Deere & Co. (DE) 10-Q 2021 Q2 Quarterly report

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 2, 2021

or

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

For the transition period from ____ to ____

Commission file 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 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 2, 2021 and May 3, 2020
(In millions of dollars and shares except per share amounts) Unaudited
	2021		2020
Net Sales and Revenues
Net sales	$	10,998	$	8,224
Finance and interest income		809		849
Other income		251		180
Total		12,058		9,253
Costs and Expenses
Cost of sales		7,928		6,294
Research and development expenses		377		406
Selling, administrative and general expenses		838		906
Interest expense		268		342
Other operating expenses		335		377
Total		9,746		8,325
Income of Consolidated Group before Income Taxes		2,312		928
Provision for income taxes		530		245
Income of Consolidated Group		1,782		683
Equity in income (loss) of unconsolidated affiliates		8		(17)
Net Income		1,790		666
Less: Net income attributable to noncontrolling interests
Net Income Attributable to Deere & Company	$	1,790	$	666
Per Share Data
Basic	$	5.72	$	2.13
Diluted	$	5.68	$	2.11
Average Shares Outstanding
Basic		312.8		313.2
Diluted		315.2		316.2

See Condensed Notes to Interim Consolidated Financial Statements.

2

DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Three Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars) Unaudited
	2021		2020
Net Income	$	1,790	$	666
Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		91		57
Cumulative translation adjustment		37		(441)
Unrealized gain (loss) on derivatives		3		(8)
Unrealized gain (loss) on debt securities		(13)		6
Other Comprehensive Income (Loss), Net of Income Taxes		118		(386)
Comprehensive Income of Consolidated Group		1,908		280
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive Income Attributable to Deere & Company	$	1,908	$	280

See Condensed Notes to Interim Consolidated Financial Statements.

3

DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Six Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars and shares except per share amounts) Unaudited
	2021		2020
Net Sales and Revenues
Net sales	$	19,049	$	14,754
Finance and interest income		1,644		1,745
Other income		477		385
Total		21,170		16,884
Costs and Expenses
Cost of sales		13,734		11,371
Research and development expenses		743		831
Selling, administrative and general expenses		1,607		1,715
Interest expense		538		678
Other operating expenses		708		792
Total		17,330		15,387
Income of Consolidated Group before Income Taxes		3,840		1,497
Provision for income taxes		838		295
Income of Consolidated Group		3,002		1,202
Equity in income (loss) of unconsolidated affiliates		12		(18)
Net Income		3,014		1,184
Less: Net income attributable to noncontrolling interests		1		2
Net Income Attributable to Deere & Company	$	3,013	$	1,182
Per Share Data
Basic	$	9.62	$	3.77
Diluted	$	9.55	$	3.73
Average Shares Outstanding
Basic		313.1		313.3
Diluted		315.6		316.7

See Condensed Notes to Interim Consolidated Financial Statements.

4

DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Six Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars) Unaudited
	2021		2020
Net Income	$	3,014	$	1,184
Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		154		287
Cumulative translation adjustment		433		(398)
Unrealized gain (loss) on derivatives		7		(8)
Unrealized gain (loss) on debt securities		(15)		11
Other Comprehensive Income (Loss), Net of Income Taxes		579		(108)
Comprehensive Income of Consolidated Group		3,593		1,076
Less: Comprehensive income attributable to noncontrolling interests		1		2
Comprehensive Income Attributable to Deere & Company	$	3,592	$	1,074

See Condensed Notes to Interim Consolidated Financial Statements.

