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

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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 for Fiscal Year 2022

Industry sales of large agricultural machinery in the U.S. and Canada are forecasted to be up 20 percent. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat. Industry sales of agricultural machinery in Europe are forecasted to be about 5 percent higher. In South America, industry sales of tractors and combines are projected to increase 5 to 10 percent. Asia industry sales of agricultural machinery are forecasted to be flat. Construction equipment industry sales in the U.S. and Canada for 2022 are expected to increase 5 to 10 percent, while compact construction equipment industry sales in the U.S. and Canada are anticipated to be flat to up about 5 percent. Forestry global industry equipment sales are expected to be 10 to 15 percent higher. Global industry roadbuilding equipment sales are forecasted to be up 5 to 10 percent. Net income for the Company’s financial services operations is expected to be slightly lower than fiscal year 2021 due to a higher provision for credit losses, lower gains on operating lease residual values, and higher selling, general, and administrative expenses. These factors are expected to be partially offset by income earned on a higher average portfolio.

Items of concern include global and regional political conditions, economic and trade policies, uncertainty of the effectiveness of governmental and private sector actions to address the ongoing pandemic, capital market disruptions, changes in demand and pricing for new and used equipment, and the other items discussed in the “Safe Harbor Statement” below. Significant fluctuations in foreign currency exchange rates, volatility in the price of many commodities, and supply chain disruptions could also impact the Company’s results.

The Company’s first quarter performance was noteworthy given production issues following the delayed ratification of the UAW contract in late November as well as persistent challenges posed by the supply chain and pandemic. These factors contributed to higher production costs. Demand for agriculture and construction equipment is expected to continue to benefit from strong fundamentals. The Company continues to work closely with key suppliers to manage through the dynamic environment and enable the Company’s dealers and customers to deliver food production and critical infrastructure. The Company remains committed, above all else, to safeguarding the health and well-being of its employees.

2022 Compared with 2021


	Three Months Ended
Deere & Company	January 30		January 31
(In millions of dollars, except per share amounts)	2022		2021
Net sales and revenues	$	9,569	$	9,112
Net income attributable to Deere & Company		903		1,224
Diluted earnings per share		2.92		3.87

In the first quarter of 2022, the Company incurred UAW ratification bonus costs of $90 million. See Note 20 for more information on special items impacting both periods.


	Three Months Ended
Equipment Operations	January 30		January 31
(In millions of dollars)	2022		2021		% Change
Worldwide:
Net sales	$	8,531	$	8,051	+6
Operating profit		939		1,380	-32
Net income		672		1,020	-34
Price realization					+7
Currency translation					-2

U.S. and Canada:
Net sales		4,818		4,529	+6
Price realization					+7

Outside U.S. and Canada:
Net sales		3,713		3,522	+5
Price realization					+8
Currency translation					-4

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


	Three Months Ended
Deere & Company	January 30		January 31
(In millions of dollars)	2022		2021		% Change
Cost of sales to net sales		78.5%		72.1%

Other income	$	238	$	227	+5
Research and development expenses		402		366	+10
Selling, administrative and general expenses		781		769	+2
Other operating expenses		311		373	-17
Provision for income taxes		250		308	-19

The cost of sales ratio increased due to higher production costs, partially offset by price realization. Research and development expenses were higher due to continued focus on developing and incorporating technology solutions. Other operating expenses decreased primarily as a result of reduced depreciation of equipment on operating leases and lower retirement benefit costs (see Note 7). The provision for income taxes was lower as a result of reduced pretax income.

Business Segment Results


	Three Months Ended
Production and Precision Agriculture	January 30		January 31
(In millions of dollars)	2022		2021		% Change
Net sales	$	3,356	$	3,069	+9
Operating profit		296		643	-54
Operating margin		8.8%		21.0%

Production and precision agriculture sales for the quarter increased due to price realization and higher shipment volumes. Operating profit declined primarily due to higher production costs and an unfavorable sales mix. These items were partially offset by price realization and higher shipment volumes. Affecting the most recent quarter was the UAW contract ratification bonus, while the prior period was affected by a favorable indirect tax ruling in Brazil.


