | | | | | | | | | | | | |
Equipment operations |
| $ | 8,877 |
| $ | 10,244 |
| $ | 10,085 |
| $ | 11,837 | |
Financial services | |
| 23,973 | |
| 24,262 | |
| 22,610 | |
| 23,170 | |
Total |
| $ | 32,850 |
| $ | 34,506 |
| $ | 32,695 |
| $ | 35,007 | |
*
** | Values exclude finance lease liabilities that are presented as borrowings (see Note 25). |
Fair values of the financing receivables that were issued long-term were based on the discounted values of their related cash flows at interest rates currently being offered by the company for similar financing receivables. The fair values of the remaining financing receivables approximated the carrying amounts.
Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or on the
discounted values of their related cash flows at current market interest rates. Certain long-term borrowings have been swapped to current variable interest rates. The carrying values of these long-term borrowings included adjustments related to fair value hedges.
78
Assets and liabilities measured at October 28, 201831, 2021 and October 29, 2017November 1, 2020 at fair value on a recurring basis in millions of dollars follow:
| | | | | | ||
| | 2018* | | 2017* | | ||
---|---|---|---|---|---|---|---|
| | | | | | ||
Marketable securities | | | | ||||
Equity fund | | $ | 46 | | $ | 48 | |
Fixed income fund | | | 15 | | |||
U.S. government debt securities | | 111 | | 77 | | ||
Municipal debt securities | | 46 | | 39 | | ||
Corporate debt securities | | 140 | | 135 | | ||
International debt securities | | 10 | | 20 | | ||
Mortgage-backed securities** | | 137 | | 118 | | ||
| | | | | | ||
Total marketable securities | | 490 | | 452 | | ||
Other assets | | | | ||||
Derivatives: | | | | ||||
Interest rate contracts | | 80 | | 116 | | ||
Foreign exchange contracts | | 83 | | 108 | | ||
Cross-currency interest rate contracts | | 5 | | 11 | | ||
| | | | | | ||
Total assets*** | | $ | 658 | | $ | 687 | |
| | | | | | ||
| | | | | | ||
| | | | | | ||
Accounts payable and accrued expenses | | | | ||||
Derivatives: | | | | ||||
Interest rate contracts | | $ | 350 | | $ | 131 | |
Foreign exchange contracts | | 49 | | 26 | | ||
Cross-currency interest rate contracts | | | 1 | | |||
| | | | | | ||
Total liabilities | | $ | 399 | | $ | 158 | |
| | | | | | ||
| | | | | | ||
| | | | | |
Fair value, recurring Level 3 measurements from available-for-sale marketable securities at October 28, 2018, October 29, 2017, and October 30, 2016were transferred to Level 2 in millions of dollars follow:2021.
| | | | | | | | ||||||
| | 2018 | | 2017 | | 2016 | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | ||||||
Beginning of year balance | | $ | 17 | | | $ | 28 | | | $ | 29 | | |
Purchases | | | | | | 25 | | | |||||
Principal payments | | (9 | ) | | (13 | ) | | (22 | ) | | |||
Change in unrealized gain (loss) | | 1 | | | 2 | | | (4 | ) | | |||
Other | | (1 | ) | | | | | | |||||
| | | | | | | | | | | |||
End of year balance | | $ | 8 | | | $ | 17 | | | $ | 28 | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | |
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
Level 1: | | | | | | | |
Marketable securities | | | | | | | |
U.S. equity fund |
| $ | 75 |
| $ | 62 | |
International equity securities | | | 2 | | | 2 | |
U.S. government debt securities | |
| 59 | |
| 55 | |
Total Level 1 marketable securities | | | 136 | | | 119 | |
| | | | | | | |
Level 2: | | | | | | | |
Marketable securities | | | | | | | |
U.S. government debt securities | | | 139 | | | 113 | |
Municipal debt securities | |
| 73 | |
| 68 | |
Corporate debt securities | |
| 224 | |
| 188 | |
International debt securities | | | 2 | | | 2 | |
Mortgage-backed securities* | |
| 154 | |
| 147 | |
Total Level 2 marketable securities | |
| 592 | |
| 518 | |
Other assets | | | | | | | |
Derivatives: | | | | | | | |
Interest rate contracts | |
| 239 | |
| 669 | |
Foreign exchange contracts | |
| 31 | |
| 48 | |
Cross-currency interest rate contracts | |
| 5 | |
| 8 | |
Total Level 2 other assets | | | 275 | | | 725 | |
Accounts payable and accrued expenses | | | | | | | |
Derivatives: | | | | | | | |
Interest rate contracts |
| | 132 |
| | 88 | |
Foreign exchange contracts | |
| 94 | |
| 26 | |
Cross-currency interest rate contracts | | | 2 | |
| 1 | |
Total Level 2 accounts payable and accrued expenses | | | 228 | | | 115 | |
| | | | | | | |
Level 3: | | | | | | | |
Marketable securities | | | | | | | |
International debt securities |
| | |
| | 4 | |
* Primarily issued by U.S. government sponsored enterprises.
Fair value, nonrecurring measurements from impairments at October 28, 201831, 2021 and October 29, 2017November 1, 2020 in millions of dollars follow:
| | | | | | | | | | | | |||||
| Fair Value* | | Losses* | | ||||||||||||
| 2018 | | 2017 | | 2018 | | 2017 | | 2016 | | ||||||
| | | | | | | | | | | | |||||
Equipment on operating leases – net | | | | | | $ | 31 | | ||||||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
Property and equipment – net | | | | | | $ | 13 | | ||||||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
Investments in | | | $ | 28 | | | $ | 40 | | $ | 12 | | ||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
Other assets | | | | | | $ | 29 | | ||||||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | | |||||
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Fair Value | | Losses | | |||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2019 | | |||||
Other receivables 1 | | | |
| $ | 1 |
| | |
| $ | 2 | | | | |
Equipment on operating leases – net 2 |
| | |
| $ | 371 |
| | |
| $ | 22 | | $ | 59 | |
Property and equipment – net 3 |
| $ | 41 |
| $ | 135 |
| $ | 44 |
| $ | 102 | | | | |
Investments in unconsolidated affiliates 4 | | | | | $ | 19 | | | | | $ | 50 |
| | | |
Other intangible assets – net | | | | | | | | | |
| $ | 2 | | | | |
Other assets 5 |
| $ | 1 | | $ | 59 |
| $ | 6 | | $ | 16 | | $ | 18 | |
1Fair value as of August 2, 2020.
2 Fair value as of May 3, 2020.
3 2021 fair value of $41 million at October 29, 2017 was a LevelJanuary 31, 2021. 2020 fair value of $70 million at May 3, 2020, $8 million at August 2, 2020, and $57 million at November 1, measurement. See financing receivables with specific allowances in Note 12 that were not significant. See Note 2020.
4 Fair value as of November 1, 2020.
5 for impairments.
The following is a description of the valuation methodologies the company uses to measure certain financial instruments on the balance sheet at fair value:
Marketable Securitiessecurities – The portfolio of investments, except for the Level 3 measurement international debt securities, is primarily valued on a market approach (matrix pricing model) in which all significant inputs are observable or can be derived from or corroborated by observable market data such as interest rates, yield curves, volatilities, credit risk, and prepayment speeds. Funds are primarily valued using the fund'sfund’s net asset value, based on the fair value of the underlying securities. The Level 3 measurement international debt securities arewere primarily valued using an income approach based on discounted cash flows using yield curves derived from limited, observable market data.
Derivatives– The company'scompany’s derivative financial instruments consist of interest rate swaps and caps,contracts (swaps), foreign currency futures,exchange contracts (futures, forwards and swaps,swaps), and cross-currency interest rate swaps.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 Receivablesreceivables – 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 12)13).
Other receivables – The impairment was based on the expected realization of value-added tax receivables related to a closed factory operation (see Note 5).
Equipment on Operating Leases - Netoperating leases – net– The impairments are based on an income approach (discounted cash flow), using the contractual payments, plus an estimate of return rates and equipment sale price at lease maturity. Inputs include historical return rates and realized sales values (see Note 5).
Property and Equipment - Netequipment– net – The impairments are measured at the lower of the carrying amount, or fair value. The valuations were based on a cost approach.and market approaches. The inputs include replacement cost estimates adjusted for physical deterioration and economic obsolescence, or quoted prices when available (see Note 5).
Investment in Unconsolidated Affiliatesunconsolidated 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 of the investments.value. The fair value for publicly traded entities is the share price multiplied by the shares owned, or the estimated realization amount (see Note 5).
Other Assetsintangible assets – net – The impairment was measured at the remaining net book value of customer relationships related to a closed factory operation (see Note 5).
Other assets– The impairments areof the matured operating lease inventory were measured at the fair value of the matured operating lease inventory.that equipment. The valuations were based on a market approach. The inputs include sales of comparable assetsassets. The impairment of the German lawn
79
mower business was measured at the estimated realizable value. Fair value was based on estimates of the final sale price (see Note 5).
|
27. DERIVATIVE INSTRUMENTS
Cash Flow Hedges
Certain interest rate and cross-currency interest rate contracts (swaps) were designated as hedges of future cash flows from borrowings. The total notional amounts of the receive-variable/pay-fixed interest rate contracts at October 28, 201831, 2021 and October 29, 2017November 1, 2020 were $3,050$2,700 million and $1,700$1,550 million, respectively. During 2019, the company hedged a portion of its exposure to interest rate changes on a forecasted debt issuance using an interest rate contract with a term of 30 years. The total notional amountshedge was terminated upon issuance of the cross-currency interest rate contracts were none and $22 million at October 28, 2018 and October 29, 2017, respectively. The effective portionsdebt, resulting in a fair value loss of the fair$70 million. Fair value gains or losses on these cash flow hedges were recorded in OCI and are subsequently reclassified into interest expense or other operating expenses (foreign currency exchange) in the same periods during which the hedged transactions affectedimpact earnings. These amounts offset the effects of interest rate or foreign currency exchange rate changes on the related borrowings. Any ineffective portions of the gains or losses on all cash flow interest rate contracts designated as cash flow hedges were recognized currently in interest expense or other operating expenses (foreign exchange) and were not material during any years presented. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.
The amount of gainloss recorded in OCI at October 28, 201831, 2021 that is expected to be reclassified to interest expense or other operating expenses in the next twelve months if interest rates or exchange rates remain unchanged is approximately $10$4 million after-tax. These contracts mature in up to 26 months. There were no0 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 28, 201831, 2021 and October 29, 2017November 1, 2020 were $8,479$8,043 million and $8,661$7,239 million, respectively. The effective portions of the fair value gains or losses on these contracts were generally offset by fair value gains or losses on the hedged items (fixed-rate borrowings). Any ineffective portions of the gains or losses were recognized currently with both items recorded in interest expense.
The ineffective portions were losses of $2 million in both 2018amounts recorded, at October 31, 2021 and 2016, and a gain of $3 million in 2017. The cash flows from these contracts were recorded in operating activitiesNovember 1, 2020, in the statement of consolidated cash flows.