5

DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited
	May 2		November 1		May 3
	2021		2020		2020
Assets
Cash and cash equivalents	$	7,182	$	7,066	$	8,900
Marketable securities		668		641		626
Receivables from unconsolidated affiliates		31		31		32
Trade accounts and notes receivable – net		6,158		4,171		5,986
Financing receivables – net		30,994		29,750		27,256
Financing receivables securitized – net		4,107		4,703		4,685
Other receivables		1,473		1,220		1,212
Equipment on operating leases – net		7,108		7,298		7,245
Inventories		6,042		4,999		6,171
Property and equipment – net		5,704		5,817		5,685
Investments in unconsolidated affiliates		182		193		192
Goodwill		3,190		3,081		2,917
Other intangible assets – net		1,310		1,327		1,311
Retirement benefits		951		863		960
Deferred income taxes		1,724		1,499		1,435
Other assets		2,155		2,432		2,713
Total Assets	$	78,979	$	75,091	$	77,326
Liabilities and Stockholders’ Equity
Liabilities
Short-term borrowings	$	9,911	$	8,582	$	11,179
Short-term securitization borrowings		4,106		4,682		4,640
Payables to unconsolidated affiliates		155		105		91
Accounts payable and accrued expenses		10,527		10,112		9,072
Deferred income taxes		533		519		475
Long-term borrowings		33,346		32,734		34,324
Retirement benefits and other liabilities		5,305		5,413		5,680
Total liabilities		63,883		62,147		65,461
Commitments and contingencies (Note 18)
Stockholders’ Equity
Common stock, $1 par value (issued shares at May 2, 2021 – 536,431,204)		4,999		4,895		4,713
Common stock in treasury		(19,052)		(18,065)		(17,690)
Retained earnings		34,105		31,646		30,556
Accumulated other comprehensive income (loss)		(4,960)		(5,539)		(5,715)
Total Deere & Company stockholders’ equity		15,092		12,937		11,864
Noncontrolling interests		4		7		1
Total stockholders’ equity		15,096		12,944		11,865
Total Liabilities and Stockholders’ Equity	$	78,979	$	75,091	$	77,326

See Condensed Notes to Interim Consolidated Financial Statements.

6

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.

7

DEERE & COMPANY
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY
For the Three and Six Months Ended May 2, 2021 and May 3, 2020
(In millions of dollars) Unaudited
				Total Stockholders’ Equity
				Deere & Company Stockholders
										Accumulated
	Total									Other				Redeemable
	Stockholders’			Common		Treasury		Retained		Comprehensive		Noncontrolling		Noncontrolling
	Equity			Stock		Stock		Earnings		Income (Loss)		Interests		Interest
Three Months Ended May 3, 2020
Balance February 2, 2020	$	11,930		$	4,675	$	(17,549)	$	30,129	$	(5,329)	$	4	$	14
Net income		666							666
Other comprehensive loss		(386)									(386)
Repurchases of common stock		(149)					(149)
Treasury shares reissued		8					8
Dividends declared		(241)							(238)				(3)
Noncontrolling interest redemption (Note 22)															(14)
Stock options and other		37			38				(1)
Balance May 3, 2020	$	11,865		$	4,713	$	(17,690)	$	30,556	$	(5,715)	$	1
Six Months Ended May 3, 2020
Balance November 3, 2019	$	11,417		$	4,642	$	(17,474)	$	29,852	$	(5,607)	$	4	$	14
Net income		1,183							1,182				1		1
Other comprehensive loss		(108)									(108)
Repurchases of common stock		(263)					(263)
Treasury shares reissued		47					47
Dividends declared		(480)							(477)				(3)		(1)
Noncontrolling interest redemption (Note 22)															(14)
Stock options and other		69			71				(1)				(1)
Balance May 3, 2020	$	11,865		$	4,713	$	(17,690)	$	30,556	$	(5,715)	$	1
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			��
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.

8

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

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

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: 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 segments. Additional information on the new segments and the segment financial results are presented in Note 10. Prior period segment information was recast for a consistent presentation. References to agriculture and turf include both production and precision agriculture and small agriculture and turf.