	Three Months Ended
Small Agriculture and Turf	January 30		January 31
(In millions of dollars)	2022		2021		% Change
Net sales	$	2,631	$	2,515	+5
Operating profit		371		469	-21
Operating margin		14.1%		18.6%

Small agriculture and turf sales for the quarter improved as price realization more than offset lower shipment volumes. Operating profit decreased primarily due to higher production costs and lower sales / unfavorable sales mix. These items were partially offset by price realization.


	Three Months Ended
Construction and Forestry	January 30		January 31
(In millions of dollars)	2022		2021		% Change
Net sales	$	2,544	$	2,467	+3
Operating profit		272		268	+1
Operating margin		10.7%		10.9%

Construction and forestry sales moved higher for the quarter primarily due to price realization and higher shipment volumes. Last year Wirtgen’s one-month reporting lag was eliminated resulting in four months of Wirtgen activity in the first quarter of 2021, which increased “Net sales” by $270 million. Operating profit was higher mainly due to price realization, partially offset by higher production costs and lower sales / unfavorable sales mix. The current period was impacted by the UAW contract ratification bonus. Results last year included impairment of long-lived assets.


	Three Months Ended
Financial Services	January 30		January 31
(In millions of dollars)	2022		2021		% Change
Revenue (including intercompany)	$	916	$	934	-2
Interest expense		158		188	-16
Net income		231		204	+13

While the average balance of receivables and leases financed was 6 percent higher in the first three months of 2022, compared with the same period last year, revenue decreased due to lower average interest rates. Interest expense decreased 16 percent in the first quarter of 2022 as a result of lower average borrowing rates. Net income increased due to income earned on higher average portfolio balances and improvement on operating lease residual values.

Critical Accounting Estimates

See the Company’s critical accounting estimates discussed in the Management’s Discussion and Analysis of the most recently filed annual report on Form 10-K. There have been no material changes to these policies.

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

Cash outflows from consolidated operating activities in the first three months of 2022 were $2,553 million. This resulted mainly from a working capital change and a $1,000 million voluntary contribution to a U.S. OPEB plan. These were partially offset by net income adjusted for non-cash provisions. Cash inflows from investing activities were $648 million in the first three months of this year. The primary driver was collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired, partially offset by purchases of property and equipment. Cash outflows from financing activities were $1,577 million in the first three months of 2022. Cash, cash equivalents, and restricted cash decreased $3,556 million during the first three months of this year.

In February 2022, the Company acquired majority ownership in Kreisel Electric, Inc., a battery technology provider based in Austria. The initial cash outlay was €239 million, which was financed from cash on hand (see Note 21). Additional cash requirements anticipated in the remainder of 2022 include the dissolution of the joint venture agreement between the Company and Hitachi Construction Machinery Co., Ltd. (Hitachi). In connection with the termination, the Company will purchase all of Hitachi’s shares in the relevant joint venture manufacturing entities and receive certain intellectual property rights. The initial cash consideration consists of $275 million for the shares and an intellectual property license. The transaction is expected to close in the second quarter of 2022, subject to the receipt of certain required regulatory approvals and satisfaction of certain other customary closing conditions. This consideration will be paid out of cash on hand.

Positive cash flows from consolidated operating activities in the first three months of 2021 were $143 million. This resulted primarily from net income adjusted for non-cash provisions partially offset by changes in working capital. Cash inflows from investing activities were $579 million in the first three months of 2021, largely due to collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired. This was partially offset by purchases of property and equipment. Negative cash flows from financing activities were $933 million in the first three months of 2021. Cash, cash equivalents, and restricted cash decreased $108 million during the first three months of 2021.

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 in the short term and long term. Sources of liquidity for the Company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets), and committed and uncommitted bank lines of credit. The Company’s commercial paper outstanding at January 30, 2022, October 31, 2021, and January 31, 2021 was $2,135 million, $2,230 million, and $1,346 million, respectively, while the total cash, cash equivalents, and marketable securities position was $5,207 million, $8,745 million, and $7,629 million, respectively. The total cash, cash equivalents, and marketable securities held by foreign subsidiaries was $3,047 million, $5,817 million, and $4,956 million at January 30, 2022, October 31, 2021, and January 31, 2021, respectively. During the first quarter of 2022, the Company’s foreign subsidiaries returned $3,500 million of cash and cash equivalents to the U.S.

Lines of Credit. The Company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled $8,519 million at January 30, 2022, $5,865 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 January 30, 2022 was a 364-day credit facility agreement of $3,000 million, expiring in fiscal April 2022. In addition, total credit lines included long-term credit facility agreements of $2,500 million, expiring in fiscal April 2025, and $2,500 million, expiring in fiscal March 2026. The Company expects to extend the terms of these credit facilities. 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 January 30, 2022 was $15,452 million. Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $28,697 million at January 30, 2022. All of these requirements of the credit agreements 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 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. Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Trade receivables increased $647 million during the first three months of 2022, mostly due to a seasonal increase. These receivables decreased $182 million, compared to a year ago. The ratios of trade accounts and notes receivable to the last 12 months’ net sales were 12 percent at January 30, 2022, compared to 11 percent at October 31, 2021 and 15 percent at January 31, 2021. Production and precision agriculture trade receivables decreased $218 million, small agriculture and turf trade receivables decreased $220 million, and construction and forestry trade receivables increased $256 million, compared to a year ago. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent, 1 percent, and 3 percent at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

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. Funds provided from operations are supplemented by external financing sources as needed.

Cash used for operating activities of the equipment operations, including intercompany cash flows, in the first three months of 2022 was $2,488 million. This resulted largely from a change in working capital and a $1,000 million voluntary contribution to a U.S. OPEB plan exceeding cash inflows from net income adjusted for non-cash provisions. Cash, cash equivalents, and restricted cash decreased $3,592 million in the first three months of 2022.

Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first three months of 2021 was $348 million. Cash inflows from net income adjusted for non-cash provisions were partially offset by changes in working capital. Cash, cash equivalents, and restricted cash decreased $71 million in the first three months of 2021.

Trade receivables held by the equipment operations decreased $159 million during the first three months of 2022 and increased $96 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 $1,154 million during the first three months, primarily due to a seasonal increase. Inventories increased $1,979 million, compared to a year ago, due to higher forecasted shipment volumes and a raw material build-up related to the UAW work stoppage, partially offset by the effect of foreign currency translation. A majority of these inventories are valued on the last-in, first-out (LIFO) method.

Total interest-bearing debt, excluding finance lease liabilities, of the equipment operations was $10,229 million at January 30, 2022, compared with $10,373 million at October 31, 2021 and $10,494 million at January 31, 2021. The ratios of debt to total capital (total interest-bearing debt and stockholders’ equity) were 36 percent, 36 percent, and 43 percent at January 30, 2022, October 31, 2021, and January 31, 2021, respectively.

Property and equipment cash expenditures for the equipment operations in the first three months of 2022 were $193 million, compared with $154 million in the same period last year. Capital expenditures for the equipment operations in 2022 are estimated to be approximately $1,175 million.

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 three months of 2022 and 2021, the cash provided by operating and investing activities was used for financing activities. Cash, cash equivalents, and restricted cash increased $36 million in the first three months of 2022 and decreased $37 million in the first three months of 2021.

Receivables and leases held by the financial services operations consist of retail notes originated in connection with financing of new and used equipment, operating leases, trade receivables, revolving charge accounts, sales-type and direct financing leases, and wholesale notes. Trade and financing receivables and equipment on operating leases decreased $1,149 million during the first quarter of 2022, primarily due to seasonal payments, and increased $2,490 million in the past 12 months. Total acquisition volumes of receivables (excluding trade and wholesale) and leases were 3 percent higher in the first three months of 2022, compared with the same period last year, as volumes of operating and finance leases, retail notes, and revolving charge accounts were higher compared to January 31, 2021.

Total external interest-bearing debt of the financial services operations was $37,026 million at January 30, 2022, compared with $37,978 million at October 31, 2021 and $35,415 million at January 31, 2021. Total external borrowings have generally changed 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 to stockholder’s equity was 7.4 to 1 at January 30, 2022, compared with 7.8 to 1 at October 31, 2021 and 7.6 to 1 at January 31, 2021.

Capital Corporation has a revolving warehouse facility to utilize bank conduit facilities to securitize retail notes (see Note 10). The facility was renewed in November 2021 with an expiration in November 2022 and a reduction of the total capacity or “financing limit” from $2,000 million to $1,000 million. As a result of the reduced capacity, the Company repurchased $511 million of outstanding short-term securitization borrowings in November 2021, in addition to the normal payments collected on the retail notes.

In the first three months of 2022, the financial services operations retired $1,123 million of retail note securitization borrowings, which are presented in “Increase (decrease) in total short-term borrowings.” In addition, during the first three months of 2022, the financial services operations issued $2,335 million and retired $1,816 million of long-term borrowings, which were primarily medium-term notes.

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under “Overview” and other forward-looking statements herein that relate to future events, expectations, and trends involve factors that are subject to change, and assumptions, risks, and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the Company’s businesses.

The Company’s agricultural equipment businesses are subject to a number of uncertainties, including certain factors that affect farmers’ confidence and financial condition. These factors include demand for agricultural products; world grain stocks; weather conditions and the effects of climate change; soil conditions; harvest yields; prices for commodities and livestock; crop and livestock production expenses; availability of transport for crops (including as a result of reduced state and local transportation budgets); trade restrictions and tariffs (e.g., China); global trade agreements; the level of farm product exports (including concerns about genetically modified organisms); the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production); real estate values; available acreage for farming; land ownership policies of governments; changes in government farm programs and policies; international reaction to such programs; changes in and effects of crop insurance programs; changes in environmental regulations and their impact on farming practices; animal diseases (e.g., African swine fever) and their effects on poultry, beef, and pork consumption and prices and on livestock feed demand; crop pests and diseases; and the impact of the COVID pandemic on the agricultural industry including demand for, and production and exports of, agricultural products, and commodity prices.

The production and precision agriculture business is dependent on agricultural conditions, and relies in part on hardware and software, guidance, connectivity and digital solutions, and automation and machine intelligence. Many factors contribute to the Company’s precision agriculture sales and results, including the impact to customers’ profitability and/or sustainability outcomes; the rate of adoption and use by customers; availability of technological innovations; speed of research and development; effectiveness of partnerships with third parties; and the dealer channel’s ability to support and service precision technology solutions.

Factors affecting the Company’s small agriculture and turf equipment operations include agricultural conditions; consumer confidence; weather conditions and the effects of climate change; customer profitability; labor supply;

consumer borrowing patterns; consumer purchasing preferences; housing starts and supply; infrastructure investment; spending by municipalities and golf courses; and consumable input costs.

Factors affecting the Company’s construction and forestry equipment operations include consumer spending patterns; real estate and housing prices; the number of housing starts; interest rates; commodity prices such as oil and gas; the levels of public and non-residential construction; and investment in infrastructure. Prices for pulp, paper, lumber, and structural panels affect sales of forestry equipment.

