DEERE & CO MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

RESULTS OF OPERATIONS

Overview

Organization

The Company’s equipment operations generate revenues and cash primarily from the
sale of equipment to John Deere dealers and distributors. The equipment
operations manufacture and distribute a full line of agricultural equipment; a
variety of commercial and consumer equipment; and a broad range of equipment for
construction, roadbuilding, and forestry. The Company’s financial services
primarily provide credit services, which mainly finance sales and leases of
equipment by John Deere dealers and trade receivables purchased from the
equipment operations. In addition, financial services offers extended equipment
warranties. The information in the following discussion is presented in a format
that includes information grouped as consolidated, equipment operations, and
financial services. The Company’s operating segments consist of production and
precision agriculture, small agriculture and turf, construction and forestry,
and financial services.

Trends and Economic Conditions for Fiscal Year 2022

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

Items of concern include global and regional political conditions, economic and
trade policies, inflationary pressures, the ongoing pandemic, capital market
disruptions, changes in demand and pricing for new and used equipment, and the
other items discussed in the “Forward-Looking Statements” below. Significant
fluctuations in foreign currency exchange rates, volatility in the price of many
commodities, and supply chain disruptions could also impact the Company’s
results.

The Company’s second quarter results reflect strong demand while enduring supply
chain pressures continue to impact production levels and delivery schedules. The
Company’s employees, suppliers, and dealers are working to address these
challenges. The demand for agricultural equipment is expected to benefit from
positive fundamentals despite availability concerns and inflationary pressures
affecting customers’ input costs. The Company’s smart industrial operating model
and recently announced financial and sustainability goals (Leap Ambitions) are
focused on helping customers manage higher costs and increasingly scarce inputs,
while improving agricultural yields, through the use of the Company’s integrated
technologies.

Impact of Events in Russia / Ukraine

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


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2022 Compared with 2021

                                             Three Months Ended              Six Months Ended
Deere & Company                          May 1      May 2       %       May 1      May 2       %
(In millions of dollars, except per
share amounts)                            2022       2021     Change     2022       2021     Change
Net sales and revenues                  $ 13,370   $ 12,058      +11   $ 22,939   $ 21,170       +8
Net income attributable to Deere &
Company                                    2,098      1,790      +17      3,001      3,013
Diluted earnings per share                  6.81       5.68                9.72       9.55


Results for the second quarter of 2022 and year-to-date periods of 2022 and 2021
were impacted by special items. See Note 20 for more information on special
items impacting the presented periods. The discussion on net sales and operating
profit is included in the Business Segment Results below.

                                            Three Months Ended            Six Months Ended
Deere & Company                          May 1    May 2       %       May 1    May 2       %
(In millions of dollars)                 2022      2021     Change    2022      2021     Change
Cost of sales to net sales                74.1%     72.1%              75.9%     72.1%

Other income                            $   540   $   251     +115   $   779   $   477      +63
Research and development expenses           453       377      +20       855       743      +15
Selling, administrative and general
expenses                                    932       838      +11     1,713     1,607       +7
Other operating expenses                    328       335       -2       638       708      -10
Provision for income taxes                  461       530      -13       710       838      -15

The cost of sales to net sales ratio increased in the second quarter and the
first six months of fiscal 2022 primarily due to higher production costs
partially offset by price realization. Other income increased in both periods
due to a non-cash gain on the remeasurement of the previously held equity
investment in the Deere-Hitachi joint venture. Research and development expenses
were higher for both periods due to continued focus on developing and
incorporating technology solutions. Selling, administrative, and general
expenses increased in the second quarter and the first six months primarily due
to a higher provision for credit losses, including higher reserves due to the
events in Russia / Ukraine. Other operating expenses decreased in the first six
months primarily due to lower depreciation of equipment on operating leases and
lower retirement benefit costs. The provision for income taxes decreased in both
periods due in part to a final U.S. tax regulation resulting in the release of a
foreign tax credit valuation allowance.

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Business Segment Results

                                         Three Months Ended         Six Months Ended
Production and Precision Agriculture   May 1   May 2      %      May 1   May 2      %
(In millions of dollars)               2022     2021    Change   2022     2021    Change
Net sales                             $ 5,117  $ 4,529     +13  $ 8,473  $ 7,599     +12
Operating profit                        1,057    1,007      +5    1,353    1,651     -18
Operating margin                        20.7%    22.2%            16.0%    21.7%
Price realization                                          +11                       +10
Currency translation                                                                  -1

Production and precision agriculture sales increased for the quarter due to
price realization and higher shipment volumes. Operating profit rose primarily
due to price realization and higher shipment volumes / sales mix. These items
were partially offset by higher production costs, higher research and
development and selling, administrative, and general expenses, and impairments
related to events in Russia / Ukraine.