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 May 3, 2020, respectively. Both second quarters contained 13 weeks, while both year-to-date periods contained 26 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 (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 $7 million, $5 million, and $13 million at May 2, 2021, November 1, 2020, and May 3, 2020, 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 the disclosures are adequate to present fairly the financial position, results of operations, and cash flows at the dates and for the periods presented. It is suggested these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in 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 COVID pandemic has resulted in uncertainties in the Company’s business, which may result in actual results differing from those estimates.

9

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 $267 million and $254 million in the first six months of 2021 and 2020, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $40 million and $46 million at May 2, 2021 and May 3, 2020, respectively.

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

	May 2		November 1		May 3		November 3
	2021		2020		2020		2019
Equipment operations	$	12	$	11	$	11	$	21
Financial services		87		95		92		78
Total	$	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 2021, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes Accounting Standards Codification (ASC) 326, Financial Instruments - Credit Losses. This ASU was adopted using a modified-retrospective approach. The ASU, along with related amendments, revised the measurement of credit losses for financial assets measured at amortized cost from an incurred loss to an expected loss methodology. The ASU affects receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash.

The Company holds deposits from dealers (dealer deposits), which are recorded in “Accounts payable and accrued liabilities” to absorb certain credit losses. Prior to adopting this ASU, the allowance for credit losses was estimated on probable credit losses incurred after consideration of recoveries from dealer deposits. The ASU considers dealer deposits and certain credit insurance contracts as freestanding credit enhancements. As a result, after adoption, credit losses recovered from dealer deposits and certain credit insurance contracts are presented in “Other income” and no longer as part of the allowance for credit losses or the provision for credit losses. The ASU also modified the treatment of the estimated write-off of delinquent receivables by no longer including the estimated benefit of charges to the dealer deposits in the write-off amount. This change increases the estimated write-offs on delinquent financing receivables with the benefit of credit losses recovered from dealer deposits presented in “Other income.” This benefit, in both situations, is recorded when the dealer deposits are charged and no longer based on estimated recoveries.

The effects of adopting the ASU on the consolidated 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

10

Note 11 contains additional disclosures as well as the Company’s updated allowance for credit losses accounting policy.

The Company also adopted the following standards in 2021, none of which had a material effect on the Company’s consolidated financial 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

New Accounting Standards to be Adopted

The Company will adopt the following standards in future periods, none of which are expected to have a material effect on the Company’s consolidated financial statements:

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

11

	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

	Three Months Ended May 3, 2020
	Production & Precision Ag		Small Ag & Turf		Construction & Forestry		Financial Services		Total
Primary geographical markets:
United States	$	1,841	$	1,540	$	1,263	$	604	$	5,248
Canada		177		89		166		151		583
Western Europe		540		571		358		22		1,491
Central Europe and CIS		258		80		140		8		486
Latin America		394		64		135		60		653
Asia, Africa, Australia, New Zealand, and Middle East		221		290		251		30		792
Total	$	3,431	$	2,634	$	2,313	$	875	$	9,253
Major product lines:
Production agriculture	$	3,280							$	3,280
Small agriculture			$	1,771						1,771
Turf				806						806
Construction					$	877				877
Compact construction						339				339
Roadbuilding						723				723
Forestry						254				254
Financial products		13		8		6	$	875		902
Other		138		49		114				301
Total	$	3,431	$	2,634	$	2,313	$	875	$	9,253
Timing of revenue recognition:
Revenue recognized at a point in time	$	3,396	$	2,620	$	2,287	$	26	$	8,329
Revenue recognized over time		35		14		26		849		924
Total	$	3,431	$	2,634	$	2,313	$	875	$	9,253

