~~0000315189de:ShortTermBorrowingsIncludingLongTermDebtCurrentMemberus-gaap:InterestRateSwapMember2019-04-28~~0000315189us-gaap:AccountingStandardsUpdate201904Member2021-05-02

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May ~~3, 2020~~2, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file no: 1-4121

DEERE & COMPANY

(Exact name of registrant as specified in its charter)


Delaware (State of incorporation)		36-2382580 (IRS employer identification no.)

One John Deere Place

Moline, Illinois 61265

(Address of principal executive offices)

Telephone Number: (309) 765-8000

Securities Registered Pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, $1 par value	DE	New York Stock Exchange
8½% Debentures Due 2022	DE22	New York Stock Exchange
6.55% Debentures Due 2028	DE28	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

At May ~~3, 2020, 312,858,631~~2, 2021, 311,942,092 shares of common stock, $1 par value, of the registrant were outstanding.

PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended May 3, 2020 and April 28, 2019
For the Three Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars and shares except per share amounts) Unaudited
	2020		2019		2021		2020
Net Sales and Revenues
Net sales	$	8,224	$	10,273	$	10,998	$	8,224
Finance and interest income		849		838		809		849
Other income		180		231		251		180
Total		9,253		11,342		12,058		9,253

Costs and Expenses
Cost of sales		6,294		7,755		7,928		6,294
Research and development expenses		406		457		377		406
Selling, administrative and general expenses		906		947		838		906
Interest expense		342		351		268		342
Other operating expenses		377		359		335		377
Total		8,325		9,869		9,746		8,325

Income of Consolidated Group before Income Taxes		928		1,473		2,312		928
Provision for income taxes		245		343		530		245

Income of Consolidated Group		683		1,130		1,782		683
Equity in income (loss) of unconsolidated affiliates		(17)		6		8		(17)

Net Income		666		1,136		1,790		666
Less: Net income attributable to noncontrolling interests				1
Net Income Attributable to Deere & Company	$	666	$	1,135	$	1,790	$	666

Per Share Data
Basic	$	2.13	$	3.57	$	5.72	$	2.13
Diluted	$	2.11	$	3.52	$	5.68	$	2.11

Average Shares Outstanding
Basic		313.2		317.9		312.8		313.2
Diluted		316.2		322.2		315.2		316.2

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Three Months Ended May 3, 2020 and April 28, 2019
For the Three Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars) Unaudited
	2020		2019		2021		2020

Net Income	$	666	$	1,136	$	1,790	$	666

Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		57		49		91		57
Cumulative translation adjustment		(441)		(82)		37		(441)
Unrealized loss on derivatives		(8)		(7)
Unrealized gain on debt securities		6		8
Unrealized gain (loss) on derivatives						3		(8)
Unrealized gain (loss) on debt securities						(13)		6
Other Comprehensive Income (Loss), Net of Income Taxes		(386)		(32)		118		(386)

Comprehensive Income of Consolidated Group		280		1,104		1,908		280
Less: Comprehensive income attributable to noncontrolling interests				1
Comprehensive Income Attributable to Deere & Company	$	280	$	1,103	$	1,908	$	280

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Six Months Ended May 3, 2020 and April 28, 2019
For the Six Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars and shares except per share amounts) Unaudited
	2020		2019		2021		2020
Net Sales and Revenues
Net sales	$	14,754	$	17,214	$	19,049	$	14,754
Finance and interest income		1,745		1,653		1,644		1,745
Other income		385		459		477		385
Total		16,884		19,326		21,170		16,884

Costs and Expenses
Cost of sales		11,371		13,186		13,734		11,371
Research and development expenses		831		864		743		831
Selling, administrative and general expenses		1,715		1,710		1,607		1,715
Interest expense		678		704		538		678
Other operating expenses		792		711		708		792
Total		15,387		17,175		17,330		15,387

Income of Consolidated Group before Income Taxes		1,497		2,151		3,840		1,497
Provision for income taxes		295		528		838		295

Income of Consolidated Group		1,202		1,623		3,002		1,202
Equity in income (loss) of unconsolidated affiliates		(18)		13		12		(18)

Net Income		1,184		1,636		3,014		1,184
Less: Net income attributable to noncontrolling interests		2		3		1		2
Net Income Attributable to Deere & Company	$	1,182	$	1,633	$	3,013	$	1,182

Per Share Data
Basic	$	3.77	$	5.13	$	9.62	$	3.77
Diluted	$	3.73	$	5.07	$	9.55	$	3.73

Average Shares Outstanding
Basic		313.3		318.1		313.1		313.3
Diluted		316.7		322.4		315.6		316.7

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Six Months Ended May 3, 2020 and April 28, 2019
For the Six Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars) Unaudited
	2020		2019		2021		2020

Net Income	$	1,184	$	1,636	$	3,014	$	1,184

Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		287		68		154		287
Cumulative translation adjustment		(398)		(244)		433		(398)
Unrealized loss on derivatives		(8)		(15)
Unrealized gain on debt securities		11		16
Unrealized gain (loss) on derivatives						7		(8)
Unrealized gain (loss) on debt securities						(15)		11
Other Comprehensive Income (Loss), Net of Income Taxes		(108)		(175)		579		(108)

Comprehensive Income of Consolidated Group		1,076		1,461		3,593		1,076
Less: Comprehensive income attributable to noncontrolling interests		2		3		1		2
Comprehensive Income Attributable to Deere & Company	$	1,074	$	1,458	$	3,592	$	1,074

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited
	May 3		November 3		April 28		May 2		November 1		May 3
	2020		2019		2019		2021		2020		2020
Assets
Cash and cash equivalents	$	8,900	$	3,857	$	3,484	$	7,182	$	7,066	$	8,900
Marketable securities		626		581		545		668		641		626
Receivables from unconsolidated affiliates		32		46		34		31		31		32
Trade accounts and notes receivable – net		5,986		5,230		7,519		6,158		4,171		5,986
Financing receivables – net		27,256		29,195		25,870		30,994		29,750		27,256
Financing receivables securitized – net		4,685		4,383		4,814		4,107		4,703		4,685
Other receivables		1,212		1,487		1,477		1,473		1,220		1,212
Equipment on operating leases – net		7,245		7,567		7,040		7,108		7,298		7,245
Inventories		6,171		5,975		7,161		6,042		4,999		6,171
Property and equipment – net		5,685		5,973		5,757		5,704		5,817		5,685
Investments in unconsolidated affiliates		192		215		235		182		193		192
Goodwill		2,917		2,917		3,025		3,190		3,081		2,917
Other intangible assets – net		1,311		1,380		1,476		1,310		1,327		1,311
Retirement benefits		960		840		1,383		951		863		960
Deferred income taxes		1,435		1,466		1,039		1,724		1,499		1,435
Other assets		2,713		1,899		1,871		2,155		2,432		2,713
Total Assets	$	77,326	$	73,011	$	72,730	$	78,979	$	75,091	$	77,326

Liabilities and Stockholders’ Equity

Liabilities
Short-term borrowings	$	11,179	$	10,784	$	11,762	$	9,911	$	8,582	$	11,179
Short-term securitization borrowings		4,640		4,321		4,702		4,106		4,682		4,640
Payables to unconsolidated affiliates		91		142		200		155		105		91
Accounts payable and accrued expenses		9,072		9,656		9,626		10,527		10,112		9,072
Deferred income taxes		475		495		514		533		519		475
Long-term borrowings		34,324		30,229		28,255		33,346		32,734		34,324
Retirement benefits and other liabilities		5,680		5,953		5,733		5,305		5,413		5,680
Total liabilities		65,461		61,580		60,792		63,883		62,147		65,461

Commitments and contingencies (Note 16)
Redeemable noncontrolling interest (Note 22)				14		14
Commitments and contingencies (Note 18)

Stockholders’ Equity
Common stock, $1 par value (issued shares at May 3, 2020 – 536,431,204)		4,713		4,642		4,559
Common stock, $1 par value (issued shares at May 2, 2021 – 536,431,204)								4,999		4,895		4,713
Common stock in treasury		(17,690)		(17,474)		(16,739)		(19,052)		(18,065)		(17,690)
Retained earnings		30,556		29,852		28,709		34,105		31,646		30,556
Accumulated other comprehensive income (loss)		(5,715)		(5,607)		(4,610)		(4,960)		(5,539)		(5,715)
Total Deere & Company stockholders’ equity		11,864		11,413		11,919		15,092		12,937		11,864
Noncontrolling interests		1		4		5		4		7		1
Total stockholders’ equity		11,865		11,417		11,924		15,096		12,944		11,865
Total Liabilities and Stockholders’ Equity	$	77,326	$	73,011	$	72,730	$	78,979	$	75,091	$	77,326

See Condensed Notes to Interim Consolidated Financial Statements.

DEERE & COMPANY

STATEMENT OF CONSOLIDATED CASH FLOWS

For the Six Months Ended May 3, 2020 and April 28, 2019

(In millions of dollars) Unaudited


2020

2019

Cash Flows from Operating Activities





Net income

$
1,184

$
1,636

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Provision for credit losses

107

37

Provision for depreciation and amortization

1,067

1,016

Impairment charges

114

Share-based compensation expense

48

44

Undistributed earnings of unconsolidated affiliates

(8)

(9)

Credit for deferred income taxes

(61)

(282)

Changes in assets and liabilities:

Trade, notes, and financing receivables related to sales

(491)

(2,731)

Inventories

(496)

(1,394)

Accounts payable and accrued expenses

(707)

(66)

Accrued income taxes payable/receivable

(173)

157

Retirement benefits

58

20

Other

134

77

Net cash provided by (used for) operating activities

776

(1,495)

Cash Flows from Investing Activities

Collections of receivables (excluding receivables related to sales)

9,624

9,176

Proceeds from maturities and sales of marketable securities

39

30

Proceeds from sales of equipment on operating leases

898

823

Cost of receivables acquired (excluding receivables related to sales)

(9,367)

(8,887)

Purchases of marketable securities

(71)

(59)

Purchases of property and equipment

(441)

(491)

Cost of equipment on operating leases acquired

(960)

(924)

Collateral on derivatives - net

319

60

Other

(11)

(100)

Net cash provided by (used for) investing activities

30

(372)

Cash Flows from Financing Activities

Increase in total short-term borrowings

1,138

1,570

Proceeds from long-term borrowings

7,275

4,232

Payments of long-term borrowings

(3,315)

(3,427)

Proceeds from issuance of common stock

70

95

Repurchases of common stock

(263)

(481)

Dividends paid

(481)

(462)

Other

(81)

(54)

Net cash provided by financing activities

4,343

1,473

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash

(102)

(35)

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash

5,047

(429)

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period

3,956

4,015

Cash, Cash Equivalents, and Restricted Cash at End of Period

$
9,003

$
3,586


DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Six Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars) Unaudited
	2021		2020
Cash Flows from Operating Activities
Net income	$	3,014	$	1,184
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for credit losses		(24)		107
Provision for depreciation and amortization		1,054		1,067
Impairment charges		50		114
Share-based compensation expense		45		48
Undistributed earnings of unconsolidated affiliates		11		(8)
Credit for deferred income taxes		(213)		(61)
Changes in assets and liabilities:
Trade, notes, and financing receivables related to sales		(1,124)		(491)
Inventories		(1,193)		(496)
Accounts payable and accrued expenses		318		(707)
Accrued income taxes payable/receivable		54		(173)
Retirement benefits		(5)		58
Other		(201)		134
Net cash provided by operating activities		1,786		776

Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)		10,367		9,624
Proceeds from maturities and sales of marketable securities		47		39
Proceeds from sales of equipment on operating leases		1,011		898
Cost of receivables acquired (excluding receivables related to sales)		(11,359)		(9,367)
Acquisitions of businesses, net of cash acquired		(19)
Purchases of marketable securities		(74)		(71)
Purchases of property and equipment		(320)		(441)
Cost of equipment on operating leases acquired		(764)		(960)
Collateral on derivatives – net		(255)		319
Other		(21)		(11)
Net cash provided by (used for) investing activities		(1,387)		30

Cash Flows from Financing Activities
Increase in total short-term borrowings		212		1,138
Proceeds from long-term borrowings		3,967		7,275
Payments of long-term borrowings		(3,157)		(3,315)
Proceeds from issuance of common stock		116		70
Repurchases of common stock		(1,044)		(263)
Dividends paid		(480)		(481)
Other		(55)		(81)
Net cash provided by (used for) financing activities		(441)		4,343

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash		151		(102)

Net Increase in Cash, Cash Equivalents, and Restricted Cash		109		5,047
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period		7,172		3,956
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	7,281	$	9,003

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY	DEERE & COMPANY															DEERE & COMPANY
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY	STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY															STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY
For the Three and Six Months Ended May 3, 2020 and April 28, 2019
For the Three and Six Months Ended May 2, 2021 and May 3, 2020																For the Three and Six Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars) Unaudited	(In millions of dollars) Unaudited															(In millions of dollars) Unaudited
				Total Stockholders’ Equity																Total Stockholders’ Equity
				Deere & Company Stockholders																Deere & Company Stockholders
										Accumulated																Accumulated
		Total								Other				Redeemable			Total									Other				Redeemable
		Stockholders’		Common		Treasury		Retained		Comprehensive		Noncontrolling		Noncontrolling			Stockholders’			Common		Treasury		Retained		Comprehensive		Noncontrolling		Noncontrolling
		Equity		Stock		Stock		Earnings		Income (Loss)		Interests		Interest			Equity			Stock		Stock		Earnings		Income (Loss)		Interests		Interest

Three Months Ended April 28, 2019
Balance January 27, 2019		$	11,333	$	4,512	$	(16,422)	$	27,816	$	(4,578)	$	5	$	14
Net income			1,136						1,135				1
Other comprehensive loss			(32)								(32)
Repurchases of common stock			(337)				(337)
Treasury shares reissued			20				20
Dividends declared			(243)						(242)				(1)
Stock options and other			47		47
Balance April 28, 2019		$	11,924	$	4,559	$	(16,739)	$	28,709	$	(4,610)	$	5	$	14

Six Months Ended April 28, 2019
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			1,636						1,633				3
Other comprehensive loss			(175)								(175)
Repurchases of common stock			(481)				(481)
Treasury shares reissued			54				54
Dividends declared			(486)						(485)				(1)
Stock options and other			85		85
Balance April 28, 2019		$	11,924	$	4,559	$	(16,739)	$	28,709	$	(4,610)	$	5	$	14

Three Months Ended May 3, 2020	Three Months Ended May 3, 2020															Three Months Ended May 3, 2020
Balance February 2, 2020		$	11,930	$	4,675	$	(17,549)	$	30,129	$	(5,329)	$	4	$	14		$	11,930		$	4,675	$	(17,549)	$	30,129	$	(5,329)	$	4	$	14
Net income			666						666									666							666
Other comprehensive loss			(386)								(386)							(386)									(386)
Repurchases of common stock			(149)				(149)											(149)					(149)
Treasury shares reissued			8				8											8					8
Dividends declared			(241)						(238)				(3)					(241)							(238)				(3)
Noncontrolling interest redemption (Note 22)															(14)																(14)
Stock options and other			37		38				(1)									37			38				(1)
Balance May 3, 2020		$	11,865	$	4,713	$	(17,690)	$	30,556	$	(5,715)	$	1				$	11,865		$	4,713	$	(17,690)	$	30,556	$	(5,715)	$	1

Six Months Ended May 3, 2020	Six Months Ended May 3, 2020															Six Months Ended May 3, 2020
Balance November 3, 2019		$	11,417	$	4,642	$	(17,474)	$	29,852	$	(5,607)	$	4	$	14		$	11,417		$	4,642	$	(17,474)	$	29,852	$	(5,607)	$	4	$	14
Net income			1,183						1,182				1		1			1,183							1,182				1		1
Other comprehensive loss			(108)								(108)							(108)									(108)
Repurchases of common stock			(263)				(263)											(263)					(263)
Treasury shares reissued			47				47											47					47
Dividends declared			(480)						(477)				(3)		(1)			(480)							(477)				(3)		(1)
Noncontrolling interest redemption (Note 22)															(14)																(14)
Stock options and other			69		71				(1)				(1)					69			71				(1)				(1)
Balance May 3, 2020		$	11,865	$	4,713	$	(17,690)	$	30,556	$	(5,715)	$	1				$	11,865		$	4,713	$	(17,690)	$	30,556	$	(5,715)	$	1

Three Months Ended May 2, 2021																Three Months Ended May 2, 2021
Balance January 31, 2021																	$	14,086		$	4,942	$	(18,377)	$	32,596	$	(5,078)	$	3
Net income																		1,790							1,790
Other comprehensive income																		118									118
Repurchases of common stock																		(692)					(692)
Treasury shares reissued																		17					17
Dividends declared																		(282)							(282)
Stock options and other																		59			57				1				1
Balance May 2, 2021																	$	15,096		$	4,999	$	(19,052)	$	34,105	$	(4,960)	$	4

Six Months Ended May 2, 2021																Six Months Ended May 2, 2021			��
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																		3,014							3,013				1
Other comprehensive income																		579									579
Repurchases of common stock																		(1,044)					(1,044)
Treasury shares reissued																		57					57
Dividends declared																		(520)							(520)
Stock options and other																		101			104				1				(4)
Balance May 2, 2021																	$	15,096		$	4,999	$	(19,052)	$	34,105	$	(4,960)	$	4

See Condensed Notes to Interim Consolidated Financial Statements.

Condensed Notes to Interim Consolidated Financial Statements (Unaudited)

(1) Organization and Consolidation

The information in the notes and related commentary are presented in a format which includes data grouped as follows:

Consolidated– Represents the consolidation of the equipment operations and financial services. References to “Deere & Company” or “the Company” refer to the entire enterprise.

Equipment Operations – ~~Includes~~Represents the enterprise without financial services, while including the Company’s production and precision agriculture operations, small agriculture and turf operations, ~~and~~ construction and forestry operations, ~~with~~and other corporate assets, liabilities, revenues, and expenses not reflected within financial ~~services reflected on the equity basis.~~services.

Financial Services – Includes primarily the Company’s financing operations.

~~Consolidated~~ – ~~Represents~~Beginning in fiscal year 2021, the ~~consolidation~~Company implemented a new strategy, 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. In addition, 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 ~~equipment operations~~segments. Additional information on the new segments and the segment financial ~~services.~~results are presented in Note 10. Prior period segment information was recast for a consistent presentation. References to ~~“Deere & Company” or “the Company” refer to the entire enterprise.~~agriculture and turf include both production and precision agriculture and small agriculture and turf.

The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The second quarter ends for fiscal year 2021 and 2020 were May 2, 2021 and ~~2019 were~~ May 3, 2020, ~~and April 28, 2019,~~ respectively. Both second quarters contained 13 weeks, while both year-to-date periods contained 1326 weeks.

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 the first quarter of 2021, the reporting lag was eliminated resulting in one additional month of Wirtgen activity in the first quarter and the year-to-date period. 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 ~~Variable Interest Entities~~variable interest entities (VIEs) related to retail note securitizations (see Note 12).

The Company also has an interest in a joint venture that manufactures construction equipment in Brazil for local and overseas markets. The joint venture is a VIE; however, the Company is not the primary beneficiary. Therefore, the entity’s financial results are not fully consolidated in the Company’s consolidated financial statements, but are included on the equity basis. The maximum exposure to loss was ~~$13~~$7 million, ~~$22~~$5 million, and ~~$22~~$13 million at May 2, 2021, November 1, 2020, and May 3, 2020, ~~November 3, 2019, and April 28, 2019,~~ respectively.

(2) Summary of Significant Accounting Policies and Cash Flow Information

The interim consolidated financial statements of Deere & Company have been prepared by the Company, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes ~~that~~ the disclosures are adequate to present fairly the financial position, results of operations, and cash flows at the dates and for the periods presented. It is suggested ~~that~~ these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. The ~~identification and rapid spread of COVID-19 (COVID)~~COVID pandemic has ~~resulted in governments and other authorities implementing numerous measures designed to contain the virus. These and other actions have~~ resulted in uncertainties in the Company’s business, which may result in actual results differing ~~significantly~~ from those estimates. Examples of estimates used in the financial statements affected by this uncertainty include sales incentive costs, incurred credit losses, the value of used equipment, equipment on operating lease return rates, forecasted annual effective income tax rate, and cash flows to determine long-lived assets, goodwill, and certain intangible asset recoverability, and fair value measurements.

Cash Flow Information

All cash flows from the changes in trade accounts and notes receivable are classified as operating activities in the statement of consolidated cash flows as these receivables arise from sales to the Company’s customers. Cash flows from financing receivables that are related to sales to the Company’s customers 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 approximately ~~$255~~$267 million and ~~$308~~$254 million in the first six months of ~~2020~~2021 and ~~2019,~~2020, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately ~~$46~~$40 million and ~~$74~~$46 million at May 2, 2021 and May 3, 2020, ~~and April 28, 2019,~~ respectively.

The Company’s restricted cash held at May 2, 2021, November 1, 2020, May 3, 2020, and November 3, 2019 ~~April 28, 2019, and October 28, 2018~~ was as follows in millions of dollars:


	May 3		November 3		April 28		October 28		May 2		November 1		May 3		November 3
	2020		2019		2019		2018		2021		2020		2020		2019
Equipment operations	$	11	$	21	$	10	$	7	$	12	$	11	$	11	$	21
Financial services		92		78		92		104		87		95		92		78
Total	$	103	$	99	$	102	$	111	$	99	$	106	$	103	$	99

The equipment operations’ restricted cash relates to miscellaneous operational activities. The financial services restricted cash primarily relates to securitization of financing receivables (see Note 12). The restricted cash is recorded in “Other assets” in the consolidated balance sheet.

(3) New Accounting Standards

New Accounting Standards Adopted

In the first quarter of ~~2020,~~2021, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. ~~2016-02, Leases (Topic 842),~~2016-13, Measurement of Credit Losses on Financial Instruments, which ~~supersedes~~establishes Accounting Standards Codification (ASC) ~~840, Leases.~~326, Financial Instruments - Credit Losses. This ASU was adopted using a modified-retrospective approach. 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, did 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. The ASU adds new disclosures about the Company’s leasing activities. The Company elected the optional practical expedients to not reassess whether existing contracts contain leases, not reassess lease classification, and not reassess initial direct costs for existing leases. The Company did not elect the hindsight practical expedient. In addition, the Company elected to combine lease and non-lease components for all asset classes and to not recognize a right of use asset or lease liability for arrangements that qualify as short-term leases.

The operating lease liabilities are recorded in “Accounts payable and accrued expenses” and the operating lease right of use assets are recorded in “Other assets.” The finance lease liabilities are recorded in “Short-term borrowings” or “Long-term borrowings” based on the remaining lease term, and the finance lease right of use assets are recorded in “Property and equipment - net.” In addition to the lease liabilities and right of use assets, land use rights were reclassified from “Other intangible assets - net” to “Other assets” and finance lease liabilities were reclassified from “Accounts payable and accrued expenses” to “Short-term borrowings” and “Long-term borrowings.” The effect of adopting the ASU on the consolidated balance sheet follows in millions of dollars:

November 3, 2019

Cumulative Effect
from Adoption

November 4, 2019

Assets

Other intangible assets - net

$
1,380

$
(23)

$
1,357

Other assets

1,899

402

2,301

Liabilities

Short-term borrowings

$
10,784

$
11

$
10,795

Accounts payable and accrued expenses

9,656

348

10,004

Long-term borrowings

30,229

20

30,249

~~The Company implemented a new system for lessee accounting~~along with ~~new processes and controls at the time of adopting the ASU. The adoption did not have a material effect on the Company’s operating results or cash flows. See Note 15 for additional information.~~

~~The Company also adopted the following standards in the first quarter of 2020, none of which had a material effect on the Company’s consolidated financial statements:~~

~~Accounting Standards Updates~~


~~2017-08~~	~~Premium Amortization on Purchased Callable Debt Securities, which amends ASC 310-20, Receivables – Nonrefundable Fees and Other Costs~~
~~2018-07~~	~~Improvements to Nonemployee Share-Based Payment Accounting, which amends ASC 718, Compensation – Stock Compensation~~
~~2019-04~~	Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The adoption was for clarifications to ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which establishes ASC 848, Reference Rate Reform. Regulators in several countries are requiring initiatives to identify alternative reference rates to the London Interbank Offered Rates and other interbank rates. This regulatory requirement will likely result in contract revisions that will transition to alternative reference rates. This ASU provides optional, temporary guidance, simplifications, and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions resulting from the transition. The guidance in this ASU is elective and effective beginning in the second quarter of 2020 through December 31, 2022. The Company is evaluating the contracts that could be affected by an alternative reference rate and assessing the potential effects of the ASU on the consolidated financial statements.

~~New Accounting Standards to be Adopted~~

~~In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASC 326, Financial Instruments – Credit Losses. The ASU revises~~related amendments, revised the measurement of credit losses for financial assets measured at amortized cost from an incurred loss to an expected loss methodology. The ASU affects receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. ~~Additional disclosures about significant estimates~~

The Company holds deposits from dealers (dealer deposits), which are recorded in “Accounts payable and accrued liabilities” to absorb certain credit ~~quality are also required. The effective date will be~~losses. Prior to adopting this ASU, the ~~first quarter~~allowance for credit losses was estimated on probable credit losses incurred after consideration of ~~fiscal year 2021.~~recoveries from dealer deposits. The ASU ~~will be adopted using~~considers dealer deposits and certain credit insurance contracts as freestanding credit enhancements. As a ~~modified-retrospective approach. The Company is developing models to estimate expected~~result, after adoption, credit losses ~~assessing appropriate assumptions, designing new procedures~~recovered from dealer deposits and ~~controls,~~certain credit insurance contracts are presented in “Other income” and ~~evaluating~~no longer as part of the ~~potential~~allowance for credit losses or the provision for credit losses. The ASU also modified the treatment of the estimated write-off of delinquent receivables by no longer including the estimated benefit of charges to the dealer deposits in the write-off amount. This change increases the estimated write-offs on delinquent financing receivables with the benefit of credit losses recovered from dealer deposits presented in “Other income.” This benefit, in both situations, is recorded when the dealer deposits are charged and no longer based on estimated recoveries.

The effects of adopting the ASU on the consolidated ~~financial statements.~~balance sheet were as follows in millions of dollars:


	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

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 itemNote 11 contains additional disclosures as well as the ~~service contract costs. The effective date will be the first quarter offiscal year 2021, with early adoption permitted.~~ Company’s updated allowance for credit losses accounting policy.

The Company ~~will adopt~~also adopted the ~~ASU on a prospective basis. The Company is evaluating the potential effects on the Company’s consolidated financial statements.~~

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The effective dates for the separate portionsfollowing standards in 2021, none of the ASU and the expected effect on the consolidated financial statements are as follows for the portions that have not yet been adopted: (1) clarifications to ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, is the first quarter of fiscal year 2021, which ~~is under evaluation, and (2) clarifications to ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities is the first quarter of fiscal year 2021, which will not have~~had a material effect on the Company’s consolidated financial ~~statements.~~statements:


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

~~In December 2019,~~New Accounting Standards to be Adopted

The Company will adopt the ~~FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes,~~following standards in future periods, none of which amends ASC 740, Income Taxes. This ASU simplifies the accounting for income taxes by modifying the treatment of intraperiod tax allocation in certain circumstances, eliminating an exception to recognizing deferred tax liabilities for outside basis differences for foreign equity method investments and foreign subsidiaries when ownership or control changes, and modifying interim period tax calculations when a loss is forecast. In addition, the ASU also provides guidance for the accounting of a franchise tax that is partially based on income, requires that enacted changes in tax laws or rates be included in the annual effective rate determination in the period that includes the enactment date, and clarifies the tax accounting of a step up in tax basis of goodwill. The effective date will be the first quarter of fiscal year 2022, with early adoption permitted. The guidance related to the foreign equity method investments, foreign subsidiaries, and franchise taxes will be adopted using a modified-retrospective approach. The remaining provisions will be adopted prospectively. The adoption is notare expected to have a material effect on the Company’s consolidated financial ~~statements.~~statements:


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) Revenue Recognition

The Company’s revenue by primary geographical market, major product line, and timing of revenue recognition was as follows in millions of dollars:


	Three Months Ended May 2, 2021
	Production & Precision Ag		Small Ag & Turf		Construction & Forestry		Financial Services		Total
Primary geographical markets:
United States	$	2,211	$	1,838	$	1,481	$	608	$	6,138
Canada		252		144		320		153		869
Western Europe		589		738		514		26		1,867
Central Europe and CIS		531		160		209		9		909
Latin America		700		103		220		60		1,083
Asia, Africa, Australia, New Zealand, and Middle East		319		444		393		36		1,192
Total	$	4,602	$	3,427	$	3,137	$	892	$	12,058

Major product lines:
Production agriculture	$	4,466							$	4,466
Small agriculture			$	2,417						2,417
Turf				898						898
Construction					$	1,232				1,232
Compact construction						396				396
Roadbuilding						1,066				1,066
Forestry						343				343
Financial products		12		10		5	$	892		919
Other		124		102		95				321
Total	$	4,602	$	3,427	$	3,137	$	892	$	12,058

Timing of revenue recognition:
Revenue recognized at a point in time	$	4,562	$	3,412	$	3,114	$	26	$	11,114
Revenue recognized over time		40		15		23		866		944
Total	$	4,602	$	3,427	$	3,137	$	892	$	12,058

~~(4) Revenue Recognition~~

~~The Company’s revenue by primary geographical market, major product line, and timing of revenue recognition in millions of dollars follow:~~

Three Months Ended May 3, 2020


Agriculture
and Turf

Construction
and Forestry

Financial
Services

Total

Primary geographical markets:





United States

$
3,381

$
1,263

$
604

$
5,248

Canada

266

166

151

583

Western Europe

1,111

358

22

1,491

Central Europe and CIS

338

140

8

486

Latin America

458

135

60

653

Asia, Africa, Australia, New Zealand, and Middle East

511

251

30

792

Total

$
6,065

$
2,313

$
875

$
9,253

Major product lines:





Large Agriculture

$
3,075

$
3,075

Small Agriculture

1,976

1,976

Turf

806

806

Construction

$
877

877

Compact Construction

339

339

Roadbuilding

723

723

Forestry

254

254

Financial Products

21

6

$
875

902

Other

187

114

301

Total

$
6,065

$
2,313

$
875

$
9,253

Timing of revenue recognition:





Revenue recognized at a point in time

$
6,016

$
2,287

$
26

$
8,329

Revenue recognized over time

49

26

849

924

Total

$
6,065

$
2,313

$
875

$
9,253


	Six Months Ended May 2, 2021
	Production & Precision Ag		Small Ag & Turf		Construction & Forestry		Financial Services		Total
Primary geographical markets:
United States	$	3,820	$	3,261	$	2,683	$	1,206	$	10,970
Canada		364		223		508		307		1,402
Western Europe		1,038		1,224		953		50		3,265
Central Europe and CIS		692		244		387		18		1,341
Latin America		1,213		180		390		119		1,902
Asia, Africa, Australia, New Zealand, and Middle East		623		845		746		76		2,290
Total	$	7,750	$	5,977	$	5,667	$	1,776	$	21,170

Major product lines:
Production agriculture	$	7,478							$	7,478
Small agriculture			$	4,228						4,228
Turf				1,549						1,549
Construction					$	2,119				2,119
Compact construction						742				742
Roadbuilding						1,976				1,976
Forestry						633				633
Financial products		28		20		12	$	1,776		1,836
Other		244		180		185				609
Total	$	7,750	$	5,977	$	5,667	$	1,776	$	21,170

Timing of revenue recognition:
Revenue recognized at a point in time	$	7,668	$	5,946	$	5,614	$	50	$	19,278
Revenue recognized over time		82		31		53		1,726		1,892
Total	$	7,750	$	5,977	$	5,667	$	1,776	$	21,170


	Six Months Ended May 3, 2020								Three Months Ended May 3, 2020
	Agriculture and Turf		Construction and Forestry		Financial Services		Total		Production & Precision Ag		Small Ag & Turf		Construction & Forestry		Financial Services		Total
Primary geographical markets:
United States	$	5,881	$	2,283	$	1,247	$	9,411	$	1,841	$	1,540	$	1,263	$	604	$	5,248
Canada		404		338		307		1,049		177		89		166		151		583
Western Europe		1,889		697		44		2,630		540		571		358		22		1,491
Central Europe and CIS		558		299		18		875		258		80		140		8		486
Latin America		913		294		126		1,333		394		64		135		60		653
Asia, Africa, Australia, New Zealand, and Middle East		1,015		507		64		1,586		221		290		251		30		792
Total	$	10,660	$	4,418	$	1,806	$	16,884	$	3,431	$	2,634	$	2,313	$	875	$	9,253

Major product lines:
Large Agriculture	$	5,214					$	5,214
Small Agriculture		3,741						3,741
Production agriculture									$	3,280							$	3,280
Small agriculture											$	1,771						1,771
Turf		1,274						1,274				806						806
Construction			$	1,718				1,718					$	877				877
Compact Construction				627				627
Compact construction														339				339
Roadbuilding				1,328				1,328						723				723
Forestry				528				528						254				254
Financial Products		48		13	$	1,806		1,867
Financial products										13		8		6	$	875		902
Other		383		204				587		138		49		114				301
Total	$	10,660	$	4,418	$	1,806	$	16,884	$	3,431	$	2,634	$	2,313	$	875	$	9,253

Timing of revenue recognition:
Revenue recognized at a point in time	$	10,556	$	4,366	$	52	$	14,974	$	3,396	$	2,620	$	2,287	$	26	$	8,329
Revenue recognized over time		104		52		1,754		1,910		35		14		26		849		924
Total	$	10,660	$	4,418	$	1,806	$	16,884	$	3,431	$	2,634	$	2,313	$	875	$	9,253

Three Months Ended April 28, 2019


Agriculture
and Turf

Construction
and Forestry

Financial
Services

Total

Primary geographical markets:





United States

$
3,912

$
1,738

$
604

$
6,254

Canada

313

265

153

731

Western Europe

1,360

379

21

1,760

Central Europe and CIS

393

155

9

557

Latin America

772

194

69

1,035

Asia, Africa, Australia, New Zealand, and Middle East

647

328

30

1,005

Total

$
7,397

$
3,059

$
886

$
11,342

Major product lines:





Large Agriculture

$
3,494

$
3,494

Small Agriculture

2,632

2,632

Turf

989

989

Construction

$
1,478

1,478

Compact Construction

320

320

Roadbuilding

814

814

Forestry

338

338

Financial Products

25

6

$
886

917

Other

257

103

360

Total

$
7,397

$
3,059

$
886

$
11,342

Timing of revenue recognition:





Revenue recognized at a point in time

$
7,345

$
3,034

$
10,379

Revenue recognized over time

52

25

$
886

963

Total

$
7,397

$
3,059

$
886

$
11,342


	Six Months Ended April 28, 2019								Six Months Ended May 3, 2020
	Agriculture and Turf		Construction and Forestry		Financial Services		Total		Production & Precision Ag		Small Ag & Turf		Construction & Forestry		Financial Services		Total
Primary geographical markets:
United States	$	6,540	$	2,901	$	1,179	$	10,620	$	3,276	$	2,605	$	2,283	$	1,247	$	9,411
Canada		485		513		310		1,308		261		143		338		307		1,049
Western Europe		2,208		716		41		2,965		905		984		697		44		2,630
Central Europe and CIS		541		326		18		885		389		169		299		18		875
Latin America		1,320		344		133		1,797		778		135		294		126		1,333
Asia, Africa, Australia, New Zealand, and Middle East		1,100		591		60		1,751		410		605		507		64		1,586
Total	$	12,194	$	5,391	$	1,741	$	19,326	$	6,019	$	4,641	$	4,418	$	1,806	$	16,884

Major product lines:
Large Agriculture	$	5,661					$	5,661
Small Agriculture		4,441						4,441
Production agriculture									$	5,706							$	5,706
Small agriculture											$	3,249						3,249
Turf		1,495						1,495				1,274						1,274
Construction			$	2,487				2,487					$	1,718				1,718
Compact Construction				584				584
Compact construction														627				627
Roadbuilding				1,412				1,412						1,328				1,328
Forestry				690				690						528				528
Financial Products		44		13	$	1,741		1,798
Financial products										34		14		13	$	1,806		1,867
Other		553		205				758		279		104		204				587
Total	$	12,194	$	5,391	$	1,741	$	19,326	$	6,019	$	4,641	$	4,418	$	1,806	$	16,884

Timing of revenue recognition:
Revenue recognized at a point in time	$	12,100	$	5,347			$	17,447	$	5,941	$	4,615	$	4,366	$	52	$	14,974
Revenue recognized over time		94		44	$	1,741		1,879		78		26		52		1,754		1,910
Total	$	12,194	$	5,391	$	1,741	$	19,326	$	6,019	$	4,641	$	4,418	$	1,806	$	16,884

Following is a description of the Company’s major product lines:

~~Large Agriculture~~Production agriculture – Includes net sales of large and certain mid-size tractors ~~with more than approximately 200 horsepower~~ and associated attachments, combines, cotton pickers, cotton strippers, ~~self-propelled forage harvesters and related attachments,~~ 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, and related attachments and service parts.

Small ~~Agriculture~~agriculture – Includes net sales of ~~medium~~mid-size and utility tractors, ~~with less than approximately 200 horsepower,~~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, ~~and walk-behind mowers,~~ golf course equipment, utility vehicles, and commercial mowing equipment, along with a broad line of associated implements, other outdoor power products, and related ~~attachments and~~ service parts.

Construction – Includes net sales of a broad range of machines used in construction, earthmoving, and material handling, including backhoe loaders, crawler dozers and loaders, four-wheel-drive loaders, excavators, motor graders, articulated dump trucks, and related attachments and service parts.

Compact ~~Construction~~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~~products – Includes finance and interest income primarily from retail notes related to sales of John Deere equipment to end 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 ~~certain~~ 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~~Company owned dealerships and service centers, gains on disposition of property and businesses, trademark licensing revenue, and other miscellaneous revenue ~~items.~~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 premiums for extended warranties, advance payments for future equipment sales, and subscription and service revenue related to precision guidance and telematic services. These advanced customer payments are presented as deferred revenue, a contract liability, in “Accounts payable and accrued expenses” in the consolidated balance sheet. The deferred revenue received, but not recognized in revenue, including extended warranty premiums also shown in Note ~~16,~~18, was ~~$1,077~~$1,249 million, ~~$1,010~~$1,090 million, and ~~$1,014~~$1,077 million at May 2, 2021, November 1, 2020, and May 3, 2020, ~~November 3, 2019, and April 28, 2019,~~ respectively. The contract liability is reduced as the revenue is recognized. During the three months ended May 2, 2021 and May 3, 2020, ~~and April 28, 2019, $97~~$111 million and ~~$103~~$97 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year. During the six months ended May 2, 2021 and May 3, 2020, ~~and April 28, 2019, $278~~$335 million and ~~$265~~$278 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year.

The Company entered into contracts with customers to deliver equipment and services that have not been recognized at May ~~3, 2020~~2, 2021 because the equipment or services have not been provided. These contracts primarily relate to extended warranty and certain precision guidance and telematic services. The amount of unsatisfied performance obligations for contracts with an original duration greater than one year is ~~$907~~$962 million at May ~~3, 2020.~~2, 2021. The estimated revenue to be recognized by fiscal year follows in millions of dollars: remainder of ~~2020~~ ~~- $214,~~ 2021 - ~~$320,~~$199, 2022 - ~~$205,~~$318, 2023 - ~~$109,~~$224, 2024 - ~~$45,~~$130, 2025 - $58, 2026 - $30 and later years - ~~$14.~~$3. The Company discloses unsatisfied performance obligations with an original contract duration greater than one year. The contracts with an expected duration of one year or less are generally for sales to dealers and end customers for equipment, service parts, repair services, and certain telematics services.

~~As explained~~During 2020, and to a much lesser extent in ~~the 2019 Form 10-K, the Company’s policy on trade accounts and notes receivables is to not extend interest-free periods nor to forgive interest charged. During the second quarter of 2020,~~2021, the Company provided short-term payment relief on trade accounts and notes receivables to independent dealers and certain other customers ~~(customers)~~ that ~~are~~were negatively affected by the economic effects of COVID. The relief was provided both in regional programs and case-by-case situations with creditworthy customers. This relief generally included payment deferrals not exceeding three months, extending interest-free periods for up to an additional three months with the total interest-free period not to exceed one year, or reducing interest rates for a maximum of three months. The trade receivable balance granted relief insince the ~~second quarter was $707 million with $585 million outstanding, or approximately 10 percent~~beginning of the ~~trade receivable portfolio,~~pandemic that remained outstanding at May ~~3, 2020. These actions were taken in response to the sudden, severe economic effects of COVID on customers. Outside of these actions, the Company is~~2, 2021 was not ~~modifying its normal sales terms with customers that are outlined in the 2019 Form 10-K.~~

For customers who obtained payment relief, subsequent sales transactions are evaluated to confirm the revenue recognition criteria are met, including the sales price is determinable and collectability of the payments are probable based on the terms outlined in the contract.material.

(5) Other Comprehensive Income Items

The after-tax changes in accumulated other comprehensive income (loss) was as follows in millions of ~~dollars follow:~~dollars:


									Total										Total
					Unrealized		Unrealized		Accumulated						Unrealized		Unrealized		Accumulated
	Retirement		Cumulative		Gain (Loss)		Gain (Loss)		Other		Retirement		Cumulative		Gain (Loss)		Gain (Loss)		Other
	Benefits		Translation		on		on		Comprehensive		Benefits		Translation		on		on		Comprehensive
	Adjustment		Adjustment		Derivatives		Debt Securities		Income (Loss)		Adjustment		Adjustment		Derivatives		Debt Securities		Income (Loss)
Balance October 28, 2018	$	(3,237)	$	(1,203)	$	15	$	(2)	$	(4,427)
ASU No. 2016-01 adoption								(8)		(8)
Other comprehensive income (loss) items before reclassification		32		(244)		(11)		16		(207)
Amounts reclassified from accumulated other comprehensive income		36				(4)				32
Net current period other comprehensive income (loss)		68		(244)		(15)		16		(175)
Balance April 28, 2019	$	(3,169)	$	(1,447)			$	6	$	(4,610)

Balance November 3, 2019	$	(3,915)	$	(1,651)	$	(60)	$	19	$	(5,607)	$	(3,915)	$	(1,651)	$	(60)	$	19	$	(5,607)
Other comprehensive income (loss) items before reclassification		186		(398)		(13)		11		(214)		186		(398)		(13)		11		(214)
Amounts reclassified from accumulated other comprehensive income		101				5				106		101				5				106
Net current period other comprehensive income (loss)		287		(398)		(8)		11		(108)		287		(398)		(8)		11		(108)
Balance May 3, 2020	$	(3,628)	$	(2,049)	$	(68)	$	30	$	(5,715)	$	(3,628)	$	(2,049)	$	(68)	$	30	$	(5,715)

Balance November 1, 2020											$	(3,918)	$	(1,596)	$	(58)	$	33	$	(5,539)
Other comprehensive income (loss) items before reclassification												31		433				(15)		449
Amounts reclassified from accumulated other comprehensive income												123				7				130
Net current period other comprehensive income (loss)												154		433		7		(15)		579
Balance May 2, 2021											$	(3,764)	$	(1,163)	$	(51)	$	18	$	(4,960)

Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, in millions of dollars. Retirement benefits adjustment reclassifications for actuarial gain (loss), prior service (credit) cost, and settlements are included in net periodic pension and other postretirement benefit costs (see Note 8).


	Before		Tax		After
	Tax		(Expense)		Tax
Three Months Ended May 2, 2021	Amount		Credit		Amount
Cumulative translation adjustment	$	37			$	37
Unrealized gain (loss) on derivatives:
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		4	$	(1)		3
Net unrealized gain (loss) on derivatives		4		(1)		3
Unrealized gain (loss) on debt securities:
Unrealized holding gain (loss)		(14)		1		(13)
Net unrealized gain (loss) on debt securities		(14)		1		(13)
Retirement benefits adjustment:
Net actuarial gain (loss)		41		(9)		32
Reclassification to Other operating expenses through amortization of:
Actuarial (gain) loss		72		(19)		53
Prior service (credit) cost		2				2
Settlements		5		(1)		4
Net unrealized gain (loss) on retirement benefits adjustment		120		(29)		91
Total other comprehensive income (loss)	$	147	$	(29)	$	118


	Before		Tax		After
	Tax		(Expense)		Tax
Six Months Ended May 2, 2021	Amount		Credit		Amount
Cumulative translation adjustment	$	431	$	2	$	433
Unrealized gain (loss) on derivatives:
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		9		(2)		7
Net unrealized gain (loss) on derivatives		9		(2)		7
Unrealized gain (loss) on debt securities:
Unrealized holding gain (loss)		(17)		2		(15)
Net unrealized gain (loss) on debt securities		(17)		2		(15)
Retirement benefits adjustment:
Net actuarial gain (loss)		40		(9)		31
Reclassification to Other operating expenses through amortization of:
Actuarial (gain) loss		142		(36)		106
Prior service (credit) cost		4		(1)		3
Settlements		18		(4)		14
Net unrealized gain (loss) on retirement benefits adjustment		204		(50)		154
Total other comprehensive income (loss)	$	627	$	(48)	$	579


	Before		Tax		After
	Tax		(Expense)		Tax
Three Months Ended May 3, 2020	Amount		Credit		Amount
Cumulative translation adjustment	$	(441)			$	(441)
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)		(15)	$	3		(12)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		4				4
Net unrealized gain (loss) on derivatives		(11)		3		(8)
Unrealized gain (loss) on debt securities:
Unrealized holding gain (loss)		8		(2)		6
Net unrealized gain (loss) on debt securities		8		(2)		6
Retirement benefits adjustment:
Net actuarial gain (loss)		1		(1)
Reclassification to Other operating expenses through amortization of:
Actuarial (gain) loss		69		(17)		52
Prior service (credit) cost		2				2
Settlements		3				3
Net unrealized gain (loss) on retirement benefits adjustment		75		(18)		57
Total other comprehensive income (loss)	$	(369)	$	(17)	$	(386)

~~Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, in millions of dollars:~~


	Before		Tax		After		Before		Tax		After
	Tax		(Expense)		Tax		Tax		(Expense)		Tax
Three Months Ended May 3, 2020	Amount		Credit		Amount
Six Months Ended May 3, 2020							Amount		Credit		Amount
Cumulative translation adjustment	$	(441)			$	(441)	$	(398)			$	(398)
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)		(15)	$	3		(12)		(17)	$	4		(13)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		4				4		6		(1)		5
Net unrealized gain (loss) on derivatives		(11)		3		(8)		(11)		3		(8)
Unrealized gain (loss) on debt securities:
Unrealized holding gain (loss)		8		(2)		6		14		(3)		11
Net unrealized gain (loss) on debt securities		8		(2)		6		14		(3)		11
Retirement benefits adjustment:
Pensions
Net actuarial gain (loss)		(28)		6		(22)		247		(61)		186
Reclassification to other operating expenses through amortization of: *
Reclassification to Other operating expenses through amortization of:
Actuarial (gain) loss		62		(16)		46		138		(45)		93
Prior service (credit) cost		3				3		4		(1)		3
Settlements		3				3		6		(1)		5
OPEB
Net actuarial gain (loss)		29		(7)		22
Reclassification to other operating expenses through amortization of: *
Actuarial (gain) loss		7		(1)		6
Prior service (credit) cost		(1)				(1)
Net unrealized gain (loss) on retirement benefits adjustment		75		(18)		57		395		(108)		287
Total other comprehensive income (loss)	$	(369)	$	(17)	$	(386)			$	(108)	$	(108)

Before

Tax

After

Tax

(Expense)

Tax

Six Months Ended May 3, 2020

Amount

Credit

Amount

Cumulative translation adjustment

$
(398)

$
(398)

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

(17)

$
4

(13)

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

6

(1)

5

Net unrealized gain (loss) on derivatives

(11)

3

(8)

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

14

(3)

11

Net unrealized gain (loss) on debt securities

14

(3)

11

Retirement benefits adjustment:

Pensions

Net actuarial gain (loss)

(27)

6

(21)

Reclassification to other operating expenses through amortization of: *

Actuarial (gain) loss

124

(42)

82

Prior service (credit) cost

6

(1)

5

Settlements

6

(1)

5

OPEB

Net actuarial gain (loss)

274

(67)

207

Reclassification to other operating expenses through amortization of: *

Actuarial (gain) loss

14

(3)

11

Prior service (credit) cost

(2)

(2)

Net unrealized gain (loss) on retirement benefits adjustment

395

(108)

287

Total other comprehensive income (loss)

$
(108)

$
(108)

Before

Tax

After

Tax

(Expense)

Tax

Three Months Ended April 28, 2019

Amount

Credit

Amount

Cumulative translation adjustment

$
(83)

$
1

$
(82)

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

(6)

1

(5)

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

(3)

1

(2)

Net unrealized gain (loss) on derivatives

(9)

2

(7)

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

10

(2)

8

Net unrealized gain (loss) on debt securities

10

(2)

8

Retirement benefits adjustment:

Pensions

Net actuarial gain (loss)

(19)

4

(15)

Reclassification to other operating expenses through amortization of: *

Actuarial (gain) loss

36

(9)

27

Prior service (credit) cost

3

(1)

2

OPEB

Net actuarial gain (loss)

60

(14)

46

Reclassification to other operating expense through amortization of: *

Actuarial (gain) loss

3

(1)

2

Prior service (credit) cost

(18)

5

(13)

Net unrealized gain (loss) on retirement benefits adjustment

65

(16)

49

Total other comprehensive income (loss)

$
(17)

$
(15)

$
(32)

~~In the second quarter of~~ ~~2020~~ ~~and~~ ~~2019, the noncontrolling interests’ comprehensive income was NaN and $1 million, respectively, which consisted of net income.~~

Before

Tax

After

Tax

(Expense)

Tax

Six Months Ended April 28, 2019

Amount

Credit

Amount

Cumulative translation adjustment

$
(244)

$
(244)

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

(14)

$
3

(11)

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

(5)

1

(4)

Net unrealized gain (loss) on derivatives

(19)

4

(15)

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

20

(4)

16

Net unrealized gain (loss) on debt securities

20

(4)

16

Retirement benefits adjustment:

Pensions

Net actuarial gain (loss)

(18)

4

(14)

Reclassification to other operating expenses through amortization of: *

Actuarial (gain) loss

71

(17)

54

Prior service (credit) cost

6

(2)

4

OPEB

Net actuarial gain (loss)

60

(14)

46

Reclassification to other operating expenses through amortization of: *

Actuarial (gain) loss

8

(2)

6

Prior service (credit) cost

(36)

8

(28)

Net unrealized gain (loss) on retirement benefits adjustment

91

(23)

68

Total other comprehensive income (loss)

$
(152)

$
(23)

$
(175)

*~~These accumulated other comprehensive income amounts are included in net periodic pension and OPEB costs. See Note 8 for additional detail.~~

~~In the first six months of~~ ~~2020~~ ~~and~~ ~~2019, the noncontrolling interests’ comprehensive income was $2 million and $3 million, respectively, which consisted of net income.~~

(6) Dividends Declared and Paid

Dividends declared and paid on a per share basis were as follows:


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	May 3		April 28		May 3		April 28		May 2		May 3		May 2		May 3
	2020		2019		2020		2019		2021		2020		2021		2020
Dividends declared	$	.76	$	.76	$	1.52	$	1.52	$	.90	$	.76	$	1.66	$	1.52
Dividends paid	$	.76	$	.76	$	1.52	$	1.45	$	.76	$	.76	$	1.52	$	1.52

(7) Earnings Per Share

A reconciliation of basic and diluted net income per share attributable to Deere & Company follows in millions, except per share amounts:


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	May 3		April 28		May 3		April 28		May 2		May 3		May 2		May 3
	2020		2019		2020		2019		2021		2020		2021		2020
Net income attributable to Deere & Company	$	666	$	1,135	$	1,182	$	1,633	$	1,790	$	666	$	3,013	$	1,182
Average shares outstanding		313.2		317.9		313.3		318.1		312.8		313.2		313.1		313.3
Basic per share	$	2.13	$	3.57	$	3.77	$	5.13	$	5.72	$	2.13	$	9.62	$	3.77

Average shares outstanding		313.2		317.9		313.3		318.1		312.8		313.2		313.1		313.3
Effect of dilutive share-based compensation		3.0		4.3		3.4		4.3		2.4		3.0		2.5		3.4
Total potential shares outstanding		316.2		322.2		316.7		322.4		315.2		316.2		315.6		316.7
Diluted per share	$	2.11	$	3.52	$	3.73	$	5.07	$	5.68	$	2.11	$	9.55	$	3.73

During the second quarter and first six months of 2021, 0 shares were antidilutive. During the second quarter and first six months of 2020, 1.0 million shares and .6 million shares, respectively, were excluded from the above per share computation because the incremental shares would have been antidilutive. ~~During the second quarter and first six months of 2019, .6 million shares and .6 million shares, respectively, were excluded from the above per share computation.~~

(8) Pension and Other Postretirement Benefits

The Company has several defined benefit pension plans and postretirement benefit (OPEB) plans, primarily health care and life insurance plans, covering its U.S. employees and employees in certain foreign countries.

The worldwide components of net periodic pension cost consisted of the following in millions of dollars:


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	May 3		April 28		May 3		April 28		May 2		May 3		May 2		May 3
	2020		2019		2020		2019		2021		2020		2021		2020
Service cost	$	77	$	66	$	161	$	132	$	83	$	77	$	168	$	161
Interest cost		87		111		174		222		69		87		138		174
Expected return on plan assets		(204)		(200)		(409)		(400)		(200)		(204)		(400)		(409)
Amortization of actuarial loss		62		36		124		71		65		62		128		124
Amortization of prior service cost		3		3		6		6		3		3		6		6
Settlements		3				6				5		3		18		6
Net cost	$	28	$	16	$	62	$	31	$	25	$	28	$	58	$	62

The worldwide components of net periodic OPEB cost consisted of the following in millions of dollars:


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	May 3		April 28		May 3		April 28		May 2		May 3		May 2		May 3
	2020		2019		2020		2019		2021		2020		2021		2020
Service cost	$	12	$	10	$	24	$	20	$	12	$	12	$	24	$	24
Interest cost		35		53		72		107		25		35		51		72
Expected return on plan assets		(12)		(9)		(24)		(18)		(20)		(12)		(39)		(24)
Amortization of actuarial loss		7		3		14		8		7		7		14		14
Amortization of prior service credit		(1)		(18)		(2)		(36)		(1)		(1)		(2)		(2)
Curtailments						21										21
Net cost	$	41	$	39	$	105	$	81	$	23	$	41	$	48	$	105

The components of net periodic pension and OPEB costs excluding the service cost component are included in the line item “Other operating expenses” in the statement of consolidated income.

In the first quarter of 2020, the Company remeasured the U.S. salary OPEB health care plans. The wage plan was remeasured due to the U.S. enactment of the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) that repealed the health insurance provider fee effective in 2021. The salary plans ~~were remeasured~~ due to the U.S. voluntary employee-separation program (see Note ~~20)~~22), which resulted in a $21 million curtailment loss. ~~The combined effect of the remeasurements was to reduce the benefit obligation by $245 million.~~

During the first six months of ~~2020,~~2021, the Company contributed approximately ~~$42~~$68 million to its pension plans and ~~$66~~$85 million to its OPEB plans. The Company presently anticipates contributing an additional ~~$50~~$33 million to its pension plans and ~~$69~~$757 million to its OPEB plans during the remainder of fiscal year ~~2020. These~~2021. The anticipated OPEB contributions include a voluntary $700 million in the fourth quarter to a U.S. plan, which will increase plan assets. The pension and OPEB contributions exceeding the voluntary amount primarily include direct benefit payments from Company funds.

(9) Income Taxes

The lower effective tax rate in the first six months of 2020 primarily resulted from two discrete items. In January 2020, the Company changed the corporate structure of two foreign holding subsidiaries to be indirect branches of Deere & Company. The change in tax status generated a capital loss that will be carried back in the Company’s U.S. income tax return resulting in a $43 million benefit. In addition, a discrete benefit of $28 million was recognized for the excess tax benefits related to vesting or exercise of share-based compensation awards.

The Company’s unrecognized tax benefits at May 2, 2021, November 1, 2020, and May 3, 2020 ~~November 3, 2019,~~were $751 million, $668 million, and ~~April 28, 2019 were~~ $610 million, ~~$553 million, and $285 million.~~respectively. The liability at May 2, 2021, November 1, 2020, and May 3, 2020 ~~November 3, 2019, and April 28, 2019~~ consisted of approximately ~~$145~~$189 million, ~~$153~~$134 million, and ~~$133~~$145 million, respectively, which would affect the effective tax rate if the tax benefits were recognized. ~~The increase from the prior year primarily relates to the interpretation of a repatriation tax regulation for fiscal year end companies.~~ 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 12 months would not be significant.

(10)Segment Reporting

Beginning in fiscal year 2021, the Company implemented a new strategy, operating model, and reporting structure. With this change, the Company’s agriculture and turf operations were divided into two new segments, which are described as follows:

The production and precision agriculture segment is responsible for defining, developing, and delivering 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 is responsible for defining, developing, and delivering market-driven products to support mid-size and small growers and producers globally as well as turf customers. The operations are principally organized to support production systems for dairy and livestock, high-value crops, and turf and utility operators. Primary products include certain mid-size and small tractors, as well as hay and forage equipment, riding and commercial lawn equipment, golf course equipment, and utility vehicles.

There were no reporting changes for the construction and forestry and financial services segments. As a result, the Company has four reportable segments.

1918

~~(10)~~~~Segment Reporting~~

Worldwide net sales and revenues, operating profit, and identifiable assets by segment were as follows in millions of ~~dollars follow:~~

Three Months Ended

Six Months Ended

May 3

April 28

%

May 3

April 28

%

  2020

  2019

Change

   2020

   2019

Change

Net sales and revenues:









Agriculture and turf

$
5,968

$
7,282

-18

$
10,455

$
11,963

-13

Construction and forestry

2,256

2,991

-25

4,299

5,251

-18

Total net sales

8,224

10,273

-20

14,754

17,214

-14

Financial services

875

886

-1

1,806

1,741

+4

Other revenues

154

183

-16

324

371

-13

Total net sales and revenues

$
9,253

$
11,342

-18

$
16,884

$
19,326

-13

Operating profit: *

Agriculture and turf

$
794

$
1,019

-22

$
1,167

$
1,367

-15

Construction and forestry

96

347

-72

189

576

-67

Financial services

75

170

-56

254

362

-30

Total operating profit

965

1,536

-37

1,610

2,305

-30

Reconciling items **

(54)

(58)

-7

(133)

(144)

-8

Income taxes

(245)

(343)

-29

(295)

(528)

-44

Net income attributable to Deere & Company

$
666

$
1,135

-41

$
1,182

$
1,633

-28

Intersegment sales and revenues:

Agriculture and turf net sales

$
8

$
10

-20

$
15

$
18

-17

Construction and forestry net sales

1

Financial services

93

96

-3

159

168

-5

Equipment operations outside the U.S. and Canada:

Net sales

$
3,226

$
4,141

-22

$
6,006

$
6,959

-14

Operating profit

184

482

-62

408

658

-38

May 3

November 3

2020

2019



Identifiable assets:

Agriculture and turf

$
10,378

$
10,379


Construction and forestry

9,336

9,387

-1

Financial services

48,664

48,483

Corporate

8,948

4,762

+88

Total assets

$
77,326

$
73,011

+6

*dollars. Operating profit is income from continuing operations before corporate expenses, certain external interest expense, certain foreign exchange gains and losses, and income taxes. Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains and losses.

**Reconciling items to net income are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, pension and ~~postretirement~~OPEB benefit costs excluding the service cost component, and net income attributable to noncontrolling interests.


	Three Months Ended					Six Months Ended
	May 2		May 3		%	May 2		May 3		%
	2021		2020		Change	2021		2020		Change
Net sales and revenues:
Production & precision ag net sales	$	4,529	$	3,365	+35	$	7,599	$	5,872	+29
Small ag & turf net sales		3,390		2,603	+30		5,904		4,583	+29
Construction & forestry net sales		3,079		2,256	+36		5,546		4,299	+29
Financial services revenues		892		875	+2		1,776		1,806	-2
Other revenues		168		154	+9		345		324	+6
Total net sales and revenues	$	12,058	$	9,253	+30	$	21,170	$	16,884	+25
Operating profit:
Production & precision ag	$	1,007	$	568	+77	$	1,651	$	786	+110
Small ag & turf		648		226	+187		1,117		381	+193
Construction & forestry		489		96	+409		756		189	+300
Financial services		295		75	+293		553		254	+118
Total operating profit		2,439		965	+153		4,077		1,610	+153
Reconciling items		(119)		(54)	+120		(226)		(133)	+70
Income taxes		(530)		(245)	+116		(838)		(295)	+184
Net income attributable to Deere & Company	$	1,790	$	666	+169	$	3,013	$	1,182	+155

Intersegment sales and revenues:
Production & precision ag net sales	$	7	$	7		$	13	$	14	-7
Small ag & turf net sales		4		1	+300		8		1	+700
Construction & forestry net sales
Financial services		62		93	-33		112		159	-30

Outside the U.S. and Canada:
Net sales and revenues	$	5,051	$	3,422	+48	$	8,798	$	6,424	+37
Operating profit		1,003		232	+332		1,633		533	+206

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.


	May 2		November 1		May 3
	2021		2020		2020
Identifiable assets:
Production & precision ag	$	6,602	$	5,708	$	6,328
Small ag & turf		3,605		3,266		3,485
Construction & forestry		6,500		6,322		6,984
Financial services		50,849		48,719		48,664
Corporate		11,423		11,076		11,865
Total assets	$	78,979	$	75,091	$	77,326

(11) Financing Receivables

The Company monitors the credit quality of financing receivables based on delinquency status. Past due balances of financing receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date. Non-performing financing receivables represent loans for which the Company has ceased accruing finance income. The Company ceases accruing finance income, and accrued finance income previously recognized is reversed when these receivables are generally 90 days delinquent. Generally, when receivables are 120 days delinquent the estimated uncollectible amount ~~after charging~~from the ~~dealer’s withholding account, if any,~~customer is written off to the allowance for credit losses. Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.

Due to the economic effects of COVID, 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 on a case-by-case basis with customers that were generally current in their payment obligations. Financing receivables granted relief since the beginning of the pandemic that remained outstanding at May 2, 2021 represented approximately 4 percent of the financing receivables balance. 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.

While the Company implemented a new strategy in fiscal year 2021 resulting in new operating segments, assets managed by financial services, including most financing receivables and equipment on operating leases, continue to be evaluated by market (agriculture and turf or construction and forestry).

The credit quality analysis of retail notes, financing leases, and revolving charge accounts (collectively, customer receivables), was as follows in millions of dollars at May 2, 2021:


	Year of Origination
	2021		2020		2019		2018		2017		Prior		Revolving Charge Accounts		Total
Customer receivables:
Agriculture and turf
Current	$	6,017	$	8,375	$	4,436	$	2,402	$	1,136	$	494	$	3,221	$	26,081
30-59 days past due		20		64		41		19		10		5		20		179
60-89 days past due		5		34		18		9		4		2		5		77
90+ days past due						1		1								2
Non-performing		2		51		69		54		29		33		16		254
Construction and forestry
Current		1,568		2,077		1,106		454		118		22		81		5,426
30-59 days past due		21		43		35		14		5		1		3		122
60-89 days past due		6		13		12		7		3		1		1		43
90+ days past due				2		10		5		6		3				26
Non-performing		1		38		37		22		11		7		1		117
Total customer receivables	$	7,640	$	10,697	$	5,765	$	2,987	$	1,322	$	568	$	3,348	$	32,327

Due to the significant, negative effects of COVID on dealers and retail customers, the Company provided short-term payment relief to dealers and retail customers on financing receivables, which includes retail notes, wholesale notes, revolving charge accounts, and sales-type and direct financing leases. 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 balance of financing receivables granted relief was approximately 3 percent of the total financing receivable balance at May 3, 2020.

~~An age~~credit quality analysis of ~~past due financing~~customer receivables ~~that are still accruing interest and non-performing financing receivables~~was as follows in millions of dollars ~~follows:~~at November 1, 2020 and May 3, 2020:


	November 1, 2020						May 3, 2020
	Retail Notes & Financing Leases		Revolving Charge Accounts		Total		Retail Notes & Financing Leases		Revolving Charge Accounts		Total
Customer receivables:
Agriculture and turf
Current	$	21,597	$	3,787	$	25,384	$	19,178	$	3,282	$	22,460
30-59 days past due		135		13		148		215		32		247
60-89 days past due		64		4		68		103		13		116
90+ days past due		2				2		3				3
Non-performing		263		6		269		310		42		352
Construction and forestry
Current		4,859		88		4,947		4,169		78		4,247
30-59 days past due		111		2		113		174		4		178
60-89 days past due		55		1		56		58		2		60
90+ days past due		14				14		18				18
Non-performing		106		1		107		176		1		177
Total customer receivables	$	27,206	$	3,902	$	31,108	$	24,404	$	3,454	$	27,858

The credit quality analysis of wholesale receivables was as follows in millions of dollars at May 2, 2021:


	May 3, 2020								Year of Origination
					90 Days				2021		2020		2019		2018		2017		Prior		Revolving		Total
	30-59 Days		60-89 Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
Retail Notes:
Wholesale receivables:
Agriculture and turf	$	188	$	94	$	2	$	284
Current									$	191	$	144	$	55	$	13	$	4	$	1	$	2,146	$	2,554
30-59 days past due
60-89 days past due
90+ days past due
Non-performing														22										22
Construction and forestry		116		49		18		183
Other:
Agriculture and turf		59		22		1		82
Construction and forestry		62		11				73
Total	$	425	$	176	$	21	$	622

							Total
	Total		Total				Financing
	Past Due		Non-Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	284	$	291	$	18,308	$	18,883
Construction and forestry		183		144		3,409		3,736
Other:
Agriculture and turf		82		123		7,856		8,061
Construction and forestry		73		35		1,348		1,456
Total	$	622	$	593	$	30,921		32,136
Less allowance for credit losses								195
Total financing receivables – net							$	31,941
Current										5		10		15		1		1		3		341		376
30-59 days past due
60-89 days past due
90+ days past due
Non-performing
Total wholesale receivables									$	196	$	154	$	92	$	14	$	5	$	4	$	2,487	$	2,952

The credit quality analysis of wholesale receivables was as follows in millions of dollars at November 1, 2020 and May 3, 2020:


	November 3, 2019								November 1		May 3
					90 Days				2020		2020
	30-59 Days		60-89 Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
Retail Notes:
Wholesale receivables:
Agriculture and turf	$	138	$	73	$	1	$	212
Current									$	3,010	$	3,704
30-59 days past due
60-89 days past due
90+ days past due
Non-performing										47		62
Construction and forestry		79		29		4		112
Other:
Agriculture and turf		39		19		1		59
Construction and forestry		26		7				33
Total	$	282	$	128	$	6	$	416

							Total
	Total		Total				Financing
	Past Due		Non-Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	212	$	268	$	18,931	$	19,411
Construction and forestry		112		127		3,450		3,689
Other:
Agriculture and turf		59		28		8,986		9,073
Construction and forestry		33		26		1,496		1,555
Total	$	416	$	449	$	32,863		33,728
Less allowance for credit losses								150
Total financing receivables – net							$	33,578
Current										472		510
30-59 days past due
60-89 days past due
90+ days past due
Non-performing												2
Total wholesale receivables									$	3,529	$	4,278

April 28, 2019






90 Days


30-59 Days

60-89 Days

or Greater

Total

Past Due

Past Due

Past Due

Past Due

Retail Notes:

Agriculture and turf

$
139

$
73

$
1

$
213

Construction and forestry

90

40

1

131

Other:

Agriculture and turf

33

16

49

Construction and forestry

19

4

23

Total

$
281

$
133

$
2

$
416

Total

Total

         Total

Financing

Past Due

Non-Performing

Current

Receivables

Retail Notes:

Agriculture and turf

$
213

$
293

$
17,644

$
18,150

Construction and forestry

131

124

3,120

3,375

Other:

Agriculture and turf

49

67

7,861

7,977

Construction and forestry

23

10

1,331

1,364

Total

$
416

$
494

$
29,956

30,866

Less allowance for credit losses

182

Total financing receivables – net

$
30,684

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 financing receivables are included in the estimate of expected credit losses.

The Company utilizes loss forecast models, which are selected based on the size and credit risk of the underlying pool of receivables, to estimate expected credit losses. Transition matrix models are used for large and complex customer receivable pools, while weighted average remaining maturity models are used for smaller and less complex customer receivable pools. Expected credit losses on wholesale receivables are based on historical loss rates, adjusted for current economic conditions. 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.

An analysis of the allowance for credit losses and investment in financing receivables follows in millions of dollars during the ~~periods follows:~~periods:

Revolving

Retail

Charge

Notes

Accounts

Other

Total

Three Months Ended May 3, 2020

Allowance:











Beginning of period balance

$
88

$
40

$
29

$
157

Provision

58

20

7

85

Write-offs

(24)

(23)

(2)

(49)

Recoveries

3

6

9

Translation adjustments

(6)

(1)

(7)

End of period balance *

$
119

$
43

$
33

$
195

Six Months Ended May 3, 2020

Allowance:


Beginning of period balance

$
89

$
40

$
21

$
150

Provision

74

18

14

106

Write-offs

(41)

(29)

(4)

(74)

Recoveries

5

14

1

20

Translation adjustments

(8)

1

(7)

End of period balance *

$
119

$
43

$
33

$
195

Financing receivables:

End of period balance

$
22,619

$
3,454

$
6,063

$
32,136

Balance individually evaluated **

$
157

$
83

$
240

* Individual allowances were not significant.

** Remainder is collectively evaluated.

The negative economic effects related to COVID and other macroeconomic issues have significantly affected certain retail borrowers, particularly of construction equipment. As a result, the allowance for credit losses increased $38 million in the second quarter of 2020 reflecting estimated credit losses inherent in the financing receivables.


	Retail Notes		Revolving
	& Financing		Charge		Wholesale
	Leases		Accounts		Receivables		Total
Three Months Ended May 2, 2021
Allowance:
Beginning of period balance	$	180	$	24	$	7	$	211
Provision (credit)		(17)		(6)				(23)
Write-offs		(15)		(9)				(24)
Recoveries		4		10				14
End of period balance	$	152	$	19	$	7	$	178

Six Months Ended May 2, 2021
Allowance:
Beginning of period balance	$	133	$	43	$	8	$	184
ASU No. 2016-13 adoption		44		(13)				31
Provision (credit)		(13)		(16)		(1)		(30)
Write-offs		(23)		(14)				(37)
Recoveries		10		19				29
Translation adjustments		1						1
End of period balance	$	152	$	19	$	7	$	178
Financing receivables:
End of period balance	$	28,979	$	3,348	$	2,952	$	35,279


	Retail Notes		Revolving
	& Financing		Charge		Wholesale
	Leases		Accounts		Receivables		Total
Three Months Ended May 3, 2020
Allowance:
Beginning of period balance	$	106	$	40	$	11	$	157
Provision		65		20				85
Write-offs		(26)		(23)				(49)
Recoveries		3		6				9
Translation adjustments		(7)						(7)
End of period balance	$	141	$	43	$	11	$	195

Six Months Ended May 3, 2020
Allowance:
Beginning of period balance	$	107	$	40	$	3	$	150
Provision		82		18		6		106
Write-offs		(45)		(29)				(74)
Recoveries		6		14				20
Translation adjustments		(9)				2		(7)
End of period balance	$	141	$	43	$	11	$	195
Financing receivables:
End of period balance	$	24,404	$	3,454	$	4,278	$	32,136

Revolving

Retail

Charge

Notes

Accounts

Other

Total

Three Months Ended April 28, 2019

Allowance:













Beginning of period balance

$
111

$
43

$
23

$
177

Provision

9

17

3

29

Write-offs

(9)

(22)

(2)

(33)

Recoveries

6

5

11

Translation adjustments

(2)

(2)

End of period balance *

$
115

$
43

$
24

$
182

Six Months Ended April 28, 2019

Allowance:











Beginning of period balance

$
113

$
43

$
22

$
178

Provision

15

16

5

36

Write-offs

(20)

(26)

(3)

(49)

Recoveries

10

10

20

Translation adjustments

(3)

(3)

End of period balance *

$
115

$
43

$
24

$
182

Financing receivables:

End of period balance

$
21,525

$
3,299

$
6,042

$
30,866

Balance individually evaluated **

$
151

$
2

$
15

$
168

*~~Individual allowances were not significant.~~

**~~Remainder is collectively evaluated.~~

~~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~~The allowance for impairment generally include those that are either past due, or have provided bankruptcy notification, or require significant collection efforts. Receivables that are impaired are generally classified as non-performing.

~~An analysis of the impaired~~credit losses on financing receivables decreased $33 million in ~~millions~~the second quarter of ~~dollars follows:~~

Unpaid



Average

Recorded

Principal

Specific

Recorded

Investment

Balance

Allowance

Investment

May 3, 2020*

Receivables with specific allowance ***

$
106

$
104

$
23

$
113

Receivables without a specific allowance **

35

34

38

Total

$
141

$
138

$
23

$
151

Agriculture and turf

$
113

$
111

$
18

$
121

Construction and forestry

$
28

$
27

$
5

$
30

November 3, 2019*

Receivables with specific allowance **

$
40

$
39

$
13

$
40

Receivables without a specific allowance **

32

31

37

Total

$
72

$
70

$
13

$
77

Agriculture and turf

$
49

$
48

$
8

$
52

Construction and forestry

$
23

$
22

$
5

$
25

April 28, 2019*

Receivables with specific allowance **

$
35

$
34

$
14

$
36

Receivables without a specific allowance **

37

35

39

Total

$
72

$
69

$
14

$
75

Agriculture and turf

$
54

$
53

$
11

$
57

Construction and forestry

$
18

$
16

$
3

$
18

*~~Finance income recognized was not material.~~

**~~Primarily retail notes.~~

*** Primarily2021, primarily due to lower expected losses on retail notes and ~~wholesale receivables.~~financing leases 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 also decreased in the second quarter of 2021, reflecting strong payment performance due to continued improvement in the agricultural market. For the first six months of 2021, the allowance for credit losses on financing receivables decreased slightly, as the reductions noted above were largely offset by the impact of adopting ASU No. 2016-13.

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,~~date, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During the first six months of ~~2020,~~2021, the Company identified 199 receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $8 million pre-modification and $7 million post-modification. During the first six months of 2020, there were 259 receivable contracts, primarily wholesale receivables in Argentina, identified as troubled debt restructurings with aggregate balances of $94 million pre-modification and $83 million post-modification. The short-term payment relief related to COVID, mentioned earlier, did not meet the definition of a troubled debt restructuring. During the first six months of 2019, there were 219 financing receivable contracts, primarily retail notes, identified as troubled debt restructurings with aggregate balances of $7 million pre-modification and $7 million post-modification. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At May 3, ~~2020,~~2021, the Company had 0 commitments to lend ~~approximately $13 million~~ to borrowers whose accounts were modified in troubled debt restructurings.

(12) 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 special purpose entities (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 did not meet the accounting criteria for sales of receivables, and is, therefore, accounted for as a secured borrowing. SPEs utilized in securitizations of retail notes differ from other entities included in the Company’s consolidated statements because the assets they hold are legally isolated. Use of the assets held by the SPEs or the non-VIEs is restricted by terms of the documents governing the securitization transactions.

In these securitizations, the retail notes are transferred to certain SPEs or to non-VIE banking operations, which in turn issue debt to investors. The debt securities issued to the third party investors resulted in secured borrowings, which are recorded as “Short-term securitization borrowings” on the balance sheet. The securitized retail notes are recorded as “Financing receivables securitized – net” on the balance sheet. The total restricted assets on the consolidated balance sheet related to these securitizations include the financing receivables securitized less an allowance for credit losses, and other assets primarily representing restricted cash. Restricted cash results from contractual requirements in securitized borrowing arrangements and serves as a credit enhancement. The restricted cash is used to satisfy payment deficiencies, if any, in the required payments on secured borrowings. The balance of restricted cash is contractually stipulated and is either a fixed amount as determined by the initial balance of the financing receivables securitized or a fixed percentage of the outstanding balance of the securitized

financing receivables. The restriction is removed either after all secured borrowing payments are made or proportionally as these receivables are collected and borrowing obligations reduced. For those securitizations in which retail notes are transferred into SPEs, the SPEs supporting the secured borrowings are consolidated unless the Company does not have both the power to direct the activities that most significantly impact the SPEs’ economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the SPEs. No additional support to these SPEs beyond what was previously contractually required has been provided during the reporting periods.

In certain securitizations, the Company consolidates the SPEs since it has both the power to direct the activities that most significantly impact the SPEs’ economic performance through its role as servicer of all the receivables held by the SPEs and the obligation through variable interests in the SPEs to absorb losses or receive benefits that could potentially be significant to the SPEs. The restricted assets (retail notes securitized, allowance for credit losses, and other assets) of the consolidated SPEs totaled ~~$3,017~~$2,875 million, ~~$2,895~~$2,898 million, and ~~$2,771~~$3,017 million at May 2, 2021, November 1, 2020, and May 3, 2020, ~~November 3, 2019, and April 28, 2019,~~ respectively. The liabilities (short-term securitization borrowings and accrued interest) of these SPEs totaled ~~$2,977~~$2,833 million, ~~$2,847~~$2,856 million, and ~~$2,693~~$2,977 million at May 2, 2021, November 1, 2020, and May 3, 2020, ~~November 3, 2019, and April 28, 2019,~~ respectively. The credit holders of these SPEs do not have legal recourse to the Company’s general credit.

In certain securitizations, the Company transfers retail notes to non-VIE banking operations, which are not consolidated since the Company does not have a controlling interest in the entities. 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 ~~$542~~$397 million, ~~$491~~$576 million, and ~~$671~~$542 million at May 2, 2021, November 1, 2020, and May 3, 2020, ~~November 3, 2019, and April 28, 2019,~~ respectively. The liabilities (short-term securitization borrowings and accrued interest) were ~~$515~~$383 million, ~~$465~~$554 million, and ~~$631~~$515 million at May 2, 2021, November 1, 2020, and May 3, 2020, ~~November 3, 2019, and April 28, 2019,~~ respectively.

In certain securitizations, the Company transfers retail notes into bank-sponsored, multi-seller, commercial paper conduits, which are SPEs that are not consolidated. The Company does not service a significant portion of the conduits’ receivables, and therefore, does not have the power to direct the activities that most significantly impact the conduits’ economic performance. These conduits provide a funding source to the Company (as well as other transferors into the conduit) as they fund the retail notes through the issuance of commercial paper. The Company’s carrying values and variable interest related to these conduits were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of ~~$1,221~~$926 million, ~~$1,079~~$1,327 million, and ~~$1,477~~$1,221 million at May 2, 2021, November 1, 2020, and May 3, 2020, ~~November 3, 2019, and April 28, 2019,~~ respectively. The liabilities (short-term securitization borrowings and accrued interest) related to these conduits were ~~$1,154~~$893 million, ~~$1,015~~$1,275 million, and ~~$1,382~~$1,154 million at May 2, 2021, November 1, 2020, and May 3, 2020, ~~November 3, 2019, and April 28, 2019,~~ respectively.

The Company’s carrying amount of the liabilities to the unconsolidated conduits, compared to the maximum exposure to loss related to these conduits, which would only be incurred in the event of a complete loss on the restricted assets, was as follows in millions of dollars:


			May 2
	May 3, 2020		2021
Carrying value of liabilities	$	1,154	$	893
Maximum exposure to loss		1,221		926

The total assets of unconsolidated VIEs related to securitizations were approximately ~~$37~~$35 billion at May ~~3, 2020.~~2, 2021.

The components of consolidated restricted assets related to secured borrowings in securitization transactions ~~follow~~were as follows in millions of dollars:


	May 3		November 3		April 28		May 2		November 1		May 3
	2020		2019		2019		2021		2020		2020
Financing receivables securitized (retail notes)	$	4,703	$	4,395	$	4,826	$	4,122	$	4,716	$	4,703
Allowance for credit losses		(18)		(12)		(12)		(15)		(13)		(18)
Other assets		95		82		105		91		98		95
Total restricted securitized assets	$	4,780	$	4,465	$	4,919	$	4,198	$	4,801	$	4,780

The components of consolidated secured borrowings and other liabilities related to securitizations ~~follow~~were as follows in millions of dollars:


	May 3		November 3		April 28		May 2		November 1		May 3
	2020		2019		2019		2021		2020		2020
Short-term securitization borrowings	$	4,640	$	4,321	$	4,702	$	4,106	$	4,682	$	4,640
Accrued interest on borrowings		6		6		4		3		3		6
Total liabilities related to restricted securitized assets	$	4,646	$	4,327	$	4,706	$	4,109	$	4,685	$	4,646

The secured borrowings related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash flows generated by the restricted assets. Due to the Company’s short-term credit rating, cash collections from these restricted assets are not required to be placed into a segregated collection account until immediately prior to the time payment is required to the secured creditors. At May ~~3, 2020,~~2, 2021, the maximum remaining term of all securitized retail notes was approximately ~~seven~~six years.

(13) Inventories

Most inventories owned by Deere & Company and its U.S. equipment subsidiaries and certain foreign equipment subsidiaries are valued at cost on the “last-in, first-out” (LIFO) method. If all of the Company’s inventories had been valued on a “first-in, first-out” (FIFO) method, estimated inventories by major classification in millions of dollars would have been as follows:


	May 3		November 3		April 28		May 2		November 1		May 3
	2020		2019		2019		2021		2020		2020
Raw materials and supplies	$	2,394	$	2,285	$	2,424	$	2,469	$	1,995	$	2,394
Work-in-process		722		747		873		967		648		722
Finished goods and parts		4,646		4,613		5,729		4,334		4,006		4,646
Total FIFO value		7,762		7,645		9,026		7,770		6,649		7,762
Less adjustment to LIFO value		1,591		1,670		1,865		1,728		1,650		1,591
Inventories	$	6,171	$	5,975	$	7,161	$	6,042	$	4,999	$	6,171

(14) Goodwill and Other Intangible Assets–Net

The changes in amounts of goodwill by operating segments were as follows in millions of dollars:


	Agriculture		Construction				Production &		Small Ag		Construction
	and Turf		and Forestry		Total
Goodwill at October 28, 2018	$	583	$	2,518	$	3,101
Translation adjustments and other		(2)		(74)		(76)
Goodwill at April 28, 2019	$	581	$	2,444	$	3,025
							Precision Ag		& Turf		& Forestry		Total
Goodwill at November 3, 2019	$	574	$	2,343	$	2,917	$	310	$	264	$	2,343	$	2,917
Translation adjustments and other		(9)		9				(5)		(4)		9
Goodwill at May 3, 2020	$	565	$	2,352	$	2,917	$	305	$	260	$	2,352	$	2,917

Goodwill at November 1, 2020							$	333	$	268	$	2,480	$	3,081
Acquisition								12						12
Translation adjustments and other								10		(2)		89		97
Goodwill at May 2, 2021							$	355	$	266	$	2,569	$	3,190

There were 0 accumulated goodwill impairment losses in the reported periods.

The components of other intangible assets were as follows in millions of dollars:


	May 2		November 1		May 3
	2021		2020		2020
Amortized intangible assets:
Customer lists and relationships	$	549	$	535	$	509
Technology, patents, trademarks, and other		1,097		1,056		1,006
Total at cost		1,646		1,591		1,515
Less accumulated amortization:
Customer lists and relationships		136		113		93
Technology, patents, trademarks, and other		323		274		234
Total accumulated amortization		459		387		327
Amortized intangible assets, net		1,187		1,204		1,188
Unamortized intangible assets:
In-process research and development		123		123		123
Other intangible assets – net	$	1,310	$	1,327	$	1,311

The amortization of other intangible assets in the second quarter and the first six months of 2021 was $27 million and $62 million, and for 2020 was $26 million and $51 million, respectively. The estimated amortization expense for the next five years is as follows in millions of dollars: remainder of 2021 – $55, 2022 – $109, 2023 – $107, 2024 – $103, 2025 – $100, and 2026 –$98.

2625

~~The components of other intangible assets~~(15)Total Short-Term Borrowings

Total short-term borrowings were as follows in millions of dollars:


	May 2		November 1		May 3
	2021		2020		2020
Equipment Operations
Commercial paper					$	466
Notes payable to banks	$	122	$	192		439
Finance lease obligations due within one year		24		21		13
Long-term borrowings due within one year		206		79		480
Total		352		292		1,398
Financial Services
Commercial paper		2,259		1,238		2,958
Notes payable to banks		89		182		236
Long-term borrowings due within one year		7,211		6,870		6,587
Total		9,559		8,290		9,781
Short-term borrowings		9,911		8,582		11,179
Short-term securitization borrowings
Equipment Operations		14		26		37
Financial Services		4,092		4,656		4,603
Total		4,106		4,682		4,640
Total short-term borrowings	$	14,017	$	13,264	$	15,819

May 3

November 3

April 28

2020

2019

2019

Amortized intangible assets:

Customer lists and relationships

$
509

$
511

$
528

Technology, patents, trademarks, and other

1,006

1,028

1,059

Total at cost

1,515

1,539

1,587

Less accumulated amortization *

327

282

234

Total

1,188

1,257

1,353

Unamortized intangible assets:

In-process research and development

123

123

123

Other intangible assets – net

$
1,311

$
1,380

$
1,476

(16) Accumulated amortization at May 3, 2020, November 3, 2019, and April 28, 2019 for customer lists and relationships totaled $93 million, $77 million, and $62 million and technology, patents, trademarks, and other totaled $234 million, $205 million, and $172 million, respectively.Long-Term Borrowings

The amortization of other intangible assets in the second quarter and the first six months of 2020 was $26 million and $51 million and for 2019 was $29 million and $57 million, respectively. The estimated amortization expense for the next five years isLong-term borrowings were as follows in millions of ~~dollars: remainder of 2020 – $50, 2021 – $100, 2022 – $99, 2023 – $97, and 2024 – $95.~~

~~As outlined in the 2019 Form 10-K, goodwill is tested for impairment annually and when events or circumstances change such that it is more likely than not that the~~dollars. The financial services medium-term notes include fair value of a reporting unit is reduced below its carrying value. The annual measurement date is the end of the third quarter. In the second quarter of 2020, for each significant reporting unit the Company reviewed previous fair value analyses considering the uncertain and unknown economic effects of COVID. The Company concluded that an impairment was not required.

~~The intangible assets subject~~adjustments related to amortization were also considered to determine if the carrying amount may not be recoverable. The Company concluded the carrying amount would be recovered based on current estimates. These positions will be evaluated in future quarters, as necessary.interest rate swaps.


	May 2		November 1		May 3
	2021		2020		2020
Equipment Operations
U.S. dollar notes and debentures:
8½% debentures due 2022			$	105	$	105
2.60% notes due 2022	$	1,000		1,000		1,000
2.75% notes due 2025		700		700		700
6.55% debentures due 2028		200		200		200
5.375% notes due 2029		500		500		500
3.10% notes due 2030		700		700		700
8.10% debentures due 2030		250		250		250
7.125% notes due 2031		300		300		300
3.90% notes due 2042		1,250		1,250		1,250
2.875% notes due 2049		500		500		500
3.75% notes due 2050		850		850		850
Euro notes:
.5% notes due 2023 (€500 principal)		606		584		548
1.375% notes due 2024 (€800 principal)		969		934		876
1.85% notes due 2028 (€600 principal)		727		700		657
2.20% notes due 2032 (€600 principal)		727		700		657
1.65% notes due 2039 (€650 principal)		788		759		712
Finance lease obligations and other notes		115		153		204
Less debt issuance costs and debt discounts		58		61		62
Total		10,124		10,124		9,947
Financial Services
Notes and debentures:
Medium-term notes: (principal as of: May 2, 2021 - $21,800, November 1, 2020 - $20,996, May 3, 2020 - $22,565)		22,161		21,661		23,326
Other notes		1,121		1,003		1,111
Less debt issuance costs and debt discounts		60		54		60
Total		23,222		22,610		24,377
Long-term borrowings	$	33,346	$	32,734	$	34,324

~~(15)~~~~Leases~~

The Company is both a lessee and a lessor. The Company leases for its own use, under leases with expected use periods generally ranging from less than one year to 20 years, primarily warehouse facilities, office space, production equipment, information technology equipment, and vehicles. The Company’s financial services segment leases to users equipment produced or sold by the Company. These leases are usually written for periods of less than one year to seven years.

~~The Company determines if an arrangement is or contains a lease at the contract inception.~~

~~Lessee~~

~~The Company recognizes on the balance sheet a lease liability and a right of use asset for leases with a term greater than 12 months 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 12 months 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 10 years. Options that the Company is reasonably certain to exercise are included in the lease term.~~

The Company has elected to combine lease and non-lease components, such as maintenance and utilities costs included in a lease contract, for all asset classes. Leases with an initial term of 12 months 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

2726

~~with payments based on utilization exceeding contractual minimum amounts and leases with payments indexed to inflation when the index changes after lease commencement.~~(17)Leases

~~The lease expense by type consisted of the following in millions of dollars:~~

Three Months Ended

Six Months Ended

May 3, 2020

May 3, 2020

Operating lease expense

$
31

$
63

Short-term lease expense

6

10

Variable lease expense

10

20

Finance lease:

Depreciation expense

2

7

Interest on lease liabilities

1

1

Total lease expense

$
50

$
101

Lessee

Operating and finance lease right of use assets and liabilities ~~follow~~were as follows in millions of dollars:

May 3, 2020

Operating leases

Other assets

$
341

Accounts payable and accrued expenses

319

Finance leases

Property and equipment — net

$
43

Short-term borrowings

13

Long-term borrowings

26

Total finance lease liabilities

$
39

~~The weighted-average remaining lease term in years and discount rates follows:~~


			~~May 3, 2020~~
~~Weighted-average remaining lease terms:~~
~~Operating leases~~			7
~~Finance leases~~			3

~~Weighted-average discount rate:~~
~~Operating leases~~			~~2.4%~~
~~Finance leases~~			~~2.9%~~

~~Lease payment amounts in each of the next five years at May 3, 2020 follow in millions of dollars:~~

Operating

Finance

Due in:

Leases

Leases

Remainder of 2020

$
59

$
7

2021

79

13

2022

67

10

2023

46

5

2024

35

3

2025

19

1

Later years

35

3

Total lease payments

340

42

Less imputed interest

21

3

Total lease liabilities

$
319

$
39

~~Future minimum lease payments under the previous lease standard for operating and finance leases at November 3, 2019 follow in millions of dollars:~~

Operating

Capital

Due in:

Leases

Leases

2020

$
111

$
12

2021

77

10

2022

56

6

2023

39

2

2024

28

1

Later years

26

1

Total minimum lease payments

$
337

$
32

~~Cash paid for amounts included in the measurement of lease liabilities:~~


	Six Months Ended		May 2		November 1		May 3
	May 3, 2020		2021		2020		2020
Operating cash flows from operating leases	$	64
Operating cash flows from finance leases		1
Financing cash flows from finance leases		9
Operating leases:
Other assets			$	345	$	324	$	341
Accounts payable and accrued expenses				328		305		319

Finance leases:
Property and equipment - net			$	73	$	63	$	43

Short-term borrowings			$	24	$	21	$	13
Long-term borrowings				45		39		26
Total finance lease liabilities			$	69	$	60	$	39

Right of use assets obtained in exchange for lease ~~liabilities:~~liabilities were as follows in millions of dollars:


	Six Months Ended		Six Months Ended
	May 3, 2020		May 2, 2021		May 3, 2020
Operating leases	$	10	$	71	$	10
Finance leases		18		23		18

Lessor

The Company leases equipment manufactured or sold by the Company and a limited amount of non-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~~Lease revenues earned by the Company ~~may include early termination and renewal options. At the end~~were as follows in millions 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.dollars:


	Three Months Ended				Six Months Ended
	May 2, 2021		May 3, 2020		May 2, 2021		May 3, 2020
Sales-type and direct financing lease revenues	$	34	$	32	$	70	$	68
Operating lease revenues		358		369		721		743
Variable lease revenues		6		6		12		11
Total lease revenues	$	398	$	407	$	803	$	822

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 decline. 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 the second quarter of 2020, the Company recorded impairment losses on operating leases of $22 million due to higher expected equipment return rates and lower estimated values of used construction equipment. Operating lease impairments are recorded in “Other operating expenses.”

The Company has elected to combine lease and nonlease components. The nonlease components primarily relate to preventative maintenance and extended warranty agreements financed by the retail customer. The Company has also elected to report consideration related to sales and value added taxes net of the related tax expense. Property taxes on leased assets are recorded on a gross basis in “Finance and interest income” and “Other operating expenses” on the statement of consolidated income. Variable lease revenues primarily relate to property taxes on leased assets in certain markets and late fees.

Due to the significant, negative effects of COVID, the Company provided short-term relief to lessees during the second quarter of 2020. The relief, which included payment deferrals of three months or less, was provided in regional programs and on a case-by-case basis and primarily related to construction accounts. The operating leases granted relief represented

~~approximately 2 percent of the Company’s operating lease portfolio at May 3, 2020. See Note 11 for sales-type and direct finance leases provided payment relief.~~

~~Lease revenues earned by the Company were as follows in millions of dollars:~~

Three Months Ended

Six Months Ended

May 3, 2020

May 3, 2020

Sales-type and direct finance lease revenues

$
32

$
68

Operating lease revenues

369

743

Variable lease revenues

6

11

Total lease revenues

$
407

$
822

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 product category were as follows in millions of dollars:~~

May 3

November 3

2020

2019

Agriculture and turf

$
792

$
897

Construction and forestry

923

1,033

Total

1,715

1,930

Guaranteed residual values

175

232

Unguaranteed residual values

92

101

Less unearned finance income

197

212

Financing leases receivables

$
1,785

$
2,051

~~Scheduled payments, including guaranteed residual values, on sales-type and direct financing lease receivables at May 3, 2020 follow in millions of dollars:~~

May 3

Due in:

2020

Remainder of 2020

$
460

2021

670

2022

409

2023

213

2024

103

2025

27

Later years

8

Total

$
1,890

~~Scheduled payments on financing lease receivables under the previous lease standard at November 3, 2019 follow in millions of dollars:~~

November 3

Due in:

2019

2020

$
833

2021

557

2022

321

2023

153

2024

53

Later years

13

Total

$
1,930

Lease payments from operating leases are recorded as income on a straight-line method over the lease terms. Operating lease assets are recorded at cost and depreciated to their estimated residual value on a straight-line method over the terms of the leases.

~~The cost of equipment on operating leases by product category was as follows in millions of dollars:~~

May 3

November 3

2020

2019

Agriculture and turf

$
7,080

$
7,257

Construction and forestry

2,097

2,165

Total

9,177

9,422

Less accumulated depreciation

1,932

1,855

Equipment on operating leases - net

$
7,245

$
7,567

The total operating lease residual values at May 3, 2020 and November 3, 2019 were $5,181 million and $5,259 million, respectively. Certain operating leases are subject to residual value guarantees. The total residual value guarantees were $633 million and $647 million at May 3, 2020 and November 3, 2019, respectively.

~~Lease payments for equipment on operating leases at May 3, 2020 were scheduled as follows in millions of dollars:~~

May 3

Due in:

2020

Remainder of 2020

$
563

2021

932

2022

573

2023

282

2024

107

2025

7

Total

$
2,464

~~Rental payments for equipment on operating leases under the previous lease standard at November 3, 2019 were scheduled as follows in millions of dollars:~~

November 3

Due in:

2019

2020

$
1,086

2021

759

2022

419

2023

193

2024

41

Total

$
2,498

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. In the second quarter of 2020, the Company recorded impairment losses on matured operating lease inventory of $10 million due to lower estimated values of used construction equipment. ~~Impairment~~These impairment losses ~~on matured operating lease inventory~~ are included in “Other operating expenses.”

Due to the significant, negative effects of COVID, the Company provided short-term payment relief to lessees during 2020, and to a much lesser extent in 2021. The ~~matured~~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 since the beginning of the pandemic that remained outstanding at May 2, 2021 represented approximately 3 percent of the Company’s operating lease ~~inventory balances at May 3, 2020 and November 3, 2019 were $104 million and $163 million, respectively.~~portfolio.

~~(16)~~(18) Commitments and Contingencies

The Company generally determines its total warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs and current quality developments.

The premiums for extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. These unamortized extended warranty premiums (deferred revenue) included in the following table totaled ~~$602~~$681 million and ~~$525~~$602 million at May 2, 2021 and May 3, 2020, ~~and April 28, 2019,~~ respectively.

A reconciliation of the changes in the warranty liability and unearned premiums was as follows in millions of ~~dollars follows:~~dollars:


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	May 3		April 28		May 3		April 28		May 2		May 3		May 2		May 3
	2020		2019		2020		2019		2021		2020		2021		2020
Beginning of period balance	$	1,792	$	1,687	$	1,800	$	1,652	$	1,803	$	1,792	$	1,743	$	1,800
Payments		(223)		(234)		(453)		(462)		(202)		(223)		(417)		(453)
Amortization of premiums received		(51)		(56)		(110)		(111)		(65)		(51)		(128)		(110)
Accruals for warranties		210		256		432		510		248		210		495		432
Premiums received		69		69		134		134		90		69		163		134
Foreign exchange		(30)		(8)		(36)		(9)		2		(30)		20		(36)
End of period balance	$	1,767	$	1,714	$	1,767	$	1,714	$	1,876	$	1,767	$	1,876	$	1,767

At May ~~3, 2020,~~2, 2021, the Company had approximately ~~$321~~$384 million of guarantees issued primarily to banks outside the U.S. and Canada related to third-party receivables for the retail financing of John Deere equipment. The Company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At May ~~3, 2020,~~2, 2021, the Company had accrued losses of approximately ~~$12~~$16 million under these agreements. The maximum remaining term of the receivables guaranteed at May ~~3, 2020~~2, 2021 was approximately six years.

At May ~~3, 2020,~~2, 2021, the Company had commitments of approximately ~~$254~~$246 million for the construction and acquisition of property and equipment. Also, at May ~~3, 2020,~~2, 2021, the Company had restricted assets of ~~$75~~$70 million, primarily as collateral for borrowings and restricted other assets. See Note 12 for additional restricted assets associated with borrowings related to securitizations.

The Company also had other miscellaneous contingent liabilities totaling approximately ~~$45~~$60 million at May ~~3, 2020.~~2, 2021. The accrued liability for these contingencies was not material at May ~~3, 2020.~~2, 2021.

~~(17)~~(19) 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.

3228

The fair values of financial instruments that do not approximate the carrying values were as follows in millions of ~~dollars follow:~~dollars. Long-term borrowings exclude finance lease liabilities (see Note 17).


	May 3, 2020				November 3, 2019				April 28, 2019				May 2, 2021				November 1, 2020				May 3, 2020
	Carrying Value		Fair Value *		Carrying Value		Fair Value *		Carrying Value		Fair Value *		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Financing receivables – net:
Equipment operations	$	118	$	111	$	65	$	61	$	102	$	95	$	99	$	94	$	105	$	103	$	118	$	111
Financial services		27,138		27,317		29,130		29,106		25,768		25,697		30,895		31,071		29,645		29,838		27,138		27,317
Total	$	27,256	$	27,428	$	29,195	$	29,167	$	25,870	$	25,792	$	30,994	$	31,165	$	29,750	$	29,941	$	27,256	$	27,428

Financing receivables securitized – net:
Equipment operations	$	37	$	35	$	44	$	43	$	59	$	57	$	15	$	15	$	26	$	26	$	37	$	35
Financial services		4,648		4,722		4,339		4,362		4,755		4,726		4,092		4,173		4,677		4,773		4,648		4,722
Total	$	4,685	$	4,757	$	4,383	$	4,405	$	4,814	$	4,783	$	4,107	$	4,188	$	4,703	$	4,799	$	4,685	$	4,757

Short-term securitization borrowings:
Equipment operations	$	37	$	37	$	44	$	45	$	58	$	58	$	14	$	15	$	26	$	26	$	37	$	37
Financial services		4,603		4,632		4,277		4,302		4,644		4,653		4,092		4,117		4,656		4,698		4,603		4,632
Total	$	4,640	$	4,669	$	4,321	$	4,347	$	4,702	$	4,711	$	4,106	$	4,132	$	4,682	$	4,724	$	4,640	$	4,669

Long-term borrowings due within one year: **
Long-term borrowings due within one year:
Equipment operations	$	480	$	477	$	642	$	645	$	982	$	987	$	206	$	211	$	79	$	78	$	480	$	477
Financial services		6,587		6,609		6,786		6,788		5,321		5,305		7,211		7,293		6,870		6,936		6,587		6,609
Total	$	7,067	$	7,086	$	7,428	$	7,433	$	6,303	$	6,292	$	7,417	$	7,504	$	6,949	$	7,014	$	7,067	$	7,086

Long-term borrowings: **
Long-term borrowings:
Equipment operations	$	9,921	$	11,192	$	5,415	$	6,138	$	4,679	$	5,110	$	10,079	$	11,391	$	10,085	$	11,837	$	9,921	$	11,192
Financial services		24,377		24,537		24,814		25,122		23,576		23,805		23,222		23,701		22,610		23,170		24,377		24,537
Total	$	34,298	$	35,729	$	30,229	$	31,260	$	28,255	$	28,915	$	33,301	$	35,092	$	32,695	$	35,007	$	34,298	$	35,729

*Fair value measurements above were Level 3 for all financing receivables, Level 3 for equipment operations short-term securitization borrowings, and Level 2 for all other borrowings.

** Carrying values exclude finance lease liabilities that are presented as borrowings beginning in 2020 (see Notes 3 and 15).

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.

3329

Assets and liabilities measured at fair value on a recurring basis in millions of dollars ~~follow*:~~

May 3

November 3

April 28

2020

2019

2019

Level 1:

Marketable securities

International equity securities ***

$
2

Equity fund ***

62

$
59

$
58

U.S. government debt securities

50

50

44

Total Level 1 marketable securities

114

109

102

Level 2:

Marketable securities

U.S. government debt securities

104

81

73

Municipal debt securities

63

60

55

Corporate debt securities

177

165

148

International debt securities

2

5

9

Mortgage-backed securities **

165

160

154

Total Level 2 marketable securities

511

471

439

Other assets

Derivatives:

Interest rate contracts

842

363

139

Foreign exchange contracts

92

20

99

Cross-currency interest rate contracts

17

1

2

Total Level 2 other assets

951

384

240

Accounts payable and accrued expenses

Derivatives:

Interest rate contracts

131

65

165

Foreign exchange contracts

68

71

48

Cross-currency interest rate contracts

3

2

Total Level 2 accounts payable and accrued expenses

199

139

215

Level 3:

Marketable securities

International debt securities

1

1

4

*~~Excluded from this table were~~follow, excluding the Company’s cash equivalents, which were carried at cost that approximates fair ~~value. The cash equivalents consist~~value and consisted primarily of money market funds and time deposits.

**~~Primarily issued by U.S. government sponsored enterprises.~~

***During the second quarter of 2020 and 2019, net unrealized gains/(losses) on equity securities of $(8) million and $5 million, respectively, were recorded in “Other income.” During the first six months of 2020 and 2019, net unrealized gains/(losses) on equity Level 3 marketable securities were ~~$(2) million and $5 million, respectively.~~transferred to Level 2 in 2021.


	May 2		November 1		May 3
	2021		2020		2020
Level 1:
Marketable securities
International equity securities	$	2	$	2	$	2
U.S. equity fund		71		62		62
U.S. government debt securities		59		55		50
Total Level 1 marketable securities		132		119		114

Level 2:
Marketable securities				��
U.S. government debt securities		121		113		104
Municipal debt securities		69		68		63
Corporate debt securities		202		188		177
International debt securities		4		2		2
Mortgage-backed securities		140		147		165
Total Level 2 marketable securities		536		518		511
Other assets
Derivatives:
Interest rate contracts		368		669		842
Foreign exchange contracts		30		48		92
Cross-currency interest rate contracts		4		8		17
Total Level 2 other assets		402		725		951
Accounts payable and accrued expenses
Derivatives:
Interest rate contracts		132		88		131
Foreign exchange contracts		89		26		68
Cross-currency interest rate contracts		2		1
Total Level 2 accounts payable and accrued expenses		223		115		199

Level 3:
Marketable securities
International debt securities				4		1

The contractual maturities of debt securities at May ~~3, 2020~~2, 2021 in millions of dollars are shown below. Actual maturities may differ from those scheduled as a result of prepayments by the issuers. Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity. Mortgage-backed securities were primarily issued by U.S. government sponsored enterprises.


	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	21	$	17	$	20	$	21
Due after one through five years		98		102		90		94
Due after five through 10 years		99		109		124		127
Due after 10 years		157		169		207		213
Mortgage-backed securities		156		165		136		140
Debt securities	$	531	$	562	$	577	$	595

3430

~~Fair value, recurring Level 3 measurements from available-for-sale marketable securities in millions of dollars follow:~~

Three Months Ended

Six Months Ended

May 3

April 28

May 3

April 28

2020

2019

2020

2019

Beginning of period balance

$
1

$
6

$
1

$
8

Principal payments

(2)

(5)

Other

1

End of period balance

$
1

$
4

$
1

$
4

Fair value, nonrecurring measurements from impairments, ~~in millions of dollars follow:~~

Fair Value *

Losses

Three Months Ended

Six Months Ended

May 3

November 3

April 28

May 3

April 28

May 3

April 28


2020

2019

2019

2020

2019

2020

2019

Equipment on operating leases – net

$
371

$
855

$
22

$
22

Property and equipment – net

$
70

$
62

$
62

Investments in unconsolidated affiliates

$
10

$
20

$
20

Other assets

$
59

$
142

$
10

$
10

*~~See~~excluding financing receivables with specific allowances which were not significant, were as follows in ~~Note 11. The~~millions of dollars. Equipment on operating leases – net and Other assets fair value ~~measurement~~ for November 1, 2020 represents the ~~investment in unconsolidated affiliates was Level 1. The other~~ fair value ~~measurements were Level 3.~~assessment at May 3, 2020.


	Fair Value					Losses
						Three Months Ended			Six Months Ended
	May 2	November 1		May 3		May 2	May 3		May 2		May 3
	2021	2020		2020		2021	2020		2021		2020
Other receivables		$	1
Equipment on operating leases – net		$	371	$	371		$	22			$	22
Property and equipment – net		$	135	$	70		$	62	$	44	$	62
Investments in unconsolidated affiliates		$	19	$	10		$	20			$	20
Other assets		$	59	$	59		$	10	$	6	$	10

The following is a description of the valuation methodologies the Company uses to measure certain financial instruments on the balance sheet at fair value:

Marketable Securities – The portfolio of investments, except for the Level 3 measurement international debt securities, is primarily valued on a market approach (matrix pricing model) in which all significant inputs are observable or can be derived from or corroborated by observable market data such as interest rates, yield curves, volatilities, credit risk, and prepayment speeds. Funds are primarily valued using the fund’s net asset value, based on the fair value of the underlying securities. The Level 3 measurement international debt securities are primarily valued using an income approach based on discounted cash flows using yield curves derived from limited, observable market data.

Derivatives – The Company’s derivative financial instruments consist of interest rate swaps, ~~and caps,~~ foreign currency futures, forwards and swaps, and cross-currency interest rate swaps. The portfolio is valued based on an income approach (discounted cash flow) using market observable inputs, including swap curves and both forward and spot exchange rates for currencies.

Financing Receivables – Specific reserve impairments are based on the fair value of the collateral, which is measured using a market approach (appraisal values or realizable values). Inputs include a selection of realizable values.

Other Receivables – The impairment was based on the expected realization of value-added tax receivables related to a closed factory operation (see Note 22).

Equipment on Operating Leases – Net – The impairments are based on an income approach (discounted cash flow), using the contractual payments, plus estimates of return rates and equipment sale price at lease maturity. Inputs include ~~historic~~historical return rates and realized sales values (see Note ~~21)~~22).

Property and Equipment – 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 ~~21)~~22).

Investment in Unconsolidated Affiliates – Other than temporary impairments for investments are measured as the difference between the implied fair value and the carrying value of the ~~investments. The fair value for publicly traded entities is~~investments or the ~~share price multiplied by the shares owned~~estimated realization amount (see Note ~~21)~~22).

Other Assets – The impairments of matured operating lease inventory are measured at the fair value of ~~the matured operating lease~~that inventory. The valuations were based on a market approach. The inputs include sales of comparable assets (see Note ~~21)~~22).

~~(18)~~(20) Derivative Instruments

It is the Company’s policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. The Company’s financial services operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to

diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. The Company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling, and financing in currencies other than the functional currencies. In addition, the Company has interest rate exposure at certain

equipment operations units for below market retail financing programs that are used as sales incentives and are offered for extended periods.

All derivatives are recorded at fair value on the balance sheet. Cash collateral received or paid is not offset against the derivative fair values on the balance sheet. Each derivative is designated as a cash flow hedge, a fair value hedge, or remains undesignated. All designated hedges are formally documented as to the relationship with the hedged item as well as the risk-management strategy. Both at inception and on an ongoing basis the hedging instrument is assessed as to its effectiveness. If and when a derivative is determined not to be highly effective as a hedge, the underlying hedged transaction is no longer likely to occur, the hedge designation is removed, or the derivative is terminated, hedge accounting is discontinued.

Cash Flow Hedges

Certain interest rate contracts (swaps) were designated as hedges of future cash flows from borrowings. The total notional amounts of the receive-variable/pay-fixed interest rate contracts at May 2, 2021, November 1, 2020, and May 3, 2020 ~~November 3, 2019, and April 28, 2019~~ were ~~$2,450~~$1,850 million, ~~$3,150~~$1,550 million, and ~~$2,800~~$2,450 million, respectively. Fair value gains or losses on cash flow hedges were recorded in OCI and are subsequently reclassified into interest expense in the same periods during which the hedged transactions affected earnings. These amounts offset the effects of interest rate changes on the related borrowings. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.

The amount of loss recorded in OCI at May ~~3, 2020~~2, 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 ~~$17~~$4 million after-tax. ~~There were 0~~NaN gains or losses were 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 May 2, 2021, November 1, 2020, and May 3, 2020 ~~November 3, 2019, and April 28, 2019~~ were ~~$8,983~~$8,340 million, ~~$8,717~~$7,239 million, and ~~$9,464~~$8,983 million, respectively. The fair value gains or losses on these contracts were generally offset by fair value gains or losses on the hedged items (fixed-rate borrowings) with both items recorded in interest expense.

The amounts recorded in the consolidated balance sheet related to borrowings designated in fair value hedging relationships were as follows in millions of ~~dollars follow:~~dollars:


			Cumulative Increase (Decrease) of Fair								Cumulative Increase (Decrease) of Fair
			Value Hedging Adjustments Included in								Value Hedging Adjustments Included in
			the Carrying Amount								the Carrying Amount
	Carrying		Active						Carrying		Active
	Amount of		Hedging		Discontinued				Amount of		Hedging		Discontinued
	Hedged Item		Relationships		Relationships		Total		Hedged Item		Relationships		Relationships		Total
May 3, 2020
Long-term borrowings due within one year*	$	214			$	(2)	$	(2)
May 2, 2021
Long-term borrowings due within one year									$	163	$	1	$	(1)
Long-term borrowings		9,496	$	726		36		762		8,502		190		171	$	361

November 3, 2019
Long-term borrowings due within one year*	$	412	$	(1)	$	(4)	$	(5)
November 1, 2020
Long-term borrowings due within one year									$	155	$	2	$	3	$	5
Long-term borrowings		8,532		295		(32)		263		7,725		543		122		665

April 28, 2019
Long-term borrowings due within one year*	$	190	$	1	$	(4)	$	(3)
May 3, 2020
Long-term borrowings due within one year									$	214			$	(2)	$	(2)
Long-term borrowings		9,169		(31)		(38)		(69)		9,496	$	726		36		762

*~~Presented~~Long-term borrowings due within one year are presented in short-term ~~borrowings~~

borrowings.

3632

Derivatives not designated as hedging instruments

The Company has certain interest rate contracts (swaps), foreign 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 these interest rate swaps at May 2, 2021, November 1, 2020, and May 3, 2020 ~~November 3, 2019, and April 28, 2019~~ were ~~$7,975~~$8,694 million, ~~$9,166~~$8,514 million, and ~~$7,775~~$7,975 million, the foreign exchange contracts were ~~$4,430~~$6,239 million, ~~$4,962~~$4,903 million, and ~~$7,123~~$4,430 million, and the cross-currency interest rate contracts were ~~$89~~$151 million, ~~$92~~$113 million, and ~~$98~~$89 million, respectively. The fair value gains or losses from the interest rate contracts were recognized currently in interest expense or net sales and the gains or losses from foreign 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.

Fair values of derivative instruments in the condensed consolidated balance sheet were as follows in millions of ~~dollars follow:~~dollars:


	May 3		November 3		April 28		May 2		November 1		May 3
Other Assets	2020		2019		2019		2021		2020		2020
Designated as hedging instruments:
Interest rate contracts	$	758	$	332	$	105	$	301	$	586	$	758
Total designated		758		332		105

Not designated as hedging instruments:
Interest rate contracts		84		31		34		67		83		84
Foreign exchange contracts		92		20		99		30		48		92
Cross-currency interest rate contracts		17		1		2		4		8		17
Total not designated		193		52		135		101		139		193

Total derivative assets	$	951	$	384	$	240	$	402	$	725	$	951

Accounts Payable and Accrued Expenses
Designated as hedging instruments:
Interest rate contracts	$	30	$	28	$	125	$	80	$	14	$	30
Total designated		30		28		125

Not designated as hedging instruments:
Interest rate contracts		101		37		40		52		74		101
Foreign exchange contracts		68		71		48		89		26		68
Cross-currency interest rate contracts				3		2		2		1
Total not designated		169		111		90		143		101		169

Total derivative liabilities	$	199	$	139	$	215	$	223	$	115	$	199

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:


	Three Months Ended				Six Months Ended
	May 2		May 3		May 2		May 3
	2021		2020		2021		2020
Fair Value Hedges:
Interest rate contracts - Interest expense	$	(170)	$	415	$	(225)	$	511

Cash Flow Hedges:
Recognized in OCI
Interest rate contracts - OCI (pretax)				(15)				(17)

Reclassified from OCI
Interest rate contracts - Interest expense		(4)		(4)		(9)		(6)

Not Designated as Hedges:
Interest rate contracts - Net sales	$	5	$	(20)	$	5	$	(24)
Interest rate contracts - Interest expense *				1		(4)		3
Foreign exchange contracts - Cost of sales		(48)		81		(100)		92
Foreign exchange contracts - Other operating *		(78)		175		(204)		174
Total not designated	$	(121)	$	237	$	(303)	$	245

*Includes interest and foreign exchange gains (losses) from cross-currency interest rate contracts.

3733

~~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:~~

Three Months Ended

Six Months Ended

May 3

April 28

May 3

April 28

2020

2019

2020

2019

Fair Value Hedges:










Interest rate contracts - Interest expense

$
415

$
141

$
511

$
274

Cash Flow Hedges:

Recognized in OCI

Interest rate contracts - OCI (pretax)

(15)

(6)

(17)

(14)

Reclassified from OCI

Interest rate contracts - Interest expense

(4)

3

(6)

5

Not Designated as Hedges:

Interest rate contracts - Net sales

$
(20)

$
(7)

$
(24)

$
(17)

Interest rate contracts - Interest expense *

1

(10)

3

(18)

Foreign exchange contracts - Cost of sales

81

12

92

7

Foreign exchange contracts - Other operating *

175

80

174

100

Total not designated

$
237

$
75

$
245

$
72

*~~Includes interest and foreign exchange gains (losses) from cross-currency interest rate contracts.~~

Counterparty Risk and Collateral

Derivative instruments are subject to significant concentrations of credit risk to the banking sector. The Company manages individual counterparty exposure by setting limits that consider the credit rating of the counterparty, the credit default swap spread of the counterparty, and other financial commitments and exposures between the Company and the counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Some of these agreements include credit support provisions. Each master agreement permits the net settlement of amounts owed in the event of default or termination.

Certain of the Company’s derivative agreements contain credit support provisions that may require the Company to post ~~or receive~~ 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 May 2, 2021, November 1, 2020, and May 3, 2020, ~~November 3, 2019, and April 28, 2019,~~ was ~~$130~~$136 million, ~~$68~~$89 million, and ~~$166~~$130 million, respectively. In accordance with the limits established in these agreements, the Company ~~received $319 million in~~posted 0 cash collateral at May 3,2, 2021, November 1, 2020, and $1May 3, 2020. In addition, the Company paid $8 million of collateral, either in cash or pledged securities, that was outstanding at May 2, 2021 to participate in an international futures market to hedge currency exposure, not included in the table below.

Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities related to netting arrangements and any collateral received or paid was as follows in millions of dollars:


	Gross Amounts		Netting
May 2, 2021	Recognized		Arrangements		Collateral		Net Amount
Assets	$	402	$	(125)	$	(21)	$	256
Liabilities		223		(125)		(1)		97


	Gross Amounts		Netting
November 1, 2020	Recognized		Arrangements		Collateral		Net Amount
Assets	$	725	$	(93)	$	(274)	$	358
Liabilities		115		(93)				22


	Gross Amounts		Netting
May 3, 2020	Recognized		Arrangements		Collateral		Net Amount
Assets	$	951	$	(125)	$	(319)	$	507
Liabilities		199		(125)				74

(21)Stock Option and Restricted Stock Awards

In December 2020, the Company granted stock options to employees for the purchase of 269 thousand shares of common stock at ~~April 28, 2019. NaN~~an exercise price of $254.83 per share and a binomial lattice model fair value of $62.73 per share at the grant date. At May 2, 2021, options for 2.8 million shares were outstanding with a weighted-average exercise price of $125.50 per share. The Company also granted 212 thousand restricted stock units to employees and non-employee directors in the first six months of 2021, of which 165 thousand are subject to service based only conditions and 47 thousand are subject to performance/service based conditions. The weighted-average fair value of the service based only units at the grant date was $258.42 per unit 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 was $245.73 per unit based on the market price of a share of underlying common stock excluding dividends. At May 2, 2021, the Company was authorized to grant an additional 17.7 million shares under the equity incentive plan.

(22) Special Items

During the first quarter of 2021, the fixed assets in an asphalt plant factory in Germany were impaired by $38 million, pretax and after-tax. The Company also continued to assess its manufacturing locations, resulting in additional long-lived asset impairments of $12 million pretax. The impairments were the result of a decline in forecasted financial performance that indicated it was probable future cash ~~collateral was posted or received at~~ flows would not cover the carrying amount of the net assets. These impairments were offset by a favorable indirect tax ruling in Brazil of $58 million pretax. See Note 19 for fair value measurement information.


	Six Months Ended
	May 2, 2021
Expense (benefit):	Production & Precision Ag		Small Ag & Turf		Construction & Forestry		Total
Long-lived asset impairments – Cost of sales	$	5	$	3	$	42	$	50
Brazil indirect tax – Cost of sales		(53)				(5)		(58)
Total expense (benefit)	$	(48)	$	3	$	37	$	(8)

~~November 3, 2019~~.

3834

~~Derivatives are recorded without offsetting~~In the second quarter of 2020, the fixed assets in an asphalt plant factory in Germany were impaired by $62 million pretax and after-tax. The impairment is the result of a decline in forecasted financial performance that indicated it was probable future cash flows would not cover the carrying amount of the net assets. The equipment on operating leases and matured operating lease inventory were impaired by $22 million and $10 million pretax, respectively, with an income tax benefit of approximately $9 million. The impairments were the result of higher expected equipment return rates and lower estimated values of used construction equipment than originally estimated with the probable effect that the future cash flows will not cover the carrying amount of the net assets. A minority investment in a construction equipment company headquartered in South Africa was impaired by $20 million pretax and after-tax. The impairment was the result of an other than temporary decline in value. See Note 19 for ~~netting arrangements or collateral. The impact on the derivative assets and liabilities related to netting arrangements and any collateral received or paid in millions of dollars follows:~~

Gross Amounts

Netting

Collateral

May 3, 2020

Recognized

Arrangements

Received

Net Amount

Assets

$
951

$
(125)

$
(319)

$
507

Liabilities

199

(125)

74

fair value measurement information.

Gross Amounts

Netting

Collateral

November 3, 2019

Recognized

Arrangements

Received/Paid

Net Amount

Assets

$
384

$
(70)

$
314

Liabilities

139

(70)

69

Gross Amounts

Netting

Collateral


April 28, 2019

Recognized

Arrangements

Received

Net Amount

Assets

$
240

$
(99)

$
(1)

$
140

Liabilities

215

(99)

116


	Six Months Ended
	May 3, 2020
Expense:	Construction & Forestry		Financial Services		Total
Long-lived asset impairments – Cost of sales	$	62			$	62
Investments in unconsolidated affiliates impairment – Equity in loss of unconsolidated affiliate		20				20
Equipment on operating leases & matured operating lease inventory impairments – Other operating expenses			$	32		32
Total expense	$	82	$	32	$	114

~~(19)~~~~Stock Option and Restricted Stock Awards~~

In December 2019, the Company granted stock options to employees for the purchase of 495 thousand shares of common stock at an exercise price of $169.70 per share and a binomial lattice model fair value of $35.83 per share at the grant date. At May 3, 2020, options for 6.6 million shares were outstanding with a weighted-average exercise price of $99.65 per share. The Company also granted 356 thousand restricted stock units to employees and nonemployee directors in the first six months of 2020, of which 289 thousand are subject to service based only conditions and 67 thousand are subject to performance/service based conditions. The weighted-average fair value of the service based only units at the grant date was $168.99 per unit 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 was $160.81 per unit based on the market price of a share of underlying common stock excluding dividends. At May 3, 2020, the Company was authorized to grant an additional 18.4 million shares related to stock option and restricted stock awards.

~~(20)~~Employee-Separation ~~Program~~

Programs

During the first quarter of 2020, the Company announced a broad voluntary employee-separation program for the U.S. salaried workforce that continues the efforts to create a more efficient organization structure and reduce operating costs. The program provided for cash payments based on years of service. The expense was recorded primarily in the period in which the employees irrevocably accepted the separation offer. The ~~program’s total estimated pretax expenses are approximately $138 million, of which $9 million was recorded in the second quarter and $136 million in the first half of 2020. The~~ payments for the program were also substantially made in the first quarter of 2020. Included in the total pretax expense is a non-cash charge of $21 million resulting from a curtailment in certain OPEB plans (see Note 8), which was recorded outside of operating profit in “Other operating expense.” The first half of 2020 expenses that are included in operating profit of $113 million are allocated 36 percent “Cost of sales,” 16 percent “Research and development,” and 48 percent “Selling, administrative and general.” In addition, the expenses are allocated 74 percent to the agriculture and turf operations, 24 percent to the construction and forestry operations, and 2 percent to the financial services operations. Annual savings from these programs are estimated to be approximately $85 million with about $65 million in 2020.

~~(21)~~~~Impairments~~


	Six Months Ended
	May 3, 2020
	Production & Precision Ag		Small Ag & Turf		Construction & Forestry		Financial Services		Total
Cost of sales	$	21	$	11	$	9			$	41
Research and development expenses		7		7		4				18
Selling, administrative and general expenses		18		19		14	$	3		54
Total operating profit impact	$	46	$	37	$	27	$	3		113
Other operating expenses										23
Total expense									$	136

~~In the second quarter of 2020, the Company recorded non-cash impairment charges as outlined below.~~

~~The fixed assets in an asphalt plant factory in Germany were impaired by $62 million pretax and~~ ~~after-tax~~. The impairment is the result of a decline in forecasted financial performance that indicated it was probable future cash flows would not cover the carrying amount of the net assets. The assets are included in the Company’s construction and forestry operations with the impairment recorded in “Cost of sales.”

The equipment on operating leases and matured operating lease inventory recorded in “Other assets” were impaired by $22 million and $10 million pretax, respectively, with an income tax benefit of approximately $9 million. The impairments were the result of higher expected equipment return rates and lower estimated values of used construction equipment than originally estimated with the probable effect that the future cash flows will not cover the carrying amount of the net assets. The assets are included in the financial services operations with the impairments recorded in “Other operating expenses.”

~~A minority investment in a construction equipment company headquartered in South Africa was impaired by $20 million pretax and~~ ~~after-tax. The impairment was the result of an other than temporary decline in value and was recorded in “Equity loss of unconsolidated affiliates.”~~

~~(22)~~ Redeemable Noncontrolling Interest

In the second quarter of 2020, the minority interest holder in Hagie Manufacturing Company, LLC exercised its right to sell the remaining 20 percent interest to the Company for $14 million. The arrangement was accounted for as an equity transaction with 0 gain or loss recorded in the statement of consolidated income. This operation is included in the Company’s ~~agriculture~~production and ~~turf~~precision agriculture segment.

4035

(23) SUPPLEMENTAL CONSOLIDATING DATA

STATEMENT OF INCOME

For the Three Months Ended May 3, 2020 and April 28, 2019

(In millions of dollars) Unaudited

EQUIPMENT OPERATIONS*

FINANCIAL SERVICES

2020

2019

2020

2019

Net Sales and Revenues








Net sales

$
8,224

$
10,273

Finance and interest income

23

25

$
906

$
910

Other income

181

213

61

72

Total

8,428

10,511

967

982

Costs and Expenses

Cost of sales

6,294

7,755

Research and development expenses

406

457

Selling, administrative and general expenses

700

795

208

154

Interest expense

83

44

266

312

Interest compensation to Financial Services

73

92

Other operating expenses

21

67

416

344

Total

7,577

9,210

890

810

Income of Consolidated Group before Income Taxes

851

1,301

77

172

Provision for income taxes

228

291

17

52

Income of Consolidated Group

623

1,010

60

120

Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates

Financial Services

60

121

1

Other

(17)

5

Total

43

126

1

Net Income

666

1,136

60

121

Less: Net income attributable to noncontrolling interests

1

Net Income Attributable to Deere & Company

$
666

$
1,135

$
60

$
121

*~~Deere & Company with Financial Services on the equity basis.~~

The supplemental consolidating data is presented for informational purposes. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

STATEMENT OF INCOME

For the Six Months Ended May 3, 2020 and April 28, 2019

(In millions of dollars) Unaudited

EQUIPMENT OPERATIONS*

FINANCIAL SERVICES

2020

2019

2020

2019

Net Sales and Revenues

Net sales

$
14,754

$
17,214

Finance and interest income

49

49

$
1,841

$
1,776

Other income

391

428

124

133

Total

15,194

17,691

1,965

1,909

Costs and Expenses

Cost of sales

11,372

13,187

Research and development expenses

831

864

Selling, administrative and general expenses

1,373

1,440

346

275

Interest expense

146

115

541

599

Interest compensation to Financial Services

137

162

Other operating expenses

92

138

824

669

Total

13,951

15,906

1,711

1,543

Income of Consolidated Group before Income Taxes

1,243

1,785

254

366

Provision for income taxes

237

436

58

92

Income of Consolidated Group

1,006

1,349

196

274

Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates

Financial Services

197

275

1

1

Other

(19)

12

Total

178

287

1

1
��
Net Income

1,184

1,636

197

275

Less: Net income attributable to noncontrolling interests

2

3

Net Income Attributable to Deere & Company

$
1,182

$
1,633

$
197

$
275

*~~Deere & Company with Financial Services on the equity basis.~~

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

CONDENSED BALANCE SHEET

(In millions of dollars) Unaudited

EQUIPMENT OPERATIONS*

FINANCIAL SERVICES

May 3

November 3

April 28

May 3

November 3

April 28

2020

2019

2019

2020

2019

2019

Assets



















Cash and cash equivalents

$
7,466

$
3,175

$
2,894

$
1,434

$
682

$
590

Marketable securities

3

1

7

623

580

538

Receivables from unconsolidated subsidiaries and affiliates

2,248

2,017

1,091

Trade accounts and notes receivable – net

1,419

1,482

1,608

6,050

5,153

7,554

Financing receivables – net

118

65

101

27,138

29,130

25,769

Financing receivables securitized – net

37

44

59

4,648

4,339

4,755

Other receivables

1,072

1,376

1,325

148

116

166

Equipment on operating leases – net

7,245

7,567

7,040

Inventories

6,171

5,975

7,161

Property and equipment – net

5,642

5,929

5,712

43

44

45

Investments in unconsolidated subsidiaries and affiliates

5,119

5,326

5,187

17

16

16

Goodwill

2,917

2,917

3,025

Other intangible assets – net

1,311

1,380

1,476

Retirement benefits

908

836

1,325

58

58

58

Deferred income taxes

1,796

1,896

1,575

52

57

73

Other assets

1,506

1,158

1,235

1,208

741

636

Total Assets

$
37,733

$
33,577

$
33,781

$
48,664

$
48,483

$
47,240

Liabilities and Stockholders’ Equity

Liabilities

Short-term borrowings

$
1,398

$
987

$
1,337

$
9,781

$
9,797

$
10,425

Short-term securitization borrowings

37

44

58

4,603

4,277

4,644

Payables to unconsolidated subsidiaries and affiliates

91

142

200

2,216

1,970

1,057

Accounts payable and accrued expenses

8,416

9,232

9,470

2,149

1,836

1,813

Deferred income taxes

395

414

461

493

568

662

Long-term borrowings

9,947

5,415

4,679

24,377

24,814

23,576

Retirement benefits and other liabilities

5,584

5,912

5,638

101

94

95

Total liabilities

25,868

22,146

21,843

43,720

43,356

42,272

Commitments and contingencies (Note 16)

