FCC Deere & Company Financial Ratio Calculations for The Years Ended October Report

Part 1: Complete using MS Excel & Word (You can create in Google Docs and GoogleSheets, then save it as an MS Word doc for Google Docs and an Excel sheet from Google Sheets tosubmit)In this part, you will begin analyzing your company’s financial statements. You will begin bypreparing horizontal (comparative statements) and vertical (common-size statements) analyses. In thethird part, you will be preparing ratio analysis. There are three parts to this part. The first two parts are to be completed using Microsoft Excel. If youare not familiar with Excel or you need a refresher, go to

http://www.usd.edu/trio/tut/excel

for a tutorial.Be sure to use Excel formulas in the cells where you are making computations. Typing computationalresults in the cells is not acceptable and will result in zero points. If any component ismissing it will result in automatic point deductions.The third part is to be completed using Microsoft Word. Bullet statements, outlines, and so forth are notacceptable and will result in zero points. Be sure that you use good grammar, sentence structure, etc.Also make sure that your writing is businesslike and professional. Your answers should be clear, concise,and complete. Lastly, make sure that your answers are your own. Plagiarism will result in zero points(see

http://www.georgetown.edu/honor/plagiarism.html

for information). If you need help with yourwriting, visit the English Writing Center (

http://www.grossmont.net/tutoring/ewc.asp

).I. Using Excel, prepare comparative financial statements (Balance Sheet and Income Statement)for the two most recent years. Round amounts to the nearest one-tenth of a percent. Thissection is worth ten points.

II.Using Excel, prepare common-size statements (Balance Sheet and Income Statement) for the two most recent years. This section is worth ten points.

Part 2: Complete using MS Excel (You can create in Google Sheets and then save as an Excelsheet to submit)In ARP part #1, you prepared horizontal and vertical analysis. In this part, you will prepare ratioanalysis. Calculate the following using Excel. If you are not familiar with Excel or you needa refresher, go to http://www.usd.edu/trio/tut/excel for a tutorial. Be sure to use Excel formulas in thecells where you are making computations. Typing computational results in the cells is not acceptable andwill result in zero points. Failure to do so will be an automatic deduction of ten points. This part is worth twenty points.Liquidity and Efficiency – ALL RATIOS are in Chapter 13 in your textbook (IF YOU NEED ACCESS TO THESE PAGES, PLEASE LET ME KNOW. BUT MOST FORMULAS CAN BE FOUND ONLINE)a. Current ratiob. Acid-test ratioc. Accounts receivable turnoverd. Inventory turnovere. Days’ sales uncollectedf. Days’ sales in inventoryg. Total asset turnoverSOLVENCYa. Debt ratiob. Equity ratioc. Debt-to-equity ratiod. Times interest earnedProfitabilitya. Profit margin ratiob. Gross margin ratioc. Return on total assetsd. Return on common stockholders’ equitye. Book value per common sharef. Basic earnings per share Market Prospects

a. Price-earnings ratio

b. Dividend yield

2021
Annual Report
John Deere delivered exceptional results in fiscal year 2021.
Strong market conditions and healthy demand for our products drove
higher sales and profits. Despite ongoing pandemic and supply chain
challenges, our employees and dealers around the world kept each other
safe, our factories open, and our customers running.
Net sales and revenues rose 24 percent to $44.02 billion. Net income
for the year more than doubled to $5.96 billion. Deere also delivered
outstanding returns to investors.
$44,024
NET SALES & REVENUES
$39,258
$35,540
$44.02
BILLION
2021
2020
2019
$5,963
NET INCOME
(attributable to Deere & Company)
$5.96
$3,253
$2,751
BILLION
2021
2020
2019**
$5,128
SHAREHOLDER
VALUE ADDED*
$5.13
$1,679
$1,641
BILLION
2021
2020
2019
The amounts shown in the charts above represent millions of dollars.
*SVA, referred to throughout this report, is a non-GAAP financial measure. See page 16, and related footnotes, for further details.
**Net income in 2019 was positively affected by $68 million due to discrete income tax adjustments related to U.S. tax reform.
2
On the cover:
9RX Tractors are the perfect combination of power, performance, and
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CHAIRMAN & CEO LETTER
STRONG MARKETS,
SOUND STRATEGY
PACE RECORD YEAR
In any number of ways, 2021 was a year of dramatic
achievement. It was a year in which John Deere reported
outstanding financial results while facing major supply-chain
issues and the lingering effects of a global pandemic.
Among our accomplishments, we kept our operations
running, employees safe, and customers served. We added
to our innovative product line by introducing new models
featuring the latest technology and advanced features.
The business model launched in 2020 yielded impressive
results. And we made further investments to help our
operations be more profitable, more focused,
and more sustainable.
Demand for products of most types and sizes, across virtually
all businesses and regions, was at its strongest level in many
years. Sales and earnings were the highest in company
history, and profitability in relation to sales was the best in
modern times.
Net income for fiscal 2021 rose to $5.96 billion, versus
$2.75 billion in the prior year. Net sales and revenues rose
24 percent to $44.02 billion. The company’s financial
performance allowed it to make further investments
in advanced products, technologies, and growthoriented projects. For the year, Deere devoted $2.5 billion to
research and development and capital expenditures.
Additionally,$3.6 billion was returned to investors through
dividends and share repurchases. The quarterly dividend rate
on Deere stock was increased twice during the year by a total
of 38 percent, while shareholders realized a total return of 53
percent on their investment.
Chairman and
CEO John May
Late in the year, Deere’s UAW-represented employees
went on strike, affecting operations at many U.S. factories.
The five-week work stoppage was resolved with ratification
of a contract that we believe serves the interests of all
parties. Other operations, including all those outside the
U.S., were not significantly affected and critical customer
needs continued to be met.
Unless indicated otherwise, all capitalized names of products and services
are trademarks or service marks of Deere & Company.
3
CHAIRMAN & CEO LETTER
DIVISION PERFORMANCE MOVES HIGHER
A reflection of healthy markets and the broad appeal of
John Deere products, sales for all three of our equipment
divisions jumped by 27 percent.
Operating profit for our largest business – Production &
Precision Agriculture – rose 69 percent to $3.33 billion.
The division benefited from the success of new products
such as large tractors, sprayers, and combines.
Customers continued to respond positively to products
featuring the latest in high-value precision technologies.
Profit for Small Agriculture & Turf more than
doubled to $2.05 billion, also reflecting positive
consumer sentiment and the success of new
products. Notably, Small Ag & Turf
had the highest return on assets
of any Deere business.
4
Construction & Forestry operations established new
highs in sales and profit, benefiting from vibrant
markets for earthmoving, forestry, and roadbuilding
equipment. Helping the division were higher sales
of utility and production loaders, dump trucks,
and compact equipment.
Deere’s financial-services unit made a substantial
contribution to company earnings with net income
rising 56 percent to $881 million. Roughly half of the
new equipment sold by our dealers in 2021 was financed
by the company. Credit quality remained strong, and
the loan and lease portfolio finished the year near
$50 billion.
6R Series tractors have set standards
for performance and precision ag
technology. The new generation
of 6R Series tractors features 14
models ranging from 110 to 250 hp.
SKILLFULLY MANAGING YEAR’S CHALLENGES
In the face of the ongoing threat of the coronavirus pandemic,
Deere employees continued their efforts to make sure our
factories and parts centers kept running and our dealers and
customers got the products and services needed to maintain
their operations. Within our facilities, we continued with the
decisive steps initiated in 2020 to ensure healthful conditions.
Many employees assigned to office locations continued
working remotely.
Although a shortage of parts and components was a persistent
issue, we worked closely with suppliers to keep our production
lines moving and avoid widespread factory interruptions.
At the same time, our dealer channel remained operational and
continued to serve customers, making wide use of our digital
tools. Remote diagnostic sessions between customers and dealers
increased more than 35 percent.
The new CH9 Series sugar cane harvester boosts productivity
by harvesting two rows of cane simultaneously.
STRATEGY MAKING IMPACT
Based on Deere’s performance over the past year and momentum
being built for the future, it’s clear our smart industrial strategy
is off to a strong start and working as designed. Not only has our
company achieved higher profit and profitability based in large
part on changes driven by the new strategy, we also gained
customers and made further technological breakthroughs.
As the strategy’s centerpiece, operations were reorganized
by production systems rather than by discrete products and
regions. This is helping us gain a richer understanding of how
our customers work. We also combined our technology resources
under a chief technology officer, adding speed and efficiency
to the development of innovations and products. Our focus on
lifecycle solutions led to higher parts sales – which increased to
$7.8 billion – and is keeping customers connected with their
To ensure Deere remains an employer of choice, the company
announced enhancements in compensation, benefits, and work
arrangements taking effect in 2022 for salaried personnel.
What’s more, the collective-bargaining agreement approved by
our UAW-represented employees is widely viewed as setting
a new standard for wage roles in our industries.
New 9500 and 9600 self-propelled forage harvesters feature
a powerful HarvestMotion 18.0L engine that improves the
harvesting process and forage quality.
New Z500 Series ZTrak mowers put a new spin on cutting grass.
The mowers offer innovative roll-over protection and improved
comfort and styling, as well as increased performance.
5
CHAIRMAN & CEO LETTER
dealers. Further, by lowering structural costs, the smart
industrial redesign process has had a major impact on profit
margins, which shot to 17 percent (operating profit/net sales)
last year.
During the year, Deere made a number of investments in
support of its strategy. Included was the purchase of a
technology startup that specializes in adding autonomous
features to existing machines and an investment in a new
company dedicated to clean-engine technology. Deere also
acquired a company whose advanced software helps farmers
measure profit at the field level.
In another strategic action, the company announced the end
of its 30-year joint venture with Hitachi for the manufacture
of hydraulic excavators. As a result, Deere will take full
ownership of factories in the U.S. (North Carolina), Brazil,
and Canada. The move is expected to strengthen Deere’s
position in the excavator market and improve the financial
performance of that part of our business.
In the coming year, the company plans to build on the
smart industrial strategy by putting more focus on vehicle
automation and autonomy, electrification, connectivity,
and sustainability.
SETTING PACE IN INNOVATION
A Deere hallmark, product innovation made further strides
in 2021 and earned additional recognition. A noted group
of U.S. agricultural and biological engineers honored
six products for their innovative design including our
See & Spray Select advanced spraying technology changes the game in
application with its introduction on R400 and 600 Series sprayers. This
spraying technology helps farmers minimize input costs by spraying only
weeds when they are detected, applying up to 70% less herbicide on average.
6
The new AutoPath precision ag application is helping farmers
more accurately document and follow the right path
throughout the season.
high-capacity X9 combine, new two-row sugar cane
harvester, and an intelligent liquid-fertilizer system that
cuts down on chemical use. In addition, the John Deere X9
combine was recognized in the robotics category at the
2021 Consumer Electronics Show and saluted for innovative
design by two leading international design firms.
During the year, Deere introduced two new self-propelled
forage harvesters, powered by a new 18-liter John Deere
engine. Other products making their debut included a line of
more productive, fuel-efficient cotton harvesters, updated
midsize and four-wheel-drive tractors, and a series of zeroturn commercial mowers that highlighted the company’s
25th anniversary of offering zero-turn products.
Precision agriculture made further strides as more customers
embraced its productivity-enhancing benefits. Sales grew
for popular features that guide machines in the field and
plant seeds and apply chemicals with exceptional accuracy.
The first sprayers using camera technology to distinguish
weeds from fallow ground came to market, resulting in far
less herbicide consumption. The John Deere Operations Center
gained further popularity with customers, ending the year
with more than 300 million acres of production
data worldwide.
During the year, precision-technology features were
added to compact track loaders and excavators, allowing
operators to complete jobs with greater speed and precision.
Also, enhancements were made to the company’s largest
dozers that improve durability and performance. The Wirtgen
roadbuilding unit launched new crushers.
RESPONSIBLE CITIZENSHIP A DEERE TRADITION
Wherever we operate, Deere is dedicated to sharing
with others and being a responsible corporate citizen.
Charitable contributions from the company and its
foundation reached $42.5 million in 2021, a 16-percent
increase over the prior year. Significant donations were
made to groups that promote youth leadership and career
success through agricultural education, strengthen support
of black farmers, and expand sustainable agricultural
practices in Brazil.
The Deere Foundation announced plans to invest $200
million over the next decade in initiatives supporting the
company’s values and higher purpose, with approximately
half of that amount directed to families and youth in Deere’s
home communities. Deere typically supplements foundation
giving and is committed to making charitable contributions
equal to one percent of net income over time.
As in past years, Deere employees supported their
communities through extensive volunteer efforts,
logging some 124,000 volunteer hours in 2021, a slight
increase over the prior year.
Several developments highlighted our commitment to a
fairer, more equitable society and diversity and inclusion.
Among them, Deere continued its support of the LEAP
coalition, a group that primarily helps black farmers secure
clear title to their land. LEAP has received wide public
recognition and is one of the company’s highest-profile efforts
in support of racial equity. In another example, Deere issued
$600 million of debt in a transaction managed by minority,
female, and veteran-owned firms. It is believed to be only the
second time a U.S. company has used diverse underwriters
exclusively on a corporate bond sale.
Wirtgen Group machines deliver a complete end-to-end roadbuilding solution.
As part of a paving “train,” these machines – Wirtgen CR-series cold recycler,
Vögele asphalt paver and Hamm roller – are capable of in-place cold recycling
of road pavements in a single pass. This process cuts down on the amount of
material used and transported, lowering CO² emissions, and contributes to
reduced costs and construction times.
7
CHAIRMAN & CEO LETTER
The 333 SmartGrade compact track loader is the first compact
machine to feature fully integrated 3D grade-control technology.
It touts more power and increased lift height, reach, stability,
and breakout force – for more productivity and uptime, at a
lower operating cost.
Deere earned further accolades in 2021 for its record of
responsible citizenship. Fast Company magazine recognized
Deere’s work with small farmers with an award for corporate
social responsibility. For a fourth time, Deere was honored for
social innovation by the American Innovation Index Awards,
which focuses on corporate activities and products benefiting
society. Deere also appeared in prominent listings of best
employers, won recognition for having one of the world’s
most valuable brands, and was cited for a 14th time for its
commitment to advancing business integrity.
EMBRACING A PROMISING FUTURE
Looking ahead, we believe 2022 holds a great deal of promise.
Agricultural fundamentals are positive, customer confidence
is running high, and infrastructure spending is set to rise.
These factors are fueling further optimism in the agricultural
and construction sectors. Deere’s performance also should
benefit from a more efficient organizational structure and
more-focused business lineup. At the same time, supplychain pressures are expected to remain a challenge and the
coronavirus is becoming a chronic issue.
All in all, my optimism about Deere’s future has never burned
brighter. We’re part of a great company that does great
things. Market conditions rarely have been better, and our
product lineup has never been stronger. What’s more, we have
8
a winning formula in the smart industrial strategy. By taking
our performance to new levels, it means great things for our
customers, employees, investors, and others who have a stake
in our well-being. And these benefits are likely to extend many
years into the future.
As a final word, we pay tribute to our more than 75,000
employees and others throughout the world whose efforts
made 2021 such a successful year. To them all, we express
heartfelt thanks.
On behalf of the John Deere team,
Chairman & Chief Executive Officer
December 16, 2021
THE POWER OF ENGAGED ACRES
Customers utilize Deere’s precision ag digital tools in record numbers
Brock Kent is navigating his Deere R4044 sprayer across
the rows of field corn situated on the rolling hills of his
northern Illinois farm.
He turns on the new AutoPath feature on his 4600
CommandCenter display that is connected to his John Deere
Operations Center account, and the sprayer glides across
the field, seamlessly following guidance lines created
from a map of crop row lines generated at planting.
The guidance lines help streamline all in-field passes
such as spraying, nutrient application, and harvesting.
Customers who engage with the Operations Center
can visualize the outcomes of their decisions and track
progress over time. They can access information anytime,
anywhere, and share it with advisors such as seed or
fertilizer suppliers. This can lead to better decisions –
and potentially more profitable, sustainable, and
efficient production.
“What I’m most excited about is that while we’ve been
working on our precision ag suite of products for well
over 20 years, we’re just scratching the surface of what
is possible,” says Deanna Kovar, Deere’s vice president of
Production and Precision Ag, about the company’s goal of
boosting customers’ productivity through precision
ag technologies.
Like Kent, thousands of farmers around the world tapped
into the benefits of John Deere’s digital precision ag
tools, like AutoPath, in 2021. During the year, customers
engaged with a record 315 million acres globally using the
Operations Center – Deere’s digital farm-management tool. “We continue to drive amazing value for our customers,
our company, and the industry as we create a digital
Engaged acres is one of the foundational measures
ag platform, connected to hundreds of thousands of
of customers’ use of the Operations Center. It reflects
machines, that helps farmers all over the world farm
the number of unique acres with at least one operation
even better,” Kovar adds.
pass documented in the Operations Center in the past
12 months.
During the year, customers engaged
with a record 315 million acres globally
using the John Deere Operations Center —
Deere’s digital farm-management tool.
9
JOHN DEERE TODAY
100+
For more than 180 years, John Deere has led the way in developing innovative
solutions to help our customers become more efficient and sustainable.
Today, our team of 75,600 global employees use their creativity each day
to solve some of the world’s biggest problems.
LOCATIONS GLOBALLY
CONSTRUCTION
& FORESTRY
75,600
FULL-TIME EMPLOYEES
48%
29%
S A L E S BY
S EG M E NT
30%
ASIA, AFRICA, AUSTRALIA,
NEW ZEALAND & MIDDLE EAST
11%
LATIN AMERICA
FORTUNE 100 COMPANIES
10
41%
SMALL AG & TURF
CONSOLIDATED NET SALES
AND REVENUES OUTSIDE
THE UNITED STATES
#88
PRODUCTION &
PRECISION AG
10%
EUROPE & CIS
22%
S A L E S BY
MA JOR
M A RK E TS
U.S. & CANADA
57%
BOLD BUSINESS REQUIRES BOLD CITIZENSHIP
John Deere’s legacy of developing innovative products and
solutions for our customers is inextricably tied to the vitality
of our local and global communities. To that end, we believe
that a bold business strategy must work in cooperation with
a bold citizenship strategy. By investing in our communities,
we aim to help lives leap forward.
Further, the John Deere Foundation is committing at least
$200 million over the next 10 years to advance the lives and
livelihoods of three main groups of stakeholders:
SMALLHOLDER OR RESOURCE-CONSTRAINED FARMERS
We’ll invest $50 million in smallholder farmers throughout
the world to bolster their capacity to earn a living, feed a
growing population, reduce inequality, and protect the world
around us. The positive impact that farmers can make on
the world around them is on full display in the foundation’s
project with PYXERA Global in Nigeria, Rayuwa. The project
was selected for Fast Company’s World Changing Ideas
Award in the category of Social Responsibility in May 2021.
YOUTH AND FAMILY IN HOME COMMUNITIES
We’ll invest another $100 million in the families and youth
who live, work, and learn in John Deere’s home communities
to ensure inclusive and equitable access to resources and
educational opportunities critical for human dignity and
self-sufficiency. For example, in 2021, the foundation
increased access to safe and affordable housing in Waterloo,
Iowa, through a $2 million grant to Iowa Heartland Habitat
for Humanity®. To address food insecurity, the foundation
committed $1.7 million to River Bend Food Bank in the
Quad-Cities area, the equivalent of 8.5 million meals.
OUR EMPLOYEES
Finally, we’ll invest another $50 million in John Deere’s
extraordinary workforce to further mobilize and build on
their enormous volunteer talents and generosity. We believe
that by actively engaging in citizenship, our employees can
strengthen their communities and improve lives around the
world. In fact, in 2021, the foundation provided more than
$4.7 million to match employee volunteerism and giving.
In 2021, the John Deere Foundation contributed nearly
$20 million across all three groups of stakeholders to help
life leap forward.
John Deere and its foundation made
$42.5 million in total civic investments
in fiscal year 2021, up from $36.7 million
in 2020.
11
BUSINESS HIGHLIGHTS
2021 AWARDS AND RECOGNITIONS
333G SMARTGRADE COMPACT TRACK LOADER
Heavy Equipment Guide magazine selects the 333G SmartGrade
Compact Track Loader as part of its Top Introductions for
construction equipment and technology innovations.
$5.96B
Net income more than doubles
to $5.96 billion, versus $2.75
in 2020.
X9 COMBINE
The X9 Combine earns an innovation award (robotics
category) from the 2021 Consumer Electronics Show. The X9
also receives design awards from the iF World Design Guide
and Red Dot Design competitions.
$5.13B
Enterprise SVA increases 205%
to $5.13 billion, up from $1.68
billion in 2020.*
WORLD’S MOST ETHICAL COMPANIES
Ethisphere Institute names Deere & Company one of the 2021
World’s Most Ethical Companies. This honor is reserved for a
select number of companies with a commitment to advancing
business integrity.
$3.6B
MOST ADMIRED COMPANIES
Fortune magazine recognizes John Deere on its Most
Admired Companies list as the #1 company in the category
of Construction and Farm Machinery.
HONORING DIVERSE DIRECTORS
Two Deere board members and a company executive were
listed in Savoy magazine’s Most Influential Black Corporate
Directors for 2021. Recognized were Deere directors
Sheila Talton and Dmitri Stockton as well as Marc Howze,
Deere’s Group President, Lifecycle Solutions and Chief
Administrative Officer.
SOCIAL RESPONSIBILITY AWARD
Deere is selected as a winner of Fast Company’s World
Changing Ideas Awards in the category of social
responsibility for its work with Nigerian farmers through
the Rayuwa project.
INVESTING IN TECHNOLOGY
Strategic investments include the purchase of Bear Flag
Robotics, a technology startup that specializes in adding
autonomous features to existing machines. Also, Deere
invests in ClearFlame Engine Technologies, dedicated to
the development of clean-engine technology, and acquires
Harvest Profit, whose advanced software helps farmers
measure profit at the field level.
AE50 AWARDS FOR INNOVATION
American Society of Agricultural and Biological Engineers
(ASABE) recognizes Deere for innovation in engineering and
technology with six awards for products, ranging from CH950
Cane Harvester to a new Folding Cornhead.
12
NET INCOME
SVA
DIVIDENDS &
REPURCHASES
Company returns $3.6 billion to
investors through dividends and
share repurchases.
OPERATING PROFIT AND
SHAREHOLDER VALUE ADDED (SVA)*
EQUIPMENT OPERATIONS
Operating Profit
SVA
2021
$6,868
$4,703
2020
$3,559
$1,606
2019
$3,721
$1,604
PRODUCTION & PRECISION AG
Operating Profit
SVA
2021
$3,334
$2,456
2020
$1,969
$1,140
2019
$1,729
$891
SMALL AG & TURF
Operating Profit
SVA
2021
$2,045
$1,559
2020
$1,000
$522
2019
$777
$261
CONSTRUCTION & FORESTRY
Operating Profit
SVA
2021
$1,489
$688
2020
$590
$(56)
2019
$1,215
$452
FINANCIAL SERVICES
2021
2020
2019
Operating Profit
SVA
$1,144
$425
$746
$73
$694
$37
The amounts shown above are presented in millions of dollars.
*SVA, referred to throughout this report, is a non-GAAP financial measure.
See page 16 for details.
Deere leadership team shown at Deere & Company headquarters in Moline, Illinois.
From left: Cory J. Reed, Markwart von Pentz, Jahmy J. Hindman, John C. May, Marc A. Howze,
John H. Stone, Ryan D. Campbell, Mary K.W. Jones, and Rajesh Kalathur
SENIOR LEADERSHIP
Mary K.W. Jones (24)
John H. Stone (18)
Senior Vice President, General Counsel and Worldwide
Public Affairs
President, Worldwide Construction & Forestry and
Power Systems
Senior Vice President and Chief Financial Officer
Rajesh Kalathur (25)
Markwart von Pentz (31)
Jahmy J. Hindman (25)
President, John Deere Financial, and Chief
Information Officer
President, Worldwide Agriculture & Turf Division,
Small Ag & Turf, Sales & Marketing Regions of Europe,
CIS, Asia and Africa
John C. May (24)
Chairman & Chief Executive Officer
Ryan D. Campbell (14)
Chief Technology Officer
Cory J. Reed (23)
Marc A. Howze (20)
Group President, Lifecycle Solutions & Chief
Administrative Officer
President, Worldwide Agriculture & Turf Division,
Production & Precision Ag, Sales & Marketing Regions
of the Americas and Australia
Titles and years of service (in parentheses)
as of January 1, 2022
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B OA R D O F D I R E C TO R S
John C. May (2)
Chairman & Chief Executive officer, Deere & Company
Leanne G. Caret (Effective Nov. 1, 2021)
Executive Vice President, The Boeing Company and President and Chief Executive officer,
Boeing Defense, Space & Security (since 2016)
Aircraft, defense, intelligence and satellite systems and services, and related financing
Tamara A. Erwin (1)
Executive Vice President and Group Chief Executive officer, Verizon Business Group
Communications, information and entertainment products and services
Alan C. Heuberger (5)
Senior Investment Manager, Cascade Asset Management Company (formerly BMGI)
Private investment management
Charles O. Holliday, Jr. (12)
Retired Chairman and Chief Executive officer, DuPont, and former Chairman,
Royal Dutch Shell plc
Oil and natural gas exploration, refining, and product sales
Gregory R. Page (8)
Chairman, Corteva, Inc.
Agricultural seeds, crop protection products, and digital solutions
Sherry M. Smith (10)
Former Executive Vice President and Chief Financial officer, SuperValu Inc.
Retail and wholesale grocery and retail general merchandise products
Dmitri L. Stockton (6)
Retired Special Advisor to Chairman and Retired Senior Vice President, General
Electric Company
Power and water, aviation, oil and gas, healthcare, appliances and lighting, energy
management, transportation, and financial services
Former Chairman, President, and Chief Executive officer, GE Asset Management Inc.
Global investments
Sheila G. Talton (6)
President and Chief Executive officer, Gray Matter Analytics
Healthcare analytics for healthcare providers, payers, and pharma companies
Dipak C. Jain (19)
President (Europe), China Europe International Business School
International graduate business school
Michael O. Johanns (6)
Retired U.S. Senator from Nebraska and former U.S. Secretary of Agriculture
Clayton M. Jones (14)
Retired Chairman and Chief Executive officer, Rockwell Collins, Inc.
Aviation electronics and communications
From left to right: Dipak C. Jain, Clayton M. Jones, Charles O. Holliday, Jr., Tamara A. Erwin, John C. May, Gregory R. Page, Sheila G. Talton, Leanne G. Caret,
Alan C. Heuberger, Michael O. Johanns, Sherry M. Smith, Dmitri L. Stockton
Figures in parentheses represent complete years of board service through January 1, 2022.
14
7-YEAR CUMULATIVE TOTAL RETURN
Deere Compared to S&P 500 Index and S&P 500 Construction & Heavy Trucks Index
$500
The graph compares the cumulative
total returns of Deere & Company,
the S&P 500 Construction & Heavy
Trucks Index, and the S&P 500 Stock
Index over a seven-year period.
It assumes $100 was invested on
October 31, 2014, and that dividends
were reinvested. Deere & Company
stock price at October 31, 2021,
was $342.31. The Standard & Poor’s
500 Construction & Heavy Trucks
Index is made up of Caterpillar (CAT),
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$450
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Deere & Company
Deere & Company
2018
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SHAREHOLDER INFORMATION
ANNUAL MEETING
As part of our precautions regarding the coronavirus
and to support the health and well-being of our
shareholders, the 2022 Annual Meeting of
Shareholders (the “Annual Meeting”) will be held
exclusively online on Wednesday, February 23, 2022,
at 10 a.m. Central Standard Time. There will not be a
physical location for the Annual Meeting, and you
will not be able to attend the meeting in person. To
be admitted to the Annual Meeting at www.
virtualshareholdermeeting.com/DE2022, you must
enter the 16-digit control number on your proxy
card, voting instruction form, or Notice of Internet
Availability.
TRANSFER AGENT & REGISTRAR
Send all correspondence, including address changes
and certificates for transfer, as well as inquiries
concerning lost, stolen, or destroyed stock
certificates or dividend checks, to:
Deere & Company
c/o Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
Phone toll-free: 800-268-7369 (inside U.S., U.S.
territories, and Canada).
From outside the U.S., U.S. territories, and Canada,
call: 720-399-2074
Hearing impaired: 855-627-5080
Email: shareholder@broadridge.com
www.shareholder.broadridge.com/DE
DIVIDEND REINVESTMENT
& DIRECT PURCHASE PLAN
Investors may purchase initial Deere & Company
shares and automatically reinvest dividends through
the Broadridge Direct Stock Purchase Plan.
Optional monthly cash investments may be made
automatically through electronic debits.
For inquiries about existing reinvestment accounts,
call 800-268-7369 or write to:
Deere & Company
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
SHAREHOLDER RELATIONS
Deere & Company welcomes your comments:
Deere & Company
Shareholder Relations Department
One John Deere Place
Moline, IL 61265-8098
Phone: (309) 765-4491 Fax: (309) 765-4663
www.JohnDeere.com/Investors
INVESTOR RELATIONS
Securities analysts, portfolio managers, and
representatives of financial institutions may contact:
Deere Investor Relations
Deere & Company
One John Deere Place
Moline, IL 61265-8098
Phone: 309-765-4491
Email: DeereIR@JohnDeere.com
www.JohnDeere.com/Investors
STOCK EXCHANGES
Deere & Company common stock is listed on the
New York Stock Exchange under the ticker symbol DE.
FORM 10-K
The Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available
online or upon written request to Deere & Company
Shareholder Relations.
AUDITORS
Deloitte & Touche LLP
Chicago, Illinois
15
SVA: FOCUSING ON GROWTH AND SUSTAINABLE PERFORMANCE
Shareholder Value Added (SVA) – essentially, the difference between operating profit and the pretax cost of capital – is a metric
used by John Deere to evaluate business results and measure sustainable performance. To arrive at SVA, each equipment segment is
assessed a pretax cost of assets – generally 12% of average identifiable operating assets with inventory at standard cost (believed to
more closely approximate the current cost of inventory and the company’s related investment). The financial services segment is
assessed a cost of average equity – approximately 13% pretax. The amount of SVA is determined by deducting the asset or equity
charge from operating profit.
Additional information on these metrics and their relationship to amounts presented in accordance with U.S. GAAP can be found at our website,
www.JohnDeere.com/Investors. Note: Some totals may vary due to rounding.
EQUIPMENT OPERATIONS
Dollars in Millions
PRODUCTION & PRECISION AGRICULTURE
2021
39737
,
Net Sales
Net Sales – excluding Roadbuilding
Average Identifiable Assets*
With Inventories at LIFO
16,680
With Inventories at LIFO – excluding Roadbuilding
With Inventories at Standard Cost
18,045
With Inventories at Standard Cost – excluding Roadbuilding
Operating Profit
6,868
Operating Profit – excluding Roadbuilding
Percent of Net Sales**
17%
Operating Return on Assets**
With Inventories at LIFO**
41%
With Inventories at Standard Cost**
38%
SVA Cost of Assets**
-2,165
SVA**
4,703
2020
31,272
28,348
16,593
12,599
18,010
14,016
3,559
3,289
12%
26%
24%
-1,683
1,606
SMALL AGRICULTURE & TURF
Dollars in Millions
Net Sales
Average Identifiable Assets*
With Inventories at LIFO
With Inventories at Standard Cost
Operating Profit
Percent of Net Sales
Operating Return on Assets
With Inventories at LIFO
With Inventories at Standard Cost
SVA Cost of Assets
SVA
To create and grow SVA, Deere equipment
operations are targeting an operating
return on average operating assets (OROA)
of 30% at mid-cycle sales volumes and
equally ambitious returns at other points in
the cycle. (For purposes of this calculation,
operating assets are average identifiable
assets during the year with inventories
valued at standard cost.)
2021
11,860
2020
9,363
3,625
4,047
2,045
17%
3,536
3,979
1,000
11%
56%
51%
-486
1,559
28%
25%
-478
522
2021
881
5,497
16%
1,144
-719
425
2020
566
5,099
11%
746
-673
73
2021
16,509
2020
12,962
6,640
7,321
3,334
20%
6,194
6,901
1,969
15%
50%
46%
-878
2,456
32%
29%
-829
1,140
Dollars in Millions
2021
Net Sales
11,368
Net Sales – excluding Roadbuilding
Average Identifiable Assets*
With Inventories at LIFO
6,415
With Inventories at LIFO – excluding Roadbuilding
With Inventories at Standard Cost
6,677
With Inventories at Standard Cost – excluding Roadbuilding
Operating Profit
1,489
Operating Profit – excluding Roadbuilding
Percent of Net Sales**
13%
Operating Return on Assets**
With Inventories at LIFO**
23%
With Inventories at Standard Cost**
22%
SVA Cost of Assets**
-801
SVA**
688
2020
8,947
6,023
Dollars in Millions
Net Sales
Average Identifiable Assets*
With Inventories at LIFO
With Inventories at Standard Cost
Operating Profit
Percent of Net Sales
Operating Return on Assets
With Inventories at LIFO
With Inventories at Standard Cost
SVA Cost of Assets
SVA
CONSTRUCTION & FORESTRY
6,863
2,869
,
7130
3,136
590
320
5%
11%
10%
-376
-56
FINANCIAL SERVICES
Dollars in Millions
Net Income Attributable to Deere & Company
Average Equity
Return on Equity
Operating Profit
Cost of Equity
SVA
Financial Services SVA is
calculated on a pretax basis.
Table of Contents
17 Management’s Discussion and Analysis
34 Reports of Management and Independent
Registered Public Accounting Firm
37 Consolidated Financial Statements
42 Notes to Consolidated Financial Statements
* At the beginning of fiscal year 2021, the company reclassified goodwill from the equipment operations segments’ identifiable assets to corporate assets. Operating return on assets (OROA)
and SVA exclude the impact of goodwill. Prior period segment information has been recast for a consistent presentation.
** Beginning in fiscal year 2021, the results and assets related to the Wirtgen Group ((Wirtgen/Roadbuilding)) are included in the calculation of OROA and SVA. Due to integration efforts,
the 2020 information did not include Wirtgen’s results and assets. Prior period information was not recast for this change, which is consistent with the company’s internal presentation.
16
77 Selected Financial Data
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following Management’s Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) is intended to
promote understanding of the financial condition and results of
operations. The MD&A is provided as a supplement to, and should
be read in conjunction with, the consolidated financial statements
and the accompanying Notes to Consolidated Financial Statements
(Part II, Item 8 of this Form 10-K).
R
RESULTS
ESULTS OF OPERATIONS FOR THE YEARS ENDED
OCTOBER 31, 2021, NOVEMBER 1, 2020, AND NOVEMBER 3, 2019
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
equipment operations represents the enterprise without financial
services. The equipment operations includes the company’s
production and precision agriculture operations, small agriculture
and turf operations, construction and forestry operations, and
other corporate assets, liabilities, revenues, and expenses not
reflected within financial services. The company also views its
operations as consisting of two geographic areas: 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
The company’s production and precision agriculture equipment
and small agriculture and turf equipment sales both increased 27
percent in 2021. Industry sales of large agricultural machinery in the
U.S. and Canada for 2022 are forecasted to increase approximately
15 percent compared to 2021. Industry sales of small agricultural
and turf equipment in the U.S. and Canada are expected to be flat
in 2022. Industry sales of agricultural machinery in Europe are
estimated to be about 5 percent higher. South American industry
sales of tractors and combines are expected to be roughly 5
percent higher in 2022. Asia industry sales are forecasted to be
nearly the same in 2022 as in 2021. The company’s construction and
forestry sales increased 27 percent in 2021. On an industry basis,
North American construction equipment and compact
construction equipment sales are both expected to be 5 to 10
percent higher in 2022. Global forestry industry sales are projected
to increase 10 to 15 percent. The company’s financial services
operations for the full year 2022 are expected to experience
slightly lower results 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 that could affect the company’s results of
operations and liquidity and capital resources include uncertainty
of the effectiveness of governmental and private sector actions to
address COVID, supply of critical parts and components, trade
agreements, the uncertainty of the results of monetary and fiscal
policies, the impact of elevated levels of sovereign and state debt,
capital market disruptions, changes in demand and pricing for new
and used equipment, geopolitical events, and the other items
discussed in the “Safe Harbor Statement” below. Significant
fluctuations in foreign currency exchange rates and volatility in the
price of many commodities could also impact the company’s
results. The future financial effects of COVID continue to be
unknown due to many factors. As a result of these uncertainties,
predicting the company’s forecasted financial performance is
subject to many assumptions.
The UAW, the union representing the majority of the company’s
production and maintenance employees in the U.S., initiated a
strike on October 14, 2021. This resulted in a work stoppage
affecting employees at 14 U.S. facilities. The work stoppage
continued through the approval of a new six-year collective
bargaining agreement on November 17, 2021. The company’s
operations during the remainder of the fourth quarter were
adversely affected by the work stoppage, which reduced
production and shipments.
The company’s 2021 full-year performance reflects strong endmarket demand and the ability of the company’s dedicated
employees, dealers, and suppliers throughout the world, who have
helped safely maintain operations, manage supply chain
challenges, and continue to serve customers throughout the
COVID pandemic. Demand for farm and construction equipment is
expected to continue to benefit from positive fundamentals,
including favorable crop prices, economic growth, and increased
investment in infrastructure. While supply-chain pressures are
expected to persist into at least the early part of fiscal year 2022,
the company is working closely with key suppliers to secure the
parts and components that customers need in order to deliver
essential food and infrastructure more profitably and sustainably.
COVID Effects, Actions, and Recent Developments
During 2020 and to a lesser extent in 2021, the effects of COVID
and the related actions of governments and other authorities to
contain COVID have affected and continue to affect the
company’s operations, results, cash flows, and forecasts.
The U.S. government and many other governments in countries
where the company operates have designated the company an
essential critical infrastructure business. This designation allows
the company to operate in support of its customers to the extent
possible.
The company’s first priority in addressing the effects of COVID
continues to be the health, safety, and overall welfare of its
17
employees. The company effectively activated previously
established business continuity plans and proactively implemented
health and safety measures at its operations around the world.
The company broadened its supply base to minimize the impact of
potential supply chain disruptions on its ability to meet customer
demand. The company has experienced shortages of critical parts
and components, which caused challenges and production
disruptions. The company continues to monitor the situation and
work closely with suppliers.
The company continued to work closely with customers in 2021 in
connection with short-term payment relief on obligations owed to
the company. Financing receivables and operating leases granted
relief since the beginning of the pandemic that remained
outstanding at October 31, 2021 represented about 3 percent and
about 2 percent of the respective portfolio balances. The trade
receivables granted relief that remained outstanding at October
31, 2021 were not material. Additional information is presented in
Notes 13 and 25.
2021 COMPARED WITH 2020
CONSOLIDATED RESULTS
Deere & Company
(In millions of dollars, except pershare amounts)
2021
2020
Net sales and revenues ……………………… $ 44,024 $ 35,540
Net income attributable to Deere & Company
5,963
2,751
Diluted earnings per share…………………..
18.99
8.69
Net income in 2020 was negatively affected by impairment charges
and employee-separation costs of $458 million after-tax (see
Notes 4 and 5). In addition, net income in 2020 was less favorably
affected by discrete adjustments to the provision for income taxes.
Equipment Operations
(In millions of dollars)
2021
2020
% Change
Worldwide:
+27
Net sales …………………………….. $ 39,737 $ 31,272
+93
Operating profit ……………………..
3,559
6,868
+133
2,185
Net income …………………………..
5,082
+6
Price realization ……………………..
+2
Currency translation ………………..
U.S. and Canada:
Net sales …………………………….. $ 22,476 $ 17,954
Price realization ……………………..
Currency translation ………………..
+25
+5
+1
Outside U.S. and Canada:
Net sales …………………………….. $ 17,261 $ 13,318
Price realization ……………………..
Currency translation ………………..
+30
+8
+4
The discussion on net sales and operating profit is included in the
Business Segment and Geographic Area Results below.
18
A discussion of the cost of sales to net sales ratio and other
significant statement of consolidated income changes follows:
Deere & Company
(In millions of dollars)
Cost of sales to net sales …………….
2021
73.3%
2020
% Change
75.7%
Finance and interest income ……….. $ 3,296 $ 3,450
Other income ………………………….
991
818
Research and development expenses
1,587
1,644
Selling, administrative and
general expenses …………………..
3,383
3,477
Interest expense ………………………
993
1,247
Other operating expenses …………..
1,343
1,612
-4
+21
-3
-3
-20
-17
The cost of sales to net sales ratio decreased compared to 2020
mainly due to price realization and the impact of impairments and
employee-separation expenses recorded in 2020 (see Note 5).
Finance and interest income reduced slightly in 2021 due to lower
average interest rates, largely offset by a higher average credit
portfolio. Other income increased primarily due to operating lease
disposition gains. Research and development expenses were lower
in 2021 largely due to employee-separation expenses incurred in
2020 (see Note 5) and organizational efficiencies. Selling,
administrative and general expenses decreased mostly due to
employee-separation expenses recorded in 2020 (see Note 5) and a
lower provision for credit losses, partially offset by higher incentive
compensation. Interest expense decreased in 2021 due to lower
average borrowing rates. Other operating expenses were lower
compared to 2020 largely due to lower retirement benefit costs,
reduced depreciation of equipment on operating leases, and the
impact of operating lease impairments recorded in 2020 (see
Note 5).
The company has several funded and unfunded defined benefit
pension plans and other postretirement benefit (OPEB) plans,
primarily health care and life insurance plans. The company’s costs
for these plans in 2021 were $197 million, compared with $341
million in 2020. The long-term expected return on plan assets,
which is reflected in these costs, was an expected gain of 5.9
percent in 2021 and 6.4 percent in 2020, or $876 million and $869
million, respectively. The actual return was a gain of $3,616 million
in 2021 and $1,177 million in 2020. In 2022, the expected return is
approximately 5.0 percent. The company’s costs under these plans
in 2022, including the pension expense related to the UAW
contract ratification and the expected gain on the voluntary OPEB
contribution (see Note 29), are expected to be consistent with
2021. See the discussion in “Critical Accounting Estimates” for more
information about pension and OPEB benefit obligations.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
The following discussion relates to operating results by reportable
segment and geographic area. Operating profit is income before
corporate expenses, certain external interest expense, certain
foreign exchange gains or losses, and income taxes. However, the
financial services segment operating profit includes the effect of
interest expense and foreign currency exchange gains or losses.
Worldwide Small Agriculture and Turf Operations
In fiscal year 2021, the company implemented a new operating
model and reporting structure. With this change, the company’s
agriculture and turf operations were divided into two new
segments: production and precision agriculture and small
agriculture and turf.
(In millions of dollars)
2021
2020 % Change
Net sales ………………………………… $ 11,860 $ 9,363
+27
Operating profit ………………………..
2,045
1,000
+105
10.7%
Operating margin ……………………….
17.2%
The production and precision agriculture segment defines,
develops, and delivers global equipment and technology solutions
to unlock customer value for production-scale growers of large
grains, small grains, cotton, and sugar. Main products include large
and certain mid-size tractors, combines, cotton pickers, sugarcane
harvesters and loaders, and soil preparation, seeding, application
and crop care equipment.
Segment sales and operating profit were both higher in 2021 due
to higher shipment volumes / sales mix and price realization. The
operating profit improvement was partially offset by higher
production costs. Results for the current year were positively
impacted by a gain on the sale of a factory in China, while results
for the prior year were affected by impairments, closure costs, and
employee-separation expenses (see Note 5).
The small agriculture and turf segment defines, develops, and
delivers global equipment and technology solutions to unlock
customer value for dairy and livestock producers, high-value crop
producers, and turf and utility customers. The segment’s primary
products include certain mid-size and small tractors, as well as hay
and forage equipment, 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.
Worldwide Production and Precision Agriculture Operations
(In millions of dollars)
2021
2020 % C h a n g e
+27
Net sales…………………………………. $ 16,509 $ 12,962
Operating profit …………………………
3,334
1,969
+69
Operating margin ……………………….
20.2%
15.2%
Segment sales increased due to higher shipment volumes and price
realization. Operating profit benefitted from price realization, higher
shipment volumes / sales mix, and a favorable indirect tax ruling in
Brazil. These items were partially offset by higher production costs.
The prior year was also impacted by employee-separation program
expenses (see Note 5).
Worldwide Construction and Forestry Operations
(In millions of dollars)
2021
2020 % Change
Net sales ………………………………… $ 11,368 $ 8,947
+27
Operating profit ………………………..
1,489
590
+152
Operating margin ……………………….
13.1%
6.6%
Segment sales increased in 2021 primarily due to higher shipment
volumes and price realization. Operating profit increased mainly
due to positive shipment volumes / sales mix and price realization,
partially offset by higher production costs. The prior year was also
impacted by employee-separation program expenses and
impairments in certain fixed assets and unconsolidated affiliates
(see Note 5).
19
Worldwide Financial Services Operations
(In millions of dollars)
2021
2020
% Change
Revenue (including intercompany) …. $ 3,794 $ 3,867
-2
687
942
-27
Interest expense ………………………
881
566
+56
Net income …………………………….
While the average balance of receivables and leases financed was 5
percent higher in 2021, revenue decreased due to lower average
interest rates. Interest expense decreased in 2021 as a result of
lower average borrowing rates. Net income in 2021 increased
mainly due to an improvement on operating lease residual values, a
lower provision for credit losses, more favorable financing spreads,
and income earned on a higher average portfolio.
2020 COMPARED WITH 2019
CONSOLIDATED RESULTS
Deere & Company
(In millions of dollars, except per share amounts)
2020
2019
Net sales and revenues ………………………. $ 35,540 $ 39,258
Net income attributable to Deere & Company
2,751
3,253
Diluted earnings per share ……………………
8.69
10.15
Net income in 2020 was negatively affected by impairment charges
and employee-separation costs of $458 million after-tax (see
Notes 4 and 5). In 2019, the similar charges were $82 million. In
addition, the provision for income taxes was adversely affected by
non-deductible impairments and charges in 2020 and less
favorably affected by discrete adjustments in 2020 than in 2019.
Equipment Operations
2020
2019
% Change
(In millions of dollars)
Worldwide:
Net sales …………………………….. $ 31,272 $ 34,886
-10
Operating profit …………………….
3,559
3,721
-4
Net income …………………………..
2,185
2,714
-19
Price realization……………………..
+3
Currency translation (unfavorable)
-2
Deere & Company in U.S. and Canada
(In millions of dollars)
2021
2 02 0
% Change
+21
Net sales and revenues ………………. $ 25,829 $ 21,386
Operating profit ……………………….
4,774
2,775
+72
Operating margin ……………………..
18.5%
13.0%
Net sales and revenues increased in 2021 due mostly to higher
shipment volumes / sales mix and price realization. The growth in
operating profit was due primarily to increased shipment volumes /
sales mix and price realization, partially offset by higher production
costs. Results in 2020 were negatively impacted by impairment
charges and employee-separation expenses.
Deere & Company outside U.S. and Canada
(In millions of dollars)
2021
2020 % Change
+29
Net sales and revenues ………………. $ 18,195 $ 14,154
Operating profit ……………………….
3,238
1,530
+112
Operating margin ……………………..
17.8%
10.8%
The net sales and revenue increase in 2021 compared to 2020 was
primarily the result of higher shipment volumes / sales mix, price
realization, and the favorable effects of currency translation.
Operating profit improvement was largely due to higher shipment
volumes / sales mix and price realization, partially offset by
increased production costs. Results in 2020 were negatively
impacted by impairment charges and employee-separation costs.
20
U.S. and Canada:
Net sales …………………………….. $ 17,954 $ 20,264
Price realization……………………..
-11
+3
Outside U.S. and Canada:
Net sales …………………………….. $ 13,318 $ 14,622
Price realization……………………..
Currency translation (unfavorable)
-9
+4
-4
The discussion of net sales and operating profit is included in the
following Business Segment and Geographic Area Results. The
equipment operations’ provision for income taxes and net income
were adversely affected by non-deductible impairments and
charges in 2020 and were less favorably affected by discrete
adjustments to the provision for income taxes in 2020 than in
2019.
A discussion of the cost of sales to net sales ratio and other
significant statement of consolidated income changes follows:
Deere & Company
(In millions of dollars)
Cost of sales to net sales …………….
2020
75.7%
Finance and interest income ……….. $ 3,450 $
Other income ………………………….
818
Research and development expenses
1,644
Selling, administrative and
general expenses …………………..
3,477
Interest expense ………………………
1,247
Other operating expenses …………..
1,612
2019
% Change
76.8%
3,493
879
1,783
-1
-7
-8
3,551
1,466
1,578
-2
-15
+2
The cost of sales to net sales ratio decreased compared to 2019
mainly due to price realization, improved production costs, and
lower warranty expenses, partially offset by impairments,
employee-separation expenses (see Note 5), and the unfavorable
effects of foreign currency exchange. Finance and interest income
decreased slightly in 2020 due to lower average interest rates,
largely offset by a higher average credit portfolio. Other income
declined primarily due to lower service income compared to 2019.
Research and development expenses decreased compared to 2019
as a result of targeted project reductions related to COVID
spending adjustments. Selling, administrative and general
expenses decreased largely due to spending reductions and the
favorable effects of currency translation, mostly offset by
employee-separation expenses (see Note 5) and an increase in the
provision for credit losses. Interest expense decreased in 2020 due
to lower average borrowing rates, partially offset by higher
average borrowings. Other operating expenses increased
compared to 2019 largely due to increased depreciation of
equipment on operating leases, employee-separation expenses
(see Note 5), and a loss on sale of a business (see Note 4). These
items were mostly offset by lower impairments and reduced losses
on operating lease residual values and reduced service related
expenses.
The company has several funded and unfunded defined benefit
pension plans and OPEB plans, primarily health care and life
insurance plans. The company’s costs for these plans in 2020 were
$341 million, compared with $235 million in 2019. The returns on
plan assets were gains of $1,177 million in 2020 and $2,163 million
in 2019. Total company contributions to the plans were $951
million in 2020 and $518 million in 2019, which included voluntary
contributions and direct benefit payments. The voluntary
contributions to plan assets were $700 million in 2020 to a U.S.
OPEB plan, and $306 million in 2019, which included $300 million
to the same U.S. OPEB plan.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
Worldwide Production and Precision Agriculture Operations
(In millions of dollars)
2020
2019
% Change
-3
Net sales……………………………….. $ 12,962 $ 13,364
Operating profit ……………………….
1,969
1,729
+14
Operating margin ……………………..
15.2%
12.9%
Segment sales decreased due to lower shipment volumes and the
unfavorable effects of currency translation, partially offset by
price realization. Operating profit increased largely due to price
realization, lower research and development expense, reduced
selling, administrative and general expenses, and lower warranty
expenses. These items were partially offset by lower shipment
volumes / mix, the unfavorable effects of currency exchange, and
employee-separation expenses.
Worldwide Small Agriculture and Turf Operations
(In millions of dollars)
2020
2019
% Change
-9
Net sales……………………………….. $ 9,363 $ 10,302
Operating profit ……………………….