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

All of the Company’s businesses and its results are affected by general economic conditions in the global markets and industries in which the Company operates; customer confidence in general economic conditions; government spending and taxing; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates (including the availability of interbank overnight rate reference rates); inflation and deflation rates; changes in weather and climate patterns; the political and social stability of the global markets in which the Company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts; natural disasters; and the spread of major epidemics or pandemics (including the COVID pandemic) and government and industry responses to such epidemics or pandemics, such as travel restrictions and extended shut downs of businesses.

Continued uncertainties related to the magnitude, duration, and persistent effects of the COVID pandemic may significantly adversely affect the Company’s business and outlook. These uncertainties include, among other things: the duration and impact of the resurgence in COVID cases in any country, state, or region; the emergence, contagiousness, and threat of new and different strains of virus; the availability, acceptance, and effectiveness of vaccines; additional closures as mandated or otherwise made necessary by governmental authorities; disruptions in the supply chain, including those caused by industry capacity constraints, material availability, and global logistics delays and constraints arising from, among other things, the transportation capacity of ocean shipping containers, and continued disruptions in the operations of one or more key suppliers, or the failure of any key suppliers; an increasingly competitive labor market due to a sustained labor shortage or increased turnover caused by the COVID pandemic; the Company’s ability to meet commitments to customers on a timely basis as a result of increased costs and supply and transportation challenges; increased logistics costs; additional operating costs due to continued remote working arrangements 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; and the impact of the pandemic on the Company’s customers and dealers. The sustainability of the economic recovery from the pandemic remains unclear and significant volatility could continue for a prolonged period. These factors, and others that are currently unknown or considered immaterial, could materially and adversely affect our business, liquidity, results of operations, and financial position.

Significant changes in market liquidity conditions, changes in the Company’s credit ratings, and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the Company’s earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of the Company’s products and customer confidence and purchase decisions, financing and repayment practices, and the number and size of customer delinquencies and defaults. A debt crisis in Europe, Latin America, or elsewhere could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, demand for equipment, and Company operations and results. The Company’s investment management activities could be impaired by changes in the equity, bond, and other financial markets, which would negatively affect earnings.

Additional factors that could materially affect the Company’s operations, access to capital, expenses, and results include changes in, uncertainty surrounding, and the impact of governmental trade, banking, monetary, and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs, and other areas; the potential default of the U.S. federal government if Congress fails to pass a 2022 budget resolution; governmental programs, policies, and tariffs for the benefit of certain industries or sectors; sanctions in particular jurisdictions, including those imposed in connection with the military confrontation between Russia and Ukraine; 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, banking, and other regulations; changes

to and compliance with economic sanctions and export controls laws and regulations; compliance with U.S. and foreign laws when expanding to new markets and otherwise; and actions by other regulatory bodies.

Other factors that could materially affect the Company’s results include security breaches, cybersecurity attacks, technology failures, and other disruptions to the information technology infrastructure of the Company and its suppliers and dealers; security breaches with respect to the Company’s products; production, design, and technological innovations and difficulties, including capacity and supply constraints and prices; the loss of or challenges to intellectual property rights, whether through theft, infringement, counterfeiting, or otherwise; the availability and prices of strategically sourced materials, components, and whole goods; delays or disruptions in the Company’s supply chain or the loss of liquidity by suppliers; disruptions of infrastructures that support communications, operations, or distribution; the failure of customers, dealers, suppliers, or the Company to comply with laws, regulations, and Company policy pertaining to employment, human rights, health, safety, the environment, sanctions, export controls, anti-corruption, privacy and data protection, and other ethical business practices; introduction of legislation that could affect the Company’s business model and intellectual property, such as right to repair or right to modify; events that damage the Company’s reputation or brand; significant investigations, claims, lawsuits, or other legal proceedings; start-up of new plants and products; the success of new product initiatives or business strategies; changes in customer product preferences and sales mix; gaps or limitations in rural broadband coverage, capacity, and speed needed to support technology solutions; oil and energy prices, supplies, and volatility; the availability and cost of freight; actions of competitors in the various industries in which the Company competes, particularly price discounting; dealer practices, especially as to levels of new and used field inventories; changes in demand and pricing for used equipment and resulting impacts on lease residual values; labor relations and contracts, including work stoppages and other disruptions; changes in the ability to attract, develop, engage, and retain qualified personnel; acquisitions and divestitures of businesses; greater-than-anticipated transaction costs; the integration of new businesses; the failure or delay in closing or realizing anticipated benefits of acquisitions, joint ventures, or divestitures; the inability to deliver precision technology and agricultural solutions to customers; the implementation of the smart industrial operating model and other organizational changes; the failure to realize anticipated savings or benefits of cost reduction, productivity, or efficiency efforts; difficulties related to the conversion and implementation of enterprise resource planning systems; changes in Company-declared dividends and common stock issuances and repurchases; changes in the level and funding of employee retirement benefits; changes in market values of investment assets, compensation, retirement, discount, and mortality rates which impact retirement benefit costs; and significant changes in health care costs.

The liquidity and ongoing profitability of John Deere Capital Corporation and the Company’s other financial services subsidiaries depend largely on timely access to capital in order to meet future cash flow requirements, and to fund operations, costs, and purchases of the Company’s products. If general economic conditions deteriorate or capital markets become more volatile, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses.

The Company’s forward-looking statements are based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The Company, except as required by law, undertakes no obligation to update or revise its forward-looking statements, whether as a result of new developments or otherwise. Further information concerning the Company and its businesses, including factors that could materially affect the Company’s financial results, is included in the Company’s other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. Risk Factors of the Company’s most recent annual report on Form 10-K and the Company’s subsequent quarterly reports on Form 10-Q).

Supplemental Consolidating Information

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

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


DEERE & COMPANY
SUPPLEMENTAL CONSOLIDATING DATA
STATEMENTS OF INCOME
For the Three Months Ended January 30, 2022 and January 31, 2021
(In millions of dollars) Unaudited
	EQUIPMENT				FINANCIAL
	OPERATIONS1				SERVICES				ELIMINATIONS				CONSOLIDATED
	2022		2021		2022		2021		2022		2021		2022		2021
Net Sales and Revenues
Net sales	$	8,531	$	8,051									$	8,531	$	8,051
Finance and interest income		34		32	$	829	$	862	$	(63)	$	(60)		800		834	2
Other income		217		220		87		72		(66)		(65)		238		227	3
Total		8,782		8,303		916		934		(129)		(125)		9,569		9,112

Costs and Expenses
Cost of sales		6,696		5,806						(1)		(1)		6,695		5,805	4
Research and development expenses		402		366										402		366
Selling, administrative and general expenses		657		653		126		117		(2)		(1)		781		769	4
Interest expense		90		95		158		188		(19)		(12)		229		271	5
Interest compensation to Financial Services		44		48						(44)		(48)					5
Other operating expenses		39		67		335		369		(63)		(63)		311		373	6
Total		7,928		7,035		619		674		(129)		(125)		8,418		7,584

Income before Income Taxes		854		1,268		297		260						1,151		1,528
Provision for income taxes		182		252		68		56						250		308

Income after Income Taxes		672		1,016		229		204						901		1,220
Equity in income of unconsolidated affiliates		1		4		2								3		4

Net Income		673		1,020		231		204						904		1,224
Less: Net income attributable to noncontrolling interests		1												1
Net Income Attributable to Deere & Company	$	672	$	1,020	$	231	$	204					$	903	$	1,224

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 3).

