Deere (DE) risk factors, FY2024 10-K

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1. 01SUPPLEMENTAL CONSOLIDATING DATA
2. 02We are naturally exposed to various interest rate and foreign currency risks. As a result, we enter into derivative transactions to manage this exposure and not for speculative purposes
3. 03The net impact in these financial instruments’ fair values which would be caused by decreasing or increasing the interest rates by 10 percent from the market rates at October 27, 2024, and October 29, 2023, would have been approximately $75 and $10, respectively
4. 041. ORGANIZATION AND CONSOLIDATION
5. 05Principles of Consolidation
6. 06Use of Estimates in Financial Statements
7. 07Interest-Free Periods and Past-Due Interest
8. 08Financing Revenue and Origination Costs
9. 09Sales and Transaction Taxes
10. 10Depreciation and Amortization
11. 11Receivables and Allowances
12. 12Long-Lived Assets, Goodwill, and Other Intangible Asset Impairment
13. 13Derivative Financial Instruments
14. 14Foreign Currency Translation
15. 15New Accounting Pronouncements Adopted
16. 16Accounting Pronouncements to be Adopted
17. 17Redeemable noncontrolling interest
18. 18marketing agreements. Following the acquisition, Net sales only includes the sale of Deere-branded excavators to John Deere dealers, while Cost of sales reflects market pricing to purchase and manufacture excavators, as well as the related components and service parts
19. 19Employee-Separation Programs
20. 20Total intercompany payables
21. 21Sale of Russian Roadbuilding Business
22. 22Financial Services Financing Incentives Correction
23. 23UAW Collective Bargaining Agreement
24. 24Impact of Events in Russia / Ukraine
25. 25The financial services operations received an intercompany benefit from the equipment operations, which guarantees the financial services’ investments in certain international markets, including Russia
26. 26Allowance for credit losses – Financing receivables – Selling, administrative and general expenses
27. 27Gain on Previously Held Equity Investment
28. 28Turf – Includes net sales of turf and utility equipment, including riding lawn equipment, golf course equipment, utility vehicles, and commercial mowing equipment, along with a broad line of associated implements, other outdoor power products, and related attachments and service parts
29. 29Compact Construction – Includes net sales of smaller construction equipment, including compact excavators, compact track loaders, compact wheel loaders, skid steers, and related attachments and service parts
30. 30Financial Products – Includes finance and interest income from retail notes related to sales of John Deere equipment to retail customers, wholesale financing to dealers of John Deere equipment, and revolving charge accounts; lease income from retail leases of John Deere equipment; and revenue from extended warranties
31. 316. SUPPLEMENTAL CASH FLOW INFORMATION
32. 32Cash, cash equivalents, and restricted cash recorded in “Assets held for sale” relates to BJD (see Note 4). Restricted cash recorded in “Other assets” relates to securitization of financing receivables (see Note 12) and cash held in Russia
33. 337. PENSION AND OTHER POSTRETIREMENT BENEFITS
34. 34The 2025 net periodic pension benefit is expected to increase by $100 due to an increase in the expected long-term rates of return on pension plan assets (estimated to be 7.1 percent) and the U.S. hourly pension curtailment recognized in 2024, described above
35. 35Expected long-term rates of return
36. 36Interest crediting rate – U.S. cash balance plans
37. 37An increase in Medicare Advantage premiums and prescription drug trends impacted the weighted-average annual rates of increase for the initial year in 2024 and 2023
38. 38Fair value of plan assets
39. 39Expected Future Benefit Payments
40. 40International equity securities and funds
41. 41Investments at net asset value in the preceding tables are measured at fair value using the net asset value per share practical expedient and are not classified in the fair value hierarchy. Fair value measurement levels in the preceding tables are defined in Note 25
42. 42Equity Securities and Funds – The values are determined using quoted prices in the active market in which the equity investment trades, Equity funds are valued using the fund’s NAV, which is based on the fair value of the underlying securities
43. 43Derivative Instruments – The derivatives are valued using either an income approach (discounted cash flow) using market observable inputs, including swap curves and both forward and spot exchange rates, or a market approach (quoted prices in the active market in which the derivative instrument trades)
44. 44The assets are diversified and are managed by professional investment firms as well as by investment professionals who are company employees. As a result of our diversified investment policy, there were no significant concentrations of risk
45. 45Defined Contribution Plans
46. 46At October 27, 2024, tax loss and tax credit carryforwards of $1,564 were available with $1,063 expiring from 2025 through 2044 and $501 with an indefinite carryforward period
47. 479. OTHER INCOME AND OTHER OPERATING EXPENSES
48. 48Most marketable securities are classified as available-for-sale. Realized gains or losses are based on specific identification
49. 49Actual maturities may differ from contractual maturities because some securities may be called or prepaid. Mortgage-backed securities contain prepayment provisions and are not categorized by contractual maturity
50. 50Trade Accounts and Notes Receivable
51. 51At October 27, 2024 and October 29, 2023 trade accounts and notes receivable balances outstanding greater than 12 months were $298 and $107, respectively. The increase was due to higher dealer inventory
52. 52Financing Receivables ‒ Overall
53. 53Financing Receivables ‒ Related to the Sale of Equipment
54. 54Financing Receivables ‒ Contractual Installment Payments
55. 55Financing Receivables ‒ Credit Quality Analysis
56. 56Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is resumed when the receivable becomes contractually current and collections are reasonably assured
57. 57Financing Receivables ‒ Allowance for Credit Losses
58. 58We monitor the economy as part of the allowance setting process, including potential impacts of the agricultural market business cycle and rising interest rates. Adjustments to the allowance are incorporated, as necessary
59. 59delinquencies and a decline in market conditions impacting the agriculture receivable portfolio. This increase was partially offset by a decrease in the allowance on revolving charge accounts, driven by write-offs of seasonal financing program accounts and recoveries expected on those accounts in the future
60. 60Financing Receivables – Modifications
61. 61Prior to adopting ASU 2022-02, modifications of loans to borrowers experiencing financial difficulty were considered troubled debt restructurings when the significant modification of the receivable resulted in a concession we would not otherwise consider
62. 62Post modification balance
63. 6312. SECURITIZATION OF FINANCING RECEIVABLES
64. 643. Investors are paid back based on cash receipts from the financing receivables
65. 65The weighted-average interest rates on short-term securitization borrowings at October 27, 2024 and October 29, 2023 were 5.0 percent and 4.7 percent, respectively
66. 6614. PROPERTY AND DEPRECIATION
67. 6717. SHORT-TERM BORROWINGS
68. 68The decrease in the weighted-average interest rates of notes payable to banks is primarily the result of Argentine peso funding representing a smaller portion of the notes outstanding
69. 6918. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
70. 701.65% notes due 2039 (€650 principal)
71. 7120. COMMITMENTS AND CONTINGENCIES
72. 72The costs for extended warranty programs are recognized as incurred. See Note 9 for extended warranty claim costs
73. 73We also had other miscellaneous contingent liabilities totaling approximately $130 at October 27, 2024. The accrued liability for these contingencies was $30 at October 27, 2024
74. 74Our stock is listed on the New York Stock Exchange under the symbol “DE.” At the end of 2024, there were 16,354 holders of record of our common stock
75. 75The number of authorized preferred shares is 9 million. No preferred shares have been issued
76. 76repurchased. Repurchases of our common stock under this plan are made from time to time, at our discretion, in the open market
77. 7722. SHARE-BASED COMPENSATION
78. 78recognize the effect of award forfeitures as an adjustment to compensation expense in the period the forfeiture occurs
79. 79Stock options and restricted stock units vested
80. 80Expected term (in years)*
81. 8123. OTHER COMPREHENSIVE INCOME ITEMS
82. 82Net unrealized gain (loss) on derivatives
83. 83Net unrealized gain (loss) on debt securities
84. 84Unrealized translation gain (loss)
85. 85Net unrealized translation gain (loss)
86. 86payments indexed to inflation when the index changes after lease commencement
87. 87Accounts payable and accrued expenses
88. 88Total finance lease liabilities
89. 89Financing cash flows for finance leases
90. 90At the end of the majority of leases, the lessee has the option to purchase the underlying equipment for the contractual residual value or return it to the dealer. If the equipment is returned to the dealer, the dealer also has the option to purchase the equipment or return it to us for remarketing
91. 91Lease payments from operating leases are recorded as income on a straight-line method over the lease terms. Operating lease assets are recorded at cost and depreciated to their estimated residual value on a straight-line method over the terms of the leases
92. 92The equipment is depreciated on a straight-line basis over the term of the lease. The corresponding depreciation expense was $874 in 2024, $853 in 2023, and $827 in 2022
93. 9325. FAIR VALUE MEASUREMENTS
94. 94Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or on the discounted values of their related cash flows at current market interest rates
95. 95Total Level 1 marketable securities
96. 96Accounts payable and accrued expenses – Deferred consideration
97. 97The following is a description of the valuation methodologies we use to measure certain financial instruments on the balance sheets at fair value. For more information on asset impairments, see Note 4
98. 98Inventories – The impairment was based on net realizable value, less reasonably predictable selling and disposal costs
99. 99Other intangible assets – net – In 2022, we considered external valuations based on our probability weighted cash flow analysis
100. 10026. DERIVATIVE INSTRUMENTS
101. 101Cross-currency interest rate contracts
102. 102Interest rate contracts – OCI (pretax)
103. 103Counterparty Risk and Collateral
104. 104Our operations are presently organized and reported in four business segments. This presentation is consistent with how the chief operating decision maker (the CEO) assesses the performance of the segments and makes decisions about resource allocations
105. 105Because of integrated manufacturing operations and common administrative and marketing support, a substantial number of allocations must be made to determine operating segment data
106. 106Opinion on the Financial Statements
107. 107The Company provides retail discount or financing sales incentives programs to dealers that are due when the dealer sells the equipment to a retail customer
108. 108At the time a sale is recognized, the Company records an estimate of the sales incentive costs. The final cost is determined at the time of the retail sale
109. 109How the Critical Audit Matter Was Addressed in the Audit
110. 110o Considering the impact of changes in the current economic conditions and competitive environment
111. 111Critical Audit Matter Description
112. 112Management reviews each model’s output quarterly, and qualitative adjustments are incorporated as necessary to arrive at management’s best estimate of expected credit losses
113. 113Opinion on Internal Control over Financial Reporting
114. 114Definition and Limitations of Internal Control over Financial Reporting
115. 115Certain instruments relating to long-term debt constituting less than 10 percent of the registrant’s total assets are not filed as exhibits herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant will furnish copies of such instruments to the Commission upon request
116. 116Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated