Deere & Co. 10-Q 2022-07-31

Cover and table of contents

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 July 31, 2022

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
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 July 31, 2022, 301,819,630 shares of common stock, $1 par value, of the registrant were outstanding.

PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY
STATEMENTS OF CONSOLIDATED INCOME
For the Three and Nine Months Ended July 31, 2022 and August 1, 2021
(In millions of dollars and shares except per share amounts) Unaudited
	Three Months Ended				Nine Months Ended
	2022		2021		2022		2021
Net Sales and Revenues
Net sales	$	13,000	$	10,413	$	33,565	$	29,461
Finance and interest income		846		825		2,441		2,468
Other income		256		289		1,035		768
Total		14,102		11,527		37,041		32,697

Costs and Expenses
Cost of sales		9,511		7,574		25,124		21,307
Research and development expenses		481		394		1,336		1,137
Selling, administrative and general expenses		959		841		2,672		2,448
Interest expense		296		244		713		783
Other operating expenses		316		324		954		1,033
Total		11,563		9,377		30,799		26,708

Income of Consolidated Group before Income Taxes		2,539		2,150		6,242		5,989
Provision for income taxes		654		491		1,364		1,328

Income of Consolidated Group		1,885		1,659		4,878		4,661
Equity in income of unconsolidated affiliates				8		8		21

Net Income		1,885		1,667		4,886		4,682
Less: Net income attributable to noncontrolling interests		1				1		2
Net Income Attributable to Deere & Company	$	1,884	$	1,667	$	4,885	$	4,680

Per Share Data
Basic	$	6.20	$	5.36	$	15.97	$	14.98
Diluted	$	6.16	$	5.32	$	15.88	$	14.86
Dividends declared	$	1.13	$	.90	$	3.23	$	2.56
Dividends paid	$	1.05	$	.90	$	3.15	$	2.42

Average Shares Outstanding
Basic		304.1		311.0		305.8		312.4
Diluted		305.7		313.4		307.7		314.9

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
For the Three and Nine Months Ended July 31, 2022 and August 1, 2021
(In millions of dollars) Unaudited
	Three Months Ended				Nine Months Ended
	2022		2021		2022		2021

Net Income	$	1,885	$	1,667	$	4,886	$	4,682

Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		79		54		(137)		208
Cumulative translation adjustment		(269)		(114)		(784)		319
Unrealized gain (loss) on derivatives		(1)		1		41		8
Unrealized gain (loss) on debt securities		6		8		(57)		(7)
Other Comprehensive Income (Loss), Net of Income Taxes

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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 generates net sales primarily from the sale of equipment to John Deere dealers and distributors. The Company manufactures and distributes a full line of agricultural equipment; a variety of commercial and consumer equipment; and a broad range of equipment for construction, roadbuilding, and forestry. These operations are managed through the production and precision agriculture, small agriculture and turf, and construction and forestry operating segments. The Company’s financial services segment primarily provides credit services, which mainly finance sales and leases of equipment by John Deere dealers.

Trends and Economic Conditions for Fiscal Year 2022

Industry sales of large agricultural machinery in the U.S. and Canada are expected to be up about 15 percent. Industry sales of small agriculture and turf equipment in the U.S. and Canada are expected to be flat. Industry sales of agricultural machinery in Europe are forecast to be flat. In South America, industry sales of tractors and combines are projected to be up about 10 to 15 percent. Asia industry sales of agricultural machinery are forecast to be down moderately. Construction equipment industry sales in the U.S. and Canada are expected to increase about 10 percent, while compact construction equipment industry sales in the U.S. and Canada are anticipated to be flat to down 5 percent. Forestry global industry equipment sales are expected to be flat to down 5 percent. Global roadbuilding equipment industry sales are forecasted to be flat to up 5 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, less-favorable financing spreads, and higher selling, administrative, and general 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, inflationary pressures, the ongoing pandemic, capital market disruptions, changes in demand and pricing for new and used equipment, and the other items discussed in the “Forward-Looking Statements” below. Significant fluctuations in foreign currency exchange rates, volatility in the prices of many commodities, and supply chain disruptions could also impact the Company’s results.

The Company’s third quarter results reflect increased factory output and shipments to customers while supply chain pressures endure. Also during the third quarter, the Company experienced higher costs and production inefficiencies from these supply chain pressures. The Company is confident favorable conditions will continue into fiscal year 2023 based on strong underlying fundamentals and customer responses to early-order programs. The Company’s factories and suppliers are also preparing for higher levels of customer demand in 2023. Additionally, the Company believes the smart industrial operating model and recently announced leap ambitions will create value for customers through the Company’s advanced technologies and solutions.

Impact of Events in Russia / Ukraine

The events in Russia / Ukraine have impacted the safety, welfare, and well-being of the Company’s employees in the region. The Company’s top priority is to support and maintain close communication with its affected teams, providing necessary resources when possible. The Company has suspended shipments of machines and service parts to Russia. These events are impacting business continuity, liquidity, and asset values for the Company’s operations in Russia / Ukraine (see Note 20).

2022 Compared with 2021


	Three Months Ended					Nine Months Ended
Deere & Company	July 31		August 1		%	July 31		August 1		%
(In millions of dollars, except per share amounts)	2022		2021		Change	2022		2021		Change
Net sales and revenues	$	14,102	$	11,527	+22	$	37,041	$	32,697	+13
Net income attributable to Deere & Company		1,884		1,667	+13		4,885		4,680	+4
Diluted earnings per share		6.16		5.32			15.88		14.86

Results for the third quarter and year-to-date periods of 2022 and 2021 were impacted by special items. More information on these special items is provided in Note 20. The discussion on Net sales and operating profit is included in the Business Segment Results below.


	Three Months Ended					Nine Months Ended
Deere & Company	July 31		August 1		%	July 31		August 1		%
(In millions of dollars)	2022		2021		Change	2022		2021		Change
Cost of sales to net sales		73.2%		72.7%			74.9%		72.3%

Other income	$	256	$	289	-11	$	1,035	$	768	+35
Research and development expenses		481		394	+22		1,336		1,137	+18
Selling, administrative and general expenses		959		841	+14		2,672		2,448	+9
Other operating expenses		316		324	-2		954		1,033	-8
Provision for income taxes		654		491	+33		1,364		1,328	+3

The cost of sales to net sales ratio increased in the third quarter and the first nine months of fiscal 2022 primarily due to higher production costs partially offset by price realization. Other income decreased in the third quarter due to a prior period gain on sale of a closed factory in China. Other income increased in the first nine months due to a non-cash gain on the remeasurement of the previously held equity investment in the Deere-Hitachi joint venture. Research and development expenses were higher for both periods due to continued focus on developing and incorporating technology solutions. Selling, administrative, and general expenses increased in the third quarter and the first nine months primarily due to a higher provision for credit losses, including higher reserves due to the events in Russia / Ukraine, as well as a higher merit pay increase due to inflationary conditions. Other operating expenses decreased in the third quarter and the first nine months primarily due to lower depreciation of equipment on operating leases, while lower retirement benefit costs impacted the first nine months. The provision for income taxes increased in the third quarter due to higher pretax income and unfavorable discrete income-tax adjustments.

Business Segment Results


	Three Months Ended			Nine Months Ended
Production and Precision Agriculture	July 31	August 1	%	July 31	August 1	%
(In millions of dollars)	2022	2021	Change	2022	2021	Chang

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4. CONTROLS AND PROCEDURES

The Company’s principal executive officer and its principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) were effective as of July 31, 2022, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act. During the third quarter of 2022, there were no changes that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

See the Company’s most recently filed Annual Report on Form 10-K (Part I, Item 1A). There has been no material change in this information. The risks described in the Annual Report on Form 10-K, and the “Forward-Looking Statements” in this report, are not the only risks faced by the Company. Additional risks and uncertainties may also materially affect the Company’s business, financial condition, or operating results. One should not consider the risk factors to be a complete discussion of risks, uncertainties, and assumptions.

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

Issuer Purchases of Equity Securities

The Company’s purchases of its common stock during the third quarter of 2022 were as follows:


				Total Number of
				Shares Purchased as	Maximum Number of
	Total Number of			Part of Publicly	Shares that May Yet Be
	Shares			Announced Plans or	Purchased under the
	Purchased	Average Price		Programs (1)	Plans or Programs (1)
Period	(thousands)	Paid Per Share		(thousands)	(millions)
May 2 to May 29	611	$	360.10	611	12.8
May 30 to Jun 26	1,309		337.72	1,309	11.5
Jun 27 to Jul 31	1,933		304.62	1,933	9.8
Total	3,853			3,853

	(1)	The Company has a share repurchase plan that was announced in December 2019 to purchase up to $8,000 million of shares of the Company’s common stock. The maximum number of shares that may yet be purchased under this plan was based on the end of the third quarter closing share price of $343.18 per share. At the end of the third quarter of 2022, $3,348 million of common stock remained to be purchased under the plan.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

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



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

3.2	Bylaws, as amended (Exhibit 3.1 to Form 8-K of registrant filed on December 3, 2020, Securities and Exchange Commission File Number 1-4121*)

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

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

32	Section 1350 Certifications (furnished herewith)

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Incorporated by reference.

SIGNATURES

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


		DEERE & COMPANY


Date:	September 1, 2022	By:	/s/ Rajesh Kalathur
			Rajesh Kalathur President, John Deere Financial and Chief Financial Officer (Principal Financial Officer)