The gains (losses) on these contracts and the underlyingbalance sheet related to borrowings recordeddesignated in interest expense followfair value hedging relationships in millions of dollars:dollars follow:
| | | | | | | | ||||||
| | 2018 | | 2017 | | 2016 | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | ||||||
Interest rate contracts* | | $ | (294 | ) | | $ | (284 | ) | | $ | 7 | | |
Borrowings** | | 292 | | | 287 | | | (9 | ) | |
| | | | | | | | | | | | | |
| | | | | Cumulative Increase (Decrease) of | | |||||||
| | | | | Fair Value Hedging Adjustments | | |||||||
| | Carrying | | Included in the Carrying Amount | | ||||||||
| | Amount of | | Active | | | | | | | |||
| | Hedged | | Hedging | | Discontinued | | | | | |||
| | Item | | Relationships | | Relationships | | Total | | ||||
2021 | | | | | | | | | | | | | |
Long-term borrowings due within one year* | | $ | 189 | | $ | 3 | | $ | (2) | | $ | 1 | |
Long-term borrowings | | | 8,070 | | | 29 | | | 223 | | | 252 | |
2020 | | | | | | | | | | | | | |
Long-term borrowings due within one year* | | $ | 155 | | $ | 2 | | $ | 3 | | $ | 5 | |
Long-term borrowings | | | 7,725 | | | 543 | | | 122 | | | 665 | |
*
Derivatives Not Designated as Hedging Instruments
The company has certain interest rate contracts (swaps and caps)(swaps), foreign currency exchange contracts (futures, forwards, and swaps), and cross-currency interest rate contracts (swaps), which were not formally designated as hedges. These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures primarily for certain borrowings, purchases or sales of inventory, and below market retail financing programs. The total notional amounts of the interest rate swaps at October 28, 201831, 2021 and October 29, 2017November 1, 2020 were $8,075$10,848 million and $6,757$8,514 million, the foreign currency exchange contracts were $6,842$7,584 million and $8,499$4,903 million, and the cross-currency interest rate contracts were $81$238 million and $66$113 million, respectively. The increase in the total notional amount of interest rate swaps primarily relates to the equipment operation's economic hedge of announced retail financing programs. The decrease in the total notional amounts of foreign exchange contracts primarily relates to the Wirtgen acquisition, which closed in December 2017 (see Note 4). At October 28, 2018 and October 29, 2017, there were also $66 million and $253 million, respectively, of interest rate caps purchased and the same amounts sold at the same capped interest rate to facilitate borrowings through securitization of retail notes. The fair value gains or losses from the interest rate contracts were recognized currently in interest expense and the gains or losses from foreign currency exchange contracts in cost of sales or other operating expenses, generally offsetting over time the expenses on the exposures being hedged. The cash flows from these non-designated contracts were recorded in operating activities in the statement of consolidated cash flows.
80
Fair values of derivative instruments in the consolidated balance sheet at October 28, 201831, 2021 and October 29, 2017November 1, 2020 in millions of dollars follow:
| | | | | | ||
| | 2018 | | 2017 | | ||
---|---|---|---|---|---|---|---|
| | | | | | ||
Other Assets | | | | ||||
Designated as hedging instruments: | | | | ||||
Interest rate contracts | | $ | 29 | | $ | 74 | |
Cross-currency interest rate contracts | | | 5 | | |||
| | | | | | ||
Total designated | | 29 | | 79 | | ||
| | | | | | ||
Not designated as hedging instruments: | | | | ||||
Interest rate contracts | | 51 | | 42 | | ||
Foreign exchange contracts | | 83 | | 108 | | ||
Cross-currency interest rate contracts | | 5 | | 6 | | ||
| | | | | | ||
Total not designated | | 139 | | 156 | | ||
| | | | | | ||
Total derivative assets | | $ | 168 | | $ | 235 | |
| | | | | | ||
| | | | | | ||
| | | | | | ||
Accounts Payable and Accrued Expenses | | | | ||||
Designated as hedging instruments: | | | | ||||
Interest rate contracts | | $ | 321 | | $ | 112 | |
| | | | | | ||
Total designated | | 321 | | 112 | | ||
| | | | | | ||
Not designated as hedging instruments: | | | | ||||
Interest rate contracts | | 29 | | 19 | | ||
Foreign exchange contracts | | 49 | | 26 | | ||
Cross-currency interest rate contracts | | | 1 | | |||
| | | | | | ||
Total not designated | | 78 | | 46 | | ||
| | | | | | ||
Total derivative liabilities | | $ | 399 | | $ | 158 | |
| | | | | | ||
| | | | | | ||
| | | | | | ||
| | | | | |
| | | | | | | |
|
| 2021 |
| 2020 |
| ||
Other Assets | | | | | | | |
Designated as hedging instruments: | | | | | | | |
Interest rate contracts |
| $ | 166 |
| $ | 586 | |
Not designated as hedging instruments: | | | | | | | |
Interest rate contracts | |
| 73 | | | 83 | |
Foreign exchange contracts | |
| 31 | | | 48 | |
Cross-currency interest rate contracts | |
| 5 | | | 8 | |
Total not designated | |
| 109 | | | 139 | |
Total derivative assets |
| $ | 275 |
| $ | 725 | |
Accounts Payable and Accrued Expenses | | | | | | | |
Designated as hedging instruments: | | | | | | | |
Interest rate contracts |
| $ | 99 |
| $ | 14 | |
Not designated as hedging instruments: | | | | | | | |
Interest rate contracts | | | 33 | | | 74 | |
Foreign exchange contracts | |
| 94 | | | 26 | |
Cross-currency interest rate contracts | | | 2 | | | 1 | |
Total not designated | |
| 129 | | | 101 | |
Total derivative liabilities |
| $ | 228 |
| $ | 115 | |
The classification and gains (losses) including accrued interest expense related to derivative instruments on the statement of consolidated income consisted of the following in millions of dollars:
| | | | | | | | ||||||
| | 2018 | | 2017 | | 2016 | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | ||||||
Fair Value Hedges | | | | | | | | ||||||
Interest rate contracts – Interest expense | | $ | (283 | ) | | $ | (205 | ) | | $ | 153 | | |
Cash Flow Hedges | | | | | | | | ||||||
Recognized in OCI | | | | | | | | ||||||
(Effective Portion): | | | | | | | | ||||||
Interest rate contracts – OCI (pretax)* | | 17 | | | 4 | | | (3 | ) | | |||
Foreign exchange contracts – OCI (pretax)* | | 2 | | | (1 | ) | | 1 | | | |||
Reclassified from OCI | | | | | | | | ||||||
(Effective Portion): | | | | | | | | ||||||
Interest rate contracts – Interest expense* | | 5 | | | (2 | ) | | (7 | ) | | |||
Foreign exchange contracts – Other expense* | | 1 | | | (1 | ) | | 1 | | | |||
Recognized Directly in Income | | | | | | | | ||||||
(Ineffective Portion) | | ** | | | ** | | | ** | | | |||
Not Designated as Hedges | | | | | | | | ||||||
Interest rate contracts – Net sales | | $ | 3 | | | | | | | ||||
Interest rate contracts – Interest expense* | | (4 | ) | | $ | 11 | | | $ | (1 | ) | | |
Foreign exchange contracts – Cost of sales | | (24 | ) | | (12 | ) | | (15 | ) | | |||
Foreign exchange contracts – Other expense* | | 195 | | | (106 | ) | | 74 | | | |||
| | | | | | | | | | | |||
Total not designated | | $ | 170 | | | $ | (107 | ) | | $ | 58 | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | |
| | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2019 |
| |||
Fair Value Hedges | | | | | | | | | | |
Interest rate contracts – Interest expense |
| $ | (236) |
| $ | 496 |
| $ | 589 | |
| | | | | | | | | | |
Cash Flow Hedges | | | | | | | | | | |
Recognized in OCI: | | | | | | | | | | |
Interest rate contracts – OCI (pretax) | |
| 8 | |
| (18) | |
| (92) | |
| | | | | | | | | | |
Reclassified from OCI: | | | | | | | | | | |
Interest rate contracts – Interest expense | |
| (13) | |
| (21) | |
| 5 | |
| | | | | | | | | | |
Not Designated as Hedges | | | | | | | | | | |
Interest rate contracts – Net sales | | $ | 13 | | $ | (23) | | $ | (23) | |
Interest rate contracts – Interest expense* |
| | 14 |
| | (2) |
| | (32) | |
Foreign exchange contracts – Cost of sales | |
| (101) | |
| 93 | |
| (18) | |
Foreign exchange contracts – Other operating expenses* | |
| (262) | |
| 122 | |
| 97 | |
Total not designated |
| $ | (336) |
| $ | 190 |
| $ | 24 | |
*
interest rate contracts.
Counterparty Risk and Collateral
Derivative instruments are subject to significant concentrations of credit risk to the banking sector. The company manages individual counterparty exposure by setting limits that consider
the credit rating of the counterparty, the credit default swap spread of the counterparty, and other financial commitments and exposures between the company and the counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Some of these agreements include credit support provisions. Each master
agreement permits the net settlement of amounts owed in the event of default or termination.
Certain of the company'scompany’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 28, 201831, 2021 and October 29, 2017,November 1, 2020, was $350$135 million and $132$89 million, respectively. In accordance with the limits established in these agreements, the company posted $59 million in0 cash collateral at October 28, 2018. No31, 2021 or November 1, 2020. In addition, the company paid $8 million of collateral either in cash collateralor pledged securities that was postedoutstanding at both October 29, 2017.31, 2021 and November 1, 2020 to participate in an international futures market to hedge currency exposure, not included in the table below.
Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities related to netting arrangements and any collateral paid at October 28, 201831, 2021 and October 29, 2017November 1, 2020 in millions of dollars follows:
| | | | | | | | | | ||||||||||||
| Gross Amounts Recognized | | Netting Arrangements | | Collateral Paid | | Net Amount | | |||||||||||||
| | | | | | | | | | ||||||||||||
2018 | | | | | | | | | | | | | | ||||||||
Assets | | | $ | 168 | | | | $ | (65 | ) | | | | | | $ | 103 | | | ||
Liabilities | | | 399 | | | | (65 | ) | | | $ | (59 | ) | | | 275 | | | |||
2017 | | | | | | | | | | | | | | ||||||||
Assets | | | $ | 235 | | | | $ | (65 | ) | | | | | | $ | 170 | | | ||
Liabilities | | | 158 | | | | (65 | ) | | | | | | 93 | | | |||||
| | | | | | | | | |
|
| | | | | | | | | | | | | |
| | Gross Amounts | | Netting | | | | Net | | ||||
|
| Recognized |
| Arrangements |
| Collateral |
| Amount |
| ||||
2021 | | | | | | | | | | | | | |
Assets |
| $ | 275 |
| $ | (105) |
| | |
| $ | 170 | |
Liabilities | |
| 228 | |
| (105) | | $ | (5) | | | 118 | |
2020 | | | | | | | | | | | | | |
Assets |
| $ | 725 |
| $ | (93) |
| $ | (274) |
| $ | 358 | |
Liabilities | |
| 115 | |
| (93) | | | | | | 22 | |
28. SEGMENT AND GEOGRAPHIC AREA DATA
In fiscal year 2021, the company implemented a new operating model and reporting structure. With this change, the company’s agriculture and turf operations were divided into two new segments: production and precision agriculture and small agriculture and turf. There were no changes to the construction and forestry and financial services segments. This presentation is consistent with how the chief operating decision maker assesses the performance of the segments and makes decisions about resource allocations. The company'scompany’s operations are presently organized and reported in three major4 business segments described as follows:
The production and precision agriculture segment defines, develops, and delivers global equipment and technology solutions to unlock customer value for production-scale growers of large grains, small grains, cotton, and sugar. Main products include large and certain mid-size tractors, combines, cotton pickers, sugarcane harvesters and loaders, and soil preparation, seeding, application and crop care equipment.