12

	Six Months Ended May 3, 2020
	Production & Precision Ag		Small Ag & Turf		Construction & Forestry		Financial Services		Total
Primary geographical markets:
United States	$	3,276	$	2,605	$	2,283	$	1,247	$	9,411
Canada		261		143		338		307		1,049
Western Europe		905		984		697		44		2,630
Central Europe and CIS		389		169		299		18		875
Latin America		778		135		294		126		1,333
Asia, Africa, Australia, New Zealand, and Middle East		410		605		507		64		1,586
Total	$	6,019	$	4,641	$	4,418	$	1,806	$	16,884
Major product lines:
Production agriculture	$	5,706							$	5,706
Small agriculture			$	3,249						3,249
Turf				1,274						1,274
Construction					$	1,718				1,718
Compact construction						627				627
Roadbuilding						1,328				1,328
Forestry						528				528
Financial products		34		14		13	$	1,806		1,867
Other		279		104		204				587
Total	$	6,019	$	4,641	$	4,418	$	1,806	$	16,884
Timing of revenue recognition:
Revenue recognized at a point in time	$	5,941	$	4,615	$	4,366	$	52	$	14,974
Revenue recognized over time		78		26		52		1,754		1,910
Total	$	6,019	$	4,641	$	4,418	$	1,806	$	16,884

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

Production agriculture – Includes net sales of large and certain mid-size tractors and associated attachments, combines, cotton pickers, cotton strippers, and sugarcane harvesters, 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 – Includes net sales of mid-size and utility tractors, self-propelled forage harvesters, hay and forage equipment, balers, mowers, and related attachments and service parts.

Turf – Includes net sales of turf and utility equipment, including riding lawn equipment, golf course equipment, utility vehicles, and commercial mowing equipment, along with a broad line of associated implements, other outdoor power products, and related service parts.

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

Compact construction – Includes net sales of smaller construction equipment, including compact excavators, compact track loaders, compact wheel loaders, skid steers, landscape loaders, and related attachments and service parts.

Roadbuilding – Includes net sales of equipment used in roadbuilding and renovation, including milling machines, recyclers, slipform pavers, surface miners, asphalt pavers, compactors, tandem and static rollers, mobile crushers and screens, mobile and stationary asphalt plants, and related attachments and service parts.

Forestry – Includes net sales of equipment used in timber harvesting, including log skidders, feller bunchers, log loaders, log forwarders, log harvesters, and related attachments and service parts.

Financial products – Includes finance and interest income primarily from retail notes related to sales of John Deere equipment to 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.

13

Other – Includes sales of components to other equipment manufacturers that are included in “Net sales”; and revenue earned over time from precision guidance, telematics, and other information enabled solutions, revenue from service performed at Company owned dealerships and service centers, gains on disposition of property and businesses, trademark licensing revenue, and other miscellaneous revenue items that are included in “Other income.”

The Company invoices in advance of recognizing the sale of certain products and the revenue for certain services. These items are primarily for 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 18, was $1,249 million, $1,090 million, and $1,077 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively. The contract liability is reduced as the revenue is recognized. During the three months ended May 2, 2021 and May 3, 2020, $111 million and $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, $335 million and $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 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 $962 million at May 2, 2021. The estimated revenue to be recognized by fiscal year follows in millions of dollars: remainder of 2021 - $199, 2022 - $318, 2023 - $224, 2024 - $130, 2025 - $58, 2026 - $30 and later years - $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.

During 2020, and to a much lesser extent in 2021, the Company provided short-term payment relief on trade accounts and notes receivables to independent dealers and certain other customers that were negatively affected by the economic effects of COVID. The relief was provided both in regional programs and case-by-case situations with creditworthy customers. This relief generally included payment deferrals not exceeding three months, extending interest-free periods for up to an additional three months with the total interest-free period not to exceed one year, or reducing interest rates for a maximum of three months. The trade receivable balance granted relief since the beginning of the pandemic that remained outstanding at May 2, 2021 was not material.