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Sales for the first six months increased mainly as a result of price realization
and higher shipment volumes. Operating profit for the first six months decreased
primarily resulting from higher production costs, higher research and
development and selling, administrative, and general expenses, the UAW contract
ratification bonus, and the impact of impairments related to events in Russia /
Ukraine. Partially offsetting these factors were price realization and higher
shipment volumes / sales mix. The prior year was also impacted by a favorable
indirect tax ruling in Brazil.

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                               Three Months Ended         Six Months Ended
Small Agriculture and Turf   May 1   May 2      %      May 1   May 2      %
(In millions of dollars)     2022     2021    Change   2022     2021    Change
Net sales                   $ 3,570  $ 3,390      +5  $ 6,201  $ 5,904      +5
Operating profit                520      648     -20      891    1,117     -20
Operating margin              14.6%    19.1%            14.4%    18.9%
Price realization                                 +8                        +7
Currency translation                              -2                        -2

Small agriculture and turf sales for the quarter increased due to price
realization partially offset by the unfavorable impact of currency translation.
Operating profit decreased primarily due to higher production costs, a less
favorable sales mix, and higher selling, administrative, and general and
research and development expenses. These items were partially offset by price
realization.


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Sales for the first six months increased mainly as a result of price realization
partially offset by the unfavorable impact of currency translation. Operating
profit for the first six months decreased primarily resulting from higher
production costs, a less favorable sales mix, and higher selling,
administrative, and general and research and development expenses. Partially
offsetting these factors was price realization.

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                              Three Months Ended         Six Months Ended
Construction and Forestry   May 1   May 2      %      May 1   May 2      %
(In millions of dollars)    2022     2021    Change   2022     2021    Change
Net sales                  $ 3,347  $ 3,079      +9  $ 5,891  $ 5,546      +6
Operating profit               814      489     +66    1,085      756     +44
Operating margin             24.3%    15.9%            18.4%    13.6%
Price realization                               +10                        +9
Currency translation                             -2                        -2

Construction and forestry sales moved higher for the quarter primarily due to
price realization and higher shipment volumes, partially offset by the
unfavorable impact of currency translation. Operating profit increased due to a
non-cash gain on the remeasurement of the previously held equity investment in
the Deere-Hitachi joint venture and price realization. These items were
partially offset by higher production costs, impairments related to the events
in Russia / Ukraine, and a less favorable product mix.


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The segment’s six-month sales also increased due to price realization partially
offset by the unfavorable impact of currency translation. The first six-month’s
operating profit moved higher mainly due to price realization and a non-cash
gain on the remeasurement of the previously held equity investment in the
Deere-Hitachi joint venture, partially offset by higher production costs.

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                                       Three Months Ended            Six Months Ended
Financial Services                 May 1        May 2      %      May 1   May 2      %
(In millions of dollars)           2022          2021    Change   2022     2021    Change

Revenue (including intercompany) $ 951 $ 954 $ 1,867 $ 1,888 -1
Interest expense

                      112           181     -38      270      369     -27
Net income                            208           222      -6      439      427      +3


While the average balance of receivables and leases financed was 6 percent
higher in the second quarter and the first six months of 2022 compared with the
same periods last year, revenues decreased slightly due to lower financing
rates. Gains on operating lease dispositions also benefited revenue in both
periods. Interest expense decreased in the second quarter and first six months
of 2022 primarily as a result of non-designated derivative gains and lower
average borrowing rates. Net income decreased for the quarter mainly due to
higher reserves for credit losses related to the events in Russia / Ukraine,
partially offset by income earned on a higher average portfolio. Results for the
first six months increased slightly due to income earned on higher average
portfolio balances and an improvement on operating lease residual values,
partially offset by higher reserves for credit losses related to the events in
Russia / Ukraine. Both periods of the prior year also benefited from a favorable
adjustment to the provision for credit losses.

Critical Accounting Estimates

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

CAPITAL RESOURCES AND LIQUIDITY

The discussion of capital resources and liquidity has been organized to review
separately, where appropriate, the Company’s consolidated totals, equipment
operations, and financial services operations.

Consolidated

Cash outflows from consolidated operating activities in the first six months of
2022 were $1,762 million. This resulted mainly from a working capital change and
a $1,000 million voluntary contribution to a U.S. OPEB plan. These were
partially offset by net income adjusted for non-cash provisions. Cash outflows
from investing activities were $1,888 million in the first six months of 2022.
The primary driver was the cost of receivables and equipment on operating leases
acquired exceeding collections of receivables (excluding receivables related to
sales) and proceeds from sales of equipment on operating leases; acquisition of
businesses, net of cash acquired; purchases of property and equipment; and a
change in collateral on derivatives – net. Cash outflows from financing
activities were $386 million in the first six months of 2022. Cash, cash
equivalents, and restricted cash decreased $4,146 million during the first six
months of this year.

Positive cash flows from consolidated operating activities in the first six
months of 2021 were $1,786 million. This resulted primarily from net income
adjusted for non-cash provisions and a change in net accrued income taxes
payable/receivable, partially offset by changes in working capital. Cash
outflows from investing activities were $1,387 million in the first six months
of 2021, primarily due to the cost of receivables and equipment on operating
leases acquired exceeding collections of receivables (excluding receivables
related to sales) and proceeds from sales of equipment on operating leases,
purchases of property and equipment, and a change in collateral on derivatives –
net. Negative cash flows from financing activities were $441 million in the
first six months of 2021. Cash, cash equivalents, and restricted cash increased
$109 million during the first six months of 2021.

The Company has access to most global markets at a reasonable cost and expects
to have sufficient sources of global funding and liquidity to meet its funding
needs in the short term and long term. Sources of liquidity for the Company
include cash and cash equivalents, marketable securities, funds from operations,
the issuance of commercial paper and term debt, the securitization of retail
notes (both public and private markets), and committed and uncommitted bank
lines of credit. The Company’s commercial paper outstanding at May 1, 2022,
October 31, 2021, and May 2, 2021 was $3,403 million, $2,230 million, and $2,259
million
, respectively. The total cash, cash equivalents, and marketable
securities position was $4,560 million, $8,745 million, and $7,850 million,
respectively. The total cash and cash equivalents and marketable securities held
by foreign subsidiaries was $2,606 million, $5,817 million, and $4,972 million
at May 1, 2022, October 31, 2021, and May 2, 2021, respectively. During the
first quarter of 2022, the Company’s foreign subsidiaries returned $3,500
million
of cash and cash equivalents to the U.S. In May 2022, the Company’s
foreign subsidiaries returned $848 million of cash and cash equivalents to the
U.S.

Lines of Credit. The Company also has access to bank lines of credit with
various banks throughout the world. Worldwide lines of credit totaled $8,568
million
at May 1, 2022, $4,608 million of which were unused. For the


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purpose of computing unused credit lines, commercial paper, and short-term bank
borrowings, excluding secured borrowings and the current portion of long-term
borrowings, were primarily considered to constitute utilization. Included in the
total credit lines at May 1, 2022 was a 364-day credit facility agreement of
$3,000 million expiring in the second quarter of 2023. In addition, total credit
lines included long-term credit facility agreements of $2,500 million expiring
in the second quarter of 2026 and $2,500 million expiring in the second quarter
of 2027. 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 May 1, 2022 was
$16,783 million. Alternatively under this provision, the equipment operations
had the capacity to incur additional debt of $31,169 million at May 1, 2022. All
of these credit agreement requirements have been met during the periods included
in the financial statements.

Debt Ratings. To access public debt capital markets, the Company relies on
credit rating agencies to assign short-term and long-term credit ratings to the
Company’s securities as an indicator of credit quality for fixed income
investors. A security rating is not a recommendation by the rating agency to
buy, sell, or hold Company securities. A credit rating agency may change or
withdraw Company ratings based on its assessment of the Company’s current and
future ability to meet interest and principal repayment obligations. Each
agency’s rating should be evaluated independently of any other rating. Lower
credit ratings generally result in higher borrowing costs, including costs of
derivative transactions, and reduced access to debt capital markets. The senior
long-term and short-term debt ratings and outlook currently assigned to
unsecured Company debt securities by the rating agencies engaged by the Company
are as follows:


                                    Senior
                                   Long-Term    Short-Term    Outlook
Fitch Ratings                          A            F1        Stable