The small agriculture and turf segment primarily manufacturesdefines, develops, and distributes a full line of agriculturedelivers global equipment and technology solutions to unlock customer value for dairy and livestock producers, high-value crop producers, and turf equipment and related service parts, including large, medium and utility tractors; tractor loaders; combines, cotton pickers, cotton strippers,customers. The segment’s primary products include certain mid-size and sugarcane harvesters; harvesting front-end equipment; sugarcane loaders and pull-behind scrapers; tillage, seeding and application equipment, including sprayers, nutrient management and soil preparation machinery;small tractors, as well as hay and forage equipment, including self-propelled forage harvestersriding and attachments, balers and mowers; turf and utility equipment, including ridingcommercial lawn equipment, and walk-behind mowers, golf course equipment, and utility vehicles, and commercial mowing equipment, along with a broad linevehicles.
81
The construction and forestry segment primarily manufacturesdefines, develops, and distributesdelivers a broad range of machines and service parts used in construction,technology solutions organized along the earthmoving, road building, material handling,forestry, and timber harvesting, including backhoe loaders;roadbuilding production systems. The segment’s primary products include crawler dozers and loaders;loaders, four-wheel-drive loaders; excavators; motor graders; articulated dump trucks; landscape loaders;loaders, excavators, skid-steer loaders;loaders, milling machines; recyclers; slipform pavers; surface miners; asphalt pavers; compactors; tandemmachines, and static rollers; mobile crushers and screens; mobile and stationary asphalt plants; log skidders; feller bunchers; log loaders; log forwarders; log harvesters; and related logging attachments.harvesters.
The products and services produced by the segments above are marketed primarily through independent retail dealer networks and major retail outlets.outlets, and, as it relates to roadbuilding products in certain markets outside the U.S. and Canada, primarily through company-owned sales and service subsidiaries.
The financial services segment primarily finances sales and leases by John Deere dealers of new and used production and precision agriculture equipment, small agriculture and turf equipment, and construction and forestry equipment. In addition, the financial services segment provides wholesale financing to dealers of the foregoing equipment, finances retail revolving charge accounts, and offers extended equipment warranties.
Because of integrated manufacturing operations and common administrative and marketing support, a substantial number of allocations must be made to determine operating segment and geographic area data. Intersegment sales and revenues represent sales of components and finance charges, which are generally based on market prices.
At the beginning of fiscal year 2021, the company reclassified goodwill from identifiable operating segment assets to corporate assets for segment reporting, as goodwill is no longer considered in evaluating the operating performance of the segments. Prior period amounts have been restated for a consistent presentation.
Information relating to operations by operating segment in millions of dollars follows for the years ended October 28, 2018, October 29, 2017,31, 2021, November 1, 2020 and October 30, 2016.November 3, 2019. In addition to the following unaffiliated sales and revenues by segment, intersegment sales and revenues in 2018, 2017,2021, 2020, and 20162019 were as follows: production and precision agriculture net sales of $27 million, $22 million, and $31 million; small agriculture and turf net sales of $47$11 million, $39$2 million, and $31 million,$3 million; construction and forestry nethad 0 intersegment sales of none,in 2021, $1 million in 2020, and $1 million in 2019; and financial services revenues of $308$246 million, $244$278 million, and $225$348 million, respectively.
| | | | | | | | ||||
OPERATING SEGMENTS | | 2018 | | 2017 | | 2016 | | ||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | ||||
Net sales and revenues | | | | | | ||||||
Unaffiliated customers: | | | | | | ||||||
Agriculture and turf net sales | | $ | 23,191 | | | $ | 20,167 | | $ | 18,487 | |
Construction and forestry net sales | | 10,160 | | | 5,718 | | 4,900 | | |||
| | | | | | | | | |||
Total net sales | | 33,351 | | | 25,885 | | 23,387 | | |||
Financial services revenues | | 3,252 | | | 2,935 | | 2,694 | | |||
Other revenues* | | 755 | | | 918 | | 563 | | |||
| | | | | | | | | |||
Total | | $ | 37,358 | | | $ | 29,738 | | $ | 26,644 | |
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | |
| | | | | | | | | | |
OPERATING SEGMENTS | | 2021 |
| 2020 |
| 2019 |
| |||
Net sales and revenues |
| |
| | |
| | |
| |
Unaffiliated customers: | | | | | | | | | | |
Production & precision ag net sales | | $ | 16,509 | | $ | 12,962 | | $ | 13,364 | |
Small ag & turf net sales | | | 11,860 | | | 9,363 | | | 10,302 | |
Construction & forestry net sales | |
| 11,368 | |
| 8,947 | |
| 11,220 | |
Financial services revenues | |
| 3,548 | |
| 3,589 | |
| 3,621 | |
Other revenues* | |
| 739 | |
| 679 | |
| 751 | |
Total | | $ | 44,024 | | $ | 35,540 | | $ | 39,258 | |
*
(continued)
| | | | | | | | | | |
OPERATING SEGMENTS |
| 2021 |
| 2020 |
| 2019 |
| |||
Operating profit |
| |
| | |
| | |
| |
Production & precision ag | | $ | 3,334 | | $ | 1,969 | | $ | 1,729 | |
Small ag & turf | | | 2,045 | | | 1,000 | | | 777 | |
Construction & forestry | |
| 1,489 | |
| 590 | |
| 1,215 | |
Financial services* | |
| 1,144 | |
| 746 | |
| 694 | |
Total operating profit* | |
| 8,012 | |
| 4,305 | |
| 4,415 | |
Interest income | |
| 82 | |
| 62 | |
| 85 | |
Interest expense | |
| (368) | |
| (329) | |
| (256) | |
Foreign exchange gains (losses) from equipment operations’ financing activities | |
| (45) | |
| 17 | |
| (22) | |
Pension and OPEB benefit (cost), excluding service cost component | | | 183 | | | 31 | | | 67 | |
Corporate expenses – net | |
| (241) | |
| (251) | |
| (180) | |
Income taxes | |
| (1,658) | |
| (1,082) | |
| (852) | |
Total | |
| (2,047) | |
| (1,552) | |
| (1,158) | |
Net income | |
| 5,965 | |
| 2,753 | |
| 3,257 | |
Less: Net income attributable to noncontrolling interests | |
| 2 | | | 2 | | | 4 | |
Net income attributable to Deere & Company | | $ | 5,963 | | $ | 2,751 | | $ | 3,253 | |
| | | | | | | | ||||||
OPERATING SEGMENTS | | 2018 | | 2017 | | 2016 | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | ||||||
Operating profit | | | | | | | | ||||||
Agriculture and turf | | $ | 2,816 | | | $ | 2,513 | | | $ | 1,719 | | |
Construction and forestry | | 868 | | | 346 | | | 189 | | | |||
Financial services* | | 792 | | | 715 | | | 701 | | | |||
| | | | | | | | | | | |||
Total operating profit** | | 4,476 | | | 3,574 | | | 2,609 | | | |||
| | | | | | | | | | | |||
Interest income | | 80 | | | 55 | | | 48 | | | |||
Interest expense | | (298 | ) | | (264 | ) | | (251 | ) | | |||
Foreign exchange gains (losses) from equipment operations' financing activities | | 36 | | | (12 | ) | | (12 | ) | | |||
Pension and OPEB costs, excluding service cost component | | (15 | ) | | (31 | ) | | (20 | ) | | |||
Corporate expenses – net | | (182 | ) | | (192 | ) | | (153 | ) | | |||
Income taxes | | (1,727 | ) | | (971 | ) | | (700 | ) | | |||
| | | | | | | | | | | |||
Total | | (2,106 | ) | | (1,415 | ) | | (1,088 | ) | | |||
| | | | | | | | | | | |||
Net income | | 2,370 | | | 2,159 | | | 1,521 | | | |||
Less: Net income (loss) attributable to noncontrolling interests | | 2 | | | | | (3 | ) | | ||||
| | | | | | | | | | | |||
Net income attributable to | | $ | 2,368 | | | $ | 2,159 | | | $ | 1,524 | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | |
| | | | | | | | | | |
Interest income* |
| |
| | |
| | |
| |
Production & precision ag | | $ | 21 | | $ | 22 | | $ | 16 | |
Small ag & turf | | | 21 | | | 16 | | | 6 | |
Construction & forestry | |
| 10 | |
| 12 | |
| 11 | |
Financial services | |
| 1,999 | |
| 2,122 | |
| 2,316 | |
Corporate | |
| 82 | |
| 62 | |
| 85 | |
Intercompany | |
| (279) | |
| (272) | |
| (360) | |
Total | | $ | 1,854 | | $ | 1,962 | | $ | 2,074 | |
**
Interest income* | | | | | | | | ||||||
Agriculture and turf | | $ | 14 | | | $ | 16 | | | $ | 12 | | |
Construction and forestry | | 33 | | | 1 | | | 1 | | | |||
Financial services | | 1,998 | | | 1,771 | | | 1,650 | | | |||
Corporate | | 80 | | | 55 | | | 48 | | | |||
Intercompany | | (331 | ) | | (268 | ) | | (240 | ) | | |||
| | | | | | | | | | | |||
Total | | $ | 1,794 | | | $ | 1,575 | | | $ | 1,471 | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | |
Interest expense | | | | | | | | ||||||
Agriculture and turf | | $ | 229 | | | $ | 182 | | | $ | 173 | | |
Construction and forestry | | 71 | | | 53 | | | 44 | | | |||
Financial services | | 937 | | | 669 | | | 536 | | | |||
Corporate | | 298 | | | 264 | | | 251 | | | |||
Intercompany | | (331 | ) | | (268 | ) | | (240 | ) | | |||
| | | | | | | | | | | |||
Total | | $ | 1,204 | | | $ | 900 | | | $ | 764 | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | |||||||
| | | | | | | | ||||||
Depreciation* and amortization expense | | | | | | | | ||||||
Agriculture and turf | | $ | 723 | | | $ | 695 | | | $ | 667 | | |
Construction and forestry | | 251 | | | 145 | | | 136 | | | |||
Financial services | | 953 | | | 876 | | | 757 | | | |||
| | | | | | | | | | | |||
Total | | $ | 1,927 | | | $ | 1,716 | | | $ | 1,560 | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | |
| | | | | | | | | | |
Interest expense |
| |
| | |
| | |
| |
Production & precision ag | | $ | 84 | | $ | 76 | | $ | 87 | |
Small ag & turf | | | 87 | | | 111 | | | 158 | |
Construction & forestry | |
| 46 | |
| 61 | |
| 91 | |
Financial services | |
| 687 | |
| 942 | |
| 1,234 | |
Corporate | |
| 368 | |
| 329 | |
| 256 | |
Intercompany | |
| (279) | |
| (272) | |
| (360) | |
Total | | $ | 993 | | $ | 1,247 | | $ | 1,466 | |
|
| | | | | | | | | |
Depreciation* and amortization expense |
| |
| | |
| | |
| |
Production & precision ag | | $ | 495 | | $ | 480 | | $ | 475 | |
Small ag & turf | | | 245 | | | 247 | | | 248 | |
Construction & forestry | |
| 303 | |
| 289 | |
| 292 | |
Financial services | |
| 1,140 | |
| 1,227 | |
| 1,135 | |
Intercompany | | | (133) | | | (125) | | | (131) | |
Total | | $ | 2,050 | | $ | 2,118 | | $ | 2,019 | |
*
(continued)
82
Equity in income (loss) of unconsolidated affiliates | | | | | | | | ||||||
Agriculture and turf | | $ | 6 | | | $ | 2 | | | $ | 9 | | |
Construction and forestry | | 19 | | | (27 | ) | | (13 | ) | | |||
Financial services | | 2 | | | 1 | | | 2 | | | |||
| | | | | | | | | | | |||
Total | | $ | 27 | | | $ | (24 | ) | | $ | (2 | ) | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | |
(continued)Table of Contents
| | | | | | | | ||||||
OPERATING SEGMENTS | | 2018 | | 2017 | | 2016 | | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | ||||||
Identifiable operating assets | | | | | | | | ||||||
Agriculture and turf | | $ | 10,161 | | | $ | 9,359 | | | $ | 8,405 | | |
Construction and forestry | | 9,855 | | | 3,212 | | | 3,017 | | | |||
Financial services | | 45,720 | | | 42,596 | | | 40,837 | | | |||
Corporate* | | 4,372 | | | 10,619 | | | 5,659 | | | |||
| | | | | | | | | | | |||
Total | | $ | 70,108 | | | $ | 65,786 | | | $ | 57,918 | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | |
| | | | | | | | | | |
OPERATING SEGMENTS |
| 2021 |
| 2020 |
| 2019 |
| |||
Equity in income (loss) of unconsolidated affiliates |
| |
| | |
| | |
| |
Small ag & turf | | $ | 2 | | $ | 2 | | $ | 6 | |
Construction & forestry | |
| 16 | | | (52) | | | 14 | |
Financial services | |
| 3 | |
| 2 | |
| 1 | |
Total | | $ | 21 | | $ | (48) | | $ | 21 | |
| | | | | | | | | | |
| | | | | | | | | | |
Identifiable operating assets |
| |
| | |
| | |
| |
Production & precision ag | | $ | 7,021 | | $ | 5,708 | | $ | 6,149 | |
Small ag & turf | | | 3,959 | | | 3,266 | | | 3,656 | |
Construction & forestry | |
| 6,457 | |
| 6,322 | |
| 7,044 | |
Financial services | |
| 51,624 | |
| 48,719 | |
| 48,483 | |
Corporate* | |
| 15,053 | |
| 11,076 | |
| 7,679 | |
Total | | $ | 84,114 | | $ | 75,091 | | $ | 73,011 | |
*
Capital additions | | | | | | | | ||||||
Agriculture and turf | | $ | 675 | | | $ | 485 | | | $ | 556 | | |
Construction and forestry | | 308 | | | 114 | | | 115 | | | |||
Financial services | | 2 | | | 3 | | | 3 | | | |||
| | | | | | | | | | | |||
Total | | $ | 985 | | | $ | 602 | | | $ | 674 | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | |||||||
| | | | | | | | ||||||
Investments in unconsolidated affiliates | | | | | | | | ||||||
Agriculture and turf | | $ | 26 | | | $ | 25 | | | $ | 56 | | |
Construction and forestry | | 166 | | | 143 | | | 165 | | | |||
Financial services | | 15 | | | 14 | | | 12 | | | |||
| | | | | | | | | | | |||
Total | | $ | 207 | | | $ | 182 | | | $ | 233 | | |
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | | | | | |||
| | | | | | | |
| | | | | | | | | | |
Capital additions |
| |
| | |
| | |
| |
Production & precision ag | | $ | 458 | | $ | 431 | | $ | 595 | |
Small ag & turf | | | 253 | | | 223 | | | 264 | |
Construction & forestry | |
| 183 | |
| 157 | |
| 245 | |
Financial services | |
| 3 | |
| 4 | |
| 3 | |
Total | | $ | 897 | | $ | 815 | | $ | 1,107 | |
| | | | | | | | | | |
|
| | | | | | | | | |
Investments in unconsolidated affiliates |
| |
| | |
| | |
| |
Production & precision ag | | | | | $ | 1 | | $ | 1 | |
Small ag & turf | | $ | 31 | | | 29 | | | 27 | |
Construction & forestry | |
| 122 | |
| 144 | |
| 171 | |
Financial services | |
| 22 | |
| 19 | |
| 16 | |
Total | | $ | 175 | | $ | 193 | | $ | 215 | |
The company views and has historically disclosed its operations as consisting of two geographic areas the(the U.S. and Canada, and outside the U.S. and Canada,Canada) for net sales and revenues and operating profit shown below in millions of dollars. No individual foreign country'scountry’s net sales and revenues were material for disclosure purposes.
| | | | | | | | ||||
GEOGRAPHIC AREAS | | 2018 | | 2017 | | 2016 | | ||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | ||||
Net sales and revenues | | | | | | ||||||
Unaffiliated customers: | | | | | | ||||||
U.S. and Canada: | | | | | | ||||||
Equipment operations net sales (88%)* | | $ | 18,847 | | | $ | 15,031 | | $ | 14,376 | |
Financial services revenues (79%)* | | 2,785 | | | 2,526 | | 2,366 | | |||
| | | | | | | | | |||
Total | | 21,632 | | | 17,557 | | 16,742 | | |||
| | | | | | | | | |||
Outside U.S. and Canada: | | | | | | ||||||
Equipment operations net sales | | 14,504 | | | 10,854 | | 9,011 | | |||
Financial services revenues | | 467 | | | 409 | | 328 | | |||
| | | | | | | | | |||
Total | | 14,971 | | | 11,263 | | 9,339 | | |||
| | | | | | | | | |||
Other revenues | | 755 | | | 918 | | 563 | | |||
| | | | | | | | | |||
Total | | $ | 37,358 | | | $ | 29,738 | | $ | 26,644 | |
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | |
(continued)
| | | | | | | | ||||
GEOGRAPHIC AREAS | | 2018 | | 2017 | | 2016 | | ||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | ||||
Operating profit* | | | | | | ||||||
U.S. and Canada: | | | | | | ||||||
Equipment operations | | $ | 2,356 | | | $ | 1,754 | | $ | 1,328 | |
Financial services | | 604 | | | 515 | | 543 | | |||
| | | | | | | | | |||
Total | | 2,960 | | | 2,269 | | 1,871 | | |||
| | | | | | | | | |||
Outside U.S. and Canada: | | | | | | ||||||
Equipment operations | | 1,328 | | | 1,105 | | 580 | | |||
Financial services | | 188 | | | 200 | | 158 | | |||
| | | | | | | | | |||
Total | | 1,516 | | | 1,305 | | 738 | | |||
| | | | | | | | | |||
Total | | $ | 4,476 | | | $ | 3,574 | | $ | 2,609 | |
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | |
Property and equipment | | | | | | ||||||
U.S. | | $ | 3,031 | | | $ | 2,976 | | $ | 3,077 | |
Germany | | 1,164 | | | 598 | | 569 | | |||
Other countries | | 1,673 | | | 1,494 | | 1,525 | | |||
| | | | | | | | | |||
Total | | $ | 5,868 | | | $ | 5,068 | | $ | 5,171 | |
| | | | | | | | | |||
| | | | | | | | | |||
| | | | | | | | |
|
The $1 par value common stock of Deere & Company is listed on the New York Stock Exchange under the symbol "DE". At October 28, 2018, there were 20,559 holders of record of the company's $1 par value common stock.
Quarterly information with respect to net sales and revenues and earnings is showndoes reside in the following schedule. The company's fiscal year ends in October and its interim periods (quarters) end in January, April, and July. Such information is showncountry of Germany, separately disclosed below in millions of dollars except for per share amounts.dollars.
| | | | | | | | | | ||||
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | |||||
| | | | | | | | | | ||||
2018 | | | | | | ||||||||
Net sales and revenues | | $ | 6,913 | | $ | 10,720 | | $ | 10,309 | | $ | 9,416 | |
Net sales | | 5,974 | | 9,747 | | 9,287 | | 8,343 | | ||||
Gross profit | | 1,269 | | 2,414 | | 2,134 | | 1,962 | | ||||
Income before income taxes | | 518 | | 1,384 | | 1,190 | | 979 | | ||||
Net income (loss) attributable to Deere & Company | | (535 | ) | 1,208 | | 910 | | 785 | | ||||
Per share data: | | | | | | ||||||||
Basic | | (1.66 | ) | 3.73 | | 2.81 | | 2.45 | | ||||
Diluted | | (1.66 | ) | 3.67 | | 2.78 | | 2.42 | | ||||
Dividends declared | | .60 | | .60 | | .69 | | .69 | | ||||
Dividends paid | | .60 | | .60 | | .60 | | .69 | | ||||
2017* | | | | | | ||||||||
Net sales and revenues | | $ | 5,625 | | $ | 8,287 | | $ | 7,808 | | $ | 8,018 | |
Net sales | | 4,698 | | 7,260 | | 6,833 | | 7,094 | | ||||
Gross profit** | | 916 | | 1,832 | | 1,585 | | 1,686 | | ||||
Income before income taxes | | 328 | | 1,169 | | 890 | | 767 | | ||||
Net income attributable to Deere & Company | | 199 | | 808 | | 642 | | 510 | | ||||
Per share data: | | | | | | ||||||||
Basic | | .63 | | 2.53 | | 2.00 | | 1.59 | | ||||
Diluted | | .62 | | 2.50 | | 1.97 | | 1.57 | | ||||
Dividends declared | | .60 | | .60 | | .60 | | .60 | | ||||
Dividends paid | | .60 | | .60 | | .60 | | .60 | | ||||
| | | | | | | | | |
| | | | | | | | | | |
GEOGRAPHIC AREAS | | 2021 | | 2020 | | 2019 |
| |||
Net sales and revenues |
| |
| | |
| | |
| |
Unaffiliated customers: | | | | | | | | | | |
U.S. and Canada | | $ | 25,829 | | $ | 21,386 | | $ | 23,746 | |
Outside U.S. and Canada | | | 18,195 | | | 14,154 | | | 15,512 | |
Total | | $ | 44,024 | | $ | 35,540 | | $ | 39,258 | |
| | | | | | | | | | |
Operating profit |
| |
| | |
| | |
| |
U.S. and Canada | | $ | 4,774 | | $ | 2,775 | | $ | 2,841 | |
Outside U.S. and Canada | | | 3,238 | | | 1,530 | | | 1,574 | |
Total | | $ | 8,012 | | $ | 4,305 | | $ | 4,415 | |
| | | | | | | | | | |
Property and equipment |
| |
| | |
| | |
| |
U.S. and Canada | | $ | 3,164 | | $ | 3,178 | | $ | 3,197 | |
Germany | |
| 1,096 | |
| 1,113 | |
| 1,137 | |
Other countries | |
| 1,560 | |
| 1,526 | |
| 1,639 | |
Total | | $ | 5,820 | | $ | 5,817 | | $ | 5,973 | |
Net income per share for each quarter must be computed independently.29. SUBSEQUENT EVENTS
In November 2021, the company renewed its outstanding bank conduit facility revolving credit agreement, which reduced the facility capacity from $2,000 million to $1,000 million. As a result their sum may not equalof the total net income per sharefacility renewal at a reduced capacity, the company repurchased $511 million of outstanding short-term securitization borrowings in November 2021, in addition to the normal monthly collection of payments on the retail notes.
On November 17, 2021, employees represented by the UAW approved a new collective bargaining agreement and terminated a strike that began on October 14, 2021. The agreement, which has a term of six years, covers the wages, hours, benefits, and other terms and conditions of employment for the year.
On November 30, 2021, the Presentation of Net Periodic Pension Costcompany voluntarily contributed $1,000 million to a U.S. OPEB plan. The expected return on this contribution was included in the 2022 pension and Net Periodic Postretirement Benefit Cost. See Note 3.
OPEB cost estimates in the MD&A.
|
A quarterly dividend of $.76$1.05 per share was declared at the Board of Directors meeting on December 5, 2018,8, 2021, payable on February 1, 20198, 2022 to stockholders of record on December 31, 2018.2021.
On December 14, 2021, the company announced a definitive agreement to acquire majority ownership in Kreisel Electric, Inc. (Kreisel), a battery technology provider based in Austria. Kreisel has differentiated battery technology for high-performance and off-highway applications as well as charging infrastructure offerings globally and across multiple end markets. This will provide Deere with the high-density battery technology necessary to optimally integrate and efficiently design vehicles and power trains while leveraging Kreisel’s charging technology to build out infrastructure to enable global customer adoption. The new quarterly rate represents an increasetransaction is expected to close in the first half of 7 cents per share over the previous level, or approximately 10 percent.
In November 2018, the company's financial services operations entered into a retail note securitization using its bank conduit facility that resulted in securitization borrowings of approximately $1,245 million.
|
|
| EQUIPMENT OPERATIONS* | FINANCIAL SERVICES | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||
Net Sales and Revenues | |||||||||||||||||||
Net sales | $ | 33,350.7 | $ | 25,885.1 | $ | 23,387.3 | |||||||||||||
Finance and interest income | 126.3 | 71.7 | 61.1 | $ | 3,311.4 | $ | 2,928.2 | $ | 2,690.1 | ||||||||||
Other income | 874.5 | 1,065.0 | 653.7 | 248.6 | 250.9 | 229.0 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total | 34,351.5 | 27,021.8 | 24,102.1 | 3,560.0 | 3,179.1 | 2,919.1 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Costs and Expenses | |||||||||||||||||||
Cost of sales | 25,573.0 | 19,867.9 | 18,198.0 | ||||||||||||||||
Research and development expenses | 1,657.6 | 1,372.5 | 1,393.7 | ||||||||||||||||
Selling, administrative and general expenses | 2,934.9 | 2,555.0 | 2,282.6 | 527.9 | 549.2 | 515.9 | |||||||||||||
Interest expense | 297.8 | 263.7 | 250.5 | 936.6 | 669.2 | 536.5 | |||||||||||||
Interest compensation to Financial Services | 299.8 | 234.5 | 216.6 | ||||||||||||||||
Other operating expenses | 315.4 | 295.2 | 243.8 | 1,297.8 | 1,239.9 | 1,159.6 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total | 31,078.5 | 24,588.8 | 22,585.2 | 2,762.3 | 2,458.3 | 2,212.0 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Income of Consolidated Group before Income Taxes | 3,273.0 | 2,433.0 | 1,516.9 | 797.7 | 720.8 | 707.1 | |||||||||||||
Provision (credit) for income taxes | 1,869.2 | 726.0 | 459.0 | (142.3 | ) | 245.1 | 241.1 | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
Income of Consolidated Group | 1,403.8 | 1,707.0 | 1,057.9 | 940.0 | 475.7 | 466.0 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates | |||||||||||||||||||
Financial Services | 942.0 | 476.9 | 467.6 | 2.0 | 1.2 | 1.6 | |||||||||||||
Other | 24.8 | (24.7 | ) | (4.0 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total | 966.8 | 452.2 | 463.6 | 2.0 | 1.2 | 1.6 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Net Income | 2,370.6 | 2,159.2 | 1,521.5 | 942.0 | 476.9 | 467.6 | |||||||||||||
Less: Net income (loss) attributable to noncontrolling interests | 2.2 | ..1 | (2.4 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Net Income Attributable to Deere & Company | $ | 2,368.4 | $ | 2,159.1 | $ | 1,523.9 | $ | 942.0 | $ | 476.9 | $ | 467.6 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The supplemental consolidating data is presented for informational purposes. The "Equipment Operations" reflect the basis of consolidation described in Note 1fiscal year 2022, subject to the consolidated financial statements. The consolidated group data inreceipt of certain required regulatory approvals and satisfaction of certain other customary closing conditions. Total cash consideration will be €221 million and paid out of cash on hand. Kreisel will be allocated amongst the "Equipment Operations" income statement reflect the results of thecompany’s production and precision agriculture, small agriculture and turf, operations and construction and forestry operations. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.segments.
83
|
|
| EQUIPMENT OPERATIONS* | FINANCIAL SERVICES | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 | |||||||||
ASSETS | |||||||||||||
Cash and cash equivalents | $ | 3,194.8 | $ | 8,168.4 | $ | 709.2 | $ | 1,166.5 | |||||
Marketable securities | 8.2 | 20.2 | 481.9 | 431.4 | |||||||||
Receivables from unconsolidated subsidiaries and affiliates | 1,700.4 | 1,032.1 | |||||||||||
Trade accounts and notes receivable – net | 1,373.7 | 876.3 | 4,906.4 | 4,134.1 | |||||||||
Financing receivables – net | 93.1 | 26,961.0 | 25,104.1 | ||||||||||
Financing receivables securitized – net | 76.1 | 3,945.3 | 4,158.8 | ||||||||||
Other receivables | 1,009.7 | 1,045.6 | 775.7 | 195.5 | |||||||||
Equipment on operating leases – net | 7,165.4 | 6,593.7 | |||||||||||
Inventories | 6,148.9 | 3,904.1 | |||||||||||
Property and equipment – net | 5,820.6 | 5,017.3 | 46.9 | 50.4 | |||||||||
Investments in unconsolidated subsidiaries and affiliates | 5,231.2 | 4,812.3 | 15.2 | 13.8 | |||||||||
Goodwill | 3,100.7 | 1,033.3 | |||||||||||
Other intangible assets – net | 1,562.4 | 218.0 | |||||||||||
Retirement benefits | 1,241.5 | 538.1 | 56.8 | 16.9 | |||||||||
Deferred income taxes | 1,502.6 | 3,098.8 | 69.4 | 79.8 | |||||||||
Other assets | 1,132.8 | 973.9 | 587.1 | 651.4 | |||||||||
| | | | | | | | | | | | | |
Total Assets | $ | 33,196.7 | $ | 30,738.4 | $ | 45,720.3 | $ | 42,596.4 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||
LIABILITIES | |||||||||||||
Short-term borrowings | $ | 1,434.0 | $ | 375.5 | $ | 9,627.4 | $ | 9,659.8 | |||||
Short-term securitization borrowings | 75.6 | 3,881.7 | 4,118.7 | ||||||||||
Payables to unconsolidated subsidiaries and affiliates | 128.9 | 121.9 | 1,678.7 | 996.2 | |||||||||
Accounts payable and accrued expenses | 9,382.5 | 7,718.1 | 2,055.7 | 1,827.1 | |||||||||
Deferred income taxes | 496.8 | 115.6 | 823.0 | 857.7 | |||||||||
Long-term borrowings | 4,713.9 | 5,490.9 | 22,523.5 | 20,400.4 | |||||||||
Retirement benefits and other liabilities | 5,659.8 | 7,341.9 | 91.2 | 92.9 | |||||||||
| | | | | | | | | | | | | |
Total liabilities | 21,891.5 | 21,163.9 | 40,681.2 | 37,952.8 | |||||||||
| | | | | | | | | | | | | |
Commitments and contingencies (Note 22) | |||||||||||||
Redeemable noncontrolling interest (Note 4) | 14.0 | 14.0 | |||||||||||
STOCKHOLDERS' EQUITY | |||||||||||||
Common stock, $1 par value (authorized – 1,200,000,000 shares; issued – 536,431,204 shares in 2018 and 2017), at paid-in amount | 4,474.2 | 4,280.5 | 2,099.5 | 2,099.1 | |||||||||
Common stock in treasury, 217,975,806 shares in 2018 and 214,589,902 shares in 2017, at cost | (16,311.8 | ) | (15,460.8 | ) | |||||||||
Retained earnings | 27,553.0 | 25,301.3 | 3,257.2 | 2,782.0 | |||||||||
Accumulated other comprehensive income (loss) | (4,427.6 | ) | (4,563.7 | ) | (317.6 | ) | (237.5 | ) | |||||
| | | | | | | | | | | | | |
Total Deere & Company stockholders' equity | 11,287.8 | 9,557.3 | 5,039.1 | 4,643.6 | |||||||||
Noncontrolling interests | 3.4 | 3.2 | |||||||||||
| | | | | | | | | | | | | |
Total stockholders' equity | 11,291.2 | 9,560.5 | 5,039.1 | 4,643.6 | |||||||||
| | | | | | | | | | | | | |
Total Liabilities and Stockholders' Equity | $ | 33,196.7 | $ | 30,738.4 | $ | 45,720.3 | $ | 42,596.4 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The supplemental consolidating data is presented for informational purposes. The "Equipment Operations" reflect the basis of consolidation describedSELECTED FINANCIAL DATA
(Dollars in Note 1 to the consolidated financial statements. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.millions except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| ||||||||||
Net sales and revenues | | $ | 44,024 | | $ | 35,540 | | $ | 39,258 | | $ | 37,358 | | $ | 29,738 | | $ | 26,644 | | $ | 28,863 | | $ | 36,067 | | $ | 37,795 | | $ | 36,157 | |
Net sales | |
| 39,737 | |
| 31,272 | |
| 34,886 | |
| 33,351 | |
| 25,885 | |
| 23,387 | |
| 25,775 | |
| 32,961 | |
| 34,998 | |
| 33,501 | |
Finance and interest income | |
| 3,296 | |
| 3,450 | |
| 3,493 | |
| 3,107 | |
| 2,732 | |
| 2,511 | |
| 2,381 | |
| 2,282 | |
| 2,115 | |
| 1,981 | |
Research and development expenses | |
| 1,587 | |
| 1,644 | |
| 1,783 | |
| 1,658 | |
| 1,373 | |
| 1,394 | |
| 1,410 | |
| 1,437 | |
| 1,445 | |
| 1,409 | |
Selling, administrative and general expenses | |
| 3,383 | |
| 3,477 | |
| 3,551 | |
| 3,455 | |
| 3,098 | |
| 2,791 | |
| 2,868 | |
| 3,266 | |
| 3,558 | |
| 3,369 | |
Interest expense | |
| 993 | |
| 1,247 | |
| 1,466 | |
| 1,204 | |
| 899 | |
| 764 | |
| 680 | |
| 664 | |
| 741 | |
| 783 | |
Net income* | |
| 5,963 | |
| 2,751 | |
| 3,253 | |
| 2,368 | |
| 2,159 | |
| 1,524 | |
| 1,940 | |
| 3,162 | |
| 3,537 | |
| 3,065 | |
Return on net sales | | | 15.0% | | | 8.8% | | | 9.3% | | | 7.1% | | | 8.3% | | | 6.5% | | | 7.5% | | | 9.6% | | | 10.1% | | | 9.1% | |
Return on beginning Deere & Company stockholders’ equity | | | 46.1% | | | 24.1% | | | 28.8% | | | 24.8% | | | 33.1% | | | 22.6% | | | 21.4% | | | 30.8% | | | 51.7% | | | 45.1% | |
Comprehensive income* | |
| 8,963 | |
| 2,819 | |
| 2,081 | |
| 3,222 | |
| 3,221 | |
| 627 | |
| 994 | |
| 2,072 | |
| 5,416 | |
| 2,171 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income per share – basic* | | $ | 19.14 | | $ | 8.77 | | $ | 10.28 | | $ | 7.34 | | $ | 6.76 | | $ | 4.83 | | $ | 5.81 | | $ | 8.71 | | $ | 9.18 | | $ | 7.72 | |
– diluted* | |
| 18.99 | |
| 8.69 | |
| 10.15 | |
| 7.24 | |
| 6.68 | |
| 4.81 | |
| 5.77 | |
| 8.63 | |
| 9.09 | |
| 7.63 | |
Dividends declared per share | |
| 3.61 | |
| 3.04 | |
| 3.04 | |
| 2.58 | |
| 2.40 | |
| 2.40 | |
| 2.40 | |
| 2.22 | |
| 1.99 | |
| 1.79 | |
Dividends paid per share | |
| 3.32 | |
| 3.04 | |
| 2.97 | |
| 2.49 | |
| 2.40 | |
| 2.40 | |
| 2.40 | |
| 2.13 | |
| 1.94 | |
| 1.74 | |
Average number of common shares outstanding (in millions) – basic | | | 311.6 | |
| 313.5 | |
| 316.5 | |
| 322.6 | |
| 319.5 | |
| 315.2 | |
| 333.6 | |
| 363.0 | |
| 385.3 | |
| 397.1 | |
– diluted | |
| 314.0 | |
| 316.6 | |
| 320.6 | |
| 327.3 | |
| 323.3 | |
| 316.6 | |
| 336.0 | |
| 366.1 | |
| 389.2 | |
| 401.5 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 84,114 | | $ | 75,091 | | $ | 73,011 | | $ | 70,108 | | $ | 65,786 | | $ | 57,918 | | $ | 57,883 | | $ | 61,267 | | $ | 59,454 | | $ | 56,193 | |
Trade accounts and notes receivable – net | |
| 4,208 | |
| 4,171 | |
| 5,230 | |
| 5,004 | |
| 3,925 | |
| 3,011 | |
| 3,051 | |
| 3,278 | |
| 3,758 | |
| 3,799 | |
Financing receivables – net | |
| 33,799 | |
| 29,750 | |
| 29,195 | |
| 27,054 | |
| 25,104 | |
| 23,702 | |
| 24,809 | |
| 27,422 | |
| 25,633 | |
| 22,159 | |
Financing receivables securitized – net | |
| 4,659 | |
| 4,703 | |
| 4,383 | |
| 4,022 | |
| 4,159 | |
| 5,127 | |
| 4,835 | |
| 4,602 | |
| 4,153 | |
| 3,618 | |
Equipment on operating leases – net | |
| 6,988 | |
| 7,298 | |
| 7,567 | |
| 7,165 | |
| 6,594 | |
| 5,902 | |
| 4,970 | |
| 4,016 | |
| 3,152 | |
| 2,528 | |
Inventories | |
| 6,781 | |
| 4,999 | |
| 5,975 | |
| 6,149 | |
| 3,904 | |
| 3,341 | |
| 3,817 | |
| 4,210 | |
| 4,935 | |
| 5,170 | |
Property and equipment – net | |
| 5,820 | |
| 5,817 | |
| 5,973 | |
| 5,868 | |
| 5,068 | |
| 5,171 | |
| 5,181 | |
| 5,578 | |
| 5,467 | |
| 5,012 | |
Short-term borrowings: | | | | | | | | | ��� | | | | | | | | | | | | | | | | | | | | | | |
Equipment operations | |
| 1,509 | |
| 292 | |
| 987 | |
| 1,434 | |
| 375 | |
| 249 | |
| 464 | |
| 434 | |
| 1,080 | |
| 425 | |
Financial services | |
| 9,410 | |
| 8,290 | |
| 9,797 | |
| 9,628 | |
| 9,660 | |
| 6,662 | |
| 7,961 | |
| 7,584 | |
| 7,707 | |
| 5,966 | |
Total | |
| 10,919 | |
| 8,582 | |
| 10,784 | |
| 11,062 | |
| 10,035 | |
| 6,911 | |
| 8,425 | |
| 8,018 | |
| 8,787 | |
| 6,391 | |
Short-term securitization borrowings: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equipment operations | | | 10 | | | 26 | | | 44 | | | 75 | | | | | | | | | | | | | | | | | | | |
Financial services | |
| 4,595 | |
| 4,656 | |
| 4,277 | |
| 3,882 | |
| 4,119 | |
| 4,998 | |
| 4,585 | |
| 4,553 | |
| 4,103 | |
| 3,569 | |
Total | | | 4,605 | | | 4,682 | | | 4,321 | | | 3,957 | | | 4,119 | | | 4,998 | | | 4,585 | | | 4,553 | | | 4,103 | | | 3,569 | |
Long-term borrowings: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equipment operations | |
| 8,915 | |
| 10,124 | |
| 5,415 | |
| 4,714 | |
| 5,491 | |
| 4,565 | |
| 4,439 | |
| 4,619 | |
| 4,845 | |
| 5,418 | |
Financial services | |
| 23,973 | |
| 22,610 | |
| 24,814 | |
| 22,523 | |
| 20,400 | |
| 19,138 | |
| 19,336 | |
| 19,699 | |
| 16,673 | |
| 16,970 | |
Total | |
| 32,888 | |
| 32,734 | |
| 30,229 | |
| 27,237 | |
| 25,891 | |
| 23,703 | |
| 23,775 | |
| 24,318 | |
| 21,518 | |
| 22,388 | |
Total Deere & Company stockholders’ equity | |
| 18,431 | |
| 12,937 | |
| 11,413 | |
| 11,288 | |
| 9,557 | |
| 6,520 | |
| 6,743 | |
| 9,063 | |
| 10,266 | |
| 6,842 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Book value per share* | | $ | 59.83 | | $ | 41.25 | | $ | 36.45 | | $ | 35.45 | | $ | 29.70 | | $ | 20.71 | | $ | 21.29 | | $ | 26.23 | | $ | 27.46 | | $ | 17.64 | |
Capital expenditures | | $ | 867 | | $ | 762 | | $ | 1,084 | | $ | 969 | | $ | 586 | | $ | 668 | | $ | 655 | | $ | 1,004 | | $ | 1,132 | | $ | 1,360 | |
Number of employees (at year end) | |
| 75,550 | |
| 69,634 | |
| 73,489 | |
| 74,413 | |
| 60,476 | |
| 56,767 | |
| 57,180 | |
| 59,623 | |
| 67,044 | |
| 66,859 | |
|
|
| EQUIPMENT OPERATIONS* | FINANCIAL SERVICES | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||
Cash Flows from Operating Activities | |||||||||||||||||||
Net income | $ | 2,370.6 | $ | 2,159.2 | $ | 1,521.5 | $ | 942.0 | $ | 476.9 | $ | 467.6 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||
Provision for credit losses | 39.4 | 9.9 | 8.2 | 51.4 | 88.4 | 86.1 | |||||||||||||
Provision for depreciation and amortization | 974.4 | 839.3 | 803.4 | 1,077.3 | 984.3 | 846.7 | |||||||||||||
Impairment charges | 39.8 | 25.4 | 59.7 | ||||||||||||||||
Gain on sale of affiliates and investments | (25.1 | ) | (375.1 | ) | (74.5 | ) | |||||||||||||
Undistributed earnings of unconsolidated subsidiaries and affiliates | (502.8 | ) | (125.0 | ) | 94.0 | (1.8 | ) | (1.1 | ) | (1.5 | ) | ||||||||
Provision (credit) for deferred income taxes | 1,503.7 | (6.7 | ) | 13.2 | (23.8 | ) | 106.8 | 269.5 | |||||||||||
Changes in assets and liabilities: | |||||||||||||||||||
Trade receivables and Equipment Operations' financing receivables | (239.1 | ) | (243.9 | ) | (175.3 | ) | |||||||||||||
Inventories | (917.2 | ) | (504.3 | ) | 578.4 | ||||||||||||||
Accounts payable and accrued expenses | 792.6 | 946.2 | (169.6 | ) | 120.0 | 93.9 | 40.6 | ||||||||||||
Accrued income taxes payable/receivable | 102.8 | (122.7 | ) | 18.2 | (569.0 | ) | 38.5 | (11.2 | ) | ||||||||||
Retirement benefits | (984.8 | ) | (39.2 | ) | 232.4 | (41.3 | ) | 7.3 | 6.2 | ||||||||||
Other | 164.4 | (139.5 | ) | 36.5 | 88.0 | 81.5 | 97.1 | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | 3,278.9 | 2,438.0 | 2,911.8 | 1,642.8 | 1,876.5 | 1,860.8 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities | |||||||||||||||||||
Collections of receivables (excluding trade and wholesale) | 17,032.3 | 15,963.2 | 15,831.4 | ||||||||||||||||
Proceeds from maturities and sales of marketable securities | 11.4 | 297.9 | 81.9 | 65.2 | 106.3 | 87.5 | |||||||||||||
Proceeds from sales of equipment on operating leases | 1,482.7 | 1,440.8 | 1,256.2 | ||||||||||||||||
Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold | 155.6 | 113.9 | 81.1 | ||||||||||||||||
Cost of receivables acquired (excluding trade and wholesale) | (18,777.6 | ) | (16,799.9 | ) | (15,168.2 | ) | |||||||||||||
Acquisitions of businesses, net of cash acquired | (5,245.0 | ) | (284.2 | ) | (198.5 | ) | |||||||||||||
Purchases of marketable securities | (59.4 | ) | (132.8 | ) | (118.0 | ) | (111.8 | ) | |||||||||||
Purchases of property and equipment | (893.0 | ) | (591.4 | ) | (641.8 | ) | (3.4 | ) | (3.5 | ) | (2.6 | ) | |||||||
Cost of equipment on operating leases acquired | (3,209.3 | ) | (3,079.8 | ) | (3,235.7 | ) | |||||||||||||
Increase in investment in Financial Services | (.4 | ) | (20.0 | ) | (28.2 | ) | |||||||||||||
Decrease (increase) in trade and wholesale receivables | (1,222.4 | ) | (379.9 | ) | 492.5 | ||||||||||||||
Other | 17.7 | (32.7 | ) | (55.2 | ) | (73.5 | ) | (26.5 | ) | 24.6 | |||||||||
| | | | | | | | | | | | | | | | | | | |
Net cash used for investing activities | (5,953.7 | ) | (516.5 | ) | (820.1 | ) | (4,838.8 | ) | (2,897.3 | ) | (826.1 | ) | |||||||
| | | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities | |||||||||||||||||||
Increase (decrease) in total short-term borrowings | 16.1 | 64.5 | (207.2 | ) | 457.1 | 1,246.1 | (1,006.4 | ) | |||||||||||
Change in intercompany receivables/payables | (748.0 | ) | 2,142.0 | (756.0 | ) | 748.0 | (2,142.0 | ) | 756.0 | ||||||||||
Proceeds from long-term borrowings | 148.5 | 1,107.0 | 173.4 | 8,139.3 | 7,595.2 | 4,897.3 | |||||||||||||
Payments of long-term borrowings | (163.4 | ) | (66.3 | ) | (72.8 | ) | (6,081.9 | ) | (5,330.7 | ) | (5,194.8 | ) | |||||||
Proceeds from issuance of common stock | 216.9 | 528.7 | 36.0 | ||||||||||||||||
Repurchases of common stock | (957.9 | ) | (6.2 | ) | (205.4 | ) | |||||||||||||
Capital investment from Equipment Operations | .4 | 20.0 | 28.2 | ||||||||||||||||
Dividends paid | (805.8 | ) | (764.0 | ) | (761.3 | ) | (463.7 | ) | (365.2 | ) | (562.1 | ) | |||||||
Other | (60.0 | ) | (54.4 | ) | (36.7 | ) | (32.5 | ) | (33.4 | ) | (28.0 | ) | |||||||
| | | | | | | | | | | | | | | | | | | |
Net cash provided by (used for) financing activities | (2,353.6 | ) | 2,951.3 | (1,830.0 | ) | 2,766.7 | 990.0 | (1,109.8 | ) | ||||||||||
| | | | | | | | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 54.8 | 155.1 | (21.2 | ) | (28.0 | ) | 2.0 | 8.2 | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Net Increase (Decrease) in Cash and Cash Equivalents | (4,973.6 | ) | 5,027.9 | 240.5 | (457.3 | ) | (28.8 | ) | (66.9 | ) | |||||||||
Cash and Cash Equivalents at Beginning of Year | 8,168.4 | 3,140.5 | 2,900.0 | 1,166.5 | 1,195.3 | 1,262.2 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Year | $ | 3,194.8 | $ | 8,168.4 | $ | 3,140.5 | $ | 709.2 | $ | 1,166.5 | $ | 1,195.3 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The supplemental consolidating data is presented for informational purposes. The "Equipment Operations" reflect the basis of consolidation described in Note 1 to the consolidated financial statements. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.
|
| 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales and revenues | $ | 37,358 | $ | 29,738 | $ | 26,644 | $ | 28,863 | $ | 36,067 | $ | 37,795 | $ | 36,157 | $ | 32,013 | $ | 26,005 | $ | 23,112 | |||||||||||
Net sales | 33,351 | 25,885 | 23,387 | 25,775 | 32,961 | 34,998 | 33,501 | 29,466 | 23,573 | 20,756 | |||||||||||||||||||||
Finance and interest income | 3,107 | 2,732 | 2,511 | 2,381 | 2,282 | 2,115 | 1,981 | 1,923 | 1,825 | 1,842 | |||||||||||||||||||||
Research and development expenses** | 1,658 | 1,373 | 1,394 | 1,410 | 1,437 | 1,445 | 1,409 | 1,192 | 1,005 | 965 | |||||||||||||||||||||
Selling, administrative and general expenses** | 3,456 | 3,098 | 2,791 | 2,868 | 3,266 | 3,558 | 3,369 | 3,143 | 2,926 | 2,753 | |||||||||||||||||||||
Interest expense | 1,204 | 900 | 764 | 680 | 664 | 741 | 783 | 759 | 811 | 1,042 | |||||||||||||||||||||
Net income* | 2,368 | 2,159 | 1,524 | 1,940 | 3,162 | 3,537 | 3,065 | 2,800 | 1,865 | 873 | |||||||||||||||||||||
Return on net sales | 7.1% | 8.3% | 6.5% | 7.5% | 9.6% | 10.1% | 9.1% | 9.5% | 7.9% | 4.2% | |||||||||||||||||||||
Return on beginning Deere & Company stockholders' equity | 24.8% | 33.1% | 22.6% | 21.4% | 30.8% | 51.7% | 45.1% | 44.5% | 38.7% | 13.4% | |||||||||||||||||||||
Comprehensive income (loss)* | 3,221 | 3,221 | 627 | 994 | 2,072 | 5,416 | 2,171 | 2,502 | 2,079 | (1,333 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income per share – basic* | $ | 7.34 | $ | 6.76 | $ | 4.83 | $ | 5.81 | $ | 8.71 | $ | 9.18 | $ | 7.72 | $ | 6.71 | $ | 4.40 | $ | 2.07 | |||||||||||
– diluted* | 7.24 | 6.68 | 4.81 | 5.77 | 8.63 | 9.09 | 7.63 | 6.63 | 4.35 | 2.06 | |||||||||||||||||||||
Dividends declared per share | 2.58 | 2.40 | 2.40 | 2.40 | 2.22 | 1.99 | 1.79 | 1.52 | 1.16 | 1.12 | |||||||||||||||||||||
Dividends paid per share | 2.49 | 2.40 | 2.40 | 2.40 | 2.13 | 1.94 | 1.74 | 1.41 | 1.14 | 1.12 | |||||||||||||||||||||
Average number of common | 322.6 | 319.5 | 315.2 | 333.6 | 363.0 | 385.3 | 397.1 | 417.4 | 424.0 | 422.8 | |||||||||||||||||||||
– diluted | 327.3 | 323.3 | 316.6 | 336.0 | 366.1 | 389.2 | 401.5 | 422.4 | 428.6 | 424.4 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | $ | 70,108 | $ | 65,786 | $ | 57,918 | $ | 57,883 | $ | 61,267 | $ | 59,454 | $ | 56,193 | $ | 48,146 | $ | 43,186 | $ | 41,023 | |||||||||||
Trade accounts and notes receivable – net | 5,004 | 3,925 | 3,011 | 3,051 | 3,278 | 3,758 | 3,799 | 3,295 | 3,464 | 2,617 | |||||||||||||||||||||
Financing receivables – net | 27,054 | 25,104 | 23,702 | 24,809 | 27,422 | 25,633 | 22,159 | 19,924 | 17,682 | 15,255 | |||||||||||||||||||||
Financing receivables securitized – net | 4,022 | 4,159 | 5,127 | 4,835 | 4,602 | 4,153 | 3,618 | 2,905 | 2,238 | 3,108 | |||||||||||||||||||||
Equipment on operating leases – net | 7,165 | 6,594 | 5,902 | 4,970 | 4,016 | 3,152 | 2,528 | 2,150 | 1,936 | 1,733 | |||||||||||||||||||||
Inventories | 6,149 | 3,904 | 3,341 | 3,817 | 4,210 | 4,935 | 5,170 | 4,371 | 3,063 | 2,397 | |||||||||||||||||||||
Property and equipment – net | 5,868 | 5,068 | 5,171 | 5,181 | 5,578 | 5,467 | 5,012 | 4,352 | 3,791 | 4,532 | |||||||||||||||||||||
Short-term borrowings: | |||||||||||||||||||||||||||||||
Equipment operations | 1,434 | 375 | 249 | 464 | 434 | 1,080 | 425 | 529 | 85 | 490 | |||||||||||||||||||||
Financial services | 9,628 | 9,660 | 6,662 | 7,961 | 7,584 | 7,707 | 5,966 | 6,307 | 5,239 | 3,535 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | 11,062 | 10,035 | 6,911 | 8,425 | 8,018 | 8,787 | 6,391 | 6,836 | 5,324 | 4,025 | |||||||||||||||||||||
Short-term securitization borrowings: | |||||||||||||||||||||||||||||||
Equipment operations | 75 | ||||||||||||||||||||||||||||||
Financial services | 3,882 | 4,119 | 4,998 | 4,585 | 4,553 | 4,103 | 3,569 | 2,773 | 2,204 | 3,126 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | 3,957 | 4,119 | 4,998 | 4,585 | 4,553 | 4,103 | 3,569 | 2,773 | 2,204 | 3,126 | |||||||||||||||||||||
Long-term borrowings: | |||||||||||||||||||||||||||||||
Equipment operations | 4,714 | 5,491 | 4,565 | 4,439 | 4,619 | 4,845 | 5,418 | 3,155 | 3,316 | 3,058 | |||||||||||||||||||||
Financial services | 22,523 | 20,400 | 19,138 | 19,336 | 19,699 | 16,673 | 16,970 | 13,764 | 13,424 | 14,232 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | 27,237 | 25,891 | 23,703 | 23,775 | 24,318 | 21,518 | 22,388 | 16,919 | 16,740 | 17,290 | |||||||||||||||||||||
Total Deere & Company stockholders' equity | 11,288 | 9,557 | 6,520 | 6,743 | 9,063 | 10,266 | 6,842 | 6,800 | 6,290 | 4,819 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Book value per share* | $ | 35.45 | $ | 29.70 | $ | 20.71 | $ | 21.29 | $ | 26.23 | $ | 27.46 | $ | 17.64 | $ | 16.75 | $ | 14.90 | $ | 11.39 | |||||||||||
Capital expenditures | $ | 969 | $ | 586 | $ | 668 | $ | 655 | $ | 1,004 | $ | 1,132 | $ | 1,360 | $ | 1,050 | $ | 795 | $ | 767 | |||||||||||
Number of employees (at year end) | 74,413 | 60,476 | 56,767 | 57,180 | 59,623 | 67,044 | 66,859 | 61,278 | 55,650 | 51,262 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
84
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 28, 201831, 2021 and October 29, 2017,November 1, 2020, the related statements of consolidated income, consolidated comprehensive income, changes in consolidated stockholders' equity, and consolidated cash flows for each of the three years in the period ended October 28, 2018,31, 2021, and the related notes (collectively referred to as the "financial statements"statements”).) In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 28, 2018,31, 2021 and October 29, 2017,November 1, 2020, and the results of its operations and its cash flows for each of the three years in the period ended October 28, 2018,31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 28, 2018,31, 2021, based on criteria established in Internal Control –— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 17, 2018,16, 2021, 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.