(5)  Other Comprehensive Income Items

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

									Total
					Unrealized		Unrealized		Accumulated
	Retirement		Cumulative		Gain (Loss)		Gain (Loss)		Other
	Benefits		Translation		on		on		Comprehensive
	Adjustment		Adjustment		Derivatives		Debt Securities		Income (Loss)
Balance November 3, 2019	$	(3,915)	$	(1,651)	$	(60)	$	19	$	(5,607)
Other comprehensive income (loss) items before reclassification		186		(398)		(13)		11		(214)
Amounts reclassified from accumulated other comprehensive income		101				5				106
Net current period other comprehensive income (loss)		287		(398)		(8)		11		(108)
Balance May 3, 2020	$	(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)

14

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

15

	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)

	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:
Net actuarial gain (loss)		247		(61)		186
Reclassification to Other operating expenses through amortization of:
Actuarial (gain) loss		138		(45)		93
Prior service (credit) cost		4		(1)		3
Settlements		6		(1)		5
Net unrealized gain (loss) on retirement benefits adjustment		395		(108)		287
Total other comprehensive income (loss)			$	(108)	$	(108)

(6)  Dividends Declared and Paid

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

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

16

(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
	May 2		May 3		May 2		May 3
	2021		2020		2021		2020
Net income attributable to Deere & Company	$	1,790	$	666	$	3,013	$	1,182
Average shares outstanding		312.8		313.2		313.1		313.3
Basic per share	$	5.72	$	2.13	$	9.62	$	3.77
Average shares outstanding		312.8		313.2		313.1		313.3
Effect of dilutive share-based compensation		2.4		3.0		2.5		3.4
Total potential shares outstanding		315.2		316.2		315.6		316.7
Diluted per share	$	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.

(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
	May 2		May 3		May 2		May 3
	2021		2020		2021		2020
Service cost	$	83	$	77	$	168	$	161
Interest cost		69		87		138		174
Expected return on plan assets		(200)		(204)		(400)		(409)
Amortization of actuarial loss		65		62		128		124
Amortization of prior service cost		3		3		6		6
Settlements		5		3		18		6
Net cost	$	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
	May 2		May 3		May 2		May 3
	2021		2020		2021		2020
Service cost	$	12	$	12	$	24	$	24
Interest cost		25		35		51		72
Expected return on plan assets		(20)		(12)		(39)		(24)
Amortization of actuarial loss		7		7		14		14
Amortization of prior service credit		(1)		(1)		(2)		(2)
Curtailments								21
Net cost	$	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.

17

In the first quarter of 2020, the Company remeasured the U.S. salary OPEB health care plans due to the U.S. voluntary employee-separation program (see Note 22), which resulted in a $21 million curtailment loss.

During the first six months of 2021, the Company contributed approximately $68 million to its pension plans and $85 million to its OPEB plans. The Company presently anticipates contributing an additional $33 million to its pension plans and $757 million to its OPEB plans during the remainder of fiscal year 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 Company’s unrecognized tax benefits at May 2, 2021, November 1, 2020, and May 3, 2020 were $751 million, $668 million, and $610 million, respectively. The liability at May 2, 2021, November 1, 2020, and May 3, 2020 consisted of approximately $189 million, $134 million, and $145 million, respectively, which would affect the effective tax rate if the tax benefits were recognized. 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.

18

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

19

(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 from the customer is written off to the allowance for credit losses. Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.

Due to the 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

20

The credit quality analysis of customer receivables was as follows in millions of dollars 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:

	Year of Origination
	2021		2020		2019		2018		2017		Prior		Revolving		Total
Wholesale receivables:
Agriculture and turf
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
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 1		May 3
	2020		2020
Wholesale receivables:
Agriculture and turf
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
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

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

21

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:

	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

22

The allowance for credit losses on financing receivables decreased $33 million in the second quarter of 2021, primarily due to lower expected losses on retail notes and 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 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 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 these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At May 3, 2021, the Company had 0 commitments to lend 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 $2,875 million, $2,898 million, and $3,017 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively. The liabilities (short-term securitization borrowings and accrued interest) of these SPEs totaled $2,833 million, $2,856 million, and $2,977 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively. The credit holders of these SPEs do not have legal recourse to the Company’s general credit.

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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 $397 million, $576 million, and $542 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively. The liabilities (short-term securitization borrowings and accrued interest) were $383 million, $554 million, and $515 million at May 2, 2021, November 1, 2020, and May 3, 2020, 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 $926 million, $1,327 million, and $1,221 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively. The liabilities (short-term securitization borrowings and accrued interest) related to these conduits were $893 million, $1,275 million, and $1,154 million at May 2, 2021, November 1, 2020, and May 3, 2020, respectively.

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

	May 2
	2021
Carrying value of liabilities	$	893
Maximum exposure to loss		926

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

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

	May 2		November 1		May 3
	2021		2020		2020
Financing receivables securitized (retail notes)	$	4,122	$	4,716	$	4,703
Allowance for credit losses		(15)		(13)		(18)
Other assets		91		98		95
Total restricted securitized assets	$	4,198	$	4,801	$	4,780

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

	May 2		November 1		May 3
	2021		2020		2020
Short-term securitization borrowings	$	4,106	$	4,682	$	4,640
Accrued interest on borrowings		3		3		6
Total liabilities related to restricted securitized assets	$	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 2, 2021, the maximum remaining term of all securitized retail notes was approximately six years.

24

(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 2		November 1		May 3
	2021		2020		2020
Raw materials and supplies	$	2,469	$	1,995	$	2,394
Work-in-process		967		648		722
Finished goods and parts		4,334		4,006		4,646
Total FIFO value		7,770		6,649		7,762
Less adjustment to LIFO value		1,728		1,650		1,591
Inventories	$	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:

	Production &		Small Ag		Construction
	Precision Ag		& Turf		& Forestry		Total
Goodwill at November 3, 2019	$	310	$	264	$	2,343	$	2,917
Translation adjustments and other		(5)		(4)		9
Goodwill at May 3, 2020	$	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.

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(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

(16)  Long-Term Borrowings

Long-term borrowings were as follows in millions of dollars. The financial services medium-term notes include fair value adjustments related to 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

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(17)  Leases

Lessee

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

	May 2		November 1		May 3
	2021		2020		2020
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 were as follows in millions of dollars:

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

Lease revenues earned by the Company were as follows in millions of 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. 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 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. These impairment losses 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 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 portfolio.

27

(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 $681 million and $602 million at May 2, 2021 and May 3, 2020, respectively.

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

	Three Months Ended				Six Months Ended
	May 2		May 3		May 2		May 3
	2021		2020		2021		2020
Beginning of period balance	$	1,803	$	1,792	$	1,743	$	1,800
Payments		(202)		(223)		(417)		(453)
Amortization of premiums received		(65)		(51)		(128)		(110)
Accruals for warranties		248		210		495		432
Premiums received		90		69		163		134
Foreign exchange		2		(30)		20		(36)
End of period balance	$	1,876	$	1,767	$	1,876	$	1,767

At May 2, 2021, the Company had approximately $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 2, 2021, the Company had accrued losses of approximately $16 million under these agreements. The maximum remaining term of the receivables guaranteed at May 2, 2021 was approximately six years.

At May 2, 2021, the Company had commitments of approximately $246 million for the construction and acquisition of property and equipment. Also, at May 2, 2021, the Company had restricted assets of $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 $60 million at May 2, 2021. The accrued liability for these contingencies was not material at May 2, 2021.

The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, and trademark matters. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements.

(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.

28

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

	May 2, 2021				November 1, 2020				May 3, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Financing receivables – net:
Equipment operations	$	99	$	94	$	105	$	103	$	118	$	111
Financial services		30,895		31,071		29,645		29,838		27,138		27,317
Total	$	30,994	$	31,165	$	29,750	$	29,941	$	27,256	$	27,428
Financing receivables securitized – net: