DEERE & CO (DE) FY 2024 MD&A

MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of our financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the accompanying Notes to Consolidated Financial Statements. All amounts are presented in millions of dollars, unless otherwise specified. For comparison of 2023 to 2022 results, refer to the “Management’s Discussion and Analysis” section of our 2023 Form 10-K.

Deere & Company is a global leader in the production of agricultural, turf, construction, and forestry equipment and solutions. John Deere Financial provides financing for John Deere equipment, parts, services, and other inputs customers need to run their operations. Our operations are managed through the production and precision agriculture (PPA), small agriculture and turf (SAT), construction and forestry (CF), and financial services operating segments. References to “equipment operations” include PPA, SAT, and CF, while references to “agriculture and turf” include both PPA and SAT.

Net Sales and Revenues by Segment in 2024

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Industry Sales Outlook for Fiscal 2025

Agriculture and Turf

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Construction and Forestry

Company Trends

Customers seek to improve profitability, productivity, and sustainability through integrating technology into their operations. Deeper integration of technology into equipment is a persistent market trend. These technologies are incorporated into products within each of our operating segments. We expect this trend to persist for the foreseeable future. Our Smart Industrial Operating Model and Leap Ambitions are intended to capitalize on this market trend. Engaged acres are an indicator we use to understand customer utilization of our technology. We are investing in a Solutions as a Service business model to increase technology adoption and utilization by our customers. Solutions as a Service products did not represent a significant percentage of our revenues in 2024.

Company Outlook for 2025

Agriculture and Turf Outlook for 2025

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levels are expected to keep industry equipment demand at low levels throughout 2025.

Construction and Forestry Outlook for 2025

Financial Services Outlook for 2025

Additional Trends

Interest Rates – While interest rates in the U.S. began to decrease in the fourth quarter of 2024, they remained elevated. Increased rates impacted us in several ways, primarily affecting the demand for our products and financing spreads for the financial services operations.

The markets for our agriculture, turf, and construction products were negatively impacted in 2024 by elevated interest rates and their effect on borrowing costs for our customers.

Rising interest rates have historically impacted our borrowing costs sooner than the benefit is realized from receivable and lease portfolios.

Agricultural Market Business Cycle – The agricultural market is affected by various factors including commodity prices, acreage planted, crop yields, and government policies. These factors affect farmers’ income and may result in varying demand for our equipment. In 2024, we experienced unfavorable market

conditions which resulted in lower sales volumes, higher sales incentives, higher receivable write-offs, and an increase in expected credit losses.

We introduced cost reduction measures to manage our profitability and inventory levels. In the third quarter of 2024, we implemented employee-separation programs for our salaried workforce to help meet our strategic priorities while reducing overlap and redundancy in roles and responsibilities. The programs’ total pretax expenses are estimated to be approximately $165, of which $157 was recorded in 2024 (see Note 4). Annual pretax savings from these programs are estimated to be about $220. Approximately $100 of savings was realized in 2024.

Changes in interest rates and the agricultural market business cycle are driven by factors outside of our control, and as a result we cannot reasonably foresee when these conditions will fully subside.

Other Items of Concern and Uncertainties – Other items that could impact our results are:

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Highlights

Net Sales and Revenues

Net Sales (Equipment Operations)

Net Income (Attributable to Deere & Company)

Diluted Earnings Per Share (EPS) ($ per share)

Other Significant Statement of Consolidated Income Changes

An explanation of the cost of sales to net sales ratio and other significant statement of consolidated income changes follows:

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Each equipment operations segment experienced lower shipment volumes partially offset by price realization during 2024. Rising global grain stocks, lower commodity prices, elevated interest rates, and the effect of inventory management contributed to lower shipment volumes for large and small agriculture. Declines in housing starts, decreases in rental purchases, lower levels of commercial real estate construction, and the effect of inventory management contributed to lower shipment volumes for construction equipment.

Production costs were favorable in 2024 due to lower material and employee profit-sharing incentives costs, partially offset by higher manufacturing overhead costs driven by lower volumes and production inefficiencies.

Production and Precision Agriculture Operations

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Sales volumes decreased 17 percent in the U.S. and Canada, 40 percent in Brazil, and 30 percent in Europe. Price realization in the U.S. and Canada was 3 percent driven by inflation, which was partially offset by an increase in retail and pool funds sales incentives. Price realization was flat outside the U.S. and Canada

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due to moderating market conditions. Current period results were impacted by special items (see Note 4).

Production & Precision Agriculture Operating Profit

2024 compared to 2023

Small Agriculture and Turf Operations

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Sales volumes decreased 22 percent in the U.S. and Canada, 28 percent in Europe, and 45 percent in Mexico.

Price realization was 3 percent in the U.S. and Canada and 1 percent outside the U.S. and Canada driven by inflation. Current period results were impacted by special items (see Note 4).

Small Agriculture & Turf Operating Profit

2024 compared to 2023

Construction and Forestry Operations

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Sales volumes decreased 15 percent in the U.S. and Canada and 8 percent outside the U.S. and Canada. Price realization was about flat in the U.S. and Canada driven by moderating market conditions

and 1 percent outside the U.S. and Canada. Current and prior period results were impacted by special items (see Note 4).

Construction & Forestry Operating Profit

2024 compared to 2023

Financial Services Operations

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Average wholesale receivables increased 26 percent driven by higher dealer used inventory levels. While new retail note volumes moderated due to reduced retail demand, average retail portfolio levels grew due to higher volumes in recent years resulting in a 9 percent increase. Revenue also increased due to higher average financing rates. Excluding the impact of a one-time correction of the accounting treatment for financing incentives offered to John Deere dealers in 2023 (see Note 4), net income declined as a result of a higher provision for credit losses and less-favorable financing spreads driven primarily by the receivable portfolio mix. These factors were partially offset by income earned on higher average portfolio balances.

Financial Services Net Income

2024 compared to 2023

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Please refer to the “Management’s Discussion and Analysis” section of our 2023 Form 10-K.

We have access to global markets at a reasonable cost. Sources of liquidity include:

We closely monitor our cash requirements. Based on the available sources of liquidity, we expect to meet our funding needs in the short term (next 12 months) and long term (beyond 12 months). We are forecasting lower operating cash flows from equipment operations in 2025 compared with 2024 driven by a decrease in net income adjusted for non-cash provisions, partially offset by higher cash flows generated from inventory reductions.

We operate in multiple industries, which have unique funding requirements. The equipment operations are capital intensive. Historically, these operations have been subject to seasonal variations in financing requirements for inventories and receivables from dealers. The financial services operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios.

The assets and liabilities of Banco John Deere S.A. (BJD) were reclassified to held for sale in the third quarter of 2024 and are therefore not included within the 2024 balances reflected below (see Note 4).

Key Metrics and Balance Sheet Changes

Cash, Cash Equivalents and Marketable Securities

Trade Accounts and Notes Receivable – Net

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Financing Receivables and Equipment on Operating Leases

Inventories

Property and Equipment

Accounts Payable and Accrued Expenses

Borrowings

Unused Credit Lines

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Financial Services Ratio of Interest-Bearing Debt to Stockholder’s Equity

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Cash inflows from operating activities were $9.2 billion in 2024, driven by net income adjusted for non-cash provisions and lower inventories and receivables from a decline in sales. These items were partially offset by a decrease in vendor payables and a reduction in dealer sales incentive accruals.

Cash outflows from investing activities were $6.5 billion in 2024 due to growth in the financing receivable and lease portfolios and capital expenditures.

Cash outflows from financing activities were $2.7 billion in 2024, as repurchases of common stock and dividends paid were partially offset by higher borrowings.

Cash Returned to Shareholders

Cash returned to shareholders decreased $3.0 billion in 2024 as we managed cash flows through the declining business cycle in accordance with our use-of-cash priorities.

To access public debt capital markets, we rely on credit rating agencies to assign short-term and long-term credit ratings to our debt 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 our securities. A credit rating agency may change or withdraw ratings based on its assessment of our 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, reduced access to debt capital markets, and may adversely impact our liquidity.

The senior long-term and short-term debt ratings and outlook currently assigned to unsecured company securities by the rating agencies engaged by us are as follows:

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Our material cash requirements include the following:

Borrowings – As of October 27, 2024, we had $17.6 billion of payments due on borrowings and securitization borrowings in the next year, along with interest payments of $2.5 billion. The securitization borrowing payments are based on the expected liquidation of the retail notes. See Notes 12 and 19 for additional borrowing details. These payments will likely be replaced with new borrowings to finance the receivable and lease portfolio, which is expected to be lower in 2025.

