Deere mpany : Reports First-Quarter Net Income of $1.224 Billion

MOLINE, Ill., Feb. 19, 2021 /CNW/ --

• First-quarter net income more than doubles on 23% gain in net sales, reflecting successful execution of new operating strategy.
• Improved conditions in agricultural and construction sectors setting stage for year of strong performance.
• Full-year earnings forecast increased to $4.6 to $5.0 billion.

Deere & Company (NYSE:DE) reported net income of $1.224 billion for the first quarter ended January 31, 2021, or $3.87 per share, compared with net income of $517 million, or $1.63 per share, for the quarter ended February 2, 2020. Worldwide net sales and revenues increased 19 percent in the first quarter of 2021 to $9.112 billion. Equipment operations net sales were $8.051 billion for the quarter, compared with $6.530 billion in 2020.

"John Deere started 2021 on a strongly positive note," said John C. May, chairman and chief executive officer. "Our results were aided by outstanding performance across our business lineup and improving conditions in the farm and construction sectors. In addition, our smart industrial operating strategy is making a significant impact on the company's results while it also helps our customers be more profitable and sustainable."

Company Outlook & Summary

Net income attributable to Deere & Company for fiscal 2021 is forecast to be in a range of $4.6 billion to $5.0 billion.

"We are proud of our success executing the strategy and creating a more focused organization that can operate with greater speed and agility," May said. "As our recent performance shows, these steps are leading to improved efficiencies and helping the company target its resources and investments on areas that have the greatest impact. At the same time, even as we ramp up factory production and intensify our efforts to serve customers, we are mindful of the continuing challenges associated with the global pandemic. We remain committed, above all else, to safeguarding the health and well-being of our employees."

Deere & Company		First Quarter
$ in millions		2021			2020			% Change
Net sales and revenues		$	9,112		$	7,631		19%
Net income		$	1,224		$	517		137%
Fully diluted EPS		$	3.87		$	1.63

In the first quarter of 2021, the company recorded impairments totaling $50 million pretax to certain long-lived assets. These impairments were offset by a favorable indirect tax ruling in Brazil of $58 million pretax. In the first quarter of 2020, total voluntary employee-separation program expense recognized was $127 million pretax.

Equipment Operations		First Quarter
$ in millions		2021			2020			% Change
Net sales		$	8,051		$	6,530		23%
Operating profit		$	1,380		$	466		196%
Net income		$	1,020		$	380		168%

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

The production and precision agriculture segment is responsible for defining, developing, and delivering global equipment and technology solutions to unlock customer value for production-scale growers of large grains, small grains, cotton, and sugar. Main products include large and certain mid-size tractors, combines, cotton pickers, sugarcane harvesters and loaders, and soil preparation, seeding, application and crop care equipment.

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

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

Production & Precision Ag		First Quarter
$ in millions		2021			2020			% Change
Net sales		$	3,069		$	2,507		22%
Operating profit		$	643		$	218		195%
Operating margin			21.0%			8.7%

Production and precision ag sales for the quarter increased due to higher shipment volumes and price realization, partially offset by the unfavorable effects of currency translation. Operating profit rose primarily due to price realization, higher shipment volumes / sales mix, and a favorable indirect tax ruling in Brazil. These items were partially offset by unfavorable effects of foreign-currency exchange. The prior period was affected by voluntary employee-separation expenses.

Small Ag & Turf		First Quarter
$ in millions		2021			2020			% Change
Net sales		$	2,515		$	1,979		27%
Operating profit		$	469		$	155		203%
Operating margin			18.6%			7.8%

Small ag and turf sales for the quarter increased due to higher shipment volumes, price realization, and the favorable effects of currency translation. Operating profit increased primarily due to higher shipment volumes / sales mix and price realization. Results for the prior period were affected by voluntary employee-separation expenses.

Construction & Forestry		First Quarter
$ in millions		2021			2020			% Change
Net sales		$	2,467		$	2,044		21%
Operating profit		$	268		$	93		188%
Operating margin			10.9%			4.5%

Construction and forestry sales moved higher for the quarter primarily due to higher shipment volumes, price realization, and the favorable effects of currency translation. Additionally, the Wirtgen operation's one-month reporting lag was eliminated resulting in four months of Wirtgen activity in the quarter. Operating profit increased mainly due to higher shipment volumes / sales mix and price realization. The increase in profit was partially offset by impairments of long-lived assets and higher production costs. Results last year also included voluntary employee-separation costs.

Financial Services		First Quarter
$ in millions		2021			2020			% Change
Net income		$	204		$	137		49%

The increase in financial services net income for the quarter was mainly due to favorable financing spreads, lower losses on operating-lease residual values, and a lower provision for credit losses.

Industry Outlook for 2021 (Annual)
Agriculture & Turf
U.S. & Canada:
Large Ag						Up 15 to 20%
Small Ag & Turf						Up ~ 5%
Europe						Up ~ 5%
South America (Tractors & Combines)						Up ~ 10%
Asia						Down slightly
Construction & Forestry
U.S. & Canada:
Construction Equipment						Up ~5%
Compact Construction Equipment						Up ~10%
Global Forestry						Up 5 to 10%

 

Deere Segment Outlook (2021)				Currency		Price
$ in millions		Net Sales		Translation		Realization
Production & Precision Ag		$15,500 to 16,500		+1%		+6%
Small Ag & Turf		$10,500 to 11,500		+3%		+2%
Construction & Forestry		$10,500 to 11,000		+2%		+2%
Financial Services		Net Income		$ 730

Financial Services. Full-year 2021 results are expected to benefit from income earned from a higher average portfolio, lower losses on lease residual values, and favorable financing spreads.

John Deere Capital Corporation

The following is disclosed on behalf of the company's financial services subsidiary, John Deere Capital Corporation (JDCC), in connection with the disclosure requirements applicable to its periodic issuance of debt securities in the public market.

		First Quarter
$ in millions		2021			2020			% Change
Revenue		$	657		$	719		-9%
Net income		$	167		$	99		69%
Ending portfolio balance		$	38,372		$	37,146		3%

Results for the quarter were higher than the same period in 2020 primarily due to favorable financing spreads, lower losses on operating-lease residual values, and a lower provision for credit losses.

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:  Statements under "Company Outlook & Summary," "Industry Outlook," "Deere Segment Outlook," 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 the factors that affect farmers' confidence and financial condition.  These factors include demand for agricultural products, world grain stocks, weather conditions, soil conditions, harvest yields, prices for commodities and livestock, crop and livestock production expenses, availability of transport for crops, trade restrictions and tariffs (e.g., China), global trade agreements, the level of farm product exports (including concerns about genetically modified organisms), the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production), real estate values, available acreage for farming, the land ownership policies of governments, changes in government farm programs and policies, international reaction to such programs, changes in and effects of crop insurance programs, changes in environmental regulations and their impact on farming practices, animal diseases (e.g., African swine fever) and their effects on poultry, beef and pork consumption and prices and on livestock feed demand, and crop pests and 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 on hardware and software, guidance, connectivity and digital solutions, and automation and machine intelligence.  Many factors contribute to the company's precision agriculture sales and results, including the impact to customers' profitability or sustainability outcomes; the rate of adoption and use by customers; availability of technological innovations; speed of research and development; effectiveness of partnerships with third-parties; and the dealer channel's ability to support and service precision technology solutions.

Factors affecting the outlook for the company's small agriculture and turf equipment include agricultural conditions, consumer confidence, weather conditions, customer profitability, labor supply, consumer borrowing patterns, consumer purchasing preferences, housing starts and supply, infrastructure investment, spending by municipalities and golf courses, and consumable input costs.

Consumer spending patterns, real estate and housing prices, the number of housing starts, interest rates, commodity prices such as oil and gas, the levels of public and non-residential construction, and investment in infrastructure affect sales and results of the company's construction and forestry equipment.  Prices for pulp, paper, lumber and structural panels affect sales of forestry equipment.

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

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

Uncertainties related to the magnitude and duration of the COVID pandemic may significantly adversely affect the company's business and outlook.  These uncertainties include: the duration and impact of any resurgence in COVID cases in any country, state, or region; the emergence, contagiousness, and threat of new and different strains of COVID; prolonged reduction or closure of the company's operations, or a delayed recovery in our operations; additional closures as mandated or otherwise made necessary by governmental authorities; disruptions in the supply chain and a prolonged delay in resumption of operations by one or more key suppliers, or the failure of any key suppliers; the company's ability to meet commitments to customers on a timely basis as a result of increased costs and supply challenges; the ability to receive goods on a timely basis and at anticipated costs; increased logistics costs; delays in the company's strategic initiatives as a result of reduced spending on research and development; additional operating costs due to remote working arrangements, adherence to social distancing guidelines and other COVID-related challenges; increased risk of cyber attacks on network connections used in remote working arrangements; increased privacy-related risks due to processing health-related personal information; legal claims related to personal protective equipment designed, made, or provided by the company or alleged exposure to COVID on company premises; absence of employees due to illness; the impact of the pandemic on the company's customers and dealers, and their delays in their plans to invest in new equipment; requests by the company's customers or dealers for payment deferrals and contract modifications; the impact of disruptions in the global capital markets and/or declines in the company's financial performance, outlook or credit ratings, which could impact the company's ability to obtain funding in the future; and the impact of the pandemic on demand for our products and services as discussed above.  It is unclear when a sustained economic recovery could occur and what a recovery may look like.  All of these factors could materially and adversely affect our business, liquidity, results of operations and financial position.

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

The withdrawal of the United Kingdom from the European Union and the perceptions as to the impact of the withdrawal may adversely affect business activity, political stability and economic conditions in the United Kingdom, the European Union and elsewhere.  The economic conditions and outlook could be further adversely affected by (i) uncertainty regarding any new or modified trade arrangements between the United Kingdom and the European Union and/or other countries, (ii) the risk that one or more other European Union countries could come under increasing pressure to leave the European Union, or (iii) the risk that the euro as the single currency of the Eurozone could cease to exist.  Any of these developments, or the perception that any of these developments are likely to occur, could affect economic growth or business activity in the United Kingdom or the European Union, and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, currency exchange rates, interest rates, financial institutions, and political, financial and monetary systems.  Any of these developments could affect our businesses, liquidity, results of operations and financial position.

Additional factors that could materially affect the company's operations, access to capital, expenses and results include changes in, uncertainty surrounding and the impact of governmental trade, banking, monetary and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs and other areas; governmental programs, policies, and tariffs for the benefit of certain industries or sectors; sanctions in particular jurisdictions; retaliatory actions to such changes in trade, banking, monetary and fiscal policies; actions by central banks; actions by financial and securities regulators; actions by environmental, health and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, noise and the effects of climate change; changes to GPS radio frequency bands or their permitted uses; changes in labor and immigration regulations; changes to accounting standards; changes in tax rates, estimates, laws and regulations and company actions related thereto; changes to and compliance with privacy regulations; changes to and compliance with economic sanctions and export controls laws and regulations; compliance with U.S. and foreign laws when expanding to new markets and otherwise; and actions by other regulatory bodies.

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

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

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

First Quarter 2021 Press Release
(in millions of dollars)
Unaudited
		Three Months Ended
		January 31			February 2			%
		2021			2020			Change
Net sales and revenues:
Production & precision ag		$	3,069		$	2,507		+22
Small ag & turf			2,515			1,979		+27
Construction & forestry			2,467			2,044		+21
Total net sales			8,051			6,530		+23
Financial services			884			931		-5
Other revenues			177			170		+4
Total net sales and revenues		$	9,112		$	7,631		+19
Operating profit: *
Production & precision ag		$	643		$	218		+195
Small ag & turf			469			155		+203
Construction & forestry			268			93		+188
Financial services			258			179		+44
Total operating profit			1,638			645		+154
Reconciling items **			(106)			(78)		+36
Income taxes			(308)			(50)		+516
Net income attributable to Deere & Company		$	1,224		$	517		+137

*	Operating profit is income from continuing operations before corporate expenses, certain external interest expense, certain foreign exchange gains and losses, and income taxes. Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains or losses.
**	Reconciling items are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, pension and postretirement benefit costs excluding the service cost component, and net income attributable to noncontrolling interests.

 

DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended January 31, 2021 and February 2, 2020
(In millions of dollars and shares except per share amounts) Unaudited
		2021			2020
Net Sales and Revenues
Net sales		$	8,051		$	6,530
Finance and interest income			834			896
Other income			227			205
Total			9,112			7,631
Costs and Expenses
Cost of sales			5,805			5,077
Research and development expenses			366			425
Selling, administrative and general expenses			769			809
Interest expense			271			336
Other operating expenses			373			415
Total			7,584			7,062
Income of Consolidated Group before Income Taxes			1,528			569
Provision for income taxes			308			50
Income of Consolidated Group			1,220			519
Equity in income (loss) of unconsolidated affiliates			4			(1)
Net Income			1,224			518
Less: Net income attributable to noncontrolling interests						1
Net Income Attributable to Deere & Company		$	1,224		$	517
Per Share Data
Basic		$	3.90		$	1.65
Diluted		$	3.87		$	1.63
Average Shares Outstanding
Basic			313.5			313.5
Diluted			316.1			317.2

See Condensed Notes to Interim Consolidated Financial Statements.

 

DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited
		January 31			November 1			February 2
		2021			2020			2020
Assets
Cash and cash equivalents		$	6,962		$	7,066		$	3,602
Marketable securities			667			641			609
Receivables from unconsolidated affiliates			28			31			38
Trade accounts and notes receivable - net			5,037			4,171			5,360
Financing receivables - net			29,438			29,750			27,294
Financing receivables securitized - net			3,931			4,703			4,478
Other receivables			1,141			1,220			1,367
Equipment on operating leases - net			7,030			7,298			7,504
Inventories			5,956			4,999			6,482
Property and equipment - net			5,741			5,817			5,900
Investments in unconsolidated affiliates			178			193			217
Goodwill			3,194			3,081			2,945
Other intangible assets - net			1,342			1,327			1,349
Retirement benefits			906			863			900
Deferred income taxes			1,556			1,499			1,414
Other assets			2,373			2,432			2,362
Total Assets		$	75,480		$	75,091		$	71,821
Liabilities and Stockholders' Equity
Liabilities
Short-term borrowings		$	9,224		$	8,582		$	10,008
Short-term securitization borrowings			3,969			4,682			4,416
Payables to unconsolidated affiliates			119			105			147
Accounts payable and accrued expenses			9,404			10,112			8,630
Deferred income taxes			532			519			491
Long-term borrowings			32,772			32,734			30,475
Retirement benefits and other liabilities			5,374			5,413			5,710
Total liabilities			61,394			62,147			59,877
Redeemable noncontrolling interest									14
Stockholders' Equity
Total Deere & Company stockholders' equity			14,083			12,937			11,926
Noncontrolling interests			3			7			4
Total stockholders' equity			14,086			12,944			11,930
Total Liabilities and Stockholders' Equity		$	75,480		$	75,091		$	71,821

See Condensed Notes to Interim Consolidated Financial Statements.

 

DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Three Months Ended January 31, 2021 and February 2, 2020
(In millions of dollars) Unaudited
		2021			2020
Cash Flows from Operating Activities
Net income		$	1,224		$	518
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision (credit) for credit losses			(5)			15
Provision for depreciation and amortization			538			538
Impairment charges			50
Share-based compensation expense			15			19
Undistributed earnings of unconsolidated affiliates			18
Credit for deferred income taxes			(38)			(29)
Changes in assets and liabilities:
Trade, notes and financing receivables related to sales			(97)			70
Inventories			(926)			(642)
Accounts payable and accrued expenses			(705)			(1,134)
Accrued income taxes payable/receivable			130			(53)
Retirement benefits			(14)			36
Other			(47)			154
Net cash provided by (used for) operating activities			143			(508)
Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)			5,999			5,664
Proceeds from maturities and sales of marketable securities			20			18
Proceeds from sales of equipment on operating leases			460			426
Cost of receivables acquired (excluding receivables related to sales)			(5,300)			(4,303)
Acquisitions of businesses, net of cash acquired			(19)
Purchases of marketable securities			(39)			(34)
Purchases of property and equipment			(154)			(271)
Cost of equipment on operating leases acquired			(294)			(517)
Collateral on derivatives - net			(88)			26
Other			(6)			17
Net cash provided by investing activities			579			1,026
Cash Flows from Financing Activities
Decrease in total short-term borrowings			(695)			(473)
Proceeds from long-term borrowings			1,757			1,702
Payments of long-term borrowings			(1,441)			(1,651)
Proceeds from issuance of common stock			71			53
Repurchases of common stock			(352)			(114)
Dividends paid			(242)			(242)
Other			(31)			(38)
Net cash used for financing activities			(933)			(763)
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash			103			(1)
Net Decrease in Cash, Cash Equivalents, and Restricted Cash			(108)			(246)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period			7,172			3,956
Cash, Cash Equivalents, and Restricted Cash at End of Period		$	7,064		$	3,710

See Condensed Notes to Interim Consolidated Financial Statements.

 

Condensed Notes to Interim Consolidated Financial Statements (Unaudited)
(1)	During the first quarter of 2021, the fixed assets in an asphalt plant factory in Germany were impaired by $38 million, pretax and after-tax. The company also continued to assess its manufacturing locations, resulting in additional long-lived asset impairments of $12 million pretax. The impairments were the result of a decline in forecasted financial performance that indicated it was probable future cash flows would not cover the carrying amount of the net assets. These impairments were offset by a favorable indirect tax ruling in Brazil of $58 million pretax.

		Three Months Ended January 31, 2021
Expense (benefit):		Production & Precision Ag			Small Ag & Turf			Construction & Forestry			Total
Long-lived asset impairments –    Cost of sales		$	5		$	3		$	42		$	50
Brazil indirect tax – Cost of sales			(53)						(5)			(58)
Total expense (benefit)		$	(48)		$	3		$	37		$	(8)

	During the first quarter of 2020, the company implemented a voluntary employee-separation program with total pretax expenses as follows:

		Three Months Ended February 2, 2020
		Production & Precision Ag			Small Ag & Turf			Construction & Forestry			Financial Services			Total
Cost of sales		$	19		$	11		$	9					$	39
Research and development    expenses			6			7			3						16
Selling, administrative and    general expenses			17			18			12		$	3			50
Total operating profit impact		$	42		$	36		$	24		$	3			105
Other operating expenses															22
Total expense														$	127

(2)	Prior to November 2, 2020, the operating results of the Wirtgen Group (Wirtgen) were incorporated into the company's consolidated financial statements using a one-month lag period. In the first quarter of 2021, the reporting lag was eliminated resulting in four months of Wirtgen activity in the quarter. The effect was an increase to "Net sales" of $270 million, which the company considers immaterial to construction and forestry's annual net sales. Prior period results were not restated.
(3)	Dividends declared and paid on a per share basis were as follows:

		Three Months Ended
		January 31			February 2
		2021			2020
Dividends declared		$	.76		$	.76
Dividends paid		$	.76		$	.76

(4)	The calculation of basic net income per share is based on the average number of shares outstanding. The calculation of diluted net income per share recognizes any dilutive effect of share-based compensation.
(5)	The consolidated financial statements represent the consolidation of all Deere & Company's subsidiaries. In the supplemental consolidating data in Note 6 to the financial statements, the "Equipment Operations" represents the enterprise without "Financial Services," which include the company's production and precision agriculture operations, small agriculture and turf operations, and construction and forestry operations, and other corporate assets, liabilities, revenues, and expenses not reflected within "Financial Services."

 

(6) SUPPLEMENTAL CONSOLIDATING DATA
STATEMENT OF INCOME
For the Three Months Ended January 31, 2021 and February 2, 2020
(In millions of dollars) Unaudited		EQUIPMENT OPERATIONS1						FINANCIAL SERVICES						ELIMINATIONS						CONSOLIDATED
		2021			2020			2021			2020			2021			2020			2021			2020
Net Sales and Revenues
Net sales		$	8,051		$	6,530														$	8,051		$	6,530
Finance and interest income			32			27		$	862		$	936		$	(60)		$	(67)			834			896	2
Other income			220			209			72			62			(65)			(66)			227			205	3
Total			8,303			6,766			934			998			(125)			(133)			9,112			7,631
Costs and Expenses
Cost of sales			5,806			5,078									(1)			(1)			5,805			5,077	4
Research and development expenses			366			425															366			425
Selling, administrative and general expenses			653			672			117			138			(1)			(1)			769			809	4
Interest expense			95			63			188			275			(12)			(2)			271			336	5
Interest compensation to Financial Services			48			64									(48)			(64)							5
Other operating expenses			67			72			369			408			(63)			(65)			373			415	6
Total			7,035			6,374			674			821			(125)			(133)			7,584			7,062
Income before Income Taxes			1,268			392			260			177									1,528			569
Provision for income taxes			252			9			56			41									308			50
Income after Income Taxes			1,016			383			204			136									1,220			519
Equity in income (loss) of    unconsolidated affiliates			4			(2)						1									4			(1)
Net Income			1,020			381			204			137									1,224			518
Less: Net income attributable to    noncontrolling interests						1																		1
Net Income Attributable to    Deere & Company		$	1,020		$	380		$	204		$	137								$	1,224		$	517

The supplemental consolidating data is presented for informational purposes. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.
1	The Equipment Operations represents the enterprise without Financial Services. The Equipment Operations includes the Company's production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues and expenses not reflected within Financial Services.
2	Elimination of Financial Services interest income earned from Equipment Operations.
3	Elimination of Equipment Operations' margin from inventory transferred to equipment on operating leases.
4	Elimination of intercompany service fees.
5	Elimination of Equipment Operations interest expense to Financial Services.
6	Elimination of Financial Services lease depreciation expense related to inventory transferred to equipment on operating leases.

 

SUPPLEMENTAL CONSOLIDATING DATA (Continued)
CONDENSED BALANCE SHEET
(In millions of dollars) Unaudited
		EQUIPMENT OPERATIONS1									FINANCIAL SERVICES									ELIMINATIONS									CONSOLIDATED
		Jan 31			Nov 1			Feb 2			Jan 31			Nov 1			Feb 2			Jan 31			Nov 1			Feb 2			Jan 31			Nov 1			Feb 2
		2021			2020			2020			2021			2020			2020			2021			2020			2020			2021			2020			2020
Assets
Cash and cash equivalents		$	6,074		$	6,145		$	2,862		$	888		$	921		$	740											$	6,962		$	7,066		$	3,602
Marketable securities			8			7			4			659			634			605												667			641			609
Receivables from unconsolidated    affiliates			5,151			5,290			1,425											$	(5,123)		$	(5,259)		$	(1,387)			28			31			38	7
Trade accounts and notes    receivable - net			900			1,013			1,115			5,341			4,238			5,707			(1,204)			(1,080)			(1,462)			5,037			4,171			5,360	8
Financing receivables - net			103			106			130			29,335			29,644			27,164												29,438			29,750			27,294
Financing receivables securitized - net			18			26			42			3,913			4,677			4,436												3,931			4,703			4,478
Other receivables			1,010			1,117			1,252			151			151			131			(20)			(48)			(16)			1,141			1,220			1,367	8
Equipment on operating leases - net												7,030			7,298			7,504												7,030			7,298			7,504
Inventories			5,956			4,999			6,482																					5,956			4,999			6,482
Property and equipment - net			5,703			5,778			5,857			38			39			43												5,741			5,817			5,900
Investments in unconsolidated affiliates			157			174			200			21			19			17												178			193			217
Goodwill			3,194			3,081			2,945																					3,194			3,081			2,945
Other intangible assets - net			1,342			1,327			1,349																					1,342			1,327			1,349
Retirement benefits			903			859			871			60			59			58			(57)			(55)			(29)			906			863			900	9
Deferred income taxes			1,797			1,763			1,821			51			45			56			(292)			(309)			(463)			1,556			1,499			1,414	10
Other assets			1,485			1,439			1,546			891			994			818			(3)			(1)			(2)			2,373			2,432			2,362
Total Assets		$	33,801		$	33,124		$	27,901		$	48,378		$	48,719		$	47,279		$	(6,699)		$	(6,752)		$	(3,359)		$	75,480		$	75,091		$	71,821
Liabilities and Stockholders' Equity
Liabilities
Short-term borrowings		$	394		$	292		$	947		$	8,830		$	8,290		$	9,061											$	9,224		$	8,582		$	10,008
Short-term securitization borrowings			17			26			42			3,952			4,656			4,374												3,969			4,682			4,416
Payables to unconsolidated affiliates			119			104			146			5,123			5,260			1,387		$	(5,123)		$	(5,259)		$	(1,386)			119			105			147	7
Accounts payable and    accrued expenses			8,672			9,114			8,325			1,959			2,127			1,786			(1,227)			(1,129)			(1,481)			9,404			10,112			8,630	8
Deferred income taxes			394			385			408			430			443			546			(292)			(309)			(463)			532			519			491	10
Long-term borrowings			10,139			10,124			5,567			22,633			22,610			24,908												32,772			32,734			30,475
Retirement benefits and other liabilities			5,325			5,366			5,639			106			102			100			(57)			(55)			(29)			5,374			5,413			5,710	9
Total liabilities			25,060			25,411			21,074			43,033			43,488			42,162			(6,699)			(6,752)			(3,359)			61,394			62,147			59,877
Redeemable noncontrolling interest									14																											14
Stockholders' Equity
Total Deere & Company    stockholders' equity			14,083			12,937			11,926			5,345			5,231			5,117			(5,345)			(5,231)			(5,117)			14,083			12,937			11,926	11
Noncontrolling interests			3			7			4																					3			7			4
Financial Services equity			(5,345)			(5,231)			(5,117)												5,345			5,231			5,117										11
Adjusted total stockholders' equity			8,741			7,713			6,813			5,345			5,231			5,117												14,086			12,944			11,930
Total Liabilities and    Stockholders' Equity		$	33,801		$	33,124		$	27,901		$	48,378		$	48,719		$	47,279		$	(6,699)		$	(6,752)		$	(3,359)		$	75,480		$	75,091		$	71,821

The supplemental consolidating data is presented for informational purposes. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.
1	The Equipment Operations represents the enterprise without Financial Services. The Equipment Operations includes the Company's production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues and expenses not reflected within Financial Services.
7	Elimination of receivables / payables between Equipment Operations and Financial Services.
8	Reclassification of sales incentive accruals on receivables sold to Financial Services.
9	Reclassification of net pension assets / liabilities.
10	Reclassification of deferred tax assets / liabilities in the same taxing jurisdictions.
11	Elimination of Financial Services equity.

 

SUPPLEMENTAL CONSOLIDATING DATA (Continued)
STATEMENT OF CASH FLOWS
For the Three Months Ended January 31, 2021 and February 2, 2020
(In millions of dollars) Unaudited
		EQUIPMENT OPERATIONS1						FINANCIAL SERVICES						ELIMINATIONS						CONSOLIDATED
		2021			2020			2021			2020			2021			2020			2021			2020
Cash Flows from Operating Activities
Net income		$	1,020		$	381		$	204		$	137								$	1,224		$	518
Adjustments to reconcile net income to net cash provided by (used for)    operating activities:
Provision (credit) for credit losses			(2)			1			(3)			14									(5)			15
Provision for depreciation and amortization			279			261			294			311		$	(35)		$	(34)			538			538	12
Impairment charges			50																		50
Share-based compensation expense															15			19			15			19	13
Undistributed earnings of unconsolidated affiliates			154			126			(1)			(1)			(135)			(125)			18				14
Credit for deferred income taxes			(27)			(7)			(11)			(22)									(38)			(29)
Changes in assets and liabilities:
Trade, notes, and financing receivables related to sales			156			312									(253)			(242)			(97)			70	15, 17, 18
Inventories			(842)			(530)									(84)			(112)			(926)			(642)	16
Accounts payable and accrued expenses			(529)			(1,058)			(53)			(19)			(123)			(57)			(705)			(1,134)	17
Accrued income taxes payable/receivable			173			(43)			(43)			(10)									130			(53)
Retirement benefits			(16)			30			2			6									(14)			36
Other			(68)			147			31			30			(10)			(23)			(47)			154	12, 13, 16
Net cash provided by (used for) operating activities			348			(380)			420			446			(625)			(574)			143			(508)
Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)									6,416			6,056			(417)			(392)			5,999			5,664	15
Proceeds from maturities and sales of marketable securities									20			18									20			18
Proceeds from sales of equipment on operating leases									460			426									460			426
Cost of receivables acquired (excluding receivables related to sales)									(5,559)			(4,569)			259			266			(5,300)			(4,303)	15
Acquisitions of businesses, net of cash acquired			(19)																		(19)
Purchases of marketable securities									(39)			(34)									(39)			(34)
Purchases of property and equipment			(154)			(271)															(154)			(271)
Cost of equipment on operating leases acquired									(408)			(669)			114			152			(294)			(517)	16
Increase in trade and wholesale receivables									(523)			(382)			523			382							15
Collateral on derivatives - net									(88)			26									(88)			26
Other			(8)			(9)			(9)			(15)			11			41			(6)			17	18
Net cash provided by (used for) investing activities			(181)			(280)			270			857			490			449			579			1,026
Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings			(20)			20			(675)			(493)									(695)			(473)
Change in intercompany receivables/payables			264			572			(264)			(572)
Proceeds from long-term borrowings						167			1,757			1,535									1,757			1,702
Payments of long-term borrowings			(20)			(83)			(1,421)			(1,568)									(1,441)			(1,651)
Proceeds from issuance of common stock			71			53															71			53
Repurchases of common stock			(352)			(114)															(352)			(114)
Dividends paid			(242)			(242)			(135)			(125)			135			125			(242)			(242)	14
Other			(22)			(29)			(9)			(9)									(31)			(38)
Net cash provided by (used for) financing activities			(321)			344			(747)			(1,232)			135			125			(933)			(763)
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and    Restricted Cash			83			3			20			(4)									103			(1)
Net Increase (Decrease) in Cash, Cash Equivalents, and    Restricted Cash			(71)			(313)			(37)			67									(108)			(246)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period			6,156			3,196			1,016			760									7,172			3,956
Cash, Cash Equivalents, and Restricted Cash at End of Period		$	6,085		$	2,883		$	979		$	827								$	7,064		$	3,710

The supplemental consolidating data is presented for informational purposes. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.
1	The Equipment Operations represents the enterprise without Financial Services. The Equipment Operations includes the Company's production and precision agriculture operations, small agriculture and turf operations, construction and forestry operations, and other corporate assets, liabilities, revenues and expenses not reflected within Financial Services.
12	Elimination of depreciation on leases related to inventory transferred to equipment on operating leases.
13	Reclassification of share-based compensation expense.
14	Elimination of dividends from Financial Services to the Equipment Operations, which are included in the Equipment Operations net cash provided by operating activities, and capital investments in Financial Services from the Equipment Operations.
15	Primarily reclassification of receivables related to the sale of equipment.
16	Reclassification of lease agreements with direct customers.
17	Reclassification of sales incentive accruals on receivables sold to Financial Services.
18	Elimination and reclassification of the effects of Financial Services partial financing of the construction and forestry retail locations sales and subsequent collection of those amounts.

 

Deere & Company
Other Financial Information
For the Three Months Ended		Equipment Operations						Production & Precision Ag						Small Ag & Turf						Construction & Forestry
		January 31			February 2			January 31			February 2			January 31			February 2			January 31			February 2
Dollars in millions		2021			2020			2021			2020			2021			2020			2021			2020
Net Sales		$	8,051		$	6,530		$	3,069		$	2,507		$	2,515		$	1,979		$	2,467		$	2,044
Net Sales - excluding Wirtgen					$	5,925					$	2,507					$	1,979					$	1,439
Average Identifiable Assets*
With Inventories at LIFO		$	15,995		$	17,255		$	6,218		$	6,404		$	3,432		$	3,806		$	6,345		$	7,045
With Inventories at LIFO -    excluding Wirtgen					$	13,216					$	6,404					$	3,806					$	3,006
With Inventories at Standard Cost		$	17,387		$	18,672		$	6,906		$	7,092		$	3,870		$	4,268		$	6,611		$	7,312
With Inventories at Standard Cost -    excluding Wirtgen					$	14,633					$	7,092					$	4,268					$	3,273
Operating Profit		$	1,380		$	466		$	643		$	218		$	469		$	155		$	268		$	93
Operating Profit - excluding Wirtgen					$	449					$	218					$	155					$	76
Percent of Net Sales**			17.1	%		7.6	%		21.0	%		8.7	%		18.6	%		7.8	%		10.9	%		5.3	%
Operating Return on Assets**
With Inventories at LIFO			8.6	%		3.4	%		10.3	%		3.4	%		13.7	%		4.1	%		4.2	%		2.5	%
With Inventories at Standard Cost			7.9	%		3.1	%		9.3	%		3.1	%		12.1	%		3.6	%		4.1	%		2.3	%
SVA Cost of Assets**		$	(522)		$	(439)		$	(207)		$	(213)		$	(117)		$	(127)		$	(198)		$	(99)
SVA**		$	858		$	10		$	436		$	5		$	352		$	28		$	70		$	(23)
For the Three Months Ended		Financial Services
		January 31			February 2
Dollars in millions		2021			2020
Net Income Attributable to    Deere & Company		$	204		$	137
Average Equity		$	5,298		$	5,119
Return on Equity			3.9	%		2.7	%
Operating Profit		$	258		$	179
Cost of Equity		$	(165)		$	(166)
SVA		$	93		$	13
The Company evaluates its business results on the basis of accounting principles generally accepted in the United States. In addition, it uses a metric referred to as Shareholder Value Added (SVA), which management believes is an appropriate measure for the performance of its businesses. SVA is, in effect, the pretax profit left over after subtracting the cost of enterprise capital. The Company is aiming for a sustained creation of SVA and is using this metric for various performance goals. Certain compensation is also determined on the basis of performance using this measure. For purposes of determining SVA, each of the equipment segments is assessed a pretax cost of assets, which on an annual basis is approximately 12 percent of the segment's average identifiable operating assets during the applicable period with inventory at standard cost. Management believes that valuing inventories at standard cost more closely approximates the current cost of inventory and the Company's investment in the asset. The Financial Services segment is assessed an annual pretax cost of approximately 13 percent of the segment's average equity. The cost of assets or equity, as applicable, is deducted from the operating profit or added to the operating loss of each segment to determine the amount of SVA.   *  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 information has been recast for a consistent presentation.   ** Beginning in fiscal year 2021, the results and assets related to the Wirtgen Group (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.

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SOURCE Deere & Company

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