1,000
777
+29
Operating margin ……………………..
10.7%
7.5%
Segment sales decreased due to lower shipment volumes, partially
offset by price realization. Operating profit improved due to price
realization, favorable production costs, lower selling,
administrative and general expenses, reduced research and
development expense, and lower warranty expense, partially
offset by lower shipment volumes / mix, employee-separation
expenses and impairments.
Worldwide Construction and Forestry Operations
(In millions of dollars)
2020
2019
% Change
-20
Net sales ………………………………. $ 8,947 $ 11,220
Operating profit ………………………
590
1,215
-51
Operating margin ……………………..
6.6%
10.8%
Segment sales decreased in 2020 primarily due to lower shipment
volumes and the unfavorable effect of currency translation,
partially offset by price realization. Operating profit declined
mainly due to lower shipment volumes / mix, employee-separation
expenses, impairments, and the unfavorable effects of currency
exchange. The reduction in operating profit was partially offset by
price realization, lower research and development expenses,
reduced selling, administrative and general expenses, and
improved production costs.
Worldwide Financial Services Operations
(In millions of dollars)
2020
2019
% Change
-3
Revenue (including intercompany) … $ 3,867 $ 3,969
Interest expense ………………………
942
1,234
-24
Net income …………………………….
566
539
+5
While the average balance of receivables and leases financed was
2 percent higher in 2020, revenue decreased due to lower average
interest rates. Interest expense decreased in 2020 as a result of
lower average borrowing rates, partially offset by higher average
borrowings. Net income in 2020 increased mainly due to lower
impairments and reduced losses on operating lease residual values
and income earned on a higher average portfolio, partially offset
by a higher provision for credit losses, employee-separation
expenses, and unfavorable financing spreads.
Deere & Company in U.S. and Canada
(In millions of dollars)
2020
2019
% Change
-10
Net sales and revenues ……………… $ 21,386 $ 23,746
Operating profit ………………………
2,775
2,841
-2
Operating margin ……………………..
13.0%
12.0%
Net sales and revenues decreased in 2020 due primarily to lower
shipment volumes, partially offset by price realization. The
reduction in operating profit was due primarily to lower shipment
volumes / mix and employee-separation expenses, partially offset
by price realization, lower research and development costs,
reduced selling, general and administrative expenses, improved
production costs, and lower warranty expenses.
Deere & Company outside U.S. and Canada
(In millions of dollars)
2020
2019
% Change
-9
Net sales and revenues ……………… $ 14,154 $ 15,512
Operating profit ………………………
1,530
1,574
-3
Operating margin ……………………..
10.8%
10.1%
The net sales and revenues decrease in 2020 compared to 2019
was primarily the result of lower shipment volumes and the
21
unfavorable effects of currency translation, partially offset by
price realization. Operating profit declined primarily due to lower
shipment volumes / mix, impairments, employee-separation
expenses, and the unfavorable effects of currency exchange,
largely offset by price realization, reduced selling, general and
administrative expenses, lower research and development costs,
improved production costs, and lower warranty expenses.
total cash and cash equivalents and marketable securities position
was $8,745 million and $7,707 million, respectively. The amount of
the total cash and cash equivalents and marketable securities held
by foreign subsidiaries was $5,817 million at October 31, 2021 and
$5,010 million at November 1, 2020. During November 2021, the
company’s foreign subsidiaries returned $3,500 million of cash and
cash equivalents to the U.S.
CAPITAL RESOURCES AND LIQUIDITY
Lines of Credit. The company also has access to bank lines of credit
with various banks throughout the world. Worldwide lines of credit
totaled $8,336 million at October 31, 2021, $5,770 million of which
were unused. For the purpose of computing the unused credit
lines, commercial paper and short-term bank borrowings,
excluding secured borrowings and the current portion of longterm borrowings, were considered to constitute utilization.
Included in the total credit lines at October 31, 2021 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 agreements are
mutually extendable and the annual facility fees are not significant.
These credit agreements require John Deere Capital Corporation
(Capital Corporation) to maintain its consolidated ratio of earnings
to fixed charges at not less than 1.05 to 1 for each fiscal quarter and
the ratio of senior debt, excluding securitization indebtedness, to
capital base (total subordinated debt and stockholder’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 October 31, 2021 was $15,388
million. Alternatively under this provision, the equipment
operations had the capacity to incur additional debt of $28,579
million at October 31, 2021. All of these credit agreement
requirements have been met during the periods included in the
consolidated financial statements.
The discussion of capital resources and liquidity has been organized
to review separately, where appropriate, the company’s consolidated
totals, equipment operations, and financial services operations.
CONSOLIDATED
Positive cash flows from consolidated operating activities in 2021
were $7,726 million. This resulted primarily from net income
adjusted for non-cash provisions, an increase in accounts payable
and accrued expenses, and a decrease in receivables related to
sales, which were partially offset by an increase in inventories.
Cash outflows from investing activities were $5,750 million in 2021,
due mainly to the cost of receivables (excluding receivables related
to sales) and cost of equipment on operating leases acquired
exceeding the collections of receivables and the proceeds from
sales of equipment on operating leases by $4,332 million,
purchases of property and equipment of $848 million, a change in
collateral on derivatives – net of $281 million, and acquisition of
businesses, net of cash acquired, of $244 million (see Note 4).
Cash outflows from financing activities were $1,078 million in 2021,
due primarily to repurchases of common stock of $2,538 million
and dividends paid of $1,040 million, partially offset by an increase
in borrowings of $2,450 million and proceeds from the issuance of
common stock (resulting from the exercise of stock options) of
$148 million. Cash, cash equivalents, and restricted cash increased
$953 million during 2021.
Over the last three years, operating activities have provided an
aggregate of $18,621 million in cash. Cash inflows were also
provided by increases in borrowings of $5,621 million. The
aggregate amount of these cash inflows was used mainly to
acquire receivables (excluding receivables related to sales) and
equipment on operating leases that exceeded collections of
receivables and the proceeds from sales of equipment on
operating leases by $9,817 million, repurchase common stock of
$4,541 million, pay dividends of $2,939 million, and purchase
property and equipment of $2,788 million. Cash, cash equivalents,
and restricted cash increased $4,110 million over the three-year
period.
The company has access to most global capital markets at
reasonable costs and expects to have sufficient sources of global
funding and liquidity to meet its funding needs 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 October 31, 2021 and November 1,
2020 was $2,230 million and $1,238 million, respectively, while the
22
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:
Fitch Ratings ……………………….
Moody’s Investors Service, Inc. …….
Standard & Poor’s ………………….
Senior
Long-Term
Short-Term
Outlook
A
A2
A
F1
Prime-1
A-1
Stable
Stable
Stable
Trade Accounts and Notes Receivable. Trade accounts and notes
receivable primarily arise from sales of goods to independent
dealers. Trade receivables increased by $37 million in 2021. The ratio
of trade accounts and notes receivable at October 31, 2021 and
November 1, 2020 to fiscal year net sales was 11 and 13 percent,
respectively. Total worldwide production and precision agriculture
receivables decreased $193 million, worldwide small agriculture and
turf receivables increased $199 million, and construction and
forestry receivables increased $31 million. The collection period for
trade receivables averages less than 12 months. The percentage of
trade receivables outstanding for a period exceeding 12 months
was 1 percent at October 31, 2021 and 3 percent at November 1,
2020.
Deere & Company Stockholders’ Equity. Deere & Company
stockholders’ equity was $18,431 million at October 31, 2021,
compared with $12,937 million at November 1, 2020. The increase of
$5,494 million resulted from net income attributable to Deere &
Company of $5,963 million, a change in the retirement benefits
adjustment of $2,884 million, an increase in common stock of $159
million, and a change in the cumulative translation adjustment of
$118 million, which was partially offset by an increase in treasury
stock of $2,468 million and dividends declared of $1,125 million.
Contractual Obligations and Cash Requirements. The company’s
material cash requirements include the following contractual and
other obligations:
Borrowings – As of October 31, 2021, the equipment operations had
$1,497 million of payments due on borrowings and securitization
borrowings in the next year, along with interest payments of $329
million. As of the same date, the financial services operations had
$11,959 million of payments due on borrowings and securitization
borrowings in the next year, along with interest payments of $574
million. The securitization borrowing payments are based on the
expected liquidation of the retail notes, as well as the repurchases
due to the reduced facility capacity (see Note 29). The financial
services borrowings will likely be replaced with new borrowings to
finance their receivable and lease portfolios.
Purchase Obligations – As of October 31, 2021, the company’s
outstanding purchase obligations were $4,314 million, with $4,190
million payable within one year. These purchase obligations are
noncancelable.
Other Cash Requirements – In addition to its contractual
obligations, the company’s quarterly cash dividend is $1.05 per
share, subject to change at the discretion of the company’s Board
of Directors. Total company pension and OPEB contributions in
2022 are expected to be approximately $1,250 million. Fiscal year
2022 contributions include a voluntary U.S. OPEB plan
contribution of $1,000 million made on November 30, 2021 (see
Note 29). Also anticipated in 2022 is the dissolution of the joint
venture agreement between the company and Hitachi. In
connection with the termination, the company will purchase all of
Hitachi’s shares in the relevant joint venture manufacturing
entities and receive certain intellectual property rights. The initial
cash consideration consists of $275 million for the shares and an
intellectual property license (see Notes 1, 4, and 11). The company
will consider share repurchases as a means of deploying excess
cash to shareholders once the previously mentioned requirements
are met.
EQUIPMENT OPERATIONS
The company’s equipment businesses are capital intensive and are
subject to seasonal variations in financing requirements for
inventories and certain receivables from dealers. The equipment
operations sell a significant portion of their trade receivables to
financial services. To the extent necessary, funds provided from
operations are supplemented by external financing sources.
Cash provided by operating activities of the equipment operations
during 2021, including intercompany cash flows, was $5,900 million
due largely to net income adjusted for non-cash provisions and an
increase in accounts payable and accrued expenses, partially offset
by an increase in inventories and an increase in trade, notes,
and financing receivables related to sales.
Over the last three years, these operating activities, including
intercompany cash flows, have provided an aggregate of $13,860
million in cash.
Trade receivables held by the equipment operations increased by
$142 million during 2021. The equipment operations sell a
significant portion of their trade receivables to financial services
(see previous consolidated discussion).
Inventories increased by $1,782 million in 2021 due primarily to
increased production schedules. A majority of these inventories are
valued on the last-in, first-out (LIFO) method. The ratios of
inventories on a first-in, first-out (FIFO) basis (see Note 15), which
approximates current cost, to fiscal year cost of sales were 31
percent and 28 percent at October 31, 2021 and November 1, 2020,
respectively.
Total interest-bearing debt, excluding finance lease liabilities, of
the equipment operations was $10,373 million at the end of 2021,
compared with $10,382 million at the end of 2020 and $6,446
million at the end of 2019. The ratio of total debt to total capital
(total interest-bearing debt and Deere & Company stockholders’
equity) at the end of 2021, 2020, and 2019 was 36 percent, 45
percent, and 36 percent, respectively.
In 2020, the equipment operations issued three tranches of notes in
the U.S. with aggregate principal totaling $2,250 million that are due
from 2025 to 2050. The equipment operations also issued Euro notes
with aggregate principal totaling €2,000 million (approximately
$2,170 million based on the exchange rate at the issue date) that are
due from 2024 to 2032 (see Note 20). In 2020, the equipment
operations issued commercial paper in the U.S. with aggregate
23
principal totaling $466 million, of which $448 million had an original
term greater than 90 days. This commercial paper was repaid in 2020
and is presented in “Increase (decrease) in total short-term
borrowings” in the statement of consolidated cash flows.
Property and equipment cash expenditures for the equipment
operations in 2021 were $845 million, compared with $816 million in
2020. Capital expenditures in 2022 are estimated to be $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.
The cash provided by operating and financing activities was used
primarily to increase receivables and leases. Cash flows from the
financial services’ operating activities, including intercompany
cash flows, were $1,965 million in 2021. Cash used for investing
activities totaled $4,308 million in 2021 due primarily to the cost of
receivables (excluding trade and wholesale) and cost of equipment
on operating leases acquired exceeding collections of these
receivables and the proceeds from sales of equipment on
operating leases by $5,311 million, a change in collateral on
derivatives – net of $274 million, and purchases of marketable
securities exceeding proceeds from maturities and sales by $89
million. Partially offsetting the use of cash was a decrease in trade
receivables and wholesale notes of $1,364 million. Cash provided
by financing activities totaled $2,238 million in 2021, resulting
primarily from an increase in external borrowings of $2,468 million,
an increase in borrowings from Deere & Company of $354 million,
partially offset by dividends paid to Deere & Company of $555
million. Cash, cash equivalents, and restricted cash decreased $91
million.
Over the last three years, the operating activities, including
intercompany cash flows, have provided $6,359 million in cash. In
addition, an increase in total borrowings of $5,476 million, a
decrease in trade and wholesale receivables of $2,428 million, and
a change in collateral on derivatives – net of $59 million provided
cash inflows. These amounts have been used mainly to fund
receivables (excluding trade and wholesale) and equipment on
operating lease acquisitions, which exceeded collections and the
proceeds from sales of equipment on operating leases, by $12,454
million, pay dividends to Deere & Company of $1,368 million, and
purchase $182 million of marketable securities in excess of
maturities and sales. Cash, cash equivalents, and restricted cash
increased $112 million over the three-year period.
Trade and financing receivables and equipment on operating leases
increased by $3,401 million in 2021, compared with 2020. Total
acquisition volumes of receivables (excluding trade and wholesale)
and cost of equipment on operating leases increased 16 percent in
2021, compared with 2020. The volume of finance leases, retail
notes, and revolving charge accounts increased 33 percent,
26 percent, and 1 percent, respectively. The volume of operating
leases decreased 2 percent. During 2021, the wholesale notes and
24
trade receivables portfolios decreased 26 percent and 7 percent,
respectively.
Total external interest-bearing debt of the financial services
operations was $37,978 million at the end of 2021, compared with
$35,556 million at the end of 2020 and $38,888 million at the end
of 2019. Total external borrowings have changed generally
corresponding with the level of the receivable and lease portfolio,
the level of cash and cash equivalents, the change in payables
owed to Deere & Company, and the change in investment from
Deere & Company. The financial services operations’ ratio of total
interest-bearing debt to total stockholder’s equity was 7.8 to 1 at
the end of 2021, 7.8 to 1 at the end of 2020, and 8.0 to 1 at the end
of 2019.
The Capital Corporation has a revolving credit agreement to utilize
bank conduit facilities to securitize retail notes (see Note 14). At
October 31, 2021, the revolving credit agreement had a total
capacity, or “financing limit,” of up to $2,000 million of secured
financings at any time. At October 31, 2021, $1,572 million of shortterm securitization borrowings were outstanding under the
agreement. At the end of the contractual revolving period, unless
the banks and Capital Corporation agree to renew, Capital
Corporation would liquidate the secured borrowings over time as
payments on the retail notes are collected. The agreement was
renewed in November 2021 with an expiration in November 2022
and a capacity of $1,000 million. As a result of the reduced
capacity, $511 million of outstanding short-term securitization
borrowings were repurchased by the company in November 2021,
in addition to the normal monthly collection of payments on the
retail notes.
During 2021, the financial services operations issued $2,801 million
and retired $2,861 million of retail note securitization borrowings,
which are presented in “Increase (decrease) in total short-term
borrowings” on the statement of consolidated cash flows. The
financial services operations also issued $8,711 million and retired
$6,996 million of long-term borrowings in 2021, which were
primarily medium-term notes.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the company’s consolidated financial
statements in conformity with accounting principles generally
accepted in the U.S. requires management to make estimates and
assumptions that affect reported amounts of assets, liabilities,
revenues, and expenses. Changes in these estimates and
assumptions could have a significant effect on the financial
statements. The accounting policies below are those management
believes are the most critical to the preparation of the company’s
financial statements and require the most difficult, subjective, or
complex judgments. The company’s other accounting policies are
described in the Notes to the Consolidated Financial Statements.
Sales Incentives
In certain markets, the company provides sales incentives to
dealers. At the time a sale to a dealer is recognized, the company
records an estimate of the future sales incentive costs as a
reduction to the sales price. These incentives may be based on a
dealer’s purchase volume, or on retail sales incentive programs for
allowances and financing programs that will be due when the
dealer sells the equipment to a retail customer. The estimated cost
of these programs is based on historical data, announced and
expected incentive programs, field inventory levels, and forecasted
sales volumes. The final cost of these programs is determined at
the end of the measurement period for volume-based incentives or
when the dealer sells the equipment to the retail customer. This is
due to numerous programs available at any particular time and new
programs that may be announced after the company records the
equipment sale. Changes in the mix and types of programs affect
these estimates, which are reviewed quarterly.
The sales incentive accruals at October 31, 2021, November 1, 2020,
and November 3, 2019 were $1,680 million, $1,718 million, and
$2,033 million, respectively. The total accruals recorded were $880
million, $1,109 million, and $1,443 million in trade accounts and
notes receivable – net, and $800 million, $609 million, and $590
million in accounts payable and accrued expenses at October 31,
2021, November 1, 2020, and November 3, 2019, respectively. The
decrease in 2021 primarily resulted from higher retail demand and
the decrease in 2020 primarily related to lower sales volume.
The estimation of the retail sales incentive accrual is impacted by
many assumptions. One of the key assumptions is the predictive
value of the historical percent of retail sales incentive costs to retail
sales from dealers. Over the last five fiscal years, this percent has
varied by an average of approximately plus or minus .5 percent,
compared to the average retail sales incentive costs to retail sales
percent during that period. Holding other assumptions constant, if
this estimated retail incentive cost experience percent were to
increase or decrease .5 percent, the sales incentive accrual at
October 31, 2021 would increase or decrease by approximately $31
million.
Product Warranties
For most equipment and parts sales, the company provides a
standard warranty to provide assurance that the equipment will
function as intended for a specified period of time. At the time a sale
is recognized, the company records the estimated future warranty
costs. The company generally determines its total warranty liability
by applying historical claims rate experience to the estimated
amount of equipment that has been sold and is still under warranty
based on dealer inventories and retail sales. The historical claims rate
is primarily determined by a review of five-year claims costs and
consideration of current quality developments. Variances in claims
experience and the type of warranty programs affect these
estimates, which are reviewed quarterly.
The product warranty accruals, excluding extended warranty
unamortized premiums, at October 31, 2021, November 1, 2020, and
November 3, 2019 were $1,312 million, $1,105 million, and $1,218
million, respectively. The increase in 2021 primarily related to higher
sales volume while the decrease in 2020 mainly related to lower
sales volume.
Estimates used to determine the product warranty accruals are
significantly affected by the historical percent of warranty claims
costs to sales. Over the last five fiscal years, this percent has varied
by an average of approximately plus or minus .08 percent,
compared to the average warranty costs to sales percent during
that period. Holding other assumptions constant, if this estimated
cost experience percent were to increase or decrease .08 percent,
the warranty accrual at October 31, 2021 would increase or decrease
by approximately $35 million.
Postretirement Benefit Obligations
Pension and OPEB, primarily health care and life insurance plans,
obligations are based on various assumptions used by the
company’s actuaries in calculating these amounts. These
assumptions include discount rates, health care cost trend rates,
expected return on plan assets, compensation increases,
retirement rates, mortality rates, and other factors. Actual results
that differ from the assumptions and changes in assumptions
affect future expenses and obligations.
The pension assets, net of pension liabilities, recognized on the
balance sheet at October 31, 2021 were $2,665 million. The pension
liabilities, net of pension assets, recognized on the balance sheet
at November 1, 2020 and November 3, 2019 were $447 million and
$226 million, respectively. The increase in the pension net assets in
2021 was primarily due to returns on plan assets. The increase in
the pension net liabilities in 2020 was primarily due to decreases in
discount rates and interest on the liabilities, largely offset by the
return on plan assets.
The OPEB liabilities, net of OPEB assets, at October 31, 2021,
November 1, 2020, and November 3, 2019 were $3,175 million,
$3,892 million, and $4,686 million, respectively. The decrease in
OPEB net liabilities in 2021 was due primarily to returns on plan
assets and favorable changes to medical assumptions. The
decrease in OPEB net liabilities in 2020 was due primarily to
contributions to a U.S. OPEB plan.
The effect of hypothetical changes to selected assumptions on the
company’s major U.S. retirement benefit plans would be as follows
in millions of dollars:
Assumptions
Pension
Discount rate** ………
Expected return on assets
OPEB
Discount rate** ………
Expected return on assets
Health care cost
trend rate** ………..