Moody’s Investors Service, Inc. A2 Prime-1 Stable
Standard & Poor’s

                      A           A-1        Stable


Trade Accounts and Notes Receivable. Trade accounts and notes receivable
primarily arise from sales of goods to independent dealers. Trade receivables
increased $2,050 million during the first six months of 2022, primarily due to a
seasonal increase and higher overall demand, partially offset by the effect of
foreign currency translation. These receivables increased $100 million, compared
to a year ago. The ratios of trade accounts and notes receivable to the last
12 months’ net sales were 15 percent at May 1, 2022, compared to 11 percent at
October 31, 2021 and 17 percent at May 2, 2021. Production and precision
agriculture trade receivables decreased $6 million, small agriculture and turf
trade receivables decreased $83 million, and construction and forestry trade
receivables increased $189 million, compared to a year ago. The percentage of
total worldwide trade receivables outstanding for periods exceeding 12 months
was 1 percent at May 1, 2022, 1 percent at October 31, 2021, and 2 percent at
May 2, 2021.

Equipment Operations

The Company’s equipment businesses are capital intensive and are subject to
seasonal variations in financing requirements for inventories and certain
receivables from dealers. The equipment operations sell a significant portion of
their trade receivables to financial services. Funds provided from operations
are supplemented by external financing sources as needed.

Cash used for operating activities of the equipment operations, including
intercompany cash flows, in the first six months of 2022 was $646 million. This
resulted primarily from a working capital change and a $1,000 million voluntary
contribution to a U.S. OPEB plan. Partially offsetting these operating cash
outflows were cash inflows from net income adjusted for non-cash provisions.
Cash used for financing activities was $2,401 million in the first six months of
2022 primarily due to repurchases of common stock of $1,226 million, dividends
paid of $649 million, and a decrease in borrowings of $549 million. Cash, cash
equivalents, and restricted cash decreased $4,018 million in the first six
months of 2022.

Cash provided by operating activities of the equipment operations, including
intercompany cash flows, in the first six months of 2021 was $2,507 million.
This resulted primarily from cash inflows from net income adjusted for non-cash
provisions, partially offset by a change in working capital. Cash used for
financing activities was $2,118 million in the first six months of 2021
primarily due to repurchases of common stock of $1,044 million, a decrease


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in borrowings of $676 million, and dividends paid of $480 million. Cash, cash
equivalents, and restricted cash increased $138 million in the first six months
of 2021.

Trade receivables held by the equipment operations increased $203 million during
the first six months of 2022 and increased $133 million from a year ago. The
equipment operations sell a significant portion of their trade receivables to
financial services. See the previous consolidated discussion of trade
receivables.

Inventories increased by $2,249 million during the first six months of 2022 and
increased by $2,988 million compared to a year ago. The higher levels in both
periods are due to increased overall demand and the impact of supply chain
disruptions, partially offset by foreign currency translation. A majority of
these inventories are valued on the last-in, first-out (LIFO) method.

Total interest-bearing debt, excluding finance lease liabilities, of the
equipment operations was $10,057 million at May 1, 2022, compared with $10,373
million
at October 31, 2021 and $10,421 million at May 2, 2021. The ratios of
debt to total capital (total interest-bearing debt and Deere & Company’s
stockholders’ equity) were 35 percent, 36 percent, and 41 percent at May 1,
2022
, October 31, 2021, and May 2, 2021, respectively.

Property and equipment cash expenditures for the equipment operations in the
first six months of 2022 were $345 million, compared with $319 million in the
same period last year. Capital expenditures for the equipment operations in 2022
are estimated to be approximately $1,175 million.

Financial Services

The financial services operations rely on their ability to raise substantial
amounts of funds to finance their receivable and lease portfolios. Their primary
sources of funds for this purpose are a combination of commercial paper, term
debt, securitization of retail notes, equity capital, and borrowings from Deere
& Company
.

During the first six months of 2022 and 2021, the cash provided by operating and
financing activities was used for investing activities. Cash, cash equivalents,
and restricted cash decreased $128 million in the first six months of 2022 and
decreased $29 million in the first six months of 2021.

Receivables and leases held by the financial services operations consist of
retail notes originated in connection with financing of new and used equipment,
operating leases, trade receivables, revolving charge accounts, sales-type and
direct financing leases, and wholesale notes. Trade and financing receivables
and equipment on operating leases increased $1,389 million during the first six
months of 2022 and increased $2,330 million in the past 12 months primarily due
to higher sales. Total acquisition volumes of receivables (excluding trade and
wholesale) and leases were 1 percent higher in the first six months of 2022,
compared with the same period last year, as volumes of revolving charge accounts
were higher, while volumes of retail notes, financing leases, and operating
leases were lower. The amount of total trade receivables and wholesale notes
increased compared to October 31, 2021 and decreased compared to May 2, 2021.

Total external interest-bearing debt of the financial services operations was
$38,751 million at May 1, 2022, compared with $37,978 million at October 31,
2021
and $36,873 million at May 2, 2021. Total external borrowings have changed
generally corresponding with the level of receivable and lease portfolio, the
level of cash and cash equivalents, the change in payables owed to Deere &
Company
, and the change in investment from Deere & Company. The financial
services operations’ ratio of interest-bearing debt, including intercompany
debt, to stockholder’s equity was 7.8 to 1 at May 1, 2022, compared with 7.8 to
1 at October 31, 2021 and 7.7 to 1 at May 2, 2021. The long-term portion of
payables due to Deere & Company was $716 million at May 1, 2022 and $584 million
at October 31, 2021.

Capital Corporation has a revolving warehouse facility to utilize bank conduit
facilities to securitize retail notes (see Note 9). The facility was renewed in
November 2021 with an expiration in November 2022 and a reduction of the total
capacity or “financing limit” from $2,000 million to $1,000 million. As a result
of the reduced capacity, Capital Corporation repurchased $511 million of
outstanding short-term securitization borrowings in November 2021, in addition
to the normal payments collected on the retail notes. At May 1, 2022, $760
million
of securitization borrowings was outstanding under the facility. 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.

In the first six months of 2022, the financial services operations issued $1,224
million
and retired $1,818 million of retail note securitization borrowings,
which are presented in Increase in total short-term borrowings on the statements
of consolidated cash flows. In addition, during the first six months of 2022,
the financial services operations issued $4,243 million and retired $3,317
million
of long-term borrowings, which were primarily medium-


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term notes. In April 2022, the Company’s financial services operations issued
$600 million of sustainability-linked medium-term notes with an initial interest
rate of 3.35 percent, which are due in 2029. This transaction supports the
Company’s commitment to environmental sustainability by linking financing to the
achievement of its ambitious and comprehensive environmental, social, and
governance (ESG) targets. Failure to meet the stated sustainability performance
target will result in a 25-basis point increase to the interest rate payable on
the 2029 notes from and including April 2026.

Subsequent Event

On May 25, 2022, the Company’s Board of Directors declared a quarterly dividend
of $1.13 per share payable August 8, 2022 to stockholders of record on June 30,
2022
. The new quarterly rate represents an additional 8 cents per share over the
previous level, an increase of approximately 8 percent.

Forward-Looking Statements

Certain statements contained herein, including in the section entitled
“Overview” relating to future events, expectations, and trends constitute
“forward-looking statements” as defined in the Private Securities Litigation
Reform Act of 1995 and involve factors that are subject to change, assumptions,
risks, and uncertainties that could cause actual results to differ materially.
Some of these risks and uncertainties could affect all lines of the Company’s
operations, generally, while others could more heavily affect a particular line
of business.

Forward-looking statements are based on currently available information and
current assumptions, expectations, and projections about future events. Except
as required by law, the Company undertakes no obligation to update or revise its
forward-looking statements. Further information concerning the Company and its
businesses, including factors that could materially affect the Company’s
financial results, is included in the Company’s other filings with the SEC
(including, but not limited to, the factors discussed in Item 1A. “Risk Factors”
of the Company’s most recent Annual Report on Form 10-K and the Company’s
subsequent Quarterly Reports on Form 10-Q).

Factors Affecting All Lines of Business

All of the Company’s businesses and their 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; changing interest
rates; inflation and deflation rates; changes in weather and climate patterns;
the political and social stability of the global markets in which the Company
operates; the effects of, or response to, terrorism and security threats; wars
and other conflicts, including the current military conflict between Russia and
Ukraine; natural disasters; and the spread of major epidemics or pandemics
(including the COVID-19 pandemic).

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 purchase decisions, financing and repayment practices, and the
number and size of customer delinquencies and defaults. A debt crisis in Europe,
Latin America, or elsewhere could negatively impact currencies, global financial
markets, funding sources and costs, asset and obligation values, customers,
suppliers, and demand for equipment. The Company’s investment management
activities could be impaired by changes in the equity, bond, and other financial
markets, which would negatively affect earnings.

Additional factors that could materially affect the Company’s operations, access
to capital, expenses, and results include changes in, uncertainty surrounding,
and the impact of governmental trade, banking, monetary, and fiscal policies,
including financial regulatory reform and its effects on the consumer finance
industry, derivatives, funding costs, governmental programs, policies, and
tariffs for the benefit of certain industries or sectors; 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, and the effects
of climate change; changes to GPS radio frequency bands or their permitted uses;
changes in labor and immigration regulations; changes to accounting standards;
changes in tax rates, estimates, laws, and regulations and Company actions
related thereto; changes to and compliance with privacy, banking, and other
regulations; changes to and compliance with economic sanctions, or
countersanctions, and export controls laws and regulations; and compliance with
U.S. and foreign laws when expanding to new markets and otherwise.


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Other factors that could materially affect the Company’s results and operations
include security breaches, cybersecurity attacks, technology failures, and other
disruptions to the information technology infrastructure of the Company and its
suppliers and dealers; security breaches with respect to the Company’s products;
production, design, and technological innovations and difficulties, including
capacity and supply constraints and prices; the loss of or challenges to
intellectual property rights, whether through theft, infringement,
counterfeiting, or otherwise; the availability and prices of strategically
sourced materials, components, and whole goods; delays or disruptions in the
Company’s supply chain, including work stoppages or disputes by suppliers with
their unionized labor; the failure of customers, dealers, suppliers, or the
Company to comply with laws, regulations, and Company policy pertaining to
employment, human rights, health, safety, the environment, sanctions, export
controls, anti-corruption, privacy and data protection, and other ethical
business practices; introduction of legislation that could affect the Company’s
business model and intellectual property, such as right to repair or right to
modify; events that damage the Company’s reputation or brand; significant
investigations, claims, lawsuits, or other legal proceedings; start-up of new
plants and products; the success of new product initiatives or business
strategies; changes in customer product preferences and sales mix; gaps or
limitations in rural broadband coverage, capacity, and speed needed to support
technology solutions; oil and energy prices, supplies, and volatility; the
availability and cost of freight; actions of competitors in the various
industries in which the Company competes, particularly price discounting; dealer
practices, especially as to levels of new and used field inventories; changes in
demand and pricing for used equipment and resulting impacts on lease residual
values; labor relations and contracts, including work stoppages and other
disruptions; changes in the ability to attract, develop, engage, and retain
qualified personnel; acquisitions and divestitures of businesses;
greater-than-anticipated transaction costs; the integration of acquired
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; and the failure to
realize anticipated savings or benefits of cost reduction, productivity, or
efficiency efforts.

COVID-19

Uncertainties related to the continued effects of the COVID-19 pandemic have
adversely affected and may continue to affect the Company’s business and
outlook. These uncertainties include, among other things: the duration and
impact of any resurgence in COVID-19; disruptions in the supply chain, including
those caused by industry capacity constraints, material availability, and global
logistics delays and constraints arising from, among other things, the
transportation capacity of ocean shipping containers, and continued disruptions
in the operations of one or more key suppliers, or the failure of any key
suppliers; and an increasingly competitive labor market due to a sustained labor
shortage or increased turnover caused by the COVID-19 pandemic. The
sustainability of the economic recovery from the pandemic remains unclear and
significant volatility could continue for a prolonged period.

Agricultural Equipment Operations

The Company’s agricultural equipment operations 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; soil conditions; harvest yields; prices for commodities and
livestock; crop and livestock production expenses; availability of fertilizer;
availability of transport for crops; trade restrictions and tariffs; global
trade agreements; the level of farm product exports; the growth and
sustainability of non-food uses for some crops (including ethanol and biodiesel
production); real estate values; available acreage for farming; 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 and their
effects on poultry, beef, and pork consumption and prices on livestock feed
demand; and crop pests and diseases.

Production and Precision Agriculture Operations

The production and precision agriculture operations rely 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.

Small Agriculture and Turf Equipment

Factors affecting the Company’s small agriculture and turf equipment operations
include 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.


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Construction and Forestry

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

John Deere Financial

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

Supplemental Consolidating Information

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

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




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