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 31, 2021 was $1,680 million, of which $880 million is recorded within trade accounts and notes receivable – net and $800 million is recorded within accounts payable and accrued expenses. At the time a sale to a dealer is recognized, the Company records an estimate of the future sales incentive costs as a reduction to the sales price. These incentives may be based on a dealer’s purchase volume, or on retail sales incentive programs for allowances and financing programs that will be due when the dealer sells the equipment to a retail customer. The estimated cost of these programs is based on historical data, announced and expected incentive programs, field inventory levels and forecasted sales volumes. The final cost of these programs is determined at the end of the measurement period for volume-based incentives or when the dealer sells the equipment to the retail customer. This is due to numerous programs available at any particular time and new programs that may be announced after the Company records the equipment sale. Changes in the mix and types of programs affect these estimates, which are reviewed quarterly. The estimation of the sales incentive accrual is impacted by many assumptions. One of the key assumptions is the predictive value of the historical percentage of sales incentive costs to retail sales from dealers.
We identified the sales incentive accrual as a critical audit matter because estimating sales incentive costs requires significant judgment by management and changes in historical percentage of sales incentive costs to retails sales by dealers could have a material impact on the sales incentive accrual. Auditing management’s assumptions about the predictive nature of historical sales incentive costs involves a high degree of auditor judgment and an increased extent of effort to evaluate the reasonableness of management’s estimates.
85
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 evaluated the reasonableness of management’s assumption that historical sales incentive costs are predictive of future incentive costs by: |
● | Considering the impact of changes in the current economic conditions and competitive environment. |
● | Testing the completeness of the population used in the calculation by inspecting a sample of incentive program communications to dealers to ensure all sales incentive programs offered were included in the calculation and by confirming sales incentive payments with a sample of dealers. |
● | Comparing historical and current sales incentive costs in the following manner: |
● | Type and number of programs |
● | Geography |
● | Program size and duration |
● | Eligible products |
Allowance for Credit Losses – Refer to Notes 2 and 13 to the financial statements
Critical Audit Matter Description
The allowance for credit losses as of October 31, 2021 was $207 million. The allowance for credit losses is an estimate of the credit losses expected over the life of the Company’s receivable portfolio. The Company measures expected credit losses on a collective basis when similar risk characteristics exist. Risk characteristics considered by the Company include finance product category, market, geography, credit risk, and remaining duration. The Company utilizes loss forecast models, which are selected based on the size and credit risk of the underlying pool of receivables, to estimate expected credit losses. Transition matrix models are used for large and complex retail customer receivable pools. The modeled expected credit losses are adjusted based on reasonable and supportable forecasts, which may include economic indicators such as commodity prices, industry equipment sales, unemployment rates, and housing starts. Management reviews each model’s output quarterly, and qualitative adjustments are incorporated as necessary.
We identified the allowance for credit losses as a critical audit matter because determining the appropriate methodology and assumptions used in the estimate requires significant judgment by management. Given the subjective nature and judgment applied by management to determine the allowance for credit losses, auditing the methodology and assumptions requires a high degree of auditor judgment and an increased extent of effort, including the need to involve credit specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to testing the Company’s allowance for credit losses included the following, among others:
● | We tested the effectiveness of management’s controls over the methodology, data and assumptions used to estimate the allowance for credit losses. |
● | We tested the accuracy and evaluated the relevance of the underlying historical data used in the Company’s model. |
● | With the assistance of our credit specialists, we evaluated the reasonableness and accuracy of the models used to estimate the allowance for credit losses, including model assumptions and the selection and application of relevant risk characteristics and use of qualitative adjustments. |
● | We evaluated qualitative adjustments to the model estimate. Our evaluation included: |
● | Comparison of qualitative factors used by the Company to source data provided by the Company and/or to externally available data. |
● | Consideration and evaluation of contradictory evidence. |
● | We evaluated management’s ability to accurately forecast credit losses by performing a retrospective review, which involved comparing actual credit losses to historical estimates. |
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
December 17, 201816, 2021
We have served as the Company'sCompany’s auditor since 1910.
86
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"“Company”) as of October 28, 2018,31, 2021, based on criteria established in Internal Control –— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 28, 2018,31, 2021, based on criteria established in Internal Control –— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended October 28, 2018,31, 2021 of the Company and our report dated December 17, 2018,16, 2021, expressed an unqualified opinion on those financial statements.
As described in Management's Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at the acquired entities and assets of Wirtgen Group Holding GmbH ("Wirtgen"), which was acquired in December 2017 and whose financial statements constitute 9 percent of both total assets and net sales and revenues of the consolidated financial statement amounts as of and for the year ended October 28, 2018. Accordingly, our audit did not include the internal control over financial reporting at Wirtgen.
Basis for Opinion
The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’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'scompany’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'scompany’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'scompany’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 17, 2018
87
Index to Exhibits
| | | |
2.1 | | ||
| | | |
2.2 | | ||
| | | |
2.3 | | ||
| | | |
2.4 | | ||
| | | |
3.1 | | ||
| | | |
3.2 | | ||
| | | |
3.3 | | ||
| | | |
4.1 | | ||
| | | |
4.2 | | ||
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4.3 | | ||
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4.4 | | ||
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4.5 | | ||
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4.6 | | ||
| | | |
4.7 | | ||
| | |
88
4.8 | | |
| | |
Certain instruments relating to long-term debt constituting less than 10% of the | ||
| | |
10.1 | | |
| | |
10.2 | | |
| | |
10.3 | | |
| | |
10.4 | | |
| | |
10.5 | | |
| | |
10.6† | |
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10.7† | | ||
| | | |
10.8† | | ||
| | | |
10.9† | | ||
| | | |
10.10† | | ||
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10.11† | | ||
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10.12† | | ||
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10.13† | | ||
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10.14† | | ||
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10.15† | | ||
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10.16† | | ||
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10.17† | | ||
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89
10.18† | | ||
| | | |
10.19† | | Deere & Company Nonemployee Director Deferred Compensation Plan, as amended October | |
| | | |
10.20† | | ||
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10.21† | | ||
| | | |
10.22† | | ||
| | | |
10.23 | | ||
| | | |
10.24 | | ||
| | | |
10.25 | | ||
| | | |
10.26 | | ||
| | | |
10.27 | |
| | | |
10.28 | | ||
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10.29 | | ||
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10.30 | | ||
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10.31 | | ||
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10.32 | | ||
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90
10.33 | | ||
| | | |
10.34 | | ||
| | | |
10.35 | | ||
| | | |
10.36 | | ||
| | | |
21. | | ||
| | | |
22. | | List of Guarantors and Subsidiary Issuers of Guaranteed Securities | |
| | | |
23. | | ||
| | | |
24. | | ||
| | | |
31.1 | | ||
| | | |
31.2 | | ||
| | | |
32. | | ||
| | | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | |
| | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| | | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| | | |
104. | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Incorporated by reference. |
** | Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Deere hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the U.S. Securities and Exchange Commission. |
† | Management contract or compensatory plan or arrangement. |
91
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | ||
| | DEERE & COMPANY | ||
| | | ||
| By: | /s/ | ||
| | John C. May | ||
| | Chairman and Chief Executive Officer | ||
| | (Principal Executive Officer) |
Date: December 17, 201816, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Each person signing below also hereby appoints Samuel R. Allen, Rajesh KalathurJohn C. May, Ryan D. Campbell, and Todd E. Davies, and each of them singly, his or her lawful attorney-in-fact with full power to execute and file any and all amendments to this report together with exhibits thereto and generally to do all such things as such attorney-in-fact may deem appropriate to enable Deere & Company to comply with the provisions of the Securities Exchange Act of 1934 and all requirements of the Securities and Exchange Commission.
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Signature | | Title | | Date | |||
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/s/ | | Senior Vice President and | ) | | December 16, 2021 | ||
Ryan D. Campbell | | Chief | ) | | | ||
| | (Principal Financial Officer and | ) | | | ||
| | Accounting Officer) | ) | | | ||
| | | ) | | | ||
| | | ) | | | ||
/s/ | | Director | ) | | | ||
Leanne G. Caret | | | ) | | | ||
| | | ) | | | ||
| | | ) | | | ||
/s/ Tamra A. Erwin | | Director | ) | | | ||
Tamra A. Erwin | | | ) | | | ||
| | | ) | | | ||
| | | ) | | | ||
/s/ Alan C. Heuberger | | Director | ) | | | ||
Alan C. Heuberger | | | ) | | | ||
| | | ) | | | ||
| | | ) | | | ||
/s/ Charles O. Holliday, Jr. | | Director | ) | | | ||
Charles O. Holliday, Jr. | | | ) | | | ||
| | | ) | | | ||
| | | ) | | | ||
/s/ Dipak C. Jain | | Director | ) | | | ||
Dipak C. Jain | | | ) | | | ||
| | | ) | | | ||
| | | ) | | | ||
/s/ Michael O. Johanns | | Director | ) | | | ||
Michael O. Johanns | | | ) | | | ||
| | | ) | | | ||
| | | ) | | | ||
/s/ Clayton M. Jones | | Director | ) | | | ||
Clayton M. Jones | | | ) | | | ||
| | | ) | | |||
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/s/ John C. May |
| Chairman and Chief Executive Officer | ) | | | ||
John C. May | | (Principal Executive Officer) | ) | | | |
| | | ) | | | |
| | | ) | | | |
/s/ Gregory R. Page | | Director | ) | | | |
Gregory R. Page | | | ) | | | |
| | | ) | | | |
| | | ) | | | |
/s/ Sherry M. Smith | | Director | ) | | | |
Sherry M. Smith | | | ) | | | |
| | | ) | | | |
| | | ) | | | |
/s/ Dmitri L. Stockton | | Director | ) | | | |
Dmitri L. Stockton | | | ) | | | |
| | | ) | | | |
| | | ) | | | |
/s/ Sheila G. Talton | | Director | ) | | | |
Sheila G. Talton | | | ) | | | |
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