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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 February 2, 2020

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: 1-4121

DEERE  &  COMPANY

(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation)

36-2382580
(IRS employer identification no.)

One John Deere Place

Moline, Illinois 61265

(Address of principal executive offices)

Telephone Number: (309) 765-8000

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock, $1 par value

DE

New York Stock Exchange

8½% Debentures Due 2022

DE22

New York Stock Exchange

6.55% Debentures Due 2028

DE28

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. (Check one):

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

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 February 2, 2020, 313,619,999 shares of common stock, $1 par value, of the registrant were outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

DEERE & COMPANY

STATEMENT OF CONSOLIDATED INCOME

For the Three Months Ended February 2, 2020 and January 27, 2019

(In millions of dollars and shares except per share amounts) Unaudited

2020

2019

 

Net Sales and Revenues

Net sales

$

6,530

$

6,941

Finance and interest income

896

 

815

Other income

205

 

228

Total

7,631

 

7,984

Costs and Expenses

Cost of sales

5,077

 

5,432

Research and development expenses

425

 

407

Selling, administrative and general expenses

809

 

764

Interest expense

336

 

353

Other operating expenses

415

 

351

Total

7,062

 

7,307

Income of Consolidated Group before Income Taxes

569

 

677

Provision for income taxes

50

 

184

Income of Consolidated Group

519

 

493

Equity in income (loss) of unconsolidated affiliates

(1)

 

7

Net Income

518

 

500

Less: Net income attributable to noncontrolling interests

1

 

2

Net Income Attributable to Deere & Company

$

517

$

498

Per Share Data

Basic

$

1.65

$

1.56

Diluted

$

1.63

$

1.54

Average Shares Outstanding

Basic

313.5

318.5

Diluted

317.2

322.7

See Condensed Notes to Interim Consolidated Financial Statements.

2

DEERE & COMPANY

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

For the Three Months Ended February 2, 2020 and January 27, 2019

(In millions of dollars) Unaudited

    

2020

    

2019

 

 

Net Income

 

$

518

$

500

Other Comprehensive Income (Loss), Net of Income Taxes

Retirement benefits adjustment

230

 

20

Cumulative translation adjustment

43

 

(162)

Unrealized loss on derivatives

 

(9)

Unrealized gain on debt securities

5

 

8

Other Comprehensive Income (Loss), Net of Income Taxes

278

 

(143)

Comprehensive Income of Consolidated Group

796

 

357

Less: Comprehensive income attributable to noncontrolling interests

1

 

2

Comprehensive Income Attributable to Deere & Company

 

$

795

$

355

See Condensed Notes to Interim Consolidated Financial Statements.

3

DEERE & COMPANY

CONDENSED CONSOLIDATED BALANCE SHEET

(In millions of dollars) Unaudited

    

February 2

    

November 3

    

January 27

 

2020

2019

2019

 

Assets

Cash and cash equivalents

 

$

3,602

$

3,857

$

3,626

Marketable securities

609

 

581

 

523

Receivables from unconsolidated affiliates

38

 

46

 

36

Trade accounts and notes receivable – net

5,360

 

5,230

 

5,497

Financing receivables – net

27,294

 

29,195

 

25,150

Financing receivables securitized – net

4,478

 

4,383

 

4,563

Other receivables

1,367

 

1,487

 

1,651

Equipment on operating leases – net

7,504

 

7,567

 

6,904

Inventories

6,482

 

5,975

 

7,402

Property and equipment – net

5,900

 

5,973

 

5,785

Investments in unconsolidated affiliates

217

 

215

 

212

Goodwill

2,945

 

2,917

 

3,048

Other intangible assets – net

1,349

 

1,380

 

1,507

Retirement benefits

900

 

840

 

1,348

Deferred income taxes

1,414

 

1,466

 

834

Other assets

2,362

 

1,899

 

1,832

Total Assets

 

$

71,821

$

73,011

$

69,918

Liabilities and Stockholders’ Equity

Liabilities

Short-term borrowings

$

10,008

$

10,784

$

10,738

Short-term securitization borrowings

4,416

 

4,321

 

4,464

Payables to unconsolidated affiliates

147

 

142

 

144

Accounts payable and accrued expenses

8,630

 

9,656

 

9,086

Deferred income taxes

491

 

495

 

525

Long-term borrowings

30,475

 

30,229

 

27,855

Retirement benefits and other liabilities

5,710

 

5,953

 

5,759

Total liabilities

59,877

 

61,580

 

58,571

Commitments and contingencies (Note 16)

Redeemable noncontrolling interest

14

14

14

Stockholders’ Equity

Common stock, $1 par value (issued shares at
February 2, 2020 – 536,431,204)

4,675

 

4,642

 

4,512

Common stock in treasury

(17,549)

 

(17,474)

 

(16,422)

Retained earnings

30,129

 

29,852

 

27,816

Accumulated other comprehensive income (loss)

(5,329)

 

(5,607)

 

(4,578)

Total Deere & Company stockholders’ equity

11,926

 

11,413

 

11,328

Noncontrolling interests

4

 

4

 

5

Total stockholders’ equity

11,930

 

11,417

 

11,333

Total Liabilities and Stockholders’ Equity

$

71,821

$

73,011

$

69,918

See Condensed Notes to Interim Consolidated Financial Statements.