October 31, 2021
Increase
(Decrease)
PBO/APBO*
2022
Increase
(Decrease)
Expense
$
(812)/930
$ (42)/45
(63)/63
+/-.5
+/-.5
(271)/300
(11)/11
(9)/9
+/-1.0
512/(429)
52/(49)
Percentage
Change
+/-.5
+/-.5
* Projected benefit obligation (PBO) for pension plans and accumulated
postretirement benefit obligation (APBO) for OPEB plans.
** Pretax impact on service cost, interest cost, and amortization of gains
or losses.
Goodwill
Goodwill is not amortized and is tested for impairment annually
and when events or circumstances change such that it is more
25
likely than not that the fair value of a reporting unit is reduced
below its carrying amount. The end of the fiscal third quarter is the
annual measurement date. To test for goodwill impairment, the
carrying value of each reporting unit is compared with its fair
value. If the carrying value of the goodwill is considered impaired,
a loss is measured as the excess of the reporting unit’s carrying
value over the fair value, with a limit of the goodwill allocated to
that reporting unit.
An estimate of the fair value of the reporting unit is determined
through a combination of comparable market values for similar
businesses and discounted cash flows. These estimates can change
significantly based on such factors as the reporting unit’s financial
performance, economic conditions, interest rates, growth rates,
pricing, changes in business strategies, and competition.
The company has not identified a reporting unit for which the
goodwill was impaired in 2021, 2020, or 2019. For all reporting units,
a 10 percent decrease in the estimated fair value would have had
no effect on the carrying value of goodwill at the annual
measurement date in 2021.
Allowance for Credit Losses
The allowance for credit losses is an estimate of the credit losses
expected over the life of the receivable portfolio. The allowance is
measured on a collective basis when similar risk characteristics
exist. Risk characteristics considered by the company include
finance product category, market, geography, credit risk, and
remaining duration. Receivables that do not share risk
characteristics with other receivables in the portfolio are evaluated
on an individual basis. Non-performing receivables are included in
the estimate of expected credit losses.
The company utilizes loss forecast models, which are selected
based on the size and credit risk of the underlying pool of
receivables, to estimate expected credit losses. Transition matrix
models are used for large and complex retail customer receivable
pools, while weighted average remaining maturity models are used
for smaller and less complex retail customer receivable pools.
Expected credit losses on wholesale receivables are based on
historical loss rates, with consideration of current economic
conditions and dealer financial risk. The modeled expected credit
losses are adjusted based on reasonable and supportable
forecasts, which may include economic indicators such as
commodity prices, industry equipment sales, unemployment rates,
and housing starts. Management reviews each model’s output
quarterly, and qualitative adjustments are incorporated as
necessary.
In 2021, the company adopted ASU No. 2016-13, which revised the
measurement of credit losses from an incurred loss to an expected
loss methodology. Upon adoption the company’s allowance for
credit losses increased with an offset to retained earnings (see
Note 3). The allowance for credit losses at November 1, 2020 and
November 3, 2019 were not restated under the expected loss
methodology. The total allowance for credit losses at October 31,
2021, November 1, 2020, and November 3, 2019 was $207 million,
$223 million, and $222 million, respectively. The allowance
decreased in 2021 compared to 2020 due to lower expected losses
26
in the construction and forestry market, continued improvement in
the agriculture and turf market, and better than expected
performance of accounts granted payment relief due to the
economic effects of COVID. As previously mentioned, the
allowance decrease was partially offset by the adoption of ASU No.
2016-13. The allowance was about the same in 2020 compared to
2019 with an increase in the financing receivable allowance largely
offset by a decrease in the allowance for trade accounts and notes
receivable (see Note 13).
The assumptions used in evaluating the company’s exposure to
credit losses involve estimates and significant judgment. While the
company believes its allowance is sufficient to provide for losses
over the life of its existing receivable portfolio, different
assumptions or changes in economic conditions would result in
changes to the allowance for credit losses. Historically, changes in
economic conditions have had limited impact on credit losses
within the company’s wholesale receivable portfolio. Within the
retail customer receivables portfolio, credit loss estimates are
dependent on a number of factors, including historical portfolio
performance, current delinquency levels, and estimated recoveries
on defaulted accounts. The company’s transition matrix models,
which are utilized to estimate credit losses for more than 90
percent of retail customer receivables, use historical portfolio
performance and current delinquency levels to forecast future
defaults. Estimated recovery rates are applied to the estimated
default balance to calculate the expected credit losses. Holding all
other factors constant, a 10 percent increase in the transition
matrix models’ forecasted defaults and a simultaneous 10 percent
decrease in recovery rates would have resulted in a $34 million
increase to the allowance for credit losses at October 31, 2021.
Operating Lease Residual Values
The carrying value of equipment on operating leases is affected by
the estimated fair values of the equipment at the end of the lease
(residual values). Upon termination of the lease, the equipment is
either purchased by the lessee or sold to a third party, in which
case the company may record a gain or a loss for the difference
between the estimated residual value and the sale price. The
estimated residual values are based on several factors, including
lease term, expected hours of usage, historical wholesale sales
prices, return experience, intended equipment use, market
dynamics and trends, and dealer residual value guarantees. The
company reviews residual value estimates during the lease term
and tests the carrying value of its operating leases for impairment
when events or circumstances necessitate. Changes in residual
value assumptions would affect the amount of depreciation
expense and the amount of investment in equipment on operating
leases. Depreciation is adjusted prospectively on a straight-line
basis over the remaining lease term if residual estimates are
revised.
The total operating lease residual values at October 31, 2021,
November 1, 2020, and November 3, 2019 were $5,025 million,
$5,254 million, and $5,259 million, respectively. The decreases in
2021 and 2020 primarily related to a lower average operating lease
portfolio.
Estimates used in determining end of lease market values for
equipment on operating leases significantly impact the amount
and timing of depreciation expense. Hypothetically, if future
market values for this equipment were to decrease 10 percent from
the company’s present estimates and all the equipment on
operating leases were returned to the company for remarketing at
the end of the lease term, the total effect would be to increase the
company’s annual depreciation for equipment on operating leases
by approximately $80 million, after consideration of dealer residual
value guarantees.
Income Taxes
The company’s income tax provision, deferred income tax assets
and liabilities, and liabilities for uncertain tax benefits represent
the company’s best estimate of current and future income taxes to
be paid. The annual tax rate is based on income tax laws, statutory
tax rates, taxable income levels, and tax planning opportunities
available in various jurisdictions where the company operates.
These tax laws are complex, and require significant judgment to
determine the consolidated provision for income taxes. Changes in
tax laws, regulations, statutory tax rates, and estimates of the
company’s future taxable income levels could result in actual
realization of deferred taxes being materially different from
amounts provided for in the consolidated financial statements.
Deferred income taxes represent temporary differences between
the tax and the financial reporting basis of assets and liabilities,
which will result in taxable or deductible amounts in the future.
Deferred tax assets also include loss carryforwards and tax credits.
These assets are regularly assessed for the likelihood of
recoverability from estimated future taxable income, reversal of
deferred tax liabilities, and tax planning strategies. To the extent
the company determines that it is more likely than not a deferred
income tax asset will not be realized, a valuation allowance is
established. The recoverability analysis of the deferred income tax
assets and the related valuation allowances requires significant
judgment and relies on estimates.
Uncertain tax positions are determined based on whether it is
more likely than not the tax positions will be sustained based on
the technical merits of the position. For those positions that meet
the more likely than not criteria, an estimate of the largest amount
of tax benefit that is greater than 50 percent likely to be realized
upon ultimate settlement with the related tax authority is
recognized. The ultimate resolution of the tax position could take
many years and result in a payment that is significantly different
from the original estimate.
A provision for foreign withholding taxes has not been recorded on
undistributed profits of the company’s non-U.S. subsidiaries that
are determined to be indefinitely reinvested outside the U.S. If
management intentions change in the future, there may be a
significant impact on the provision for income taxes in the period
the change occurs. For further information on income taxes, see
Note 9 to the consolidated financial statements.
SAFE HARBOR STATEMENT
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995: Statements under “Business” (including under
“Market Conditions”), “Risk Factors,” “Management’s Discussion
and Analysis” (including under “Overview” and “Trends and
Economic Conditions”), and other forward-looking statements
herein that relate to future events, expectations, and trends
involve factors that are subject to change, and risks and
uncertainties that could cause actual results to differ materially.
Some of these risks and uncertainties could affect particular lines
of business, while others could affect all of the company’s
businesses.
The company’s agricultural equipment businesses are subject to
a number of uncertainties, including certain factors that affect
farmers’ confidence and financial condition. These factors
include demand for agricultural products; world grain stocks;
weather conditions and the effects of climate change; soil
conditions; harvest yields; prices for commodities and livestock;
crop and livestock production expenses; availability of transport
for crops (including as a result of reduced state and local
transportation budgets); trade restrictions and tariffs (e.g.,
China); global trade agreements; the level of farm product
exports (including concerns about genetically modified
organisms); the growth and sustainability of non-food uses for
some crops (including ethanol and biodiesel production); real
estate values; available acreage for farming; land ownership
policies of governments; changes in government farm programs
and policies; international reaction to such programs; changes in
and effects of crop insurance programs; changes in
environmental regulations and their impact on farming practices;
animal diseases (e.g., African swine fever) and their effects on
poultry, beef, and pork consumption and prices and on livestock
feed demand; crop pests and diseases; and the impact of the
COVID pandemic on the agricultural industry including demand
for, and production and exports of, agricultural products, and
commodity prices.
The production and precision agriculture business is dependent
on agricultural conditions, and relies in part on hardware and
software, guidance, connectivity and digital solutions, and
automation and machine intelligence. Many factors contribute
to the company’s precision agriculture sales and results,
including the impact to customers’ profitability and/or
sustainability outcomes; the rate of adoption and use by
customers; availability of technological innovations; speed of
research and development; effectiveness of partnerships with
third parties; and the dealer channel’s ability to support and
service precision technology solutions.
Factors affecting the company’s small agriculture and turf
equipment operations include agricultural conditions; consumer
confidence; weather conditions and the effects of climate
change; customer profitability; labor supply; consumer
borrowing patterns; consumer purchasing preferences; housing
starts and supply; infrastructure investment; spending by
municipalities and golf courses; and consumable input costs.
Factors affecting the company’s construction and forestry
equipment operations include consumer spending patterns; real
estate and housing prices; the number of housing starts; interest…

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