Purchase Obligations – As of October 27, 2024, our outstanding purchase obligations were $3.2 billion, with $2.8 billion payable within one year. These purchase obligations are noncancelable.

Other Cash Requirements – In addition to our contractual obligations, we have the following commitments:

Share repurchases will be considered as a means of deploying excess cash to shareholders, once the previously mentioned requirements are met.

The timely preparation of financial statements requires management to make estimates and assumptions. Those estimates affect reported amounts in these financial statements. Changes in those estimates and assumptions could have a significant effect. The following estimates are the most critical to our financial statements:

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These items require the most difficult, subjective, or complex judgments. Our accounting policies are described primarily in Note 2 of our consolidated financial statements.

Sales Incentives

We provide sales incentives to dealers. These incentives are offered in two forms:

The estimated cost of these programs is based on:

At the time a sale is recognized, we record an estimate of the sales incentive costs. The final cost is determined at the end of the volume bonus measurement period or at the time of the retail sale.

There are numerous programs available at any time, and new programs may be announced after we record the equipment sale to the dealer. Changes in the mix and types of sales incentive programs affect these estimates, which are reviewed quarterly. Actual cost differences from the original cost estimate are recognized in “Net sales.”

Sales Incentive Accruals

The accruals recorded against receivables relate to programs where we have the contractual right and the intent to offset against existing receivables. The decrease in 2024 resulted from lower sales.

A key assumption of the retail sales incentive accrual is the predictive value of the historical percent of retail sales incentive costs to retail sales. Over the last five fiscal years, this percent has varied by an average of 1.0 percent. Holding other assumptions constant, a 1.0 percent change would have modified the sales incentive accrual by about $135.

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Product Warranties

A standard warranty is provided as an assurance that our equipment will function as intended. The standard warranty period varies by product and region.

At the time a sale is recognized, we record an estimate of future warranty costs, based on the following calculation:

The historical claims rate is determined by a review of five-year claims costs. The estimated population is based on dealer inventories and retail sales. These estimates are reviewed quarterly. Adjustments are also made for current quality developments.

Product Warranty Accruals

The decrease in 2024 is the result of lower sales volumes.

Product warranty accrual estimates are affected by the historical percent of warranty claims costs as a percentage of gross sales. Over the last five fiscal years, the percent has varied plus or minus .09 percent. Holding all other assumptions constant, if this estimated cost experience percent would have increased or decreased .09 percent, the warranty accrual at October 27, 2024 would have changed by approximately $50.

Postretirement Benefit Obligations

The pension and OPEB plan obligations (defined benefit) and expenses require the use of estimates. The main estimate is the present value of the projected future benefit payments. These future benefit payments extend several decades.

The estimates are based on existing retirement plan provisions. No assumption is made regarding any potential changes to benefit provisions beyond those to which we are presently committed (e.g., in existing labor contracts).

The key assumptions used by our actuaries to calculate the estimates include:

Assumptions are set each year-end. These assumptions are not changed during the year unless there is a significant plan event. Actual results that differ from the assumptions affect future expenses and obligations.

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The key pension and OPEB amounts follow:

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The increase in the 2024 pension and OPEB net benefit was due to an increase in the expected long-term rates of return on pension plan assets and the Canadian pension settlement charge recognized in 2023 (see Note 7).

The effect of hypothetical changes to selected assumptions on our major U.S. retirement benefit plans would be as follows:

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*    Projected benefit obligation (PBO) for pension plans and accumulated postretirement benefit obligation (APBO) for OPEB plans.

**  Pretax impact on service cost, interest cost, and amortization of gains or losses.

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Allowance for Credit Losses

The allowance for credit losses is an estimate of the credit losses expected over the life of the receivable portfolio. The allowance is measured on a collective basis for receivables with similar risk characteristics. Receivables that do not share risk characteristics are evaluated on an individual basis. Risk characteristics include:

We utilize the following loss forecast models to estimate expected credit losses:

Management reviews each model’s output quarterly, and qualitative adjustments are incorporated as necessary to arrive at management’s best estimate of expected credit losses.

Allowance for Credit Losses

During 2024, we determined that the financial services business in Brazil met the held for sale criteria. The receivables in Brazil were reclassified to “Assets held for sale.” The associated allowance for credit losses was reversed and a valuation allowance for the assets held for sale was recorded (see Note 4). Excluding the business in Brazil, the allowance for credit losses increased, primarily due to higher expected losses as a result of elevated delinquencies and a decline in market conditions. 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.

While we believe our allowance is sufficient to provide for losses over the life of our existing receivable portfolio, different assumptions would result in changes to the allowance for credit losses. Within the retail customer receivable portfolio, credit loss estimates are dependent on a number of factors, including credit quality at time of application, remaining account balances, current delinquency levels, various economic factors, and estimated recoveries on defaulted accounts. Changes in any of these factors could impact our credit losses. Conversely, changes in economic conditions have historically had limited impact on credit losses within the wholesale receivable portfolio.

Holding all other factors constant, a 10 percent increase in the linear regression models’ forecasted defaults and a simultaneous 10 percent decrease in recovery rates would have resulted in a $70 increase to the allowance for credit losses at October 27, 2024.

Operating Lease Residual Values

Equipment on operating leases is depreciated to the estimated residual value over the lease term. The residual values are based on several factors, including:

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We review residual value estimates during the lease term. Depreciation is adjusted over the remaining lease term if residual estimates are revised. Impairments are recorded when events or circumstances necessitate.

At the end of the majority of leases, the equipment is disposed in the following sequence:

Operating Lease Residual Values

Hypothetically, if (a) future market values for this equipment were to decrease 10 percent from our present estimates, and (b) all the equipment on operating leases were returned to us for remarketing at the end of the lease term, the total unfavorable impact after consideration of dealer residual value guarantees would be approximately $75. This amount would be recognized as higher depreciation expense over the remaining term of the operating leases, or potentially as an impairment.

Income Taxes

We are subject to federal, state, and foreign income taxes. These tax laws can be complex. Significant judgment and interpretation is required to implement them. Changes in tax laws could materially affect our consolidated financial statements. We record our tax positions in the following categories:

Deferred income taxes represent temporary differences between the tax and the financial reporting basis of assets and liabilities. This will result in taxable or deductible amounts in the future. Loss carryforwards and tax credits are significant components of deferred tax asset balances. These assets are reviewed regularly for the following:

Valuation allowances are established when we determine that the deferred tax benefit may not be realized. The recoverability

analysis requires significant judgment and relies on estimates. The valuation allowance as of October 27, 2024 was $1.6 billion. Changes in foreign income tax laws, income for certain jurisdictions, or our tax structure could impact the valuation allowance balance.

Some tax positions contain significant uncertainties. These positions may be challenged or disallowed by taxing authorities. If it is likely the position will be disallowed, no tax benefit is recorded. If it is likely the position will be sustained, a tax benefit is recognized. The ultimate resolution could take many years. This may result in a payment that is significantly different from the original estimate.

See Note 8 for further information on income taxes.

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 our 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 and should not be relied upon. Except as required by law, we expressly disclaim any obligation to update or revise our forward-looking statements. Many factors, risks, and uncertainties could cause actual results to differ materially from these forward-looking statements. Among these factors are risks related to:

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Further information concerning us and our businesses, including factors that could materially affect our financial results, is included in our other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. “Risk Factors” of this Annual Report on Form 10-K). There also may be other factors that we cannot anticipate or that are not described herein because we do not currently perceive them to be material.

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SUPPLEMENTAL CONSOLIDATING DATA

The supplemental consolidating data presented on the subsequent pages is presented for informational purposes. Equipment operations represent the enterprise without financial services. Equipment operations include 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.

Equipment operations and financial services participate in different industries. 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 finance sales and leases by dealers of new and used equipment that is largely manufactured by equipment operations. 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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1 Elimination of intercompany interest income and expense.

2 Elimination of equipment operations’ margin from inventory transferred to equipment on operating leases (see Note 6).

3 Elimination of income and expenses between equipment operations and financial services related to intercompany guarantees of investments in certain international markets.

4 Elimination of intercompany service revenues and fees.

5 Elimination of financial services’ lease depreciation expense related to inventory transferred to equipment on operating leases.

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SUPPLEMENTAL CONSOLIDATING DATA (continued)

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6 Elimination of receivables / payables between equipment operations and financial services.

7 Primarily reclassification of sales incentive accruals on receivables sold to financial services.

8 Reclassification of net pension assets / liabilities.

9 Reclassification of deferred tax assets / liabilities in the same taxing jurisdictions.

10 Elimination of financial services’ equity.

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SUPPLEMENTAL CONSOLIDATING DATA (continued)

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