Redeemable noncontrolling interest (Note 22)

14

14

Stockholders’ Equity

Common stock, $1 par value (issued shares at May 3, 2020 – 536,431,204)

4,713

4,642

4,559

2,114

2,107

2,107

Common stock in treasury

(17,690)

(17,474)

(16,739)

Retained earnings

30,556

29,852

28,709

3,349

3,378

3,228

Accumulated other comprehensive income (loss)

(5,715)

(5,607)

(4,610)

(519)

(358)

(367)

Total Deere & Company stockholders’ equity

11,864

11,413

11,919

4,944

5,127

4,968

Noncontrolling interests

1

4

5

Total stockholders’ equity

11,865

11,417

11,924

4,944

5,127

4,968

Total Liabilities and Stockholders’ Equity

$
37,733

$
33,577

$
33,781

$
48,664

$
48,483

$
47,240

*~~Deere & Company with Financial Services on the equity basis.~~

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

STATEMENT OF CASH FLOWS

For the Six Months Ended May 3, 2020 and April 28, 2019

(In millions of dollars) Unaudited

EQUIPMENT OPERATIONS*

FINANCIAL SERVICES

2020

2019

2020

2019

Cash Flows from Operating Activities













Net income

$
1,184

$
1,636

$
197

$
275

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for credit losses

9

5

98

32

Provision for depreciation and amortization

515

525

621

557

Impairment charges

82

32

Undistributed earnings of unconsolidated subsidiaries and affiliates

21

30

(1)

(1)

Provision (credit) for deferred income taxes

9

(118)

(70)

(164)

Changes in assets and liabilities:

Trade receivables and Equipment Operations' financing receivables

(80)

(271)

Inventories

(242)

(1,086)

Accounts payable and accrued expenses

(659)

247

30

53

Accrued income taxes payable/receivable

(154)

(344)

(19)

501

Retirement benefits

50

16

8

4

Other

107

68

95

99

Net cash provided by operating activities

842

708

991

1,356

Cash Flows from Investing Activities

Collections of receivables (excluding trade and wholesale)

10,385

9,894

Proceeds from maturities and sales of marketable securities

5

39

25

Proceeds from sales of equipment on operating leases

898

823

Cost of receivables acquired (excluding trade and wholesale)

(9,885)

(9,423)

Purchases of marketable securities

(2)

(71)

(57)

Purchases of property and equipment

(440)

(490)

(1)

(1)

Cost of equipment on operating leases acquired

(1,304)

(1,341)

Increase in trade and wholesale receivables

(673)

(3,028)

Collateral on derivatives - net

1

319

59

Other

(40)

(52)

(36)

(39)

Net cash used for investing activities

(480)

(538)

(329)

(3,088)

Cash Flows from Financing Activities

Increase (decrease) in total short-term borrowings

554

(131)

584

1,701

Change in intercompany receivables/payables

(292)

611

292

(611)

Proceeds from long-term borrowings

4,602

120

2,673

4,112

Payments of long-term borrowings

(152)

(158)

(3,163)

(3,269)

Proceeds from issuance of common stock

70

95

Repurchases of common stock

(263)

(481)

Dividends paid

(481)

(462)

(225)

(312)

Other

(61)

(35)

(13)

(12)

Net cash provided by (used for) financing activities

3,977

(441)

148

1,609

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash

(58)

(27)

(44)

(8)

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash

4,281

(298)

766

(131)

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period

3,196

3,202

760

813

Cash, Cash Equivalents, and Restricted Cash at End of Period

$
7,477

$
2,904

$
1,526

$
682

*~~Deere & Company with Financial Services on the equity basis.~~

~~Item~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Overview

Organization

The Company’s equipment operations generate revenues and cash primarily from the sale of equipment to John Deere dealers and distributors. The equipment operations manufacture and distribute a full line of agricultural equipment; a variety of commercial and consumer equipment; and a broad range of equipment for construction, roadbuilding, and forestry. The Company’s financial services primarily provide credit services, which mainly finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the equipment operations. In addition, financial services offers extended equipment warranties. The information in the following discussion is presented in a format that includes information grouped as consolidated, equipment operations, and financial services. The Company also views its operations as consisting of two geographic areas, the U.S. and Canada, and outside the U.S. and Canada. The Company’s operating segments consist of production and precision agriculture, small agriculture and turf, construction and forestry, and financial services.

Trends and Economic Conditions

Industry sales of large agricultural machinery in the U.S. and Canada are expected to be ~~down~~up about 1025 percent for ~~fiscal year 2020~~2021 compared to the prior year. Industry sales in Europe are forecast to be 5 to 10 percent lower in 2020. South American industry sales of tractors and combines are projected to be down 10 to 15 percent. Asian industry sales are forecast to be down moderately in 2020. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be up about 10 percent ~~lower~~ in ~~2020. The Company’s agriculture~~2021. Industry sales of agricultural machinery in Europe are also forecast to be up about 10 percent. In South America, industry sales of tractors and ~~turf segment sales decreased 18~~combines are projected to be up about 20 percent in ~~the second quarter and 13 percent for the first six months.~~2021. Industry sales of agricultural machinery in Asia are forecast to be up slightly. Construction ~~equipment~~ industry sales in ~~North America~~U.S. and Canada for ~~2020~~2021 are expected to ~~decline~~increase about 15 to 20 percent, while compact construction equipment in the U.S. and Canada are forecast to increase about 20 to 3025 percent. In forestry, global industry sales are expected to be 15 to 20 percent ~~lower.~~higher. The Company’s ~~construction~~financial services operations are expected to benefit from improvement on operating lease residual values, income earned on a higher average portfolio, a lower provision for credit losses, and ~~forestry segment sales decreased 25 percent~~more favorable financing spreads for fiscal year 2021 compared to the prior year.

Items of concern include uncertainty of the effectiveness of governmental and private sector actions to address COVID, trade agreements, the uncertainty of the results of monetary and fiscal policies, the impact of elevated levels of sovereign and state debt, capital market disruptions, changes in demand and pricing for new and used equipment, geopolitical events, and the other items discussed in the ~~second quarter~~“Safe Harbor Statement” below. Significant fluctuations in foreign currency exchange rates and ~~18 percent~~volatility in the ~~first six months.~~price of many commodities could also impact the Company’s results. The future financial effects of COVID are unknown due to many factors. As a result, predicting the Company’s forecasted financial performance is subject to many assumptions.

The Company’s results were delivered across its entire business lineup, reflecting strong worldwide markets for farm and construction equipment. The Company’s smart industrial operating strategy continues to have a significant impact on performance while also helping customers do their jobs in a more profitable and sustainable manner. While the Company is performing well, increased supply-chain pressures are expected through the remainder of the year. The Company is working closely with key suppliers to secure the parts and components that its customers need to deliver essential food production and infrastructure. Despite these challenges, the Company is on track for a strong year and well positioned to unlock greater value for its customers and other stakeholders in the future.

COVID Effects and Actions

~~During the second quarter of 2020 the~~The effects of COVID and the related actions of governments and other authorities to contain COVID ~~including travel bans, shelter in place guidelines, shutdown orders, actions necessary~~continue to ~~regularly clean facilities, and conforming with social distancing guidelines have significantly affected~~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 iscontinues to be the health, safety, and overall welfare of its employees. The Company effectively activated previously established business continuity plans and proactively implemented health and safety measures at its operations around the world. These measures include employee health screening, using personal protective equipment, enhanced cleaning and sanitation efforts, reworking factory layouts and staggered production schedules to conform with social distancing recommendations, eliminating all non-essential travel through at least June 30, 2020, and transitioning most of the non-factory workforce to work-at-home arrangements.

The economic effects of COVID have reduced customer demand for many of the Company’s products and services, particularly small agriculture, turf, construction, forestry, and roadbuilding equipment (see Note 4), which resulted in lower shipment volumes. Certain of the Company’s factories have been subject to voluntary or government mandated temporary shutdowns, or were briefly idled due to component shortages, which reduced production capacity. These temporary shutdowns occurred primarily in Argentina, Brazil, France, and India. Suppliers in the U.S., Mexico, India, and Southern Europe have also been significantly affected by government and voluntary actions to limit the spread of COVID resulting in delivery delays, at times significant delays, or the inability to meet delivery requirements of critical raw material, parts, and components. The Company’s efforts to address these effects of COVID have resulted in operational inefficiencies. In addition, measures were taken for aggressively decreasing operational and selling, administrative, and general expenses with targeted reductions to research and development spending. Additional information is presented in the “Business Segment and Geographic Results.”

Most of the independent, third-party and Company owned dealers that sell and service the Company’s equipment and repair parts have also been designated as critical businesses. Those dealers are following government and health organization safety guidance, while continuing to provide sales and service to equipment users, especially farmers and essential use construction equipment. The available digital tools and connected support abilities incorporated into several products have allowed the dealers to remotely service many customer machines while maintaining appropriate social distancing protocols. These measures have helped customers continue the essential work of promoting food security and providing critical infrastructure.

The Company ~~and~~broadened its ~~employees are also taking actions~~supply base to ~~strengthen social safety nets in communities where~~minimize the impact of potential supply chain disruptions on its ability to meet customer demand. While the impact to operations during the first six months of 2021 was not material, the Company ~~operates throughout~~continues to monitor the ~~world. These include making donations of face shields~~situation and ~~coverings to health-care workers and first responders, along~~work closely with ~~contributing financial support to local food banks and Red Cross chapters.~~suppliers.

In addition, the Company took significant measures in the second quarter of 2020 to strengthen its financial position. Cash and cash equivalents increased to $8,900 million at May 3, 2020. In fiscal April, the Company issued notes in the U.S. with aggregate principal totaling $2,250 million that are due from 2025 to 2050. The Company ~~likewise issued Euro-Medium-Term notes~~continued to work closely with aggregate principal totaling €2,000 million (approximately $2,170 million) that are due from 2024 to 2032. The Company also renewed its revolving credit facilities in the aggregate amount of $8,000 million on terms substantially similar, in all material respects, to the terms in the previous agreements. As of May 3, 2020, these revolving credit facilities were undrawn. To further strengthen its liquidity position, the Company suspended repurchases of its own common stock, eliminated a planned fourth quarter voluntary contribution of $300 million to a U.S. OPEB plan, and reduced planned capital expenditures. Additional information is presented in the “Capital Resources and Liquidity” section.

~~When the financial effects of COVID on the Company’s~~ distribution channel and equipment user customers ~~started to appear, actions were taken to re-evaluate credit positions, work closely~~in the first half of 2021 in connection with ~~those customers to understand potential liquidity concerns, and, if necessary, provide~~ short-term payment relief on obligations owed to the Company. ~~The payment relief provided on balances of trade receivables and financing~~Financing receivables and operating ~~lease payments~~leases granted relief since the beginning of the pandemic that remained outstanding at May ~~3, 2020 was~~2, 2021 represented about ~~10 percent, 3~~4 percent and 23 percent of the portfolio balances, respectively. The ~~allowance for credit losses~~trade receivable balance granted relief that remained outstanding at May 2, 2021 was ~~adjusted by $38 million in the second quarter of 2020 for additional losses estimated to be inherent in the Company’s financing receivables primarily related to construction equipment lending.~~not material. Additional information is presented in Notes 4, 11, and ~~11.~~17.

Due to the financial effects of COVID and other macroeconomic issues, the Company recognized impairments in the second quarter of $114 million pretax (see Note 21). The future financial effects of COVID are unknown due to many factors. These factors include uncertainty of the effectiveness of governmental actions to address COVID, including health, monetary, and fiscal policies, the effect of elevated levels of sovereign and state debt, capital market disruptions, changes in demand and pricing for new and used equipment, trade agreements, other geopolitical events, significant fluctuations in foreign currency exchange rates, and volatility in the price of many commodities. As a result, predicting the Company’s forecasted financial performance is difficult and subject to many assumptions. Further meaningful declines in the forecasted performance could result in additional impairments in future periods.

The Company has sought to safeguard the health and well-being of employees while fulfilling its obligation as an essential business serving customers throughout the world. This proactive approach has kept employees safe and production facilities and parts distribution centers largely operational during this period. The Company remains committed to offering a full suite of advanced digital tools that give customers unique capabilities and help them perform their work more efficiently and profitably. Management’s goal is to successfully manage the pandemic’s effects and strengthen its position serving customers in the future.

~~2020~~2021 Compared with ~~2019~~2020

The following table provides the net sales and revenues and net income attributable to Deere & Company in millions of dollars and diluted earnings per share in dollars:


	Three Months Ended				Six Months Ended				Three Months Ended					Six Months Ended
	May 3		April 28		May 3		April 28		May 2		May 3		%	May 2		May 3		%
	2020		2019		2020		2019		2021		2020		Change	2021		2020		Change
Net sales and revenues									$	12,058	$	9,253	+30	$	21,170	$	16,884	+25
Net income attributable to Deere & Company	$	666	$	1,135	$	1,182	$	1,633		1,790		666	+169		3,013		1,182	+155
Diluted earnings per share		2.11		3.52		3.73		5.07		5.68		2.11			9.55		3.73

In the second quarter of 2020, the Company recorded impairments totaling $114 million pretax and ~~approximately~~ $105 million after-tax related to certain fixed assets, operating lease equipment, and a minority investment in a construction equipment company headquartered in South Africa (see Note ~~21)~~22).

~~The~~ In the first six months of 2020, total voluntary employee-separation ~~program’s total pretax expenses were $9 million and~~program (VSEP) expense recognized was $136 million ~~recognized in the second quarter and first half of 2020, respectively. Included in first half of 2020 expense was $23 million for items excluded from~~pretax.

The worldwide equipment operations net sales, operating profit, and $3 million recorded by the financial services operations. Annual estimated savings from the separation program are approximately $85 million, with about $65 million expected in 2020 (see Note 20). Discrete income tax benefits also affected the first six months’ net income ~~(see Note 9).~~

~~The worldwide net sales~~in millions of dollars, and ~~revenue,~~ price realization and the effect of currency translation ~~for worldwide,~~are shown below. Also shown are U.S. and Canada, and outside U.S. and Canada equipment operations net sales in millions of dollars, ~~follows:~~

Three Months Ended

Six Months Ended

May 3

April 28

%

May 3

April 28

%

2020

2019

Change

2020

2019

Change

Worldwide net sales and revenues

$
9,253

$
11,342

-18

$
16,884

$
19,326

-13

Worldwide equipment operations net sales

8,224

10,273

-20

14,754

17,214

-14

Price realization

+1

+2

Currency translation (unfavorable)

-2

-2

U.S. and Canada equipment operations net sales

4,998

6,132

-18

8,748

10,255

-15

Price realization

+1

+1

Outside U.S. and Canada equipment operations net sales

3,226

4,141

-22

6,006

6,959

-14

Price realization

+2

+2

Currency translation (unfavorable)

-5

-4

~~The Company’s equipment operations operating profit~~price realization, and ~~net income and financial services operations net income follow in millions of dollars:~~currency translation.


	Three Months Ended					Six Months Ended					Three Months Ended					Six Months Ended
	May 3		April 28		%	May 3		April 28		%	May 2		May 3		%	May 2		May 3		%
Worldwide equipment operations:											2021		2020		Change	2021		2020		Change
Net sales											$	10,998	$	8,224	+34	$	19,049	$	14,754	+29
Operating profit												2,144	$	890	+141	$	3,524		1,356	+160
Net income												1,568		606	+159		2,586		985	+163
Price realization															+7					+6
Currency translation															+3					+2
	2020		2019		Change	2020		2019		Change
Equipment operations operating profit	$	890	$	1,366	-35	$	1,356	$	1,943	-30
Equipment operations net income		623		1,010	-38		1,006		1,349	-25
Financial services net income		60		121	-50		197		275	-28
U.S. and Canada equipment operations:
Net sales												6,157		4,998	+23		10,686		8,748	+22
Price realization															+5					+5
Currency translation															+1					+1

Outside U.S. and Canada equipment operations:
Net sales												4,841		3,226	+50		8,363		6,006	+39
Price realization															+9			��		+8
Currency translation															+7					+4

The discussion on net sales and operating profit ~~are~~is included in the Business Segment Results below.

The cost of sales to net sales ratio and other significant statement of consolidated income changes were as follows in millions of dollars:


	Three Months Ended					Six Months Ended
	May 2		May 3		%	May 2		May 3		%
	2021		2020		Change	2021		2020		Change
Cost of sales to net sales		72.1%		76.5%			72.1%		77.1%

Other income	$	251	$	180	+39	$	477	$	385	+24
Research and development expenses		377		406	-7		743		831	-11
Selling, administrative and general expenses		838		906	-8		1,607		1,715	-6
Other operating expenses		335		377	-11		708		792	-11

The cost of sales to net sales ratio decreased in the second quarter and the first six months primarily due to price realization and impairments recorded in 2020 (see Note 22). The first six months of 2020 were also impacted by VSEP costs. Other income increased in both periods due to gains on the disposition of operating lease equipment in 2021 and unrealized gains on equity securities. Research and development expenses decreased in both periods from efficiencies gained and timing of project initiatives. Selling, administrative and general expenses decreased in both periods primarily due to a lower provision for credit losses and VSEP costs recorded in 2020 (see Note 22), partially offset by higher incentive compensation. Other operating expenses decreased in both periods primarily due to impairments on operating lease residual values and losses on the disposition of operating lease equipment in 2020 and lower depreciation of equipment on operating leases.

4738

Business Segment Results

~~Agriculture~~Production and ~~Turf.~~Precision Agriculture. The ~~agriculture~~production and ~~turf~~precision agriculture segment results were as follows in millions of ~~dollars follow:~~dollars:


	Three Months Ended					Six Months Ended					Three Months Ended					Six Months Ended
	May 3		April 28		%	May 3		April 28		%	May 2		May 3		%	May 2		May 3		%
	2020		2019		Change	2020		2019		Change	2021		2020		Change	2021		2020		Change
Net sales	$	5,968	$	7,282	-18	$	10,455	$	11,963	-13	$	4,529	$	3,365	+35	$	7,599	$	5,872	+29
Operating profit		794		1,019	-22		1,167		1,367	-15		1,007		568	+77		1,651		786	+110
Operating margin		13.3%		14.0%			11.2%		11.4%			22.2%		16.9%			21.7%		13.4%

~~Agriculture~~Production and ~~turf~~precision agriculture sales ~~decreased~~increased for the ~~second~~ quarter due to ~~lower~~higher shipment volumes and ~~the unfavorable effects of currency translation, partially offset by~~ price realization. Operating profit ~~declined for the quarter~~rose primarily due to ~~lower~~price realization and higher shipment volumes / sales ~~mix, along with the unfavorable effects of foreign currency exchange.~~mix. These ~~factors~~items were partially offset by ~~price realization, lower selling, administrative, and general expenses, reduced~~higher production ~~costs, and lower research and development expenses.~~costs.

Sales for the first six months ~~decreased~~increased mainly as a result of ~~lower~~higher shipment volumes and ~~the unfavorable effects of currency translation, partially offset by~~ price realization. Operating profit for the first six months ~~declined~~increased primarily resulting from ~~lower~~price realization, higher shipment volumes / sales mix, and a favorable indirect tax ruling in Brazil. The prior period was also impacted by voluntary employee-separation ~~expenses, and the unfavorable effects of currency exchange.~~program expenses. Partially offsetting these factors were ~~price realization, lower~~higher production ~~costs, decreased selling, administrative, and general expenses, and reduced research and development expenses.~~costs.

Small Agriculture and Turf. The small agriculture and turf segment results were as follows in millions of dollars:


	Three Months Ended					Six Months Ended
	May 2		May 3		%	May 2		May 3		%
	2021		2020		Change	2021		2020		Change
Net sales	$	3,390	$	2,603	+30	$	5,904	$	4,583	+29
Operating profit		648		226	+187		1,117		381	+193
Operating margin		19.1%		8.7%			18.9%		8.3%

Small agriculture and turf sales for the quarter increased due to higher shipment volumes, price realization, and the favorable effects of foreign currency translation. Operating profit increased primarily due to higher shipment volumes / sales mix, price realization, and the favorable effects of foreign currency exchange. These items were partially offset by higher production costs.

Sales for the first six months increased mainly as a result of higher shipment volumes, price realization, and the favorable effects of foreign currency translation. Operating profit for the first six months increased primarily resulting from higher shipment volumes / sales mix, price realization, and the favorable effects of foreign currency exchange. The prior period was also impacted by voluntary employee-separation program expenses. Partially offsetting these factors were higher production costs.

4940

Construction and Forestry. The construction and forestry segment results were as follows in millions of ~~dollars follow:~~dollars:


	Three Months Ended					Six Months Ended					Three Months Ended					Six Months Ended
	May 3		April 28		%	May 3		April 28		%	May 2		May 3		%	May 2		May 3		%
	2020		2019		Change	2020		2019		Change	2021		2020		Change	2021		2020		Change
Net sales	$	2,256	$	2,991	-25	$	4,299	$	5,251	-18	$	3,079	$	2,256	+36	$	5,546	$	4,299	+29
Operating profit		96		347	-72		189		576	-67		489		96	+409		756		189	+300
Operating margin		4.3%		11.6%			4.4%		11.0%			15.9%		4.3%			13.6%		4.4%

Construction ~~& Forestry~~and forestry sales ~~declined~~moved higher for the ~~second~~ quarter ~~mainly~~primarily due to ~~lower~~higher shipment volumes, price realization, and the ~~unfavorable~~favorable effects of foreign currency ~~translation, partially offset by price realization. Second quarter operating~~translation. Operating profit ~~deteriorated largely~~increased due to ~~lower~~higher shipment volumes / sales mix and price realization. Results for the prior period were affected by impairments in certain fixed assets and ~~a minority investment in a construction~~an unconsolidated equipment company headquartered in South Africa (see Note ~~21),~~22).

The segment’s six-month sales also increased due to higher shipment volumes, price realization, and the ~~unfavorable~~favorable effects of foreign currency ~~exchange, partially offset by lower production costs~~translation. The first six-month’s operating profit moved higher mainly due to increased shipment volumes / sales mix and price realization. The prior period was also impacted by voluntary employee-separation program expenses and impairments in certain fixed assets and an unconsolidated equipment company headquartered in South Africa (see Note 22).

5041

The segment’s six month sales also decreased due to lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. The first six month’s operating profit moved lower mainly due to reduced shipment volumes / sales mix, impairments in certain fixed assets and a minority investment in a construction equipment company (see Note 21), voluntary employee-separation expenses, and the unfavorable effects of currency exchange, partially offset by lower production costs and price realization.

Financial Services. The financial services segment revenue, interest expense, ~~and~~ operating profit, and net income was as follows in millions of ~~dollars, along with the ratio of earnings to fixed charges follow:~~dollars:


	Three Months Ended					Six Months Ended					Three Months Ended					Six Months Ended
	May 3		April 28		%	May 3		April 28		%	May 2		May 3		%	May 2		May 3		%
	2020		2019		Change	2020		2019		Change	2021		2020		Change	2021		2020		Change
Revenue (including intercompany revenue)	$	967	$	982	-2	$	1,965	$	1,909	+3	$	954	$	967	-1	$	1,888	$	1,965	-4
Interest expense		266		312	-15		541		599	-10		181		266	-32		369		541	-32
Operating profit		75		170	-56		254		362	-30		295		75	+293		553		254	+118
Consolidated ratio of earnings to fixed charges		1.29		1.55	-17		1.47		1.61	-9
Net income												222		60	+270		427		197	+117

Financial services operating profit ~~decreased~~increased for the quarter and the first six months primarily due to a ~~higher~~lower provision for credit losses, improvement on operating lease residual values, and ~~increased losses and~~more favorable financing spreads. Results last year also included impairments on lease residual values ~~partially offset by income earned on a higher average portfolio. Both periods were affected by unfavorable financing spreads.~~(see Note 22). The average balance of receivables and leases financed was 34 percent higher in the second quarter and 53 percent higher in the first six months of ~~2020,~~2021, compared with the same periods last year. Interest expense decreased in the second quarter and first six months of ~~2020~~2021 primarily as a result of lower average borrowing ~~rates, partially offset by higher average borrowings.~~rates.

~~The cost of sales to net sales ratio and other significant statement of consolidated income changes not previously discussed follow:~~

Three Months Ended

Six Months Ended

May 3

April 28

%

May 3

April 28

%

2020

2019

Change

2020

2019

Change

Cost of sales to net sales

76.5%

75.5%

77.1%

76.6%

Research and development expenses

$
406

$
457

-11

$
831

$
864

-4

Selling, administrative and general expenses

906

947

-4

1,715

1,710

Other operating expenses

377

359

+5

792

711

+11

The cost of sales to net sales ratio increased in the second quarter primarily due to the unfavorable effects of foreign currency exchange, impairment of fixed assets of an asphalt plant factory (see Note 21), and a less favorable product mix, partially offset by lower production costs and price realization. This ratio also increased in the first six months largely resulting from the unfavorable effects of currency exchange, the previously mentioned impairment, voluntary employee-separation expenses, and a less favorable product mix, partially offset by price realization and lower production costs. Research and development expenses decreased in both periods with targeted project reductions related to COVID spending adjustments. Selling, administrative and general expenses decreased in the second quarter primarily due to spending reductions and lower dealer commissions, partially offset by an increase in the provision for credit losses (see Note 11). These expenses for the first six months were about the same as 2019. Spending reductions, lower incentive compensation, and the favorable effects of foreign currency translation were offset by a higher provision for credit losses and voluntary employee-separation expenses (see Note 20). Other operating expenses increased in both periods primarily due to higher depreciation on operating leases and losses and impairments on operating lease residual values, partially offset by the favorable effects of foreign currency translation.

~~Market Conditions~~

●

~~Agriculture and Turf.~~ Industry sales of agricultural equipment are expected to decrease about 10 percent from 2019 for the U.S. and Canada, while sales in Europe are expected to be down 5 to 10 percent. South American industry sales of tractors and combines are projected to be down 10 to 15 percent. Asian industry sales are forecast to decrease moderately due in large part to the pandemic related shutdown in India. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be down about 10 percent for 2020.

●

~~Construction and Forestry.~~ Industry construction equipment sales in North America are expected to decline by 20 to 30 percent for 2020. In forestry, global industry sales are expected to be down 15 to 20 percent due to weaker demand in North America and Russia.

●

~~Financial Services.~~ Full year 2020 results are expected to decline due to a higher provision for credit losses and less-favorable financing spreads, partially offset by lower losses and impairments on operating lease residual values.

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under “Overview~~,” “Market 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 ~~business is~~businesses are 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 (e.g., China), global trade agreements, ~~(e.g., the United States-Mexico-Canada 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 (e.g., African swine fever) and their effects on poultry, beef and pork

consumption and prices and on livestock feed demand, and crop pests and diseasesand 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 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 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 outlook for the Company’s ~~turf~~small agriculture and ~~utility~~turf equipment include agricultural conditions, 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, commodity prices such as oil and gas, the levels of public and non-residential construction, and investment in infrastructure affect sales and results of the Company’s construction and forestry equipment. Prices for pulp, paper, lumber and structural panels affect sales of forestry equipment.

Many of ~~these~~the factors affecting production and precision agriculture, small agriculture and turf, and construction and forestry segments, have been and may continue to be impacted by ~~the~~ global economic ~~downturn~~conditions, including those resulting from the COVID pandemic and responses to the pandemic taken by governments and other authorities.

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. Many of these factors affecting the outlook for the company’s construction and forestry equipment have been and may continue to be impacted by the global economic downturn resulting from the COVID pandemic and responses to the pandemic taken by governments and other authorities.42

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 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 (including the COVID pandemic) and government and industry responses to epidemics such as travel restrictions and extended shut down of businesses.

Uncertainties related to the magnitude and duration of the COVID pandemic may significantly adversely affect the ~~company’s~~Company’s business and outlook. These uncertainties include: the duration and impact of any resurgence in COVID cases in any country, state, or region; the emergence, contagiousness, and threat of new and different strains of COVID; the availability, acceptance, and effects of vaccines; prolonged reduction or closure of the ~~company’s~~Company’s operations, or a delayed recovery in our operations; additional closures as mandated or otherwise made necessary by governmental authorities; disruptions in the supply chain and a prolonged delay in resumption of operations by one or more key suppliers, or the failure of any key suppliers; the ~~company’s~~Company’s ability to meet commitments to customers on a timely basis as a result of increased costs and supply challenges; the ability to receive goods on a timely basis and at anticipated costs; increased logistics costs; delays in the ~~company’s~~Company’s strategic initiatives as a result of reduced spending on research and development; additional operating costs ~~at facilities that remain open~~ due to remote working arrangements, adherence to social distancing guidelines and other COVID-related challenges; increased risk of cyber attacks 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; the impact of the pandemic on the ~~company’s~~Company’s customers and dealers, and their delays in their plans to invest in new equipment; requests by the ~~company’s~~Company’s customers or dealers for payment deferrals and contract modifications; the impact of disruptions in the global capital markets and/or ~~continued~~ declines in the ~~company’s~~Company’s financial performance, outlook or credit ratings, which could impact the ~~company’s~~Company’s ability to obtain funding in the future; and the impact of the pandemic on demand for our products and services as discussed above. It isremains unclear when ana sustained economic recovery could occur and what a recovery may look like. All of these factors 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, borrowing and repayment practices, and the number and size of customer loan 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.

The 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) 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, 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~~areas; governmental programs, policies, ~~tariffs~~ and ~~sanctions in particular jurisdictions or~~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 Company actions related thereto; changes to and compliance with privacy regulations; changes to and compliance with economic sanctions and export controls laws and regulations; compliance with U.S. and foreign laws when expanding to new markets and otherwise; and actions by other regulatory bodies.

Other factors that could materially affect results include production, design and technological innovations and difficulties, including capacity and supply constraints and prices; the loss of or challenges to intellectual property rights whether through theft, infringement, counterfeiting or otherwise; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the Company’s supply chain or the loss of liquidity by suppliers; disruptions of infrastructures that support communications, operations or distribution; the failure of customers, dealers, suppliers or the Company to comply with laws, regulations and Company policy pertaining to employment, human rights, health, safety, the environment, sanctions, export controls, anti-corruption, privacy and data protection and other ethical business practices; 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;~~initiatives or business strategies; changes in customer product preferences and sales mix; gaps or limitations in rural broadband coverage, capacity and speed needed to support technology solutions; oil and energy prices, supplies and volatility; the availability and cost of freight; actions of competitors in the various industries in which the Company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; changes in demand and pricing for used equipment and resulting impacts on lease residual values; labor relations and contracts; changes in the ability to attract, ~~train~~develop, engage, and retain qualified personnel; acquisitions and divestitures of businesses; greater than anticipated transaction costs; the integration of new businesses; the failure or delay in closing or realizing anticipated benefits of acquisitions, joint ventures or divestitures; the inability to deliver precision technology and agricultural solutions to customers; the implementation of the smart industrial operating strategy and other organizational changes; the failure to realize anticipated savings or benefits of cost reduction, productivity, or efficiency efforts; difficulties related to the conversion and implementation of enterprise resource planning systems; security breaches, cybersecurity attacks, technology failures and other disruptions to the 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, including as a result of the COVID pandemic, 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~~forward-looking statements are based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The Company, except as required by law, undertakes no obligation to update or revise its ~~outlook,~~forward-looking statements, whether as a result of new developments or otherwise. Further information concerning the Company and its businesses, including factors that could materially affect the Company’s financial results, is included in the Company’s other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. Risk Factors of the Company’s most recent annual report on Form 10-K and quarterly reports on Form 10-Q).

Critical Accounting Policies

See the Company’s critical accounting policies discussed in the Management’s Discussion and Analysis of the most recent annual report filed on Form 10-K. There have been no material changes to these ~~policies.~~policies, other than as described below related to the allowance for credit losses, as a result of the adoption of ASU No. 2016-13 during the first quarter of 2021.

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. Receivables that do not share risk characteristics with other receivables in the portfolio are evaluated on an individual basis.

CAPITAL RESOURCES AND LIQUIDITY

The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the Company’s consolidated totals, equipment operations, and financial services operations.

Consolidated

Positive cash flows from consolidated operating activities in the first six months of 2021 were $1,786 million. This cash inflow resulted primarily from net income adjusted for non-cash provisions, an increase in accounts payable and accrued expenses, and a change in net accrued income taxes payable/receivable, partially offset by a seasonal increase in receivables related to sales and inventories. Cash outflows from investing activities were $1,387 million in the first six months of 2021, primarily due to the cost of receivables and equipment on operating leases acquired exceeding collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases by $745 million, purchases of property and equipment of $320 million, a change in collateral on derivatives – net of $255 million, and purchases of marketable securities exceeding proceeds from maturities and sales by $27 million. Negative cash flows from financing activities were $441 million in the first six months of 2021 primarily due to repurchases of common stock of $1,044 million and dividends paid of $480 million, partially offset by an increase in borrowings of $1,022 million and proceeds from issuance of common stock of $116 million (resulting from the exercise of stock options). Cash, cash equivalents, and restricted cash increased $109 million during the first six months of this year.

Positive cash flows from consolidated operating activities in the first six months of 2020 were $776 million. This cash inflow resulted primarily from net income adjusted for non-cash provisions and a change in net retirement benefits, partially offset by a seasonal increase in receivables related to sales and inventories, a decrease in accounts payable and accrued expenses, and a change in accrued income taxes payable/receivable. Cash inflows from investing activities were $30 million in the first six months of 2020, primarily due to a change in collateral on derivatives – net of $319 million, and collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of these receivables and the cost of equipment on operating leases acquired by $195 million, partially offset by purchases of property and equipment of $441 million and purchases of marketable securities exceeding proceeds from maturities and sales by $32 million. Positive cash flows from financing activities were $4,343 million in the first six months of 2020 primarily due to an increase in borrowings of $5,098 million and proceeds from issuance of common stock of $70 million (resulting from the exercise of stock options), partially offset by dividends paid of $481 million and repurchases of common stock of $263 million. Cash, cash equivalents, and restricted cash increased $5,047 million during the first six months of ~~this year.~~2020. The increase in cash was primarily related to ~~new~~ equipment operations long-term ~~borrowings~~borrowing issuances to provide added liquidity due to the financial uncertainty created by ~~COVID.~~

~~Negative cash flows from consolidated operating activities~~COVID in the first six months of 2019 were $1,495 million. This cash outflow resulted primarily from a seasonal increase in receivables related to sales and inventories, along with an increase in overall demand, and a decrease in accounts payable and accrued expenses, partially offset by net income adjusted for non-cash provisions, a change in accrued income taxes payable/receivable, and a change in net retirement benefits. Cash outflows from investing activities were $372 million in the first six months of 2019, primarily due to purchases of property and equipment of $491 million and purchases of marketable securities exceeding proceeds from maturities and sales by $29 million. Partially offsetting these cash outflows were cash inflows from collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and the cost of equipment on operating leases acquired by $188 million. Positive cash flows from financing activities were $1,473 million in the first six months of 2019 primarily due to an increase in borrowings of $2,375 million and proceeds from issuance of common stock of $95 million (resulting from the exercise of stock options), partially offset by repurchases of common stock of $481 million and dividends paid of $462 million. Cash, cash equivalents, and restricted cash decreased $429 million during the first six months of 2019.2020.

The Company has access to most global markets at a reasonable cost and expects to have sufficient sources of global funding and liquidity to meet its funding needs. Sources of liquidity for the Company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets), and committed and uncommitted bank lines of credit. The Company’s commercial paper outstanding at May 2, 2021, November 1, 2020, and May 3, 2020 ~~November 3, 2019, and April 28, 2019~~ was ~~$3,424~~$2,259 million, ~~$2,698~~$1,238 million, and ~~$4,875~~$3,424 million, respectively, while the total cash and cash equivalents and marketable securities position was ~~$9,526~~$7,850 million, ~~$4,438~~$7,707 million, and ~~$4,029~~$9,526 million, respectively. The total cash and cash equivalents and marketable securities held by foreign subsidiaries was ~~$4,034~~$4,972 million, ~~$2,731~~$5,010 million, and ~~$2,252~~$4,034 million at May 2, 2021, November 1, 2020, and May 3, 2020, ~~November 3, 2019, and April 28, 2019,~~ respectively.

Lines of Credit. The Company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled ~~$9,178~~$8,211 million at May ~~3, 2020, $4,614~~2, 2021, $5,741 million of which were unused. For the purpose of computing 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 May ~~3, 2020~~2, 2021 was a 364-day credit facility agreement of $3,000 million expiring in fiscal April ~~2021.~~2022. In addition, total credit lines included long-term credit facility agreements of $2,500 million expiring in fiscal April ~~2024~~2025 and $2,500 million expiring in fiscal ~~April 2025.~~March 2026. These credit agreements require John Deere Capital Corporation (Capital Corporation) to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding securitization indebtedness, to

capital base (total subordinated debt and stockholder’s equity excluding accumulated other comprehensive income (loss)) at not more than 11 to 1 at the end of any fiscal quarter. The credit agreements also require the equipment operations to maintain a ratio of total debt to total capital (total debt and stockholders’ equity excluding accumulated other comprehensive income (loss)) of 65 percent or less at the end of each fiscal quarter. Under this provision, the Company’s excess equity capacity and retained earnings balance free of restriction at May ~~3, 2020~~2, 2021 was ~~$11,472~~$14,445 million. Alternatively under this provision, the equipment operations had the capacity to incur additional debt of ~~$21,306~~$26,826 million at May ~~3, 2020.~~2, 2021. All of these ~~requirements of the~~ credit agreement requirements have been met during the periods included in the financial statements.

Debt Ratings. To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company’s securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell, or hold Company securities. A credit rating agency may change or withdraw Company ratings based on its assessment of the Company’s current and future ability to meet interest and principal repayment obligations. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets. The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company debt securities by the rating agencies engaged by the Company are as follows:


	Senior
	Long-Term	Short-Term	Outlook
Fitch Ratings	A	F1	Stable
Moody’s Investors Service, Inc.	A2	Prime-1	Stable
Standard & Poor’s	A	A-1	Stable

Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Trade receivables increased ~~$756~~$1,987 million during the first six months of ~~2020,~~2021, primarily due to a seasonal increase ~~partially offset by foreign currency translation.~~and higher overall demand. These receivables ~~decreased $1,533~~increased $172 million, compared to a year ago, primarily due to ~~lower shipment volumes due to the effects of COVID and other macroeconomic issues, and foreign currency translation.~~an increase in demand. The ratios of worldwide trade accounts and notes receivable to the last 12 months’ net sales were 17 percent at May 2, 2021, compared to 13 percent at November 1, 2020 and 18 percent at May 3, ~~2020, compared to 15 percent at November 3, 2019~~2020. Production and ~~22 percent at April 28, 2019. Agriculture~~precision agriculture trade receivables increased $247 million, small agriculture and turf trade receivables ~~decreased $962~~increased $17 million, and construction and forestry trade receivables decreased ~~$571~~$92 million, compared to a year ago. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 2 percent at May 2, 2021, 3 percent at November 1, 2020, and 3 percent at May 3, ~~2020, 3 percent at November 3, 2019, and 1 percent at April 28, 2019.~~2020.

Deere & Company stockholders’ equity was $15,092 million at May 2, 2021, compared with $12,937 million at November 1, 2020 and $11,864 million at May 3, ~~2020, compared with $11,413 million at November 3, 2019 and $11,919 million at April 28, 2019.~~2020. The increase of ~~$451~~$2,155 million during the first six months of ~~2020~~2021 resulted primarily from net income attributable to Deere & Company of ~~$1,182~~$3,013 million, a change in the cumulative translation adjustment of $433 million, a change retirement benefits adjustment of ~~$287~~$154 million, and an increase in common stock of ~~$71~~$104 million, partially offset by dividends declared of ~~$477~~$520 million ~~a change in cumulative translation adjustment of $398 million,~~ and an increase in treasury stock of ~~$216~~$987 million.

The Company plans to make a voluntary contribution to its U.S. OPEB plan for $700 million in the fourth quarter of 2021.

Equipment Operations

The Company’s equipment businesses are capital intensive and are subject to seasonal variations in financing requirements for inventories and certain receivables from dealers. The equipment operations sell a significant portion of their trade receivables to financial services. To the extent necessary, funds provided from operations are supplemented by external financing sources.

Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first six months of 2021 was $2,507 million. This resulted primarily from cash inflows from net income adjusted for non-cash provisions, an increase in accounts payable and accrued expenses, and a change in accrued income taxes payable/receivable. Partially offsetting these operating cash inflows were cash outflows from an increase in inventories and trade and financing receivables held by the equipment operations. Cash, cash equivalents, and restricted cash increased $138 million in the first six months of 2021.

Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first six months of 2020 was $842 million. This resulted primarily from cash inflows from net income adjusted for non-cash provisions and a change in net retirement benefits. Partially offsetting these operating cash inflows were cash outflows from a decrease in accounts payable and accrued expenses, a seasonal increase in inventories and trade and financing receivables held by the equipment operations, and a change in accrued income taxes payable/receivable. Cash, cash equivalents, and restricted cash increased $4,281 million in the first six months of 2020. The increase in cash was primarily related to ~~new~~ equipment operations long-term ~~borrowings~~borrowing issuances to provide added liquidity due to the financial uncertainty created by ~~COVID.~~

~~Cash provided by operating activities of the equipment operations, including intercompany cash flows,~~COVID in the first six months of 2019 was $708 million. This resulted primarily from cash inflows from net income adjusted for non-cash provisions and an increase in accounts payable and accrued expenses. Partially offsetting these operating cash inflows were cash outflows from a seasonal increase in inventories and trade and financing receivables held by the

equipment operations, along with an increase in overall demand, and a change in accrued income taxes payable/receivable. Cash, cash equivalents, and restricted cash decreased $298 million in the first six months of 2019.2020.

Trade receivables held by the equipment operations ~~decreased $63~~increased $212 million during the first six months and decreased ~~$189~~$194 million from a year ago. The equipment operations sell a significant portion of their trade receivables to financial services. See the previous consolidated discussion of trade receivables.

Inventories increased by ~~$196~~$1,043 million during the first six months, primarily ~~due to~~reflecting a seasonal increase, ~~partially offset by~~increased overall demand, and foreign currency translation. Inventories decreased by ~~$990~~$129 million compared to a year ~~ago, due to forecasted lower demand related to COVID and other macroeconomic issues and foreign currency translation.~~ago. A majority of these inventories are valued on the last-in, first-out (LIFO) method. The ratios of inventories on a first-in, first-out (FIFO) basis (see Note 13), which approximates current cost, to the last 12 months’ cost of sales were 30 percent at May 2, 2021, compared to 28 percent at November 1, 2020 and 31 percent at May 3, ~~2020, compared to 29 percent at November 3, 2019 and 34 percent at April 28, 2019.~~2020.

Total interest-bearing debt, excluding finance lease liabilities, of the equipment operations was $10,421 million at May 2, 2021, compared with $10,382 million at November 1, 2020 and $11,343 million at May 3, ~~2020, compared with $6,446 million at November 3, 2019 and $6,074 million at April 28, 2019.~~2020. The ratios of debt to total capital (total interest-bearing debt and stockholders’ equity) were 4941 percent, 3645 percent, and 3449 percent at May 2, 2021, November 1, 2020, and May 3, 2020, ~~November 3, 2019, and April 28, 2019,~~ respectively.

In the second quarter of 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-Medium-Term 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. In the second quarter of 2020, the equipment operations issued commercial paper in the U.S. with aggregate principal totaling $466 ~~million. A portion,~~million, of which $448 million had an original term greater than 90 days. None of the commercial paper was repaid in the second quarter of 2020 and iswas presented in “Increase in total short-term borrowings” in the consolidated statement of cash flows.

The Company may from time to time seek to retire portions of its outstanding debt securities through cash repurchases or exchanges for other securities, in open-market purchases, privately negotiated transactions, or otherwise. Such repurchases or exchanges, if any, will be subject to and depend on prevailing market conditions, the company’s liquidity requirements, contractual restrictions, and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material.

Property and equipment cash expenditures for the equipment operations in the first six months of ~~2020~~2021 were ~~$440~~$319 million, compared with ~~$490~~$440 million in the same period last year. Capital expenditures for the equipment operations in ~~2020~~2021 are estimated to be approximately ~~$870~~$925 million.

In October 2019, the Company entered into a definitive agreement to acquire Unimil, a privately held Brazilian company in the aftermarket service parts business for sugarcane harvesters. The expected cash purchase price is R$375 million (or approximately $70 million based on the exchange rate at the end of the fiscal quarter). The Company expects to fund the acquisition and the transaction expenses with current cash. The transaction requires customary regulatory approval and is expected to close in the second half of 2020.

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.

During the first six months of 2021, the cash provided by operating and financing activities was used primarily to increase receivables and leases. Cash flows provided by operating activities, including intercompany cash flows, were $948 million in the first six months. Cash used for investing activities totaled $2,544 million in the first six months of 2021 primarily due an increase in trade and wholesale receivables of $1,246 million, the cost of receivables (excluding trade and wholesale) and cost of equipment on operating leases acquired exceeding the collection of these receivables and proceeds from sales of equipment on operating leases by $1,007 million, a change in collateral on derivatives - net of $254 million, and purchases of marketable securities exceeding proceeds from maturities and sales by $29 million. Cash provided by financing activities totaled $1,540 million, resulting primarily from an increase in external borrowings of $1,136 million and an increase in borrowings from Deere & Company of $562 million, partially offset by dividends paid to Deere & Company of $145 million. Cash, cash equivalents, and restricted cash decreased $29 million in the first six months of 2021.

During the first six months of 2020, the cash provided by operating activities and financing activities was used primarily to increase trade and wholesale receivables. Cash flows provided by operating activities, including intercompany cash flows, were $991 million in the first six ~~months.~~months of 2020. Cash used for investing activities totaled $329 million in the first six months of 2020 primarily due to an increase in trade and wholesale receivables of $673 million and purchases of marketable securities exceeding proceeds from maturities and sales by $32 million. These cash outflows were partially offset by cash inflows from a change in collateral on derivatives –- net of $319 million, and collections of receivables (excluding trade and wholesale) and proceeds from sales of equipment

on operating leases exceeding the cost of these receivables and the cost of equipment on operating leases acquired by $94 million. Cash provided by financing activities totaled $148 million, resulting primarily from an increase in borrowings from Deere & Company of $292 million and an increase in external borrowings of $94 million, partially offset by dividends paid to Deere & Company of $225 million. Cash, cash equivalents, and restricted cash increased $766 million in the first six months of 2020.

During the first six months of 2019, the cash provided by operating activities and financing activities was used primarily to increase trade and wholesale receivables. Cash flows provided by operating activities, including intercompany cash flows, were $1,356 million in the first six months. Cash used for investing activities totaled $3,088 million in the first six months of 2019 primarily due to an increase in trade and wholesale receivables of $3,028 million and the cost of receivables (excluding trade and wholesale) and the cost of equipment on operating leases acquired exceeding the collection of these receivables and proceeds from sales of equipment on operating leases by $47 million, and purchases of marketable securities exceeding proceeds from maturities and sales by $32 million. Cash provided by financing activities totaled $1,609 million, resulting primarily from an increase in external borrowings of $2,544 million, partially offset by a decrease in borrowings from Deere & Company of $611 million and dividends paid to Deere & Company of $312 million. Cash, cash equivalents, and restricted cash decreased $131 million in the first six months of 2019.

Receivables and leases held by the financial services operations consist of retail notes originated in connection with retail sales of new and used equipment by dealers of John Deere products, retail notes from non-Deere equipment customers, trade receivables, wholesale notes, revolving charge accounts, credit enhanced international export financing generally involving John Deere products, sales-type and direct financing leases, and operating leases. Total receivables and leases ~~decreased $1,108~~increased $2,460 million during the first six months of ~~2020~~2021 and ~~decreased $37~~increased $3,236 million in the past 12 months. Acquisition volumes of receivables (excluding trade and wholesale) and leases were 418 percent higher in the first six months of ~~2020,~~2021, compared with the same period last year, as volumes of retail notes, financing leases, and revolving charge accounts were higher, while volumes of ~~financing and~~ operating leases were lower. The amount of total trade receivables and wholesale notes increased compared to November 1, 2020 and May 3, ~~2019 and decreased compared to April 28, 2019.~~2020.

Total external interest-bearing debt of the financial services operations was $36,873 million at May 2, 2021, compared with $35,556 million at November 1, 2020 and $38,761 million at May 3, ~~2020, compared with $38,888 million at November 3, 2019 and $38,645 million at April 28, 2019.~~2020. Total external borrowings have changed generally corresponding with the level of receivable and lease portfolio, the level of cash and cash equivalents, the change in payables owed to Deere & Company, and the change in investment from Deere & Company. The financial services operations’ ratio of interest-bearing debt, including intercompany debt, to stockholder’s equity was 7.7 to 1 at May 2, 2021, compared with 7.8 to 1 at November 1, 2020 and 8.3 to 1 at May 3, ~~2020, compared with 8.0 to 1 at November 3, 2019 and 8.0 to 1 at April 28, 2019.~~2020.

Capital Corporation has a revolving credit agreement to utilize bank conduit facilities to securitize retail notes (see Note 12). At May ~~3, 2020,~~2, 2021, this facility had a total capacity, or “financing limit,” of ~~$3,500~~up to $2,000 million of secured financings at any time. After a two-year 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 May ~~3, 2020, $1,630~~2, 2021, $1,261 million of ~~secured~~ short-term securitization borrowings was outstanding under the agreement.

In the first six months of ~~2020,~~2021, the financial services operations issued ~~$1,770~~$1,009 million and retired ~~$1,443~~$1,573 million of retail note securitization borrowings. In addition, during the first six months of ~~2020,~~2021, the financial services operations issued ~~$2,673~~$3,967 million and retired ~~$3,163~~$3,127 million of long-term borrowings, which were primarily medium-term notes.

Dividends and Other Events

The Company’s Board of Directors at its meeting on May ~~27, 2020~~26, 2021 declared a quarterly dividend of ~~$.76~~$.90 per share payable August ~~10, 2020,~~9, 2021, to stockholders of record on June 30, ~~2020.~~2021.

In May ~~2020,~~2021, the Company’s financial services operations entered into a retail note securitization using its bank conduit facility that resulted in securitization borrowings of ~~approximately $743~~$723 million.

Supplemental Consolidating Information

The supplemental consolidating data presented on the subsequent pages is presented for informational purposes. The equipment operations represents the enterprise without financial services. The equipment operations includes the Company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services. Transactions between the “equipment operations” and “financial services” have been eliminated to arrive at the consolidated financial statements.

The equipment operations and financial services participate in different industries. The equipment operations primarily generate earnings and cash flows by manufacturing and distributing equipment, service parts, and technology solutions to dealers and end users. Financial services primarily finances sales and leases by dealers of new and used equipment that is largely manufactured by the Company. The financial services’ earnings and cash flows generally are finance income received from customer payments less interest expense, and depreciation on equipment subject to an operating lease. These two businesses are capitalized differently and have separate performance metrics. The supplemental consolidating data assists management in evaluating these two businesses.


DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA
STATEMENT OF INCOME
For the Three Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars) Unaudited
	EQUIPMENT				FINANCIAL
	OPERATIONS¹				SERVICES				ELIMINATIONS				CONSOLIDATED
	2021		2020		2021		2020		2021		2020		2021		2020
Net Sales and Revenues
Net sales	$	10,998	$	8,224									$	10,998	$	8,224
Finance and interest income		29		23	$	853	$	906	$	(73)	$	(80)		809		849	²
Other income		228		181		101		61		(78)		(62)		251		180	³
Total		11,255		8,428		954		967		(151)		(142)		12,058		9,253

Costs and Expenses
Cost of sales		7,929		6,294						(1)				7,928		6,294	⁴
Research and development expenses		377		406										377		406
Selling, administrative and general expenses		734		700		107		208		(3)		(2)		838		906	⁴
Interest expense		100		83		181		266		(13)		(7)		268		342	⁵
Interest compensation to Financial Services		60		73						(60)		(73)					⁵
Other operating expenses		40		21		369		416		(74)		(60)		335		377	⁶
Total		9,240		7,577		657		890		(151)		(142)		9,746		8,325

Income before Income Taxes		2,015		851		297		77						2,312		928
Provision for income taxes		454		228		76		17						530		245

Income after Income Taxes		1,561		623		221		60						1,782		683
Equity in income (loss) of unconsolidated affiliates		7		(17)		1								8		(17)

Net Income		1,568		606		222		60						1,790		666
Less: Net income attributable to noncontrolling interests
Net Income Attributable to Deere & Company	$	1,568	$	606	$	222	$	60					$	1,790	$	666

¹ The equipment operations represents the enterprise without financial services. The equipment operations includes the Company’s production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within financial services.

² Elimination of financial services’ interest income earned from equipment operations.

³ Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases (see Note 2).

⁴ Elimination of intercompany service fees.

⁵ Elimination of equipment operations’ interest expense to financial services.

⁶ Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.


DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
STATEMENT OF INCOME
For the Six Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars) Unaudited
	EQUIPMENT				FINANCIAL
	OPERATIONS¹				SERVICES				ELIMINATIONS				CONSOLIDATED
	2021		2020		2021		2020		2021		2020		2021		2020
Net Sales and Revenues
Net sales	$	19,049	$	14,754									$	19,049	$	14,754
Finance and interest income		62		49	$	1,716	$	1,841	$	(134)	$	(145)		1,644		1,745	²
Other income		447		391		172		124		(142)		(130)		477		385	³
Total		19,558		15,194		1,888		1,965		(276)		(275)		21,170		16,884

Costs and Expenses
Cost of sales		13,735		11,372						(1)		(1)		13,734		11,371	⁴
Research and development expenses		743		831										743		831
Selling, administrative and general expenses		1,387		1,373		224		346		(4)		(4)		1,607		1,715	⁴
Interest expense		195		146		369		541		(26)		(9)		538		678	⁵
Interest compensation to Financial Services		108		137						(108)		(137)					⁵
Other operating expenses		107		92		738		824		(137)		(124)		708		792	⁶
Total		16,275		13,951		1,331		1,711		(276)		(275)		17,330		15,387

Income before Income Taxes		3,283		1,243		557		254						3,840		1,497
Provision for income taxes		706		237		132		58						838		295

Income after Income Taxes		2,577		1,006		425		196						3,002		1,202
Equity in income (loss) of unconsolidated affiliates		10		(19)		2		1						12		(18)

Net Income		2,587		987		427		197						3,014		1,184
Less: Net income attributable to noncontrolling interests		1		2										1		2
Net Income Attributable to Deere & Company	$	2,586	$	985	$	427	$	197					$	3,013	$	1,182

² Elimination of financial services’ interest income earned from equipment operations.

³ Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases (see Note 2).

⁴ Elimination of intercompany service fees.

⁵ Elimination of equipment operations’ interest expense to financial services.

⁶ Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.


DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
CONDENSED BALANCE SHEET
(In millions of dollars) Unaudited
	EQUIPMENT						FINANCIAL
	OPERATIONS¹						SERVICES						ELIMINATIONS						CONSOLIDATED
	May 2		Nov 1		May 3		May 2		Nov 1		May 3		May 2		Nov 1		May 3		May 2		Nov 1		May 3
	2021		2020		2020		2021		2020		2020		2021		2020		2020		2021		2020		2020
Assets
Cash and cash equivalents	$	6,282	$	6,145	$	7,466	$	900	$	921	$	1,434							$	7,182	$	7,066	$	8,900
Marketable securities		5		7		3		663		634		623								668		641		626
Receivables from unconsolidated affiliates		5,986		5,290		2,248							$	(5,955)	$	(5,259)	$	(2,216)		31		31		32	⁷
Trade accounts and notes receivable – net		1,225		1,013		1,419		6,222		4,238		6,050		(1,289)		(1,080)		(1,483)		6,158		4,171		5,986	⁸
Financing receivables – net		99		106		118		30,895		29,644		27,138								30,994		29,750		27,256
Financing receivables securitized – net		15		26		37		4,092		4,677		4,648								4,107		4,703		4,685
Other receivables		1,338		1,117		1,072		162		151		148		(27)		(48)		(8)		1,473		1,220		1,212	⁸
Equipment on operating leases – net								7,108		7,298		7,245								7,108		7,298		7,245
Inventories		6,042		4,999		6,171														6,042		4,999		6,171
Property and equipment – net		5,667		5,778		5,642		37		39		43								5,704		5,817		5,685
Investments in unconsolidated affiliates		161		174		175		21		19		17								182		193		192
Goodwill		3,190		3,081		2,917														3,190		3,081		2,917
Other intangible assets – net		1,310		1,327		1,311														1,310		1,327		1,311
Retirement benefits		947		859		908		61		59		58		(57)		(55)		(6)		951		863		960	⁹
Deferred income taxes		1,926		1,763		1,796		53		45		52		(255)		(309)		(413)		1,724		1,499		1,435	¹⁰
Other assets		1,522		1,439		1,506		635		994		1,208		(2)		(1)		(1)		2,155		2,432		2,713
Total Assets	$	35,715	$	33,124	$	32,789	$	50,849	$	48,719	$	48,664	$	(7,585)	$	(6,752)	$	(4,127)	$	78,979	$	75,091	$	77,326

Liabilities and Stockholders’ Equity

Liabilities
Short-term borrowings	$	352	$	292	$	1,398	$	9,559	$	8,290	$	9,781							$	9,911	$	8,582	$	11,179
Short-term securitization borrowings		14		26		37		4,092		4,656		4,603								4,106		4,682		4,640
Payables to unconsolidated affiliates		155		104		91		5,955		5,260		2,216	$	(5,955)	$	(5,259)	$	(2,216)		155		105		91	⁷
Accounts payable and accrued expenses		9,919		9,114		8,416		1,926		2,127		2,149		(1,318)		(1,129)		(1,493)		10,527		10,112		9,072	⁸
Deferred income taxes		390		385		395		398		443		493		(255)		(309)		(413)		533		519		475	¹⁰
Long-term borrowings		10,124		10,124		9,947		23,222		22,610		24,377								33,346		32,734		34,324
Retirement benefits and other liabilities		5,253		5,366		5,584		109		102		101		(57)		(55)		(5)		5,305		5,413		5,680	⁹
Total liabilities		26,207		25,411		25,868		45,261		43,488		43,720		(7,585)		(6,752)		(4,127)		63,883		62,147		65,461

Commitments and contingencies (Note 18)

Stockholders’ Equity
Total Deere & Company stockholders’ equity		15,092		12,937		11,864		5,588		5,231		4,944		(5,588)		(5,231)		(4,944)		15,092		12,937		11,864	¹¹
Noncontrolling interests		4		7		1														4		7		1
Financial Services’ equity		(5,588)		(5,231)		(4,944)								5,588		5,231		4,944							¹¹
Adjusted total stockholders’ equity		9,508		7,713		6,921		5,588		5,231		4,944								15,096		12,944		11,865
Total Liabilities and Stockholders’ Equity	$	35,715	$	33,124	$	32,789	$	50,849	$	48,719	$	48,664	$	(7,585)	$	(6,752)	$	(4,127)	$	78,979	$	75,091	$	77,326

⁷ Elimination of receivables / payables between equipment operations and financial services.

⁸ Reclassification of sales incentive accruals on receivables sold to financial services.

⁹ Reclassification of net pension assets / liabilities.

¹⁰ Reclassification of deferred tax assets / liabilities in the same taxing jurisdictions.

¹¹ Elimination of financial services’ equity.


DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
STATEMENT OF CASH FLOWS
For the Six Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars) Unaudited
	EQUIPMENT				FINANCIAL
	OPERATIONS¹				SERVICES				ELIMINATIONS				CONSOLIDATED
	2021		2020		2021		2020		2021		2020		2021		2020
Cash Flows from Operating Activities
Net income	$	2,587	$	987	$	427	$	197					$	3,014	$	1,184
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for credit losses		2		9		(26)		98						(24)		107
Provision for depreciation and amortization		543		515		581		621	$	(70)	$	(69)		1,054		1,067	¹²
Impairment charges		50		82				32						50		114
Share-based compensation expense										45		48		45		48	¹³
Undistributed earnings of unconsolidated affiliates		158		218		(2)		(1)		(145)		(225)		11		(8)	¹⁴
Provision (credit) for deferred income taxes		(170)		9		(43)		(70)						(213)		(61)
Changes in assets and liabilities:
Trade, notes, and financing receivables related to sales		(170)		(80)						(954)		(411)		(1,124)		(491)	^{15, 17, 18}
Inventories		(926)		(242)						(267)		(254)		(1,193)		(496)	¹⁶
Accounts payable and accrued expenses		527		(659)		(1)		30		(208)		(78)		318		(707)	¹⁷
Accrued income taxes payable/receivable		77		(154)		(23)		(19)						54		(173)
Retirement benefits		(8)		50		3		8						(5)		58
Other		(163)		107		32		95		(70)		(68)		(201)		134	^{12, 13, 16}
Net cash provided by operating activities		2,507		842		948		991		(1,669)		(1,057)		1,786		776

Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)						11,187		10,385		(820)		(761)		10,367		9,624	¹⁵
Proceeds from maturities and sales of marketable securities		2				45		39						47		39
Proceeds from sales of equipment on operating leases						1,011		898						1,011		898
Cost of receivables acquired (excluding receivables related to sales)						(12,080)		(9,885)		721		518		(11,359)		(9,367)	¹⁵
Acquisitions of businesses, net of cash acquired		(19)												(19)
Purchases of marketable securities						(74)		(71)						(74)		(71)
Purchases of property and equipment		(319)		(440)		(1)		(1)						(320)		(441)
Cost of equipment on operating leases acquired						(1,125)		(1,304)		361		344		(764)		(960)	¹⁶
Increase in trade and wholesale receivables						(1,246)		(673)		1,246		673					¹⁵
Collateral on derivatives – net		(1)				(254)		319						(255)		319
Other		(38)		(40)		(7)		(36)		24		65		(21)		(11)	^{14, 18}
Net cash provided by (used for) investing activities		(375)		(480)		(2,544)		(329)		1,532		839		(1,387)		30

Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings		(84)		554		296		584						212		1,138
Change in intercompany receivables/payables		(562)		(292)		562		292
Proceeds from long-term borrowings				4,602		3,967		2,673						3,967		7,275
Payments of long-term borrowings		(30)		(152)		(3,127)		(3,163)						(3,157)		(3,315)
Proceeds from issuance of common stock		116		70										116		70
Repurchases of common stock		(1,044)		(263)										(1,044)		(263)
Dividends paid		(480)		(481)		(145)		(225)		145		225		(480)		(481)	¹⁴
Other		(34)		(61)		(13)		(13)		(8)		(7)		(55)		(81)	¹⁴
Net cash provided by (used for) financing activities		(2,118)		3,977		1,540		148		137		218		(441)		4,343

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash		124		(58)		27		(44)						151		(102)

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash		138		4,281		(29)		766						109		5,047
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period		6,156		3,196		1,016		760						7,172		3,956
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	6,294	$	7,477	$	987	$	1,526					$	7,281	$	9,003

¹² Elimination of depreciation on leases related to inventory transferred to equipment on operating leases (see Note 2).

¹³ Reclassification of share-based compensation expense.

¹⁴ Elimination of dividends from financial services to the equipment operations, which are included in the equipment operations’ net cash provided by operating activities, and capital investments in financial services from the equipment operations.

¹⁵ Primarily reclassification of receivables related to the sale of equipment.

¹⁶ Reclassification of lease agreements with direct customers.

¹⁷ Reclassification of sales incentive accruals on receivables sold to financial services.

¹⁸ Elimination and reclassification of the effects of financial services’ partial financing of the construction and forestry retail locations sales and subsequent collection of those amounts.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the Company’s most recent annual report filed on Form 10-K (Part II, Item 7A). There has been no material change in this information.

Item 4. CONTROLS AND PROCEDURES

The Company’s principal executive officer and its principal financial officer have concluded that the Company’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 May ~~3, 2020,~~2, 2021, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act. During the second quarter, there were no changes that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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. 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 Deere reasonably believes could exceed ~~$100,000.~~$300,000. The following matter is disclosed solely pursuant to that requirement: on October 3, 2018, the Provincia Santa Fe Ministerio de Medio Ambiente of Argentina issued a Notice of Violation to Industrias John Deere Argentina in connection with alleged groundwater contamination at the site; the Company worked with the appropriate authorities to implement corrective actions to remediate the site. On December 16, 2019, the Provincia Santa Fe Ministerio de Medio Ambiente issued a Notice of ~~Fine~~Fine. The current amount of the fine is approximately ~~$328,000.~~$357,000. The Company has filed an appeal, which is still pending. On March 26, 2021, the Company received a notice from the Provincia Santa Fe Ministerio de Medio ~~Ambienta is presently closed and its term has been suspended as a result~~Ambiente requesting payment of the ~~COVID pandemic, which has prevented the Company’s access to administrative files. After its reopening, the~~fine. The Company ~~will determine~~is evaluating its response. The Company believes the reasonably possible range of losses for this and other unresolved legal actions would not have a material effect on its financial statements.

Item 1A. Risk Factors

See the Company’s most recent annual report filed on Form 10-K (Part I, Item 1A).

~~The COVID pandemic resulted in additional risks that could materially adversely affect the Company’s business, financial condition, results of operations and/or cash flows.~~

As mentioned previously, COVID was identified in late 2019 and has spread globally. The rapid spread has 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 shutdowns. These measures have impacted and may further impact all or portions of the Company’s workforce and operations and the operations of customers and suppliers. The Company has significant operations worldwide in countries that have been affected by the pandemic and taken containment actions. Considerable uncertainty exists regarding such measures and potential future measures. Restrictions on access to the Company’s manufacturing facilities or on the support operations or workforce, or similar limitations for suppliers, and restrictions or disruptions of transportation, port closures and increased border controls or closures, have limited and could continue to limit the Company’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. There is no certainty that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the virus, and the Company’s ability to perform critical functions could be harmed.

The COVID pandemic has also significantly increased economic and demand uncertainty and has led to disruption and volatility in demand for the Company’s products and services, suppliers’ ability to fill orders, and global capital markets. It is likely that the COVID pandemic has caused an economic slowdown, and it is possible that it could cause a global recession. These events could affect demand for the Company’s products and services, the value of the equipment financed or leased, the demand for financings and the financial condition and credit risk of our dealers and customers. Risks related to negative economic conditions are described in our risk factor titled “Negative economic conditions and outlook can materially weaken demand for John Deere’s equipment and services, limit access to funding and result in higher funding costs” under “Risk Factors” in the Company’s annual report on Form 10-K for the year ended November 3, 2019.

Uncertainties related to the magnitude and duration of the COVID pandemic may significantly adversely affect our business and outlook. These uncertainties include: prolonged reduction or closure of the Company’s operations, or a delayed recovery in our operations; additional closures as mandated or otherwise made necessary by governmental authorities; disruptions in the supply chain and a prolonged delay in resumption of operations by one or more key suppliers, or the failure of any key suppliers; the Company’s ability to meet commitments to our customers on a timely basis as a result of increased costs and supply challenges; the ability to receive goods on a timely basis and at anticipated costs; increased logistics costs; delays in the Company’s strategic initiatives as a result of reduced spending on research

and development; additional operating costs at facilities that remain open due to remote working arrangements, adherence to social distancing guidelines and other COVID related challenges; absence of employees due to illness; the impact of the pandemic on the Company’s customers and dealers, and their delays in their plans to invest in new equipment; requests by the Company’s customers or dealers for payment deferrals and contract modifications; the impact of disruptions in the global capital markets and/or continued declines in our financial performance, outlook or credit ratings, which could impact the Company’s ability to obtain funding in the future; and the impact of the pandemic on demand for our products and services as discussed above. It is unclear when an economic recovery could occur and what a recovery may look like. All of these factors could materially and adversely affect our business, liquidity, results of operations and financial position.

The ultimate magnitude of COVID effects, including the extent of its impact on the Company’s financial and operational results, which could be material, will be determined by the length of time that the pandemic continues, its effect on the demand for the Company’s products and services and the supply chain, as well as the effect of governmental regulations imposed in response to the pandemic. We cannot at this time predict the impact of the COVID pandemic, but it could have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

There has been no ~~additional~~ material change ~~to the other risks included~~ in ~~the most recent annual report filed on Form 10-K.~~this information. The risks described in the annual report on Form 10-K, and the “Safe Harbor Statement” in this report, are not the only risks faced by the Company. Additional risks and uncertainties may also materially affect the Company’s business, financial condition, or operating results. One should not consider the risk factors to be a complete discussion of risks, uncertainties, and assumptions.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company’s purchases of its common stock during the second quarter of ~~2020~~2021 were as follows:

Total Number of

Shares Purchased as

Maximum Number of

Shares Purchased as

Maximum Number of

Total Number of

Part of Publicly

Shares that May Yet Be

Total Number of

Part of Publicly

Shares that May Yet Be

Announced Plans or

Purchased under the

Announced Plans or

Purchased under the

Purchased

Average Price

Programs (1)

Plans or Programs (1)

Purchased

Average Price

Programs (1)

Plans or Programs (1)

Period

(thousands)

Paid Per Share

(thousands)

(millions)

(thousands)

Paid Per Share

(thousands)

(millions)

Feb 3 to Mar 1

149

165.18

149

64.8

Mar 2 to Mar 29

845

147.76

845

63.9

Mar 30 to May 3

63.9

Feb 1 to Feb 28

587

317.53

587

21.1

Mar 1 to Mar 28

677

362.06

677

20.4

Mar 29 to May 2

694

376.30

694

19.7

Total

994

1,958

(1)

During the second quarter of ~~2020,~~2021, the Company had a share repurchase plan that was announced in December ~~2013~~2019 to purchase up to ~~$8,000 million of shares of the Company’s common stock. In December 2019, the Company announced an additional share repurchase plan authorizing the purchase of up to an additional~~ $8,000 million of shares of the Company’s common stock. The maximum number of shares that may yet be purchased under ~~these two plans~~this plan was based on the end of the second quarter closing share price of ~~$138.19~~$370.85 per share. At the end of the second quarter of ~~2020, $8,826~~2021, $7,305 million of common stock remained to be purchased under the ~~plans.~~plan.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

Certain instruments relating to long-term borrowings constituting less than 10 percent of the registrant’s total assets are not filed as exhibits herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant will file copies of such instruments upon request of the Commission.



3.1	Certificate of Incorporation (Exhibit 3.1 to Form 10-Q of registrant for the quarter ended July 28, 2019, Securities and Exchange Commission File Number 1-4121*)

3.2	Bylaws, as amended (Exhibit ~~3.2~~3.1 to Form ~~10-Q~~8-K of registrant ~~for the quarter ended January 27, 2019,~~filed on December 3, 2020, Securities and Exchange Commission File Number 1-4121*)

10.1	2024 Credit Agreement among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as administrative agent, Citibank, N.A., as documentation agent, and Bank of America, N.A., as syndication agent, dated March 30, 2020

~~10.2~~	2025 Credit Agreement among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as administrative agent, Citibank, N.A., as documentation agent, and Bank of America, N.A., as syndication agent, dated March ~~30, 2020~~29, 2021

10.2	2026 Credit Agreement among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as administrative agent, Citibank, N.A., as documentation agent, and Bank of America, N.A., as syndication agent, dated March 29, 2021

10.3	364-Day Credit Agreement among the registrant, John Deere Capital Corporation, John Deere Bank S.A., various financial institutions, JPMorgan Chase Bank, N.A., as administrative agent, Citibank, N.A., as documentation agent, and Bank of America, N.A., as syndication agent, dated March ~~30, 2020~~29, 2021

31.1	Rule 13a-14(a)/15d-14(a) Certification

31.2	Rule 13a-14(a)/15d-14(a) Certification

32	Section 1350 Certifications

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. Copies of these exhibits are available from the Company upon request.

6154

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		DEERE & COMPANY


Date:	May ~~28, 2020~~27, 2021	By:	/s/ Ryan D. Campbell
			Ryan D. Campbell Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

6255


	November 3, 2019		Cumulative Effect from Adoption		November 4, 2019
Assets
Other intangible assets - net	$	1,380	$	(23)	$	1,357
Other assets		1,899		402		2,301
Liabilities
Short-term borrowings	$	10,784	$	11	$	10,795
Accounts payable and accrued expenses		9,656		348		10,004
Long-term borrowings		30,229		20		30,249


	Three Months Ended April 28, 2019
	Agriculture and Turf		Construction and Forestry		Financial Services		Total
Primary geographical markets:
United States	$	3,912	$	1,738	$	604	$	6,254
Canada		313		265		153		731
Western Europe		1,360		379		21		1,760
Central Europe and CIS		393		155		9		557
Latin America		772		194		69		1,035
Asia, Africa, Australia, New Zealand, and Middle East		647		328		30		1,005
Total	$	7,397	$	3,059	$	886	$	11,342

Major product lines:
Large Agriculture	$	3,494					$	3,494
Small Agriculture		2,632						2,632
Turf		989						989
Construction			$	1,478				1,478
Compact Construction				320				320
Roadbuilding				814				814
Forestry				338				338
Financial Products		25		6	$	886		917
Other		257		103				360
Total	$	7,397	$	3,059	$	886	$	11,342

Timing of revenue recognition:
Revenue recognized at a point in time	$	7,345	$	3,034			$	10,379
Revenue recognized over time		52		25	$	886		963
Total	$	7,397	$	3,059	$	886	$	11,342


			Revolving
	Retail		Charge
	Notes		Accounts		Other		Total
Three Months Ended May 3, 2020
Allowance:
Beginning of period balance	$	88	$	40	$	29	$	157
Provision		58		20		7		85
Write-offs		(24)		(23)		(2)		(49)
Recoveries		3		6				9
Translation adjustments		(6)				(1)		(7)
End of period balance *	$	119	$	43	$	33	$	195

Six Months Ended May 3, 2020
Allowance:
Beginning of period balance	$	89	$	40	$	21	$	150
Provision		74		18		14		106
Write-offs		(41)		(29)		(4)		(74)
Recoveries		5		14		1		20
Translation adjustments		(8)				1		(7)
End of period balance *	$	119	$	43	$	33	$	195
Financing receivables:
End of period balance	$	22,619	$	3,454	$	6,063	$	32,136
Balance individually evaluated **	$	157			$	83	$	240


			Unpaid				Average
	Recorded		Principal		Specific		Recorded
	Investment		Balance		Allowance		Investment
May 3, 2020*
Receivables with specific allowance ***	$	106	$	104	$	23	$	113
Receivables without a specific allowance **		35		34				38
Total	$	141	$	138	$	23	$	151
Agriculture and turf	$	113	$	111	$	18	$	121
Construction and forestry	$	28	$	27	$	5	$	30

November 3, 2019*
Receivables with specific allowance **	$	40	$	39	$	13	$	40
Receivables without a specific allowance **		32		31				37
Total	$	72	$	70	$	13	$	77
Agriculture and turf	$	49	$	48	$	8	$	52
Construction and forestry	$	23	$	22	$	5	$	25

April 28, 2019*
Receivables with specific allowance **	$	35	$	34	$	14	$	36
Receivables without a specific allowance **		37		35				39
Total	$	72	$	69	$	14	$	75
Agriculture and turf	$	54	$	53	$	11	$	57
Construction and forestry	$	18	$	16	$	3	$	18


	Operating		Finance
Due in:	Leases		Leases
Remainder of 2020	$	59	$	7
2021		79		13
2022		67		10
2023		46		5
2024		35		3
2025		19		1
Later years		35		3
Total lease payments		340		42
Less imputed interest		21		3
Total lease liabilities	$	319	$	39


	Operating		Capital
Due in:	Leases		Leases
2020	$	111	$	12
2021		77		10
2022		56		6
2023		39		2
2024		28		1
Later years		26		1
Total minimum lease payments	$	337	$	32


	Fair Value *					Losses
						Three Months Ended			Six Months Ended
	May 3		November 3		April 28	May 3		April 28	May 3		April 28
	2020		2019		2019	2020		2019	2020		2019
Equipment on operating leases – net	$	371	$	855		$	22		$	22
Property and equipment – net	$	70				$	62		$	62
Investments in unconsolidated affiliates	$	10				$	20		$	20
Other assets	$	59	$	142		$	10		$	10


(23) SUPPLEMENTAL CONSOLIDATING DATA
STATEMENT OF INCOME
For the Three Months Ended May 3, 2020 and April 28, 2019
(In millions of dollars) Unaudited	EQUIPMENT OPERATIONS*				FINANCIAL SERVICES
	2020		2019		2020		2019
Net Sales and Revenues
Net sales	$	8,224	$	10,273
Finance and interest income		23		25	$	906	$	910
Other income		181		213		61		72
Total		8,428		10,511		967		982

Costs and Expenses
Cost of sales		6,294		7,755
Research and development expenses		406		457
Selling, administrative and general expenses		700		795		208		154
Interest expense		83		44		266		312
Interest compensation to Financial Services		73		92
Other operating expenses		21		67		416		344
Total		7,577		9,210		890		810

Income of Consolidated Group before Income Taxes		851		1,301		77		172
Provision for income taxes		228		291		17		52
Income of Consolidated Group		623		1,010		60		120

Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates
Financial Services		60		121				1
Other		(17)		5
Total		43		126				1
Net Income		666		1,136		60		121
Less: Net income attributable to noncontrolling interests				1
Net Income Attributable to Deere & Company	$	666	$	1,135	$	60	$	121