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 SHEETS
(In millions of dollars) Unaudited
	EQUIPMENT						FINANCIAL
	OPERATIONS1						SERVICES						ELIMINATIONS						CONSOLIDATED
	Jan 30		Oct 31		Jan 31		Jan 30		Oct 31		Jan 31		Jan 30		Oct 31		Jan 31		Jan 30		Oct 31		Jan 31
	2022		2021		2021		2022		2021		2021		2022		2021		2021		2022		2021		2021
Assets
Cash and cash equivalents	$	3,596	$	7,188	$	6,074	$	876	$	829	$	888							$	4,472	$	8,017	$	6,962
Marketable securities		2		3		8		733		725		659								735		728		667
Receivables from unconsolidated affiliates		5,340		5,591		5,151							$	(5,307)	$	(5,564)	$	(5,123)		33		27		28	7
Trade accounts and notes receivable – net		996		1,155		900		4,843		3,895		5,341		(984)		(842)		(1,204)		4,855		4,208		5,037	8
Financing receivables – net		56		73		103		33,135		33,726		29,335								33,191		33,799		29,438
Financing receivables securitized – net		9		10		18		3,507		4,649		3,913								3,516		4,659		3,931
Other receivables		1,785		1,602		1,010		153		159		151		(35)		(23)		(20)		1,903		1,738		1,141	8
Equipment on operating leases – net								6,624		6,988		7,030								6,624		6,988		7,030
Inventories		7,935		6,781		5,956														7,935		6,781		5,956
Property and equipment – net		5,629		5,783		5,703		36		37		38								5,665		5,820		5,741
Investments in unconsolidated affiliates		153		153		157		23		22		21								176		175		178
Goodwill		3,192		3,291		3,194														3,192		3,291		3,194
Other intangible assets – net		1,209		1,275		1,342														1,209		1,275		1,342
Retirement benefits		3,095		3,539		903		65		64		60		(2)		(2)		(57)		3,158		3,601		906	9
Deferred income taxes		1,095		1,215		1,797		50		53		51		(222)		(231)		(292)		923		1,037		1,556	10
Other assets		1,577		1,493		1,485		454		477		891		(4)				(3)		2,027		1,970		2,373
Total Assets	$	35,669	$	39,152	$	33,801	$	50,499	$	51,624	$	48,378	$	(6,554)	$	(6,662)	$	(6,699)	$	79,614	$	84,114	$	75,480

Liabilities and Stockholders’ Equity

Liabilities
Short-term borrowings	$	1,516	$	1,509	$	394	$	9,474	$	9,410	$	8,830							$	10,990	$	10,919	$	9,224
Short-term securitization borrowings		8		10		17		3,474		4,595		3,952								3,482		4,605		3,969
Payables to unconsolidated affiliates		172		143		119		5,307		5,564		5,123	$	(5,307)	$	(5,564)	$	(5,123)		172		143		119	7
Accounts payable and accrued expenses		9,532		11,055		8,672		1,970		2,015		1,959		(1,023)		(865)		(1,227)		10,479		12,205		9,404	8
Deferred income taxes		425		438		394		353		369		430		(222)		(231)		(292)		556		576		532	10
Long-term borrowings		8,760		8,915		10,139		24,078		23,973		22,633								32,838		32,888		32,772
Retirement benefits and other liabilities		3,182		4,239		5,325		109		107		106		(2)		(2)		(57)		3,289		4,344		5,374	9
Total liabilities		23,595		26,309		25,060		44,765		46,033		43,033		(6,554)		(6,662)		(6,699)		61,806		65,680		61,394

Commitments and contingencies (Note 16)

Stockholders’ Equity
Total Deere & Company stockholders’ equity		17,804		18,431		14,083		5,734		5,591		5,345		(5,734)		(5,591)		(5,345)		17,804		18,431		14,083	11
Noncontrolling interests		4		3		3														4		3		3
Financial Services’ equity		(5,734)		(5,591)		(5,345)								5,734		5,591		5,345							11
Adjusted total stockholders’ equity		12,074		12,843		8,741		5,734		5,591		5,345								17,808		18,434		14,086
Total Liabilities and Stockholders’ Equity	$	35,669	$	39,152	$	33,801	$	50,499	$	51,624	$	48,378	$	(6,554)	$	(6,662)	$	(6,699)	$	79,614	$	84,114	$	75,480