4

DEERE & COMPANY

STATEMENT OF CONSOLIDATED CASH FLOWS

For the Three Months Ended February 2, 2020 and January 27, 2019

(In millions of dollars) Unaudited

    

2020

    

2019

 

Cash Flows from Operating Activities

Net income

 

$

518

$

500

Adjustments to reconcile net income to net cash used for operating activities:

Provision for credit losses

15

 

2

Provision for depreciation and amortization

538

 

503

Share-based compensation expense

19

 

20

Undistributed earnings of unconsolidated affiliates

 

(7)

Credit for deferred income taxes

(29)

 

(56)

Changes in assets and liabilities:

Trade, notes, and financing receivables related to sales

70

 

(507)

Inventories

(642)

 

(1,396)

Accounts payable and accrued expenses

(1,134)

 

(698)

Accrued income taxes payable/receivable

(53)

 

98

Retirement benefits

36

 

(4)

Other

154

 

(106)

Net cash used for operating activities

(508)

 

(1,651)

Cash Flows from Investing Activities

Collections of receivables (excluding receivables related to sales)

5,664

 

5,496

Proceeds from maturities and sales of marketable securities

18

 

8

Proceeds from sales of equipment on operating leases

426

 

371

Cost of receivables acquired (excluding receivables related to sales)

(4,303)

 

(4,213)

Purchases of marketable securities

(34)

 

(32)

Purchases of property and equipment

(271)

 

(297)

Cost of equipment on operating leases acquired

(517)

 

(361)

Other

43

 

(3)

Net cash provided by investing activities

1,026

 

969

Cash Flows from Financing Activities

Increase (decrease) in total short-term borrowings

(473)

 

476

Proceeds from long-term borrowings

1,702

 

2,211

Payments of long-term borrowings

(1,651)

 

(1,941)

Proceeds from issuance of common stock

53

 

51

Repurchases of common stock

(114)

 

(144)

Dividends paid

(242)

 

(220)

Other

(38)

 

(30)

Net cash provided by (used for) financing activities

(763)

 

403

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash

(1)

 

(13)

Net Decrease in Cash, Cash Equivalents, and Restricted Cash

(246)

(292)

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period

3,956

 

4,015

Cash, Cash Equivalents, and Restricted Cash at End of Period

$

3,710

$

3,723

See Condensed Notes to Interim Consolidated Financial Statements.

5

DEERE & COMPANY

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Three Months Ended February 2, 2020 and January 27, 2019

(In millions of dollars) Unaudited

Total Stockholders’ Equity

Deere & Company Stockholders

 

 

Accumulated

Total

Other

Redeemable

Stockholders’

Common

Treasury

Retained

Comprehensive

Noncontrolling

Noncontrolling

  

Equity

  

Stock

  

Stock

  

Earnings

  

Income (Loss)

  

Interests

 

 

Interest

 

Balance October 28, 2018

$

11,291

$

4,474

$

(16,312)

$

27,553

$

(4,427)

$

3

$

14

 

ASU No. 2016-01 adoption

8

(8)

Net income

 

500

498

2

Other comprehensive loss

 

(143)

(143)

Repurchases of common stock

 

(144)

(144)

Treasury shares reissued

 

34

34

Dividends declared

 

(243)

(243)

Stock options and other

 

38

38

Balance January 27, 2019

$

11,333

$

4,512

$

(16,422)

$

27,816

$

(4,578)

$

5

$

14

Balance November 3, 2019

$

11,417

$

4,642

$

(17,474)

$

29,852

$

(5,607)

$

4

$

14

Net income

517

517

1

Other comprehensive income

278

278

Repurchases of common stock

(114)

(114)

Treasury shares reissued

39

39

Dividends declared

(239)

(239)

(1)

Stock options and other

32

33

(1)

Balance February 2, 2020

$

11,930

$

4,675

$

(17,549)

$

30,129

$

(5,329)

$

4

$

14

See Condensed Notes to Interim Consolidated Financial Statements.

6

Condensed Notes to Interim Consolidated Financial Statements (Unaudited)

