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 also views its operations as consisting of two
geographic areas: the U.S. and Canada and outside the U.S. and Canada. The
Company’s operating segments consist of production and precision agriculture,
small agriculture and turf, construction and forestry, and financial services.

Trends and Economic Conditions for Fiscal Year 2022

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

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

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

2022 Compared with 2021


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


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


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

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

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


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

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

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


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

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Business Segment Results

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

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


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

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


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

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

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                                           Three Months Ended
Financial Services                 January 30    January 31
(In millions of dollars)              2022          2021      % Change

Revenue (including intercompany) $ 916 $ 934 -2
Interest expense

                           158           188       -16
Net income                                 231           204       +13


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

Critical Accounting Estimates

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


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CAPITAL RESOURCES AND LIQUIDITY

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

Consolidated

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

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

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

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

Lines of Credit. The Company also has access to bank lines of credit with
various banks throughout the world. Worldwide lines of credit totaled $8,519
million
at January 30, 2022, $5,865 million of which were unused. For the
purpose of computing unused credit lines, commercial paper and short-term bank
borrowings, excluding secured borrowings and the current portion of long-term
borrowings, were primarily considered to constitute utilization. Included in the
total credit lines at January 30, 2022 was a 364-day credit facility agreement
of $3,000 million, expiring in fiscal April 2022. In addition, total credit
lines included long-term credit facility agreements of $2,500 million, expiring
in fiscal April 2025, and $2,500 million, expiring in fiscal March 2026. The
Company expects to extend the terms of these credit facilities. These credit
agreements require John Deere Capital Corporation (Capital Corporation) to
maintain its consolidated ratio of earnings to fixed charges at not less than
1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding
securitization indebtedness, to capital base (total subordinated debt and
stockholder’s equity excluding accumulated other comprehensive income (loss)) at
not more than 11 to 1 at the end of any fiscal quarter. The credit agreements
also require the equipment operations to maintain a ratio of total debt to total
capital (total debt and stockholders’ equity excluding accumulated other
comprehensive income (loss)) of 65 percent or less at the end of each fiscal
quarter. Under this provision, the Company’s excess equity capacity and retained
earnings balance free of restriction at January 30, 2022 was $15,452 million.
Alternatively under this provision, the equipment operations had the capacity to
incur additional debt of $28,697 million at January 30, 2022. All of these
requirements of the credit agreements have been met during the periods included
in the financial statements.


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


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

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

                      A           A-1        Stable


Trade Accounts and Notes Receivable. Trade accounts and notes receivable
primarily arise from sales of goods to independent dealers. Trade receivables
increased $647 million during the first three months of 2022, mostly due to a
seasonal increase. These receivables decreased $182 million, compared to a year
ago. The ratios of trade accounts and notes receivable to the last 12 months’
net sales were 12 percent at January 30, 2022, compared to 11 percent at October
31, 2021
and 15 percent at January 31, 2021. Production and precision
agriculture trade receivables decreased $218 million, small agriculture and turf
trade receivables decreased $220 million, and construction and forestry trade
receivables increased $256 million, compared to a year ago. The percentage of
total worldwide trade receivables outstanding for periods exceeding 12 months
was 1 percent, 1 percent, and 3 percent at January 30, 2022, October 31, 2021,
and January 31, 2021, respectively.

Equipment Operations

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

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

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

Trade receivables held by the equipment operations decreased $159 million during
the first three months of 2022 and increased $96 million from a year ago. The
equipment operations sell a significant portion of their trade receivables to
financial services. See the previous consolidated discussion of trade
receivables.

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

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

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


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Financial Services

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

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

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

Total external interest-bearing debt of the financial services operations was
$37,026 million at January 30, 2022, compared with $37,978 million at October
31, 2021
and $35,415 million at January 31, 2021. Total external borrowings have
generally changed corresponding with the level of receivable and lease
portfolio, the level of cash and cash equivalents, the change in payables owed
to Deere & Company, and the change in investment from Deere & Company. The
financial services operations’ ratio of interest-bearing debt to stockholder’s
equity was 7.4 to 1 at January 30, 2022, compared with 7.8 to 1 at October 31,
2021
and 7.6 to 1 at January 31, 2021.

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

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

Safe Harbor Statement

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

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

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

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


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

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

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

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

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

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

Additional factors that could materially affect the Company’s operations, access
to capital, expenses, and results include changes in, uncertainty surrounding,
and the impact of governmental trade, banking, monetary, and fiscal policies,
including financial regulatory reform and its effects on the consumer finance
industry, derivatives, funding costs, and other areas; the potential default of
the U.S. federal government if Congress fails to pass a 2022 budget resolution;
governmental programs, policies, and tariffs for the benefit of certain
industries or sectors; sanctions in particular jurisdictions, including those
imposed in connection with the military confrontation between Russia and
Ukraine; retaliatory actions to such changes in trade, banking, monetary, and
fiscal policies; actions by central banks; actions by financial and securities
regulators; actions by environmental, health, and safety regulatory agencies,
including those related to engine emissions, carbon and other greenhouse gas
emissions, noise, and the effects of climate change; changes to GPS radio
frequency bands or their permitted uses; changes in labor and immigration
regulations; changes to accounting standards; changes in tax rates, estimates,
laws, and regulations and Company actions related thereto; changes to and
compliance with privacy, banking, and other regulations; changes


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

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

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

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

Supplemental Consolidating Information

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

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


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