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

8 Primarily 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)
STATEMENTS OF CASH FLOWS
For the Three Months Ended January 30, 2022 and January 31, 2021
(In millions of dollars) Unaudited
	EQUIPMENT				FINANCIAL
	OPERATIONS1				SERVICES				ELIMINATIONS				CONSOLIDATED
	2022		2021		2022		2021		2022		2021		2022		2021
Cash Flows from Operating Activities
Net income	$	673	$	1,020	$	231	$	204					$	904	$	1,224
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision (credit) for credit losses		(2)		(2)		2		(3)								(5)
Provision for depreciation and amortization		257		279		266		294	$	(37)	$	(35)		486		538	12
Impairment charges				50												50
Share-based compensation expense										18		15		18		15	13
Undistributed earnings of unconsolidated affiliates		42		154		(2)		(1)		(42)		(135)		(2)		18	14
Provision (credit) for deferred income taxes		223		(27)		(13)		(11)						210		(38)
Changes in assets and liabilities:
Trade, notes, and financing receivables related to sales		158		156						(264)		(253)		(106)		(97)	15, 17, 18
Inventories		(1,277)		(842)						(20)		(84)		(1,297)		(926)	16
Accounts payable and accrued expenses		(1,346)		(529)		(66)		(53)		(142)		(123)		(1,554)		(705)	17
Accrued income taxes payable/receivable		(192)		173		8		(43)						(184)		130
Retirement benefits		(1,012)		(16)		2		2						(1,010)		(14)
Other		(12)		(68)		(17)		31		11		(10)		(18)		(47)	12, 13, 16
Net cash provided by (used for) operating activities		(2,488)		348		411		420		(476)		(625)		(2,553)		143

Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)						6,845		6,416		(410)		(417)		6,435		5,999	15
Proceeds from maturities and sales of marketable securities						21		20						21		20
Proceeds from sales of equipment on operating leases						479		460						479		460
Cost of receivables acquired (excluding receivables related to sales)						(5,719)		(5,559)		116		259		(5,603)		(5,300)	15
Acquisitions of businesses, net of cash acquired		(24)		(19)										(24)		(19)
Purchases of marketable securities						(48)		(39)						(48)		(39)
Purchases of property and equipment		(193)		(154)										(193)		(154)
Cost of equipment on operating leases acquired						(419)		(408)		28		114		(391)		(294)	16
Increase in trade and wholesale receivables						(684)		(523)		684		523					15
Collateral on derivatives – net		4				(17)		(88)						(13)		(88)
Other		(22)		(8)		(9)		(9)		16		11		(15)		(6)	18
Net cash provided by (used for) investing activities		(235)		(181)		449		270		434		490		648		579

Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings		123		(20)		(1,141)		(675)						(1,018)		(695)
Change in intercompany receivables/payables		150		264		(150)		(264)
Proceeds from long-term borrowings		18				2,335		1,757						2,353		1,757
Payments of long-term borrowings		(124)		(20)		(1,816)		(1,421)						(1,940)		(1,441)
Proceeds from issuance of common stock		11		71										11		71
Repurchases of common stock		(623)		(352)										(623)		(352)
Dividends paid		(327)		(242)		(42)		(135)		42		135		(327)		(242)	14
Other		(22)		(22)		(11)		(9)						(33)		(31)
Net cash used for financing activities		(794)		(321)		(825)		(747)		42		135		(1,577)		(933)

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash		(75)		83		1		20						(74)		103

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash		(3,592)		(71)		36		(37)						(3,556)		(108)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period		7,200		6,156		925		1,016						8,125		7,172
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	3,608	$	6,085	$	961	$	979					$	4,569	$	7,064

12 Elimination of depreciation on leases related to inventory transferred to equipment on operating leases (see Note 3).

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.

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

16 Reclassification of direct lease agreements with retail customers.

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

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

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