08/29/2024 | Press release | Distributed by Public on 08/29/2024 08:42
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 28, 2024
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file no: 1-6458
JOHN DEERE CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware |
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36-2386361 |
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P.O. Box 5328 |
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Telephone Number: (800) 438-7394 |
Securities Registered Pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading symbol |
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Name of each exchange on which registered |
2.00% Senior Notes Due 2031 |
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JDCC 31 |
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New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
☐ |
Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At August 29, 2024, 2,500 shares of common stock, without par value, of the registrant were outstanding, all of which were owned by John Deere Financial Services, Inc., a wholly-owned subsidiary of Deere & Company.
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with certain reduced disclosures as permitted by those instructions.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Income
(Unaudited)
(in millions)
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Three Months Ended |
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Nine Months Ended |
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July 28 |
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July 30 |
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July 28 |
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July 30 |
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2024 |
2023 |
2024 |
2023 |
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Revenues |
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Finance income earned on retail notes |
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$ |
484.2 |
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$ |
387.4 |
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$ |
1,400.3 |
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$ |
1,069.5 |
Lease revenues |
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280.1 |
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250.1 |
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810.3 |
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733.2 |
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Revolving charge account income |
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129.0 |
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114.9 |
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351.7 |
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289.7 |
||||
Finance income earned on wholesale receivables |
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324.1 |
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255.3 |
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904.9 |
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610.8 |
||||
Other income |
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66.9 |
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49.9 |
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177.1 |
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120.2 |
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Total revenues |
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1,284.3 |
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1,057.6 |
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3,644.3 |
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2,823.4 |
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Expenses |
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Interest expense |
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640.0 |
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445.3 |
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1,817.2 |
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1,121.6 |
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Operating expenses: |
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Depreciation of equipment on operating leases |
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173.0 |
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165.8 |
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506.9 |
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491.4 |
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Administrative and operating expenses |
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133.9 |
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142.6 |
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398.4 |
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419.3 |
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Fees and interest paid to John Deere |
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61.1 |
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67.9 |
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173.6 |
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183.6 |
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Provision for credit losses |
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122.4 |
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22.4 |
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222.7 |
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52.6 |
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Total operating expenses |
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490.4 |
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398.7 |
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1,301.6 |
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1,146.9 |
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Total expenses |
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1,130.4 |
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844.0 |
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3,118.8 |
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2,268.5 |
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Income of Consolidated Group before Income Taxes |
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153.9 |
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213.6 |
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525.5 |
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554.9 |
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Provision for income taxes |
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31.9 |
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56.5 |
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105.7 |
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132.3 |
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Income of Consolidated Group |
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122.0 |
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157.1 |
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419.8 |
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422.6 |
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Equity in income of unconsolidated affiliate |
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.7 |
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.5 |
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3.5 |
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2.3 |
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Net Income |
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122.7 |
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157.6 |
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423.3 |
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424.9 |
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Less: Net income (loss) attributable to noncontrolling interests |
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.1 |
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(.1) |
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(.3) |
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(.4) |
Net Income Attributable to the Company |
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$ |
122.6 |
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$ |
157.7 |
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$ |
423.6 |
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$ |
425.3 |
See Condensed Notes to Interim Consolidated Financial Statements.
2
John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Comprehensive Income
(Unaudited)
(in millions)
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Three Months Ended |
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Nine Months Ended |
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July 28 |
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July 30 |
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July 28 |
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July 30 |
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2024 |
2023 |
2024 |
2023 |
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Net Income |
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$ |
122.7 |
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$ |
157.6 |
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$ |
423.3 |
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$ |
424.9 |
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Other Comprehensive Income (Loss), Net of Income Taxes |
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Cumulative translation adjustment |
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5.7 |
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4.0 |
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23.3 |
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69.2 |
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Unrealized gain (loss) on derivatives |
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(29.4) |
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4.3 |
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(37.5) |
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(28.7) |
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Unrealized gain (loss) on debt securities |
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(.3) |
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.3 |
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.9 |
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.3 |
Other Comprehensive Income (Loss), Net of Income Taxes |
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(24.0) |
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8.6 |
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(13.3) |
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40.8 |
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Comprehensive Income of Consolidated Group |
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98.7 |
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166.2 |
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410.0 |
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465.7 |
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Less: Comprehensive income (loss) attributable to noncontrolling interests |
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.1 |
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(.1) |
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(.3) |
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(.4) |
Comprehensive Income Attributable to the Company |
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$ |
98.6 |
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$ |
166.3 |
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$ |
410.3 |
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$ |
466.1 |
See Condensed Notes to Interim Consolidated Financial Statements.
3
John Deere Capital Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(in millions)
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July 28 |
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October 29 |
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July 30 |
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2024 |
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2023 |
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2023 |
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Assets |
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Cash and cash equivalents |
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$ |
1,525.5 |
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$ |
1,487.5 |
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$ |
1,499.4 |
Marketable securities |
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2.8 |
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1.4 |
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1.8 |
Receivables: |
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Retail notes |
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24,701.8 |
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24,641.1 |
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23,424.1 |
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Retail notes securitized |
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8,311.6 |
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7,356.8 |
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7,018.7 |
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Revolving charge accounts |
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4,471.2 |
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4,594.4 |
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4,437.5 |
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Wholesale receivables |
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16,868.8 |
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13,330.1 |
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14,027.6 |
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Financing leases |
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1,512.3 |
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1,421.8 |
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1,291.0 |
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Total receivables |
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55,865.7 |
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51,344.2 |
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50,198.9 |
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Allowance for credit losses |
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(219.9) |
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(146.4) |
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(128.8) |
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Total receivables - net |
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55,645.8 |
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51,197.8 |
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50,070.1 |
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Other receivables |
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179.2 |
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162.0 |
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124.9 |
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Receivables from John Deere |
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204.9 |
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144.4 |
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169.5 |
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Equipment on operating leases - net |
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5,199.4 |
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5,051.5 |
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4,837.5 |
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Notes receivable from John Deere |
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592.3 |
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650.7 |
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648.1 |
Investment in unconsolidated affiliate |
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31.6 |
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27.6 |
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27.0 |
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Deferred income taxes |
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23.5 |
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24.6 |
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25.3 |
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Other assets |
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460.2 |
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367.5 |
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363.0 |
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Total Assets |
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$ |
63,865.2 |
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$ |
59,115.0 |
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$ |
57,766.6 |
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Liabilities and Stockholder's Equity |
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Short-term external borrowings: |
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Commercial paper and other notes payable |
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$ |
3,213.6 |
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$ |
6,836.1 |
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$ |
6,437.3 |
Securitization borrowings |
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7,867.8 |
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6,995.2 |
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6,608.4 |
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Current maturities of long-term external borrowings |
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7,632.9 |
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6,059.9 |
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5,091.2 |
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Total short-term external borrowings |
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18,714.3 |
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19,891.2 |
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18,136.9 |
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Notes payable to John Deere |
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3,608.2 |
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3,184.0 |
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4,139.2 |
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Other payables to John Deere |
|
498.7 |
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974.9 |
|
743.4 |
|||
Accounts payable and accrued expenses |
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1,202.4 |
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1,128.3 |
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1,080.5 |
|||
Deposits held from dealers and merchants |
|
127.0 |
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138.4 |
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132.9 |
|||
Deferred income taxes |
|
396.0 |
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456.3 |
|
164.5 |
|||
Long-term external borrowings |
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33,220.9 |
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27,439.3 |
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27,408.0 |
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Total liabilities |
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57,767.5 |
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53,212.4 |
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51,805.4 |
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Commitments and contingencies (Note 9) |
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Stockholder's equity: |
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|
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Common stock, without par value (issued and outstanding - |
|
2,292.8 |
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2,292.8 |
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2,292.8 |
|||
Retained earnings |
|
3,921.8 |
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3,713.2 |
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3,731.2 |
|||
Accumulated other comprehensive loss |
|
(117.7) |
|
(104.4) |
|
(63.9) |
|||
Total Company stockholder's equity |
|
6,096.9 |
|
5,901.6 |
|
5,960.1 |
|||
Noncontrolling interests |
|
.8 |
|
1.0 |
|
1.1 |
|||
Total stockholder's equity |
|
6,097.7 |
|
5,902.6 |
|
5,961.2 |
|||
Total Liabilities and Stockholder's Equity |
|
$ |
63,865.2 |
|
$ |
59,115.0 |
|
$ |
57,766.6 |
See Condensed Notes to Interim Consolidated Financial Statements.
4
John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Cash Flows
(Unaudited)
(in millions)
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Nine Months Ended |
|||||
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July 28 |
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July 30 |
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2024 |
2023 |
||||
Cash Flows from Operating Activities: |
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Net income |
|
$ |
423.3 |
|
$ |
424.9 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Provision for credit losses |
|
222.7 |
|
|
52.6 |
|
Provision for depreciation and amortization |
|
523.7 |
|
|
509.5 |
|
Credit for deferred income taxes |
|
(49.8) |
|
|
(36.3) |
|
Change in accounts payable and accrued expenses |
|
81.1 |
|
|
125.2 |
|
Change in accrued income taxes payable/receivable |
|
46.9 |
|
|
8.3 |
|
Other |
|
(10.0) |
|
|
(185.0) |
|
Net cash provided by operating activities |
|
1,237.9 |
|
899.2 |
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Cash Flows from Investing Activities: |
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|
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|
|
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Cost of receivables acquired (excluding wholesale) |
|
(19,110.2) |
|
|
(18,685.5) |
|
Collections of receivables (excluding wholesale) |
|
17,836.2 |
|
|
16,433.8 |
|
Increase in wholesale receivables - net |
|
(3,437.4) |
|
|
(5,375.6) |
|
Cost of equipment on operating leases acquired |
|
(1,665.5) |
|
|
(1,564.3) |
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Proceeds from sales of equipment on operating leases |
|
1,019.0 |
|
|
1,109.6 |
|
Cost of notes receivable acquired from John Deere |
|
|
(79.1) |
|
|
(358.7) |
Collections of notes receivable from John Deere |
|
|
137.9 |
|
|
87.2 |
Other |
|
(7.3) |
|
|
(12.4) |
|
Net cash used for investing activities |
|
(5,306.4) |
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(8,365.9) |
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Cash Flows from Financing Activities: |
|
|
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|
|
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Increase (decrease) in commercial paper and other notes payable - net (original maturities |
|
(2,011.6) |
|
|
3,988.1 |
|
Increase in securitization borrowings - net |
|
873.2 |
|
|
897.4 |
|
Increase (decrease) in short-term borrowings with John Deere - net |
|
405.7 |
|
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(1,205.0) |
|
Proceeds from external borrowings issued (original maturities greater than three months) |
|
13,864.2 |
|
|
8,794.2 |
|
Payments of external borrowings (original maturities greater than three months) |
|
(8,736.4) |
|
|
(4,935.1) |
|
Dividends paid |
|
(215.0) |
|
|
|
|
Capital investments from John Deere |
|
|
.1 |
|
|
810.0 |
Debt issuance costs |
|
(46.3) |
|
|
(38.0) |
|
Net cash provided by financing activities |
|
4,133.9 |
|
8,311.6 |
||
|
|
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|
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Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash |
|
(1.0) |
|
|
13.4 |
|
Net Increase in Cash, Cash Equivalents, and Restricted Cash |
|
64.4 |
|
858.3 |
||
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period |
|
1,612.9 |
|
766.1 |
||
Cash, Cash Equivalents, and Restricted Cash at End of Period |
|
$ |
1,677.3 |
|
$ |
1,624.4 |
|
|
|
|
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Components of Cash, Cash Equivalents, and Restricted Cash: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,525.5 |
|
$ |
1,499.4 |
Restricted cash* |
|
|
151.8 |
|
|
125.0 |
Total Cash, Cash Equivalents, and Restricted Cash |
|
$ |
1,677.3 |
|
$ |
1,624.4 |
* Restricted cash is reported in "Other assets" on the consolidated balance sheets and primarily relates to the securitization of receivables (see Note 5).
See Condensed Notes to Interim Consolidated Financial Statements.
5
John Deere Capital Corporation and Subsidiaries
Statements of Changes in Consolidated Stockholder's Equity
For the Three and Nine Months Ended July 28, 2024 and July 30, 2023
(Unaudited)
(in millions)
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Company Stockholder |
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Accumulated |
|
|
|
|
|
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Total |
|
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|
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Other |
|
|
|||
|
|
Stockholder's |
|
Common |
|
Retained |
|
Comprehensive |
|
Noncontrolling |
|||||
|
|
Equity |
|
Stock |
|
Earnings |
|
Income (Loss) |
|
Interests |
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Three Months Ended July 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 30, 2023 |
|
$ |
5,795.0 |
|
$ |
2,292.8 |
|
$ |
3,573.5 |
|
$ |
(72.5) |
|
$ |
1.2 |
Net income (loss) |
|
|
157.6 |
|
|
|
|
|
157.7 |
|
|
|
|
|
(.1) |
Other comprehensive income |
|
|
8.6 |
|
|
|
|
|
|
|
|
8.6 |
|
|
|
Balance July 30, 2023 |
|
$ |
5,961.2 |
|
$ |
2,292.8 |
|
$ |
3,731.2 |
|
$ |
(63.9) |
|
$ |
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 30, 2022 |
|
$ |
4,685.5 |
|
$ |
1,482.8 |
|
$ |
3,305.9 |
|
$ |
(104.7) |
|
$ |
1.5 |
Net income (loss) |
|
424.9 |
|
|
|
|
425.3 |
|
|
|
|
|
(.4) |
||
Other comprehensive income |
|
40.8 |
|
|
|
|
|
|
|
|
40.8 |
|
|
|
|
Capital investment |
|
810.0 |
|
|
810.0 |
|
|
|
|
|
|
|
|
|
|
Balance July 30, 2023 |
|
$ |
5,961.2 |
|
$ |
2,292.8 |
|
$ |
3,731.2 |
|
$ |
(63.9) |
|
$ |
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 28, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 28, 2024 |
|
$ |
5,999.0 |
|
$ |
2,292.8 |
|
$ |
3,799.2 |
|
$ |
(93.7) |
|
$ |
.7 |
Net income |
|
|
122.7 |
|
|
|
|
|
122.6 |
|
|
|
|
|
.1 |
Other comprehensive loss |
|
|
(24.0) |
|
|
|
|
|
|
|
|
(24.0) |
|
|
|
Balance July 28, 2024 |
|
$ |
6,097.7 |
|
$ |
2,292.8 |
|
$ |
3,921.8 |
|
$ |
(117.7) |
|
$ |
.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 28, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 29, 2023 |
|
$ |
5,902.6 |
|
$ |
2,292.8 |
|
$ |
3,713.2 |
|
$ |
(104.4) |
|
$ |
1.0 |
Net income (loss) |
|
423.3 |
|
|
|
|
423.6 |
|
|
|
|
|
(.3) |
||
Other comprehensive loss |
|
(13.3) |
|
|
|
|
|
|
|
|
(13.3) |
|
|
|
|
Dividends declared |
|
(215.0) |
|
|
|
|
|
(215.0) |
|
|
|
|
|
|
|
Capital investment |
|
|
.1 |
|
|
|
|
|
|
|
|
|
|
|
.1 |
Balance July 28, 2024 |
|
$ |
6,097.7 |
|
$ |
2,292.8 |
|
$ |
3,921.8 |
|
$ |
(117.7) |
|
$ |
.8 |
See Condensed Notes to Interim Consolidated Financial Statements.
6
Condensed Notes to Interim Consolidated Financial Statements (Unaudited)
(1) ORGANIZATION AND CONSOLIDATION
References to John Deere Capital Corporation (Capital Corporation), "the Company," "we," "us," or "our" include our consolidated subsidiaries. John Deere Financial Services, Inc., a wholly-owned subsidiary of Deere & Company, owns all of the outstanding common stock of Capital Corporation. We provide and administer financing for retail purchases of new equipment manufactured by Deere & Company's production and precision agriculture operations, small agriculture and turf operations, and construction and forestry operations and used equipment taken in trade for this equipment. References to "agriculture and turf" include both production and precision agriculture and small agriculture and turf. Deere & Company and its wholly-owned subsidiaries are collectively called "John Deere."
We offer the following financing solutions:
● | Retail notes- we purchase retail installment sales and loan contracts from John Deere, which are generally acquired through independent John Deere retail dealers, and finance a limited amount of non-John Deere retail notes; |
● | Revolving charge accounts- we finance and service revolving charge accounts, in most cases acquired from and offered through merchants and dealers in the agriculture and turf and construction and forestry markets; |
● | Wholesale receivables- we provide wholesale financing to dealers of John Deere agriculture and turf equipment and construction and forestry equipment, primarily to finance inventories of equipment for those dealers; and |
● | Financing and operating leases- we lease John Deere equipment and a limited amount of non-John Deere equipment to retail customers. |
Retail notes, revolving charge accounts, and financing leases are collectively called "Customer Receivables." Customer Receivables and wholesale receivables are collectively called "Receivables." Receivables and equipment on operating leases are collectively called "Receivables and Leases." We secure our Receivables, other than certain revolving charge accounts, by retaining as collateral security in the goods associated with those Receivables or with the use of other collateral.
We use a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The third quarter ends for fiscal years 2024 and 2023 were July 28, 2024 and July 30, 2023, respectively. Both third quarters contained 13 weeks, while both year-to-date periods contained 39 weeks. Unless otherwise stated, references to particular years, quarters, or months refer to our fiscal years generally ending in October and the associated periods in those fiscal years.
We are the primary beneficiary of and consolidate certain variable interest entities that are special purpose entities (SPEs) related to the securitization of receivables. See Note 5 for more information on these SPEs.
Presentation of Amounts
All amounts are presented in millions of dollars, unless otherwise specified.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS
Quarterly Financial Statements
We have prepared our interim consolidated financial statements, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted as permitted by such rules and regulations. All normal recurring adjustments have been included. Management believes the disclosures are adequate to present fairly the financial position, results of operations, and cash flows at the dates and for the periods presented. It is suggested these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in our latest Annual Report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.
Use of Estimates in Financial Statements
Certain accounting policies require management to make estimates and assumptions in determining the amounts reflected in the financial statements and related disclosures. Actual results could differ from those estimates.
7
New Accounting Pronouncements
We closely monitor all Accounting Standard Updates (ASUs) issued by the Financial Accounting Standards Board (FASB) and other authoritative guidance.
Accounting Pronouncements Adopted
In the first quarter of 2024, we adopted ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminates the accounting guidance for troubled debt restructurings, enhances disclosures for certain receivable modifications related to borrowers experiencing financial difficulty, and requires disclosure of current period gross write-offs by year of origination. The adoption did not have a material effect on our consolidated financial statements.
We also adopted the following standards in 2024, none of which had a material effect on our consolidated financial statements.
|
2022-01 - Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method |
2021-08 - Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers |
Accounting Pronouncements to be Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity's income tax rate reconciliation table and cash income taxes paid both in the U.S. and foreign jurisdictions. The effective date of the ASU is fiscal year 2026. We are assessing the effect of this update on our related disclosures.
We will also adopt the following standards in future periods, none of which are expected to have a material effect on our consolidated financial statements.
|
|
2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures |
|
2023-06 - Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative |
|
2023-05 - Business Combinations-Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement |
|
(3) OTHER COMPREHENSIVE INCOME ITEMS
The after-tax components of accumulated other comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
July 28 |
|
October 29 |
|
July 30 |
|||
|
|
2024 |
|
2023 |
|
2023 |
|||
Cumulative translation adjustment |
|
$ |
(113.5) |
|
$ |
(136.8) |
|
$ |
(99.8) |
Unrealized gain (loss) on derivatives |
|
|
(2.7) |
|
|
34.8 |
|
|
38.1 |
Unrealized loss on debt securities |
|
|
(1.5) |
|
|
(2.4) |
|
|
(2.2) |
Total accumulated other comprehensive income (loss) |
|
$ |
(117.7) |
|
$ |
(104.4) |
|
$ |
(63.9) |
8
The following tables reflect amounts recorded in other comprehensive income (loss), as well as reclassifications out of other comprehensive income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
Tax |
|
After |
|||
|
|
Tax |
|
(Expense) |
|
Tax |
|||
|
|
Amount |
|
Credit |
|
Amount |
|||
Three Months Ended July 28, 2024 |
|
|
|
|
|
|
|||
Cumulative translation adjustment |
$ |
5.7 |
|
|
|
|
$ |
5.7 |
|
Unrealized gain (loss) on derivatives: |
|
|
|
|
|
|
|
|
|
Unrealized hedging gain (loss) |
|
(14.8) |
|
$ |
3.2 |
|
(11.6) |
||
Reclassification of realized (gain) loss to: |
|
|
|
|
|
|
|
|
|
Interest rate contracts - Interest expense |
|
(22.5) |
|
|
4.7 |
|
|
(17.8) |
|
Net unrealized gain (loss) on derivatives |
|
(37.3) |
|
7.9 |
|
(29.4) |
|||
Unrealized gain (loss) on debt securities: |
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) |
|
|
(.4) |
|
|
.1 |
|
|
(.3) |
Total other comprehensive income (loss) |
|
$ |
(32.0) |
|
$ |
8.0 |
|
$ |
(24.0) |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 28, 2024 |
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
$ |
23.3 |
|
|
|
|
$ |
23.3 |
Unrealized gain (loss) on derivatives: |
|
|
|
|
|
|
|
|
|
Unrealized hedging gain (loss) |
|
3.8 |
|
$ |
(.8) |
|
3.0 |
||
Reclassification of realized (gain) loss to: |
|
|
|
|
|
|
|
|
|
Interest rate contracts - Interest expense |
|
(51.3) |
|
10.8 |
|
(40.5) |
|||
Net unrealized gain (loss) on derivatives |
|
(47.5) |
|
10.0 |
|
(37.5) |
|||
Unrealized gain (loss) on debt securities: |
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) |
|
|
1.4 |
|
|
(.5) |
|
|
.9 |
Total other comprehensive income (loss) |
|
$ |
(22.8) |
|
$ |
9.5 |
|
$ |
(13.3) |
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 30, 2023 |
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
$ |
4.0 |
|
|
|
|
$ |
4.0 |
Unrealized gain (loss) on derivatives: |
|
|
|
|
|
|
|
|
|
Unrealized hedging gain (loss) |
|
23.8 |
|
$ |
(5.0) |
|
18.8 |
||
Reclassification of realized (gain) loss to: |
|
|
|
|
|
|
|
|
|
Interest rate contracts - Interest expense |
|
(18.3) |
|
|
3.8 |
|
|
(14.5) |
|
Net unrealized gain (loss) on derivatives |
|
5.5 |
|
|
(1.2) |
|
4.3 |
||
Unrealized gain (loss) on debt securities: |
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) |
|
|
.5 |
|
|
(.2) |
|
|
.3 |
Total other comprehensive income (loss) |
|
$ |
10.0 |
|
$ |
(1.4) |
|
$ |
8.6 |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 30, 2023 |
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
$ |
69.2 |
|
|
|
|
$ |
69.2 |
Unrealized gain (loss) on derivatives: |
|
|
|
|
|
|
|
|
|
Unrealized hedging gain (loss) |
|
18.2 |
|
$ |
(3.8) |
|
14.4 |
||
Reclassification of realized (gain) loss to: |
|
|
|
|
|
|
|
|
|
Interest rate contracts - Interest expense |
|
(54.5) |
|
|
11.4 |
|
|
(43.1) |
|
Net unrealized gain (loss) on derivatives |
|
(36.3) |
|
7.6 |
|
(28.7) |
|||
Unrealized gain (loss) on debt securities: |
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) |
|
|
.5 |
|
|
(.2) |
|
|
.3 |
Total other comprehensive income (loss) |
|
$ |
33.4 |
|
$ |
7.4 |
|
$ |
40.8 |
9
(4) RECEIVABLES
Credit Quality
We monitor the credit quality of Receivables based on delinquency status, defined as follows:
● | Past due balances represent Receivables still accruing finance income with any payments 30 daysor more past the contractual payment due date. |
● | Non-performing Receivables represent Receivables for which we have stopped accruing finance income, which generally occurs when Customer Receivables are 90 daysdelinquent and when interest-bearing wholesale receivables become 60 daysdelinquent. Accrued finance income and lease revenue previously recognized on non-performing Receivables is reversed and subsequently recognized on a cash basis. Accrual of finance income and lease revenue is resumed when the receivable becomes contractually current and collections are reasonably assured. |
Accrued finance income and lease revenue reversed on non-performing Receivables, and finance income and lease revenue recognized from cash payments on non-performing Receivables were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
July 28 |
|
July 30 |
|
July 28 |
|
July 30 |
||||
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
||||
Accrued finance income and lease revenue reversed |
|
$ |
9.5 |
|
$ |
4.5 |
|
$ |
28.3 |
|
$ |
12.4 |
Finance income and lease revenue recognized on cash payments |
|
|
10.5 |
|
|
5.6 |
|
|
25.6 |
|
|
13.3 |
Total Receivable balances represent principal plus accrued interest. Receivable balances are written off to the allowance for credit losses when, in the judgment of management, they are considered uncollectible. Write-offs generally occur when Customer Receivables are 120 days delinquent, and on a case-by-case basis when wholesale receivables are 60 days delinquent. In these situations, we repossess available collateral or designate the account for litigation, and the estimated uncollectible amount is written off to the allowance for credit losses.
The credit quality analysis of Customer Receivables by year of origination was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 28, 2024 |
||||||||||||||||||||||
|
|
2024 |
|
2023 |
|
2022 |
|
2021 |
|
2020 |
|
Prior Years |
|
Revolving Charge Accounts |
|
Total |
||||||||
Customer Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Agriculture and turf |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
9,434.5 |
|
$ |
8,820.5 |
|
$ |
5,301.9 |
|
$ |
3,050.5 |
|
$ |
1,176.3 |
|
$ |
359.4 |
|
$ |
4,300.0 |
|
$ |
32,443.1 |
30-59 days past due |
|
|
33.8 |
|
|
77.6 |
|
|
49.1 |
|
|
24.0 |
|
|
9.2 |
|
|
3.6 |
|
|
29.3 |
|
|
226.6 |
60-89 days past due |
|
|
13.6 |
|
|
59.4 |
|
|
21.8 |
|
|
10.1 |
|
|
4.0 |
|
|
2.1 |
|
|
9.4 |
|
|
120.4 |
90+ days past due |
|
|
|
|
|
1.2 |
|
|
.4 |
|
|
2.6 |
|
|
4.7 |
|
|
.2 |
|
|
|
|
|
9.1 |
Non-performing |
|
|
11.8 |
|
|
95.0 |
|
|
77.4 |
|
|
50.3 |
|
|
21.6 |
|
|
15.4 |
|
|
14.5 |
|
|
286.0 |
Construction and forestry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
1,912.3 |
|
|
1,750.4 |
|
|
1,047.4 |
|
|
482.9 |
|
|
120.0 |
|
|
54.3 |
|
|
111.5 |
|
|
5,478.8 |
30-59 days past due |
|
|
37.0 |
|
|
53.0 |
|
|
29.2 |
|
|
13.2 |
|
|
4.2 |
|
|
1.0 |
|
|
3.6 |
|
|
141.2 |
60-89 days past due |
|
|
10.8 |
|
|
21.0 |
|
|
12.6 |
|
|
7.9 |
|
|
1.6 |
|
|
1.1 |
|
|
1.3 |
|
|
56.3 |
90+ days past due |
|
|
.8 |
|
|
1.3 |
|
|
.9 |
|
|
.4 |
|
|
.3 |
|
|
.1 |
|
|
|
|
|
3.8 |
Non-performing |
|
|
19.3 |
|
|
89.6 |
|
|
68.3 |
|
|
35.8 |
|
|
12.1 |
|
|
4.9 |
|
|
1.6 |
|
|
231.6 |
Total |
|
$ |
11,473.9 |
|
$ |
10,969.0 |
|
$ |
6,609.0 |
|
$ |
3,677.7 |
|
$ |
1,354.0 |
|
$ |
442.1 |
|
$ |
4,471.2 |
|
$ |
38,996.9 |
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2023 |
||||||||||||||||||||||
|
|
2023 |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
Prior Years |
|
Revolving Charge Accounts |
|
Total |
||||||||
Customer Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Agriculture and turf |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
12,998.3 |
|
$ |
7,208.2 |
|
$ |
4,459.1 |
|
$ |
1,970.4 |
|
$ |
666.3 |
|
$ |
179.3 |
|
$ |
4,424.8 |
|
$ |
31,906.4 |
30-59 days past due |
|
46.8 |
|
|
66.6 |
|
|
34.6 |
|
|
18.7 |
|
|
8.2 |
|
|
2.9 |
|
|
28.1 |
|
|
205.9 |
|
60-89 days past due |
|
15.8 |
|
|
22.0 |
|
|
14.8 |
|
|
7.8 |
|
|
3.3 |
|
|
1.3 |
|
|
8.6 |
|
|
73.6 |
|
90+ days past due |
|
|
1.4 |
|
|
.8 |
|
|
2.7 |
|
|
2.9 |
|
|
.1 |
|
|
.1 |
|
|
|
|
|
8.0 |
Non-performing |
|
|
25.9 |
|
|
63.7 |
|
|
44.5 |
|
|
25.0 |
|
|
12.9 |
|
|
12.0 |
|
|
7.2 |
|
|
191.2 |
Construction and forestry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
2,343.4 |
|
|
1,586.2 |
|
|
859.0 |
|
|
279.2 |
|
|
65.3 |
|
|
27.3 |
|
|
118.6 |
|
|
5,279.0 |
30-59 days past due |
|
|
44.4 |
|
|
28.1 |
|
|
24.8 |
|
|
8.6 |
|
|
3.4 |
|
|
.4 |
|
|
4.1 |
|
|
113.8 |
60-89 days past due |
|
|
17.8 |
|
|
11.4 |
|
|
11.8 |
|
|
4.5 |
|
|
1.0 |
|
|
.2 |
|
|
1.8 |
|
|
48.5 |
90+ days past due |
|
|
.1 |
|
|
1.2 |
|
|
.1 |
|
|
.1 |
|
|
|
|
|
|
|
|
|
|
|
1.5 |
Non-performing |
|
|
34.1 |
|
|
67.5 |
|
|
51.2 |
|
|
20.7 |
|
|
7.5 |
|
|
4.0 |
|
|
1.2 |
|
|
186.2 |
Total |
|
$ |
15,528.0 |
|
$ |
9,055.7 |
|
$ |
5,502.6 |
|
$ |
2,337.9 |
|
$ |
768.0 |
|
$ |
227.5 |
|
$ |
4,594.4 |
|
$ |
38,014.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 30, 2023 |
||||||||||||||||||||||
|
|
2023 |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
Prior Years |
|
Revolving Charge Accounts |
|
Total |
||||||||
Customer Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Agriculture and turf |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
9,040.7 |
|
$ |
8,355.6 |
|
$ |
5,064.2 |
|
$ |
2,361.3 |
|
$ |
858.2 |
|
$ |
282.6 |
|
$ |
4,284.0 |
|
$ |
30,246.6 |
30-59 days past due |
|
|
52.9 |
|
|
73.3 |
|
|
43.5 |
|
|
20.4 |
|
|
10.2 |
|
|
3.4 |
|
|
19.4 |
|
|
223.1 |
60-89 days past due |
|
|
17.2 |
|
|
25.6 |
|
|
13.2 |
|
|
7.5 |
|
|
3.9 |
|
|
1.1 |
|
|
5.6 |
|
|
74.1 |
90+ days past due |
|
|
.1 |
|
|
.7 |
|
|
.4 |
|
|
.1 |
|
|
|
|
|
.1 |
|
|
|
|
|
1.4 |
Non-performing |
|
|
12.9 |
|
|
55.0 |
|
|
45.4 |
|
|
24.9 |
|
|
13.2 |
|
|
13.8 |
|
|
8.3 |
|
|
173.5 |
Construction and forestry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
1,725.5 |
|
|
1,757.6 |
|
|
1,006.8 |
|
|
351.7 |
|
|
96.5 |
|
|
36.0 |
|
|
113.0 |
|
|
5,087.1 |
30-59 days past due |
|
|
35.0 |
|
|
38.4 |
|
|
34.9 |
|
|
11.8 |
|
|
4.8 |
|
|
1.3 |
|
|
4.3 |
|
|
130.5 |
60-89 days past due |
|
|
12.5 |
|
|
20.1 |
|
|
13.3 |
|
|
7.6 |
|
|
1.9 |
|
|
1.0 |
|
|
1.5 |
|
|
57.9 |
90+ days past due |
|
|
|
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.3 |
Non-performing |
|
|
15.9 |
|
|
68.5 |
|
|
55.2 |
|
|
23.0 |
|
|
8.3 |
|
|
4.5 |
|
|
1.4 |
|
|
176.8 |
Total |
|
$ |
10,912.7 |
|
$ |
10,395.1 |
|
$ |
6,276.9 |
|
$ |
2,808.3 |
|
$ |
997.0 |
|
$ |
343.8 |
|
$ |
4,437.5 |
|
$ |
36,171.3 |
The credit quality analysis of wholesale receivables by year of origination was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 28, 2024 |
||||||||||||||||||||||
|
|
2024 |
|
2023 |
|
2022 |
|
2021 |
|
2020 |
|
Prior Years |
|
Revolving |
|
Total |
||||||||
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
552.1 |
|
$ |
229.1 |
|
$ |
36.4 |
|
$ |
6.8 |
|
$ |
1.3 |
|
$ |
.5 |
|
$ |
11,776.7 |
|
$ |
12,602.9 |
30+ days past due |
|
|
.9 |
|
|
.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.6 |
|
|
24.7 |
Non-performing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.1 |
|
|
24.1 |
Construction and forestry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
12.4 |
|
|
9.8 |
|
|
1.7 |
|
|
18.4 |
|
|
.1 |
|
|
|
|
|
4,150.0 |
|
|
4,192.4 |
30+ days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.7 |
|
|
24.7 |
Non-performing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
565.4 |
|
$ |
239.1 |
|
$ |
38.1 |
|
$ |
25.2 |
|
$ |
1.4 |
|
$ |
.5 |
|
$ |
15,999.1 |
|
$ |
16,868.8 |
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2023 |
||||||||||||||||||||||
|
|
2023 |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
Prior Years |
|
Revolving |
|
Total |
||||||||
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
609.5 |
|
$ |
92.6 |
|
$ |
20.0 |
|
$ |
3.9 |
|
$ |
.7 |
|
$ |
159.9 |
|
$ |
9,270.1 |
|
$ |
10,156.7 |
30+ days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.8 |
|
|
45.8 |
Non-performing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.7 |
|
|
5.7 |
Construction and forestry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
19.4 |
|
|
2.5 |
|
|
19.9 |
|
|
.2 |
|
|
.1 |
|
|
75.2 |
|
|
2,987.6 |
|
|
3,104.9 |
30+ days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.0 |
|
|
17.0 |
Non-performing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
628.9 |
|
$ |
95.1 |
|
$ |
39.9 |
|
$ |
4.1 |
|
$ |
.8 |
|
$ |
235.1 |
|
$ |
12,326.2 |
|
$ |
13,330.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 30, 2023 |
||||||||||||||||||||||
|
|
2023 |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
Prior Years |
|
Revolving |
|
Total |
||||||||
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
444.6 |
|
$ |
138.5 |
|
$ |
26.3 |
|
$ |
6.8 |
|
$ |
1.3 |
|
$ |
1.0 |
|
$ |
10,555.3 |
|
$ |
11,173.8 |
30+ days past due |
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.2 |
|
|
21.5 |
Non-performing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.2 |
|
|
6.2 |
Construction and forestry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
18.8 |
|
|
3.2 |
|
|
22.3 |
|
|
.3 |
|
|
.2 |
|
|
|
|
|
2,768.3 |
|
|
2,813.1 |
30+ days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.0 |
|
|
13.0 |
Non-performing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
463.7 |
|
$ |
141.7 |
|
$ |
48.6 |
|
$ |
7.1 |
|
$ |
1.5 |
|
$ |
1.0 |
|
$ |
13,364.0 |
|
$ |
14,027.6 |
Allowance for Credit Losses
The allowance for credit losses is an estimate of the credit losses expected over the life of our Receivable portfolio. Non-performing Receivables are included in the estimate of expected credit losses. 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:
● | product category, |
● | market, |
● | geography, |
● | credit risk, and |
● | remaining balance. |
Recoveries from freestanding credit enhancements, such as dealer deposits and certain credit insurance and bank guarantee contracts, are not included in the estimate of expected credit losses. Recoveries from dealer deposits are recognized in "Other income" when the dealer's deposit account is charged, while recoveries from other freestanding credit enhancements are generally recognized when the associated credit loss is recorded.
12
An analysis of the allowance for credit losses and investment in Receivables was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 28, 2024 |
||||||||||
|
|
Retail Notes |
|
Revolving |
|
|
|
|
|
|
||
|
|
& Financing |
|
Charge |
|
Wholesale |
|
Total |
||||
|
|
Leases |
|
Accounts |
|
Receivables |
|
Receivables |
||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period balance |
|
$ |
144.2 |
|
$ |
20.9 |
|
$ |
9.3 |
|
$ |
174.4 |
Provision for credit losses* |
|
76.9 |
|
|
25.0 |
|
|
20.1 |
|
|
122.0 |
|
Write-offs |
|
(41.1) |
|
|
(46.1) |
|
|
|
|
|
(87.2) |
|
Recoveries |
|
3.0 |
|
|
8.0 |
|
|
|
|
|
11.0 |
|
Translation adjustments |
|
(.2) |
|
|
|
|
|
(.1) |
|
|
(.3) |
|
End of period balance |
|
$ |
182.8 |
|
$ |
7.8 |
|
$ |
29.3 |
|
$ |
219.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 28, 2024 |
||||||||||
|
|
Retail Notes |
|
Revolving |
|
|
|
|
|
|
||
|
|
& Financing |
|
Charge |
|
Wholesale |
|
Total |
||||
|
|
Leases |
|
Accounts |
|
Receivables |
|
Receivables |
||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period balance |
|
$ |
114.9 |
|
$ |
20.4 |
|
$ |
11.1 |
|
$ |
146.4 |
Provision for credit losses* |
|
154.5 |
|
|
45.8 |
|
|
19.7 |
|
|
220.0 |
|
Write-offs |
|
(93.5) |
|
|
(79.8) |
|
|
|
|
|
(173.3) |
|
Recoveries |
|
7.1 |
|
|
21.4 |
|
|
.2 |
|
|
28.7 |
|
Translation adjustments |
|
(.2) |
|
|
|
|
|
(1.7) |
|
|
(1.9) |
|
End of period balance |
|
$ |
182.8 |
|
$ |
7.8 |
|
$ |
29.3 |
|
$ |
219.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
End of period balance |
|
$ |
34,525.7 |
|
$ |
4,471.2 |
|
$ |
16,868.8 |
|
$ |
55,865.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 30, 2023 |
||||||||||
|
|
Retail Notes |
|
Revolving |
|
|
|
|
|
|
||
|
|
& Financing |
|
Charge |
|
Wholesale |
|
Total |
||||
|
|
Leases |
|
Accounts |
|
Receivables |
|
Receivables |
||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period balance |
|
$ |
103.2 |
|
$ |
19.3 |
|
$ |
11.2 |
|
$ |
133.7 |
Provision for credit losses* |
|
11.2 |
|
|
10.6 |
|
|
.5 |
|
|
22.3 |
|
Write-offs |
|
(18.5) |
|
|
(18.2) |
|
|
|
|
|
(36.7) |
|
Recoveries |
|
3.3 |
|
|
5.8 |
|
|
|
|
|
9.1 |
|
Translation adjustments |
|
.2 |
|
|
|
|
|
.2 |
|
|
.4 |
|
End of period balance |
|
$ |
99.4 |
|
$ |
17.5 |
|
$ |
11.9 |
|
$ |
128.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Nine Months Ended July 30, 2023 |
||||||||||
|
|
Retail Notes |
|
Revolving |
|
|
|
|
|
|
||
|
|
& Financing |
|
Charge |
|
Wholesale |
|
Total |
||||
|
|
Leases |
|
Accounts |
|
Receivables |
|
Receivables |
||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period balance |
|
$ |
95.4 |
|
$ |
21.9 |
|
$ |
11.1 |
|
$ |
128.4 |
Provision for credit losses* |
|
36.6 |
|
|
15.1 |
|
|
.2 |
|
|
51.9 |
|
Write-offs |
|
(43.0) |
|
|
(36.2) |
|
|
(.1) |
|
|
(79.3) |
|
Recoveries |
|
9.9 |
|
|
16.7 |
|
|
.6 |
|
|
27.2 |
|
Translation adjustments |
|
.5 |
|
|
|
|
|
.1 |
|
|
.6 |
|
End of period balance |
|
$ |
99.4 |
|
$ |
17.5 |
|
$ |
11.9 |
|
$ |
128.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
End of period balance |
|
$ |
31,733.8 |
|
$ |
4,437.5 |
|
$ |
14,027.6 |
|
$ |
50,198.9 |
* Excludes provision for credit losses on unfunded commitments of $.4 and $2.7 for the three and nine months ended July 28, 2024, respectively, and $.1 and $.7 for the three and nine months ended July 30, 2023, respectively. The estimated credit losses related to unfunded commitments are recorded in "Accounts payable and accrued expenses."
The allowance for credit losses increased in the third quarter and first nine months of 2024, primarily due to higher expected losses on retail notes as a result of elevated delinquencies and a decline in market conditions. The allowance for wholesale receivables also increased due to a specific provision for a dealer experiencing financial difficulties. These increases were 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. We continue to monitor the economy as part of the allowance setting process, including potential impacts of inflation and interest rates, among other factors, and qualitative adjustments to the allowance are incorporated as necessary.
Recoveries from freestanding credit enhancements recorded in "Other income" were $26.6 for the third quarter and $39.1 for the first nine months of 2024, compared with $3.4 for the third quarter and $9.2 for the first nine months of 2023. The increases were driven by expected recoveries on bank guarantee contracts, which relate to the wholesale allowance increase noted above.
Write-offs by year of origination were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended July 28, 2024 |
||||||||||||||||||||||
|
|
2024 |
|
2023 |
|
2022 |
|
2021 |
|
2020 |
|
Prior Years |
|
Revolving |
|
Total |
||||||||
Customer Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
1.5 |
|
$ |
13.7 |
|
$ |
14.6 |
|
$ |
5.9 |
|
$ |
6.5 |
|
$ |
1.6 |
|
$ |
73.5 |
|
$ |
117.3 |
Construction and forestry |
|
|
2.1 |
|
|
19.4 |
|
|
15.4 |
|
|
7.2 |
|
|
3.9 |
|
|
1.7 |
|
|
6.3 |
|
|
56.0 |
Total |
|
$ |
3.6 |
|
$ |
33.1 |
|
$ |
30.0 |
|
$ |
13.1 |
|
$ |
10.4 |
|
$ |
3.3 |
|
$ |
79.8 |
|
$ |
173.3 |
Modifications
We occasionally grant contractual modifications to customers experiencing financial difficulties. Before offering a modification, we evaluate the ability of the customer to meet the modified payment terms. Modifications offered include payment deferrals, term extensions, or a combination thereof. Finance charges continue to accrue during the deferral or extension period with the exception of modifications related to bankruptcy proceedings. Our allowance for credit losses incorporates historical loss information, including the effects of loan modifications with customers. Therefore, additional adjustments to the allowance are generally not recorded upon modification of a loan.
The ending amortized cost of loans modified with borrowers experiencing financial difficulty during the third quarter and the nine months ended July 28, 2024 was $22.1 and $59.2, respectively, of which $48.2 was current, $4.4 was 30-59 days past due, $2.6 was 60-89 days past due, $.8 was 90 days or greater past due, and $3.2 was non-performing. These modifications represented .04 percent and .11 percent of our Receivable portfolio for the same periods, respectively.
Defaults and subsequent write-offs of loans modified in the prior twelve months were not significant during the third quarter or the first nine months of 2024. In addition, at July 28, 2024, commitments to provide additional financing to these customers were not significant.
14
Troubled Debt Restructuring
Prior to adopting ASU 2022-02, modifications of loans to borrowers experiencing financial difficulty were considered troubled debt restructurings when the modification resulted in a concession we would not otherwise consider. During the nine months ended July 30, 2023, we identified 92 Receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $3.5 pre-modification and $3.4 post-modification. During this same period, there were no significant troubled debt restructurings that subsequently defaulted and were written off.
(5) SECURITIZATION OF RECEIVABLES
Our funding strategy includes retail note securitizations. While these securitization programs are administered in various forms, they are accomplished in the following basic steps:
1. We transfer retail notes into a bankruptcy-remote SPE.
2. The SPE issues debt to investors. The debt is secured by the retail notes.
3. Investors are paid back based on cash receipts from the retail notes.
As part of step 1, these retail notes are legally isolated from the claims of our general creditors. This ensures cash receipts from the retail notes are accessible to pay back securitization program investors. The structure of these transactions does not meet the accounting criteria for a sale of receivables. As a result, they are accounted for as secured borrowings. The receivables and borrowings remain on our balance sheet and are separately reported as "Retail notes securitized" and "Securitization borrowings," respectively.
The components of the securitization programs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
July 28 |
|
October 29 |
|
July 30 |
|||
|
|
2024 |
|
2023 |
|
2023 |
|||
Retail notes securitized |
|
$ |
8,311.6 |
|
$ |
7,356.8 |
|
$ |
7,018.7 |
Allowance for credit losses |
|
(39.0) |
|
(21.4) |
|
(17.4) |
|||
Other assets (primarily restricted cash) |
|
178.3 |
|
152.0 |
|
152.8 |
|||
Total restricted securitized assets |
|
$ |
8,450.9 |
|
$ |
7,487.4 |
|
$ |
7,154.1 |
|
|
|
|
|
|
|
|
|
|
Securitization borrowings |
|
$ |
7,867.8 |
|
$ |
6,995.2 |
|
$ |
6,608.4 |
Accrued interest on borrowings |
|
13.8 |
|
12.6 |
|
15.1 |
|||
Total liabilities related to restricted securitized assets |
|
$ |
7,881.6 |
|
$ |
7,007.8 |
|
$ |
6,623.5 |
(6) LEASES
We lease John Deere equipment and a limited amount of non-John Deere equipment to retail customers through sales-type, direct financing, and operating leases. Sales-type and direct financing leases are reported in "Financing leases" and operating leases are reported in "Equipment on operating leases - net."
Lease revenues earned by us were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
July 28 |
|
July 30 |
|
July 28 |
|
July 30 |
||||
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
||||
Sales-type and direct financing lease revenues |
|
$ |
30.4 |
|
$ |
25.2 |
|
$ |
83.7 |
|
$ |
63.6 |
Operating lease revenues |
|
|
246.3 |
|
|
224.9 |
|
|
716.2 |
|
|
660.6 |
Variable lease revenues |
|
4.0 |
|
.1 |
|
12.1 |
|
10.3 |
||||
Total lease revenues |
|
$ |
280.7 |
|
$ |
250.2 |
|
$ |
812.0 |
|
$ |
734.5 |
Variable lease revenues reported above primarily relate to separately invoiced property taxes on leased equipment in certain markets, late fees, and excess use and damage fees. Excess use and damage fees are reported in "Other income" and were $.6 and $1.7 for the third quarter and the nine months ended July 28, 2024, respectively, compared with $.1 and $1.3 for the same periods last year, respectively.
15
The cost of equipment on operating leases by market was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
July 28 |
|
October 29 |
|
July 30 |
|||
|
|
2024 |
|
2023 |
|
2023 |
|||
Agriculture and turf |
|
$ |
5,510.2 |
|
$ |
5,265.2 |
|
$ |
5,049.1 |
Construction and forestry |
|
|
970.2 |
|
1,042.4 |
|
|
1,054.2 |
|
Total |
|
|
6,480.4 |
|
|
6,307.6 |
|
|
6,103.3 |
Accumulated depreciation |
|
(1,281.0) |
|
|
(1,256.1) |
|
|
(1,265.8) |
|
Equipment on operating leases - net |
|
$ |
5,199.4 |
|
$ |
5,051.5 |
|
$ |
4,837.5 |
Total operating lease residual values at July 28, 2024, October 29, 2023, and July 30, 2023 were $3,637.3, $3,538.3, and $3,351.1, respectively. John Deere dealers generally provide a first-loss residual value guarantee on operating lease originations. Total residual value guarantees were $649.6, $566.9, and $544.1 at July 28, 2024, October 29, 2023, and July 30, 2023, respectively.
We discuss with lessees and dealers options to purchase the equipment or extend the lease prior to operating lease maturity. We remarket equipment returned to us upon termination of leases. The matured operating lease inventory balances at July 28, 2024, October 29, 2023, and July 30, 2023 were $25.4, $16.2, and $16.2, respectively. Matured operating lease inventory is reported in "Other assets."
(7) NOTES RECEIVABLE FROM AND PAYABLE TO JOHN DEERE
We provide loans to Banco John Deere S.A. (BJD), a John Deere finance subsidiary in Brazil, which are reported in "Notes receivable from John Deere." Balances due from BJD were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
July 28 |
|
October 29 |
|
July 30 |
|||
|
|
2024 |
|
2023 |
|
2023 |
|||
Notes receivable from John Deere |
|
$ |
592.3 |
|
$ |
650.7 |
|
$ |
648.1 |
The loan agreements mature over the next seven years and charge interest at competitive market rates. Interest earned from John Deere is recorded in "Other income" and was $11.5 for the third quarter and $34.3 in the first nine months of 2024 compared with $10.4 and $25.8 for the same periods last year, respectively.
We also obtain funding from affiliated companies which resulted in notes payable to John Deere as follows:
|
|
|
|
|
|
|
|
|
|
|
|
July 28 |
|
October 29 |
|
July 30 |
|||
|
|
2024 |
|
2023 |
|
2023 |
|||
Notes payable to John Deere |
|
$ |
3,608.2 |
|
$ |
3,184.0 |
|
$ |
4,139.2 |
The intercompany borrowings are primarily short-term in nature or contain a due on demand call option. At July 28, 2024, there were no intercompany borrowings that were long-term loans without a due on demand call option, compared with $528.1 and $548.8 at October 29, 2023 and July 30, 2023, respectively. We pay interest to John Deere for these borrowings based on competitive market rates. Interest expense paid to John Deere was $47.8 for the third quarter and $133.1 for the first nine months of 2024, compared with $60.1 and $145.8 for the same periods last year, respectively, which is recorded in "Fees and interest paid to John Deere."
(8) LONG-TERM EXTERNAL BORROWINGS
Long-term external borrowings consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
July 28 |
|
October 29 |
|
July 30 |
|||
|
|
2024 |
|
2023 |
|
2023 |
|||
Senior Debt: |
|
|
|
|
|
|
|
|
|
Medium-term notes |
|
$ |
33,328.2 |
|
$ |
27,522.8 |
|
$ |
27,487.6 |
Other notes and finance lease obligations |
|
|
.1 |
|
|
|
|
|
.2 |
Total senior debt |
|
|
33,328.3 |
|
|
27,522.8 |
|
|
27,487.8 |
Unamortized debt discount and debt issuance costs |
|
|
(107.4) |
|
|
(83.5) |
|
|
(79.8) |
Total |
|
$ |
33,220.9 |
|
$ |
27,439.3 |
|
$ |
27,408.0 |
Medium-term notes are primarily offered by prospectus and issued at fixed and variable rates. The medium-term notes in the table above include unamortized fair value adjustments related to interest rate swaps. The principal balances of the medium-term
16
notes were $33,967.0, $28,733.5, and $28,420.0 at July 28, 2024, October 29, 2023, and July 30, 2023, respectively, and have maturity dates through 2034. All outstanding medium-term notes and other notes in the table above are senior unsecured borrowings and generally rank equally with each other.
(9) COMMITMENTS AND CONTINGENCIES
We provide guarantees related to certain financial instruments issued by John Deere Financial Inc., a John Deere finance subsidiary in Canada. At July 28, 2024, the following notional amounts were guaranteed by us:
● | Medium-term notes: $3,399.8 |
● | Commercial paper: $2,439.0 |
● | Derivatives: $3,855.5, with a fair value liability of $82.7 |
The weighted-average interest rate on the medium-term notes at July 28, 2024 was 3.6 percent with a maximum remaining maturity of five years.
We have commitments to extend credit to customers and John Deere dealers through lines of credit and other pre-approved credit arrangements. We apply the same credit policies and approval process for these commitments to extend credit as we do for our Receivables and Leases, and generally have the right to unconditionally cancel, alter, or amend the terms at any time. Collateral is not required for these commitments, but if credit is extended, collateral may be required upon funding. A significant portion of these commitments is not expected to be fully drawn upon; therefore, the total commitment amounts likely do not represent a future cash requirement. The unused commitments at July 28, 2024 were as follows:
● | John Deere dealers: $8,014.9 |
● | Customers: $33,116.8, primarily related to revolving charge accounts |
We have a reserve for credit losses of $4.7 on unfunded commitments that are not unconditionally cancellable at July 28, 2024, which is recorded in "Accounts payable and accrued expenses."
At July 28, 2024, we had restricted other assets associated with borrowings related to securitizations (see Note 5). Excluding the securitization programs, the remaining balance of restricted other assets was not material as of July 28, 2024.
We are subject to various unresolved legal actions, the most prevalent of which relate to retail credit matters. We believe the reasonably possible range of losses for these unresolved legal actions would not have a material effect on our consolidated financial statements.
(10) FAIR VALUE MEASUREMENTS
The fair values of financial instruments that do not approximate the carrying values were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 28, 2024 |
|
October 29, 2023 |
|
July 30, 2023 |
||||||||||||
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
||||||
|
|
Value |
|
Value |
|
Value |
|
Value |
|
Value |
|
Value |
||||||
Receivables financed - net |
|
$ |
47,373.2 |
|
$ |
47,205.6 |
|
$ |
43,862.4 |
|
$ |
43,168.7 |
|
$ |
43,068.8 |
|
$ |
42,654.1 |
Retail notes securitized - net |
|
8,272.6 |
|
8,137.1 |
|
7,335.4 |
|
7,055.8 |
|
7,001.3 |
|
6,817.7 |
||||||
Securitization borrowings |
|
7,867.8 |
|
|
7,870.3 |
|
6,995.2 |
|
6,921.1 |
|
6,608.4 |
|
|
6,538.4 |
||||
Current maturities of long-term |
|
7,632.9 |
|
|
7,566.8 |
|
6,059.9 |
|
5,953.0 |
|
5,091.2 |
|
|
4,947.7 |
||||
Long-term external borrowings |
|
33,220.9 |
|
33,290.8 |
|
27,439.3 |
|
27,057.7 |
|
27,408.0 |
|
27,135.5 |
Fair value measurements above were Level 3 for all Receivables and Level 2 for all borrowings.
Fair values of Receivables that were issued long-term were based on the discounted values of their related cash flows at interest rates currently being offered by us for similar Receivables. The fair values of the remaining Receivables approximated the carrying amounts.
Fair values of long-term external borrowings and 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. Certain long-term external borrowings have been swapped to current variable interest rates. The carrying values of these long-term external borrowings include adjustments related to fair value hedges.
17
Assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
July 28 |
October 29 |
July 30 |
||||||
|
|
2024 |
|
2023 |
|
2023 |
|||
Marketable securities |
|
|
|
|
|
|
|||
International debt securities |
|
$ |
2.8 |
|
$ |
1.4 |
|
$ |
1.8 |
Receivables from John Deere |
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
204.9 |
|
|
144.4 |
|
|
169.5 |
Other assets |
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
30.2 |
|
11.3 |
|
8.4 |
||
Total assets |
|
$ |
237.9 |
|
$ |
157.1 |
|
$ |
179.7 |
|
|
|
|
|
|
|
|
|
|
Other payables to John Deere |
|
|
|
|
|
|
|
|
|
Derivatives |
|
$ |
498.7 |
|
$ |
974.9 |
|
$ |
743.4 |
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
|
|
.5 |
|
5.2 |
||
Total liabilities |
|
$ |
498.7 |
|
$ |
975.4 |
|
$ |
748.6 |
All fair value measurements in the table above were Level 2. Excluded from the table above were our cash equivalents, which were carried at cost that approximates fair value. The cash equivalents consist primarily of time deposits and money market funds.
The international debt securities mature over the next six years. At July 28, 2024, the amortized cost basis and fair value of these available-for-sale debt securities were $5.0 and $2.8, respectively. Unrealized losses at July 28, 2024 were not recognized in income due to the ability and intent to hold the securities.
There were no assets or liabilities measured at fair value on a nonrecurring basis during each of the periods ended July 28, 2024, October 29, 2023, and July 30, 2023.
The following is a description of the valuation methodologies we use to measure certain balance sheet items at fair value:
Marketable securities - The international debt securities are valued using quoted prices for identical assets in inactive markets.
Derivatives - Our derivative financial instruments consist of interest rate contracts (swaps and caps), foreign currency exchange contracts (forwards and swaps), and cross-currency interest rate contracts (swaps). The portfolio is valued based on an income approach (discounted cash flow) using market observable inputs, including swap curves and both forward and spot exchange rates for currencies.
(11) DERIVATIVE INSTRUMENTS
Our outstanding derivative transactions are with both unrelated external counterparties and John Deere. For derivative transactions with John Deere, we utilize a centralized hedging structure in which John Deere enters into a derivative transaction with an unrelated external counterparty and simultaneously enters into a derivative transaction with us. Except for collateral provisions, the terms of the transaction between John Deere and us are identical to the terms of the transaction between John Deere and its unrelated external counterparty. Derivative asset and liability positions for transactions with John Deere are recorded in "Receivables from John Deere" and "Other payables to John Deere," respectively. Derivative asset and liability positions for transactions with unrelated external counterparty banks are recorded in "Other assets" and "Accounts payable and accrued expenses," respectively.
18
The fair values of our derivative instruments and the associated notional amounts were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 28, 2024 |
|
|
October 29, 2023 |
|
|
July 30, 2023 |
||||||||||||||||||
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
Fair Value |
|
|
|
|
|
Fair Value |
|||||||||
|
|
|
Notional |
|
|
Asset |
|
|
Liability |
|
|
Notional |
|
|
Asset |
|
|
Liability |
|
|
Notional |
|
|
Asset |
|
|
Liability |
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts - swaps |
|
$ |
3,475.0 |
|
$ |
14.3 |
|
$ |
17.6 |
|
$ |
1,500.0 |
|
$ |
44.7 |
|
|
|
|
$ |
1,500.0 |
|
$ |
47.8 |
|
$ |
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts - swaps |
|
|
14,333.2 |
|
|
111.1 |
|
|
454.9 |
|
|
11,859.4 |
|
|
|
|
$ |
915.7 |
|
|
11,479.3 |
|
|
4.0 |
|
|
667.5 |
Cross-currency interest rate contracts |
|
|
974.5 |
|
|
15.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts - swaps |
|
|
6,975.7 |
|
|
39.1 |
|
|
7.6 |
|
|
8,010.9 |
|
|
72.2 |
|
|
27.4 |
|
|
7,392.1 |
|
|
92.6 |
|
|
23.8 |
Foreign currency exchange contracts |
|
|
1,320.0 |
|
|
30.2 |
|
|
|
|
|
1,546.5 |
|
|
11.3 |
|
|
.5 |
|
|
1,433.0 |
|
|
8.4 |
|
|
5.2 |
Cross-currency interest rate contracts |
|
|
190.2 |
|
|
9.7 |
|
|
3.4 |
|
|
175.8 |
|
|
3.2 |
|
|
7.5 |
|
|
155.2 |
|
|
|
|
|
24.5 |
Interest rate caps - sold |
|
|
1,595.3 |
|
|
|
|
|
15.2 |
|
|
1,336.0 |
|
|
|
|
|
24.3 |
|
|
1,433.8 |
|
|
|
|
|
25.1 |
Interest rate caps - purchased |
|
|
1,595.3 |
|
|
15.2 |
|
|
|
|
|
1,336.0 |
|
|
24.3 |
|
|
|
|
|
1,433.8 |
|
|
25.1 |
|
|
|
The amount of gain recorded in other comprehensive income (OCI) related to cash flow hedges at July 28, 2024 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is $20.6 after-tax. No gains or losses were reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur.
The amounts recorded in the consolidated balance sheets related to borrowings designated in fair value hedging relationships were as follows. Fair value hedging adjustments are included in the carrying amount of the hedged item.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Hedging Relationships |
|
Discontinued Hedging Relationships |
|
||||||||
|
|
|
|
Cumulative |
|
Carrying |
|
Cumulative |
|
||||
|
|
Carrying |
|
Fair Value |
|
Amount of |
|
Fair Value |
|
||||
|
|
Amount of |
|
Hedging |
|
Formerly |
|
Hedging |
|
||||
July 28, 2024 |
|
Hedged Item |
|
Adjustment |
|
Hedged Item |
|
Adjustment |
|
||||
Current maturities of long-term external borrowings |
|
|
|
|
|
|
|
$ |
1,458.4 |
|
$ |
9.1 |
|
Long-term external borrowings |
|
$ |
14,864.3 |
|
$ |
(375.0) |
|
|
8,414.5 |
|
|
(263.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term external borrowings |
|
|
|
|
|
|
|
$ |
1,814.0 |
|
$ |
14.9 |
|
Long-term external borrowings |
|
$ |
10,883.7 |
|
$ |
(922.6) |
|
|
7,144.1 |
|
|
(288.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term external borrowings |
|
|
|
|
|
|
|
$ |
2,323.8 |
|
$ |
25.1 |
|
Long-term external borrowings |
|
$ |
10,760.0 |
|
$ |
(667.4) |
|
|
6,319.1 |
|
|
(265.0) |
|
19
The classification and gains (losses), including accrued interest expense, related to derivative instruments on the statements of consolidated income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
July 28 |
|
July 30 |
|
July 28 |
|
July 30 |
||||
|
2024 |
2023 |
2024 |
2023 |
||||||||
Fair Value Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts - Interest expense * |
$ |
363.1 |
|
$ |
(356.2) |
|
$ |
259.3 |
|
$ |
(124.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in OCI: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts - OCI (pretax) |
$ |
(14.8) |
|
$ |
23.8 |
|
$ |
3.8 |
|
$ |
18.2 |
|
Reclassified from OCI: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts -Interest expense |
22.5 |
|
18.3 |
|
51.3 |
|
54.5 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts - Interest expense * |
$ |
(2.5) |
|
$ |
25.0 |
|
$ |
(2.6) |
|
$ |
27.4 |
|
Foreign currency exchange contracts - Administrative and operating expenses * |
(4.8) |
|
(40.4) |
|
|
(92.3) |
|
|
(100.2) |
|||
Total not designated |
|
$ |
(7.3) |
|
$ |
(15.4) |
|
$ |
(94.9) |
|
$ |
(72.8) |
* Includes interest and foreign currency exchange gains (losses) from cross-currency interest rate contracts.
Included in the table above are interest expense and administrative and operating expense amounts we incurred on derivatives transacted with John Deere. The amounts we recognized on these affiliated party transactions were gains (losses) of $397.9 and $312.5 for the three and nine months ended July 28, 2024, respectively, and $(326.3) and $(69.9) for the three and nine months ended July 30, 2023, respectively.
None of our derivative agreements contain credit-risk-related contingent features. We have a loss sharing agreement with John Deere in which we have agreed to absorb any losses and expenses John Deere incurs if an unrelated external counterparty fails to meet its obligations on a derivative transaction that John Deere entered into to manage our exposures. The loss sharing agreement did not increase the maximum amount of loss that we would incur, after considering collateral received and netting arrangements, as of July 28, 2024, October 29, 2023, and July 30, 2023.
20
Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities for external derivatives and those with John Deere related to netting arrangements and collateral were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 28, 2024 |
||||||||||
|
|
|
Gross Amounts |
|
Netting |
|
Collateral |
|
Net |
||||
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
||||||
|
External |
|
$ |
30.2 |
|
|
|
|
|
|
|
$ |
30.2 |
|
John Deere |
|
204.9 |
|
$ |
(143.6) |
|
|
|
|
61.3 |
||
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
John Deere |
|
498.7 |
|
(143.6) |
|
|
|
355.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2023 |
||||||||||
|
|
|
Gross Amounts |
|
Netting |
|
Collateral |
|
Net |
||||
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
||||||
|
External |
|
$ |
11.3 |
|
$ |
(.1) |
|
|
|
$ |
11.2 |
|
|
John Deere |
|
144.4 |
|
(107.0) |
|
|
|
|
37.4 |
|||
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
|
.5 |
|
(.1) |
|
|
|
|
.4 |
|||
|
John Deere |
|
974.9 |
|
(107.0) |
|
|
|
|
867.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 30, 2023 |
||||||||||
|
|
|
Gross Amounts |
|
Netting |
|
Collateral |
|
Net |
||||
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
||||||
|
External |
|
$ |
8.4 |
|
$ |
(.1) |
|
|
|
|
$ |
8.3 |
|
John Deere |
|
169.5 |
|
|
(108.5) |
|
|
|
|
61.0 |
||
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
|
5.2 |
|
(.1) |
|
|
|
|
5.1 |
|||
|
John Deere |
|
743.4 |
|
(108.5) |
|
|
|
634.9 |
(12)EMPLOYEE-SEPARATION PROGRAMS
In the third quarter of 2024, we implemented employee-separation programs for our salaried workforce in several geographic areas, including the United States, Europe and Latin America. The programs' main purpose was to help meet our strategic priorities while reducing overlap and redundancy in roles and responsibilities. The programs were largely involuntary in nature with the expense recorded when management committed to a plan, the plan was communicated to the employees, and the employees were not required to provide service beyond the legal notification period.
The programs' total pretax expenses are estimated to be approximately $8.7, with $8.2 recorded in the third quarter of 2024. The expenses were recorded in "Administrative and operating expenses."
21
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
All amounts are presented in millions of dollars unless otherwise specified.
OVERVIEW
Organization
We provide financial solutions that enable John Deere customers and dealers to advance their lives and livelihoods. Through our offering of retail notes, leases, and revolving charge accounts, customers are able to finance new and used John Deere equipment, as well as parts, services, and other input costs needed to run their operations. We also provide wholesale financing to John Deere dealers.
Smart Industrial Operating Model and Leap Ambitions
John Deere announced the Smart Industrial Operating Model in 2020. This operating model is based on three focus areas:
(a) |
Production systems: A strategic alignment of products and solutions around John Deere customers' operations. |
(b) |
Technology stack: Investments in technology, as well as research and development, that deliver intelligent solutions to John Deere customers through digital capabilities, automation, autonomy, and alternative power technologies. |
(c) |
Lifecycle solutions: The integration of John Deere's aftermarket and support capabilities to more effectively manage customer equipment, service, and technology needs across the full lifetime of a John Deere product. |
John Deere's Leap Ambitions were launched in 2022. These ambitions are designed to boost economic value and sustainability for John Deere's customers. The ambitions align across the production systems of John Deere customers, seeking to optimize their operations to deliver better outcomes with fewer resources. As an enabling business, we are fully integrated with John Deere's Smart Industrial Operating Model and are focused on providing financial solutions to help John Deere achieve its Leap Ambitions.
TRENDS AND ECONOMIC CONDITIONS
Our volume of Receivables and Leases is largely dependent upon the level of retail sales and leases of John Deere products. The level of John Deere retail sales and leases is responsive to a variety of economic, financial, climatic, legislative, and other factors that influence supply and demand for its products.
Industry Sales Outlook for Fiscal Year 2024
Agriculture and Turf
Construction and Forestry
John Deere Trends
Customers seek to improve profitability, productivity, and sustainability through technology. Integration of technology into equipment is a persistent market trend. John Deere's Smart Industrial Operating Model and Leap Ambitions are intended to capitalize on this market trend. The technologies that are the focus of John Deere's operating model are incorporated into products within each of John Deere's operating segments. We expect this trend to persist for the foreseeable future.
22
Agriculture and Turf Outlook for 2024
● | John Deere expects large and small agricultural equipment sales to be down from 2023 levels across all its major markets. |
● | Agricultural fundamentals are expected to continue to moderate in 2024 due to rising global grain stocks from excellent growing conditions, lower commodity prices, elevated interest rates, and geopolitical uncertainty. |
● | Demand in the U.S. and Canada continues to be affected by declining farm income margins partially offset by stable farm balance sheets. |
● | The U.S. equipment fleet age is elevated for tractors and in line with historic averages for combines. However, increases in used inventory levels are impacting purchasing decisions. |
● | Sales of compact utility tractors in the U.S. are forecasted to be down due to higher interest rates, partially offset by small and mid-tractor tailwinds from improving dairy and livestock fundamentals. |
● | In Europe, volatile weather conditions continue to drive uncertainty about crop yields and along with elevated input costs are impacting demand in the region, while the dairy and livestock sector remains steady due to stronger pricing and lower feed costs. |
Construction and Forestry Outlook for 2024
● | Construction equipment industry sales are forecasted to be down from 2023 levels. |
● | Benefits from strong U.S. infrastructure spending and increasing manufacturing investment levels are expected to partially offset declines in housing starts, decreases in rental purchases, low levels of commercial real estate construction, and the effect of elevated inventory levels. |
● | Roadbuilding demand remains strong in the U.S., largely offset by continuing softness in Europe. |
Company Trends
Our net income for fiscal year 2024 is expected to be slightly higher than fiscal year 2023 primarily due to income earned on a higher average portfolio, lower dealer financing incentives, and favorable discrete tax items, partially offset by a higher provision for credit losses and less favorable financing spreads.
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 lower demand for equipment. We may experience higher receivable write-offs and losses on equipment on operating leases during unfavorable market conditions.
Interest Rates. Central bank policy interest rates increased in 2023 and have remained elevated. Most of our receivables and leases with retail customers are fixed rate, while our wholesale receivables generally are variable rate. This Receivable and Lease portfolio is financed with fixed and variable rate borrowings. We manage our exposure to interest rate fluctuations by matching the interest rate characteristics of our portfolio with our funding sources. We also enter into interest rate swap agreements to match our interest rate exposure.
Rising interest rates have historically impacted our borrowings sooner than the benefit is realized from our Receivable and Lease portfolio. As a result, we experienced $40.7 (after-tax) less favorable financing spreads in the first nine months of 2024 compared to 2023. We expect to continue experiencing spread compression in 2024.
Higher interest rates are driven by factors outside of our control, and as a result we cannot reasonably foresee when these conditions will subside.
Other Items of Concern and Uncertainties
Other items that could impact our results are:
● | global and regional political conditions, including the ongoing war between Russia and Ukraine and the conflict in the Middle East, |
● | economic, tax, and trade policies, |
● | new or retaliatory tariffs, |
● | capital market disruptions, |
● | foreign currency and capital control policies, |
● | regulations and legislation regarding right to repair or right to modify, |
● | weather conditions, |
● | marketplace adoption, and monetization of technologies we have invested in, |
23
● | John Deere's and our ability to strengthen our digital capabilities, automation, autonomy, and alternative power technologies, |
● | workforce reductions impact on employee retention, morale, and institutional knowledge, |
● | changes in demand and pricing for new and used equipment, |
● | delays or disruptions in John Deere's supply chain, |
● | significant fluctuations in foreign currency exchange rates, |
● | volatility in the prices of many commodities, and |
● | slower economic growth or recession. |
2024 COMPARED WITH 2023
The total revenues and net income attributable to the Company were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
|
July 28 |
|
July 30 |
|
% |
|
July 28 |
|
July 30 |
|
% |
||||
|
2024 |
2023 |
|
Change |
2024 |
2023 |
|
Change |
||||||||
Total revenues |
$ |
1,284.3 |
$ |
1,057.6 |
21 |
$ |
3,644.3 |
$ |
2,823.4 |
29 |
||||||
Net income attributable to the Company |
|
|
122.6 |
|
|
157.7 |
|
(22) |
|
|
423.6 |
|
|
425.3 |
|
|
Total revenues increased for the third quarter and first nine months of 2024 primarily due to a 13 percent and 17 percent increase in average portfolio balances, respectively, and higher average financing rates. Net income for the quarter was lower than the same period in 2023 primarily due to a higher provision for credit losses and less favorable financing spreads, partially offset by income earned on higher average portfolio balances and favorable discrete tax items. Year-to-date net income was flat compared to 2023 primarily due to a higher provision for credit losses and less favorable financing spreads, offset by income earned on higher average portfolio balances, lower dealer financing incentives, and favorable discrete tax items.
24
Revenues
Finance income, lease revenues, and other income earned by us were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
|
July 28 |
|
July 30 |
|
% |
|
July 28 |
|
July 30 |
|
% |
||||
|
|
2024 |
|
2023 |
|
Change |
2024 |
|
2023 |
|
Change |
|||||
Finance income earned on: |
|
|
|
|
|
|
|
|
|
|
||||||
Retail notes |
|
$ |
484.2 |
|
$ |
387.4 |
|
25 |
|
$ |
1,400.3 |
|
$ |
1,069.5 |
|
31 |
Revolving charge accounts |
|
|
129.0 |
|
|
114.9 |
|
12 |
|
|
351.7 |
|
|
289.7 |
|
21 |
Wholesale receivables |
|
|
324.1 |
|
|
255.3 |
|
27 |
|
|
904.9 |
|
|
610.8 |
|
48 |
Lease revenues |
|
|
280.1 |
|
|
250.1 |
|
12 |
|
|
810.3 |
|
|
733.2 |
|
11 |
Other income |
|
|
66.9 |
|
|
49.9 |
|
34 |
|
|
177.1 |
|
|
120.2 |
|
47 |
Higher average portfolio balances and higher average finance rates drove increased revenues across all products for the third quarter and first nine months of 2024 compared to 2023. The change was most pronounced within wholesale receivables, due to an increase in average portfolio balances of 25 percent and 39 percent for the third quarter and first nine months of 2024, respectively, due to higher dealer inventory levels.
Other income increased in the third quarter and first nine months of 2024 compared to 2023 due to higher credit enhancement recoveries, partially offset by lower gains on operating lease dispositions. Year-to-date results also benefited from higher interest earned on our cash and cash equivalents and intercompany receivables from John Deere.
Revenues earned from John Deere totaled $287.2 for the third quarter and $857.9 for the first nine months of 2024, compared with $283.4 and $742.8 for the same periods last year, respectively. The year-to-date increases were primarily due to increased compensation paid by John Deere on wholesale receivables and retail notes driven by a higher interest rate environment, in addition to higher average portfolio balances. Revenues earned from John Deere are included in each of the revenue amounts discussed above.
25
Expenses
Expenses incurred by us were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
|
July 28 |
|
July 30 |
|
% |
|
July 28 |
|
July 30 |
|
% |
||||
|
|
2024 |
|
2023 |
|
Change |
2024 |
|
2023 |
|
Change |
|||||
Interest expense |
$ |
640.0 |
$ |
445.3 |
44 |
$ |
1,817.2 |
$ |
1,121.6 |
62 |
||||||
Depreciation of equipment on operating leases |
|
|
173.0 |
|
|
165.8 |
|
4 |
|
|
506.9 |
|
|
491.4 |
|
3 |
Administrative and operating expenses |
|
|
133.9 |
|
|
142.6 |
|
(6) |
|
|
398.4 |
|
|
419.3 |
|
(5) |
Fees and interest paid to John Deere |
|
|
61.1 |
|
|
67.9 |
|
(10) |
|
|
173.6 |
|
|
183.6 |
|
(5) |
Provision for credit losses |
|
|
122.4 |
|
|
22.4 |
|
446 |
|
|
222.7 |
|
|
52.6 |
|
323 |
Provision for income taxes |
|
|
31.9 |
|
|
56.5 |
|
(44) |
|
|
105.7 |
|
|
132.3 |
|
(20) |
The increase in interest expense for the third quarter and first nine months of 2024 was primarily due to higher average borrowing rates and higher average borrowings to fund a larger portfolio.
Administrative and operating expenses in the third quarter and first nine months of 2024 decreased compared to the same periods in 2023 due to lower dealer financing incentive program costs and lower foreign exchange losses. These factors were partially offset by employee-separation costs.
Fees and interest paid to John Deere decreased in the third quarter and first nine months of 2024 due to lower interest on intercompany borrowings from John Deere, driven by lower average borrowings.
The provision for credit losses increased in the third quarter and first nine months of 2024 compared with the same periods last year due to higher net write-offs on retail notes and revolving charge accounts and an increase in allowance, driven primarily by higher expected losses on retail notes as a result of elevated delinquencies and a decline in market conditions. The annualized provision for credit losses, as a percentage of the average balance of total Receivables, was .89 percent for the third quarter and .57 percent for the first nine months of 2024, compared with .19 percent and .16 percent for the same periods last year, respectively.
The provision for income taxes decreased during the third quarter and first nine months of 2024 primarily due to favorable discrete tax items and lower pretax income.
26
Receivables and Leases
Receivable and Lease (excluding wholesale) volumes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|||||||||
|
|
July 28 |
|
July 30 |
|
$ |
|
% |
|||
|
|
2024 |
|
2023 |
|
Change |
|
Change |
|||
Retail notes: |
|
|
|
|
|
||||||
Agriculture and turf |
|
$ |
3,147.0 |
|
$ |
3,412.8 |
|
$ |
(265.8) |
|
(8) |
Construction and forestry |
|
754.2 |
|
676.1 |
|
78.1 |
|
12 |
|||
Total retail notes |
|
3,901.2 |
|
4,088.9 |
|
(187.7) |
|
(5) |
|||
Revolving charge accounts |
|
2,058.1 |
|
2,063.1 |
|
(5.0) |
|
|
|||
Financing leases |
|
371.8 |
|
349.2 |
|
22.6 |
|
6 |
|||
Equipment on operating leases |
|
625.6 |
|
607.1 |
|
18.5 |
|
3 |
|||
Total Receivables and Leases (excluding wholesale) |
|
$ |
6,956.7 |
|
$ |
7,108.3 |
|
$ |
(151.6) |
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|||||||||
|
|
July 28 |
|
July 30 |
|
$ |
|
% |
|||
|
|
2024 |
|
2023 |
|
Change |
|
Change |
|||
Retail notes: |
|
|
|
|
|
||||||
Agriculture and turf |
|
$ |
9,546.6 |
|
$ |
9,541.0 |
|
$ |
5.6 |
|
|
Construction and forestry |
|
2,206.1 |
|
1,980.9 |
|
225.2 |
|
11 |
|||
Total retail notes |
|
11,752.7 |
|
11,521.9 |
|
230.8 |
|
2 |
|||
Revolving charge accounts |
|
6,414.2 |
|
6,422.7 |
|
(8.5) |
|
|
|||
Financing leases |
|
921.3 |
|
726.6 |
|
194.7 |
|
27 |
|||
Equipment on operating leases |
|
1,664.4 |
|
1,557.4 |
|
107.0 |
|
7 |
|||
Total Receivables and Leases (excluding wholesale) |
|
$ |
20,752.6 |
|
$ |
20,228.6 |
|
$ |
524.0 |
|
3 |
Receivable and Lease portfolio balances were as follows:
|
|
|
|
|
|
|
|
|
|
|
July 28 |
October 29 |
July 30 |
||||||
|
|
2024 |
|
2023 |
|
2023 |
|||
Retail notes: |
|
|
|
||||||
Agriculture and turf |
|
$ |
27,424.5 |
|
$ |
26,708.3 |
|
$ |
25,315.4 |
Construction and forestry |
|
5,588.9 |
|
5,289.6 |
|
5,127.4 |
|||
Total retail notes |
|
33,013.4 |
|
31,997.9 |
|
30,442.8 |
|||
Revolving charge accounts |
|
4,471.2 |
|
4,594.4 |
|
4,437.5 |
|||
Wholesale receivables |
|
16,868.8 |
|
13,330.1 |
|
14,027.6 |
|||
Financing leases |
|
1,512.3 |
|
1,421.8 |
|
1,291.0 |
|||
Equipment on operating leases |
|
5,199.4 |
|
5,051.5 |
|
4,837.5 |
|||
Total Receivables and Leases |
|
$ |
61,065.1 |
|
$ |
56,395.7 |
|
$ |
55,036.4 |
Total Receivables and Leases increased $4,669.4 during the first nine months of 2024 and increased $6,028.7 compared to one year ago, driven by higher wholesale receivables and retail notes. The increase in wholesale receivables was due to higher dealer inventory levels. While agriculture and turf retail note volumes are moderating due to reduced retail demand, retail note portfolio levels continue to rise due to higher volumes in recent years.
Total Receivables 30 days or more past due, non-performing Receivables, and the allowance for credit losses were as follows (as a percentage of the Receivables balance):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 28, 2024 |
|
October 29, 2023 |
|
July 30, 2023 |
|||||||||
|
|
Dollars |
|
Percent |
|
Dollars |
|
Percent |
|
Dollars |
|
Percent |
|||
Receivables 30 days or more past due |
|
$ |
606.8 |
|
1.09 |
|
$ |
514.1 |
|
1.00 |
|
$ |
521.8 |
|
1.04 |
Non-performing Receivables |
|
|
541.7 |
|
.97 |
|
|
383.1 |
|
.75 |
|
|
356.5 |
|
.71 |
Allowance for credit losses |
|
|
219.9 |
|
.39 |
|
|
146.4 |
|
.29 |
|
|
128.8 |
|
.26 |
We monitor the credit quality of Receivables based on delinquency status. Receivables 30 days or more past due continue to accrue finance income. We stop accruing finance income once Receivables are considered non-performing, which generally occurs once Receivables are 90 days past due. An allowance for credit losses is recorded
27
for the estimated credit losses expected over the life of the Receivable portfolio. We measure expected credit losses on a collective basis when similar risk characteristics exist. Risk characteristics include product category, market, geography, credit risk, and remaining balance. Receivables that do not share risk characteristics with other receivables in the portfolio are evaluated on an individual basis. Non-performing Receivables are included in the estimate of expected credit losses. While we believe our allowance is sufficient to provide for losses over the life of our existing Receivable portfolio, different assumptions or changes in economic conditions would result in changes to the allowance for credit losses and the provision for credit losses. See Note 4 for additional information related to the allowance for credit losses.
Deposits held from dealers and merchants amounted to $127.0 at July 28, 2024, compared with $138.4 at October 29, 2023 and $132.9 at July 30, 2023. These balances primarily represent the aggregate dealer retail note and lease deposits from individual John Deere dealers to which losses from retail notes and leases originating from the respective dealers can be charged. Recoveries from dealer deposits are recognized in "Other income" when the dealer's deposit account is charged.
We also utilize other freestanding credit enhancements, such as credit insurance and bank guarantees, to mitigate credit risk. Recoveries from these freestanding credit enhancements are generally recognized when the associated credit loss is recorded. Recoveries from dealer deposits and other freestanding credit enhancements recorded in "Other income" were $26.6 in the third quarter and $39.1 for the first nine months of 2024, compared with $3.4 and $9.2 for the same periods last year, respectively. The increases were driven by expected recoveries on bank guarantee contracts, which relate to a specific allowance on wholesale receivables. See Note 4 for additional information.
Write-offs and recoveries of Receivables, by product, and as an annualized percentage of average balances held during the period, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|||||||||
|
|
July 28, 2024 |
|
|
July 30, 2023 |
||||||
|
|
Dollars |
|
Percent |
|
|
Dollars |
|
Percent |
||
Write-offs: |
|
|
|
||||||||
Retail notes and financing leases: |
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
(19.2) |
(.27) |
|
|
$ |
(6.7) |
(.10) |
||
Construction and forestry |
|
(21.9) |
(1.51) |
|
|
(11.8) |
(.90) |
||||
Total retail notes and financing leases |
|
(41.1) |
(.48) |
|
|
(18.5) |
(.24) |
||||
Revolving charge accounts |
|
(46.1) |
(4.43) |
|
|
(18.2) |
(1.78) |
||||
Total write-offs |
|
(87.2) |
(.64) |
|
|
(36.7) |
(.30) |
||||
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
Retail notes and financing leases: |
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
2.4 |
.03 |
|
|
2.0 |
.03 |
||||
Construction and forestry |
|
.6 |
.04 |
|
|
1.3 |
.10 |
||||
Total retail notes and financing leases |
|
3.0 |
.04 |
|
|
3.3 |
.04 |
||||
Revolving charge accounts |
|
8.0 |
.77 |
|
|
5.8 |
.58 |
||||
Total recoveries |
|
11.0 |
.08 |
|
|
9.1 |
.07 |
||||
Total net write-offs |
|
$ |
(76.2) |
(.56) |
|
|
$ |
(27.6) |
(.23) |
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|||||||||
|
|
July 28, 2024 |
|
|
July 30, 2023 |
||||||
|
|
Dollars |
|
Percent |
|
|
Dollars |
|
Percent |
||
Write-offs: |
|
|
|
|
|||||||
Retail notes and financing leases: |
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
(43.8) |
(.21) |
|
|
$ |
(22.0) |
(.12) |
||
Construction and forestry |
|
(49.7) |
(1.17) |
|
|
(21.0) |
(.54) |
||||
Total retail notes and financing leases |
|
(93.5) |
(.37) |
|
|
(43.0) |
(.19) |
||||
Revolving charge accounts |
|
(79.8) |
(2.89) |
|
|
(36.2) |
(1.37) |
||||
Wholesale receivables |
|
|
|
|
|
(.1) |
|
||||
Total write-offs |
|
(173.3) |
(.44) |
|
|
(79.3) |
(.24) |
||||
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
Retail notes and financing leases: |
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
4.9 |
.02 |
|
|
7.1 |
.04 |
||||
Construction and forestry |
|
2.2 |
.05 |
|
|
2.8 |
.07 |
||||
Total retail notes and financing leases |
|
7.1 |
.03 |
|
|
9.9 |
.04 |
||||
Revolving charge accounts |
|
21.4 |
.78 |
|
|
16.7 |
.63 |
||||
Wholesale receivables |
|
.2 |
|
|
|
|
.6 |
|
.01 |
||
Total recoveries |
|
28.7 |
.07 |
|
|
27.2 |
.08 |
||||
Total net write-offs |
|
$ |
(144.6) |
(.37) |
|
|
$ |
(52.1) |
(.16) |
CRITICAL ACCOUNTING ESTIMATES
See our critical accounting estimates discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations of our recently filed Annual Report on Form 10-K. There have been no material changes to these estimates.
CAPITAL RESOURCES AND LIQUIDITY - 2024 COMPARED WITH 2023
We rely on our ability to raise substantial amounts of funds to finance our Receivable and Lease portfolios. We have access to global capital markets at a reasonable cost and our ability to meet our debt obligations is supported in several ways. Sources of liquidity include:
● | cash and cash equivalents, |
● | the issuance of commercial paper and term debt, |
● | the securitization of retail notes, |
● | intercompany loans from John Deere, |
● | our Receivable and Lease portfolio, which is self-liquidating in nature, and |
● | bank lines of credit. |
We closely monitor our liquidity sources against the cash requirements and expect to have sufficient sources of global funding and liquidity to meet our funding needs in the short-term (next 12 months) and long-term (beyond 12 months).
Key metrics and certain balance sheet data are provided in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
July 28 |
|
October 29 |
|
July 30 |
|||
|
2024 |
2023 |
2023 |
||||||
Cash, cash equivalents, and marketable securities |
|
$ |
1,528.3 |
|
$ |
1,488.9 |
|
$ |
1,501.2 |
Receivables and Leases - net |
|
|
60,845.2 |
|
|
56,249.3 |
|
|
54,907.6 |
Interest-bearing debt |
|
|
55,543.4 |
|
|
50,514.5 |
|
|
49,684.1 |
Unused credit lines |
|
|
4,917.3 |
|
|
841.2 |
|
|
949.8 |
Ratio of interest-bearing debt to stockholder's equity |
|
|
9.1 to 1 |
|
|
8.6 to 1 |
|
|
8.3 to 1 |
The increase in unused credit lines in 2024 compared to both prior periods primarily relates to a decrease in commercial paper outstanding, by both us and John Deere.
There have been no material changes to the contractual obligations and other cash requirements identified in our most recently filed Annual Report on Form 10-K.
29
Cash Flows
|
|
|
|
|
|
|
|
|
Nine Months Ended |
||||
|
|
July 28 |
|
July 30 |
||
|
2024 |
2023 |
||||
Net cash provided by operating activities |
|
$ |
1,237.9 |
|
$ |
899.2 |
Net cash used for investing activities |
|
|
(5,306.4) |
|
|
(8,365.9) |
Net cash provided by financing activities |
|
|
4,133.9 |
|
|
8,311.6 |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
|
|
(1.0) |
|
|
13.4 |
Net increase in cash, cash equivalents, and restricted cash |
|
$ |
64.4 |
|
$ |
858.3 |
Net cash was used for investing activities during the first nine months of 2024 primarily due to growth in the wholesale and retail note portfolios, which were funded primarily through external borrowings and cash provided by operating activities.
Borrowings
Total borrowings increased $5,028.9 in the first nine months of 2024 and increased $5,859.3 compared to a year ago, generally corresponding with the level of the Receivable and Lease portfolios. During the first nine months of 2024, we issued $10,768.7 and retired $4,031.5 of long-term external borrowings, which primarily consisted of medium-term notes. During the first nine months of 2024, we also issued $3,721.9 and retired $2,848.7 of retail note securitization borrowings and maintained an average commercial paper balance of $5,880.0. Our funding profile may be altered to reflect such factors as relative costs of funding sources, assets available for securitizations, and capital market accessibility.
We have a revolving warehouse facility to utilize bank conduit facilities to securitize retail notes (see Note 5). The facility was renewed in November 2023 with an expiration in November 2024 and with an increase in the total capacity or "financing limit" from $1,500.0 to $2,000.0. At July 28, 2024, $1,566.1 of securitization borrowings were outstanding under the facility. At the end of the contractual revolving period, unless we and the banks agree to renew, we would liquidate the secured borrowings over time as payments on the retail notes are collected.
Lines of Credit
We have access to bank lines of credit with various banks throughout the world. Some of the lines are available to both us and Deere & Company.
Worldwide lines of credit were $10,653.5 at July 28, 2024, consisting primarily of:
● | a 364-day credit facility agreement of $5,000.0 expiring in the second quarter of 2025, |
● | a credit facility agreement of $2,750.0 expiring in the second quarter of 2028, and |
● | a creditfacility agreement of $2,750.0 expiring in the second quarter of 2029. |
At July 28, 2024, $4,917.3 of these worldwide lines of credit were unused. For the purpose of computing the unused credit lines, commercial paper and short-term bank borrowings of us and John Deere were considered to constitute utilization.
The credit agreements governing these lines of credit require us to maintain a consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for any four consecutive fiscal quarterly periods and our 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. All of these credit agreement requirements have been met during the periods included in the consolidated financial statements. The agreements are mutually extendable, and the annual facility fees are not significant.
30
Debt Ratings
Our ability to obtain funding is affected by our debt ratings, which are closely related to the outlook for and the financial condition of John Deere, and the nature and availability of support facilities, such as our lines of credit and the support agreement from Deere & Company.
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. 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 our unsecured debt securities by the rating agencies engaged by us are the same as those for John Deere and are as follows:
|
|
|
|
|
|
|
|
Senior Long-Term |
Short-Term |
Outlook |
|||
Fitch Ratings |
|
A+ |
|
F1 |
|
Stable |
Moody's Investors Service, Inc. |
A1 |
Prime-1 |
Stable |
|||
Standard & Poor's |
A |
A-1 |
Stable |
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.
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:
● | changes in and compliance with U.S., foreign and international laws, regulations, and policies relating to trade, economic sanctions, data privacy, spending, taxing, banking, monetary, environmental (including climate change and engine emissions), and farming policies; |
● | volumes of Receivables and Leases being dependent upon the level of retail sales and leases of new and used John Deere products; |
● | political, economic, and social instability of the geographies in which we and John Deere operate, including the ongoing war between Russia and Ukraine and the conflict in the Middle East; |
● | adverse macroeconomic conditions, including unemployment, inflation, interest rate volatility, changes in consumer practices due to slower economic growth, and regional or global liquidity constraints; |
● | worldwide demand for food and different forms of renewable energy; |
● | John Deere's and our ability to execute business strategies, including John Deere's Smart Industrial Operating Model and Leap Ambitions; |
● | John Deere's and our ability to understand and meet customers' changing expectations and demand for John Deere products and solutions, including our financing solutions; |
● | John Deere's and our ability to adapt in highly competitive markets; |
● | John Deere dealers' practices and their ability to manage inventory and distribution of John Deere products and to provide support and service precision technology solutions; |
● | changes in climate patterns, unfavorable weather events, and natural disasters; |
● | governmental and other actions designed to address climate change in connection with a transition to a lower-carbon economy; |
● | higher interest rates and currency fluctuations which could adversely affect the U.S. dollar, customer confidence, access to capital, and demand for John Deere's and our products and solutions; |
● | a decrease in the value of used equipment or higher than estimated returns of equipment on operating leases; |
● | availability and price of raw materials, components, and whole goods; |
● | delays or disruptions in John Deere's supply chain; |
31
● | the failure of John Deere's equipment to perform as expected, which could result in warranty claims, post-sales repairs or recalls, product liability litigation, and regulatory investigations; |
● | the ability to attract, develop, engage, and retain qualified employees; |
● | the impact of workforce reductions on employee retention, morale and institutional knowledge; |
● | security breaches, cybersecurity attacks, technology failures, and other disruptions to John Deere's or our information technology infrastructure and products; |
● | loss of or challenges to intellectual property rights; |
● | legislation introduced or enacted that could affect John Deere's business model and intellectual property, such as right to repair or right to modify legislation; |
● | investigations, claims, lawsuits, or other legal proceedings; |
● | events that damage John Deere's or our reputation or brand; |
● | the agricultural business cycle, which can be unpredictable and is affected by factors such as world grain stocks, available farm acres, acreage planted, soil conditions, harvest yields, prices for commodities and livestock, input costs, and availability of transport for crops; and |
● | housing starts and supply, real estate and housing prices, levels of public and non-residential construction, and infrastructure investment. |
Further information concerning our business, 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 our most recent Annual Report on Form 10-K and this Quarterly Report on Form 10-Q). 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.
Our business is closely related to John Deere's business. Further information, including factors that could materially affect our financial results and John Deere's financial results, is included in the most recent Deere & Company Annual Report on Form 10-K and Quarterly Report on Form 10-Q (including, but not limited to, the factors discussed in Item 1A., "Risk Factors" of the most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q) and other Deere & Company filings with the SEC.
32
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to General Instruction H.
Item 4.CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) were effective as of July 28, 2024, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act. During the third quarter of 2024, there were no changes that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
We are subject to various unresolved legal actions, the most prevalent of which relate to retail credit matters. We believe the reasonably possible range of losses for these unresolved legal actions would not have a material effect on our consolidated financial statements.
Item 1A.Risk Factors
See our most recently filed Annual Report on Form 10-K (Part I, Item 1A). The risks described in the Annual Report on Form 10-K, and the "Forward-Looking Statements" in this report, are not the only risks we face. Additional risks and uncertainties may also materially affect our business, financial condition, or operating results. One should not consider the risk factors to be a complete discussion of risks, uncertainties, and assumptions.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Omitted pursuant to General Instruction H.
Item 3.Defaults Upon Senior Securities
Omitted pursuant to General Instruction H.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.
33
Item 6.Exhibits
Certain 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 SEC upon request of the SEC.
3.1 |
|
|
|
3.2 |
|
|
|
31.1 |
Rule 13a-14(a)/15d-14(a) Certification |
|
|
31.2 |
Rule 13a-14(a)/15d-14(a) Certification |
|
|
32 |
Section 1350 Certifications (furnished herewith) |
|
|
101.INS |
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
* Incorporated by reference.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
||
|
|
|
||
|
|
JOHN DEERE CAPITAL CORPORATION |
||
|
|
|
||
|
|
|
||
|
|
|
||
|
|
|
||
Date: |
August 29, 2024 |
|
By: |
/s/ Joshua A. Jepsen |
|
|
Joshua A. Jepsen |
||
|
|
Senior Vice President (Principal Financial Officer and Principal Accounting Officer) |
||
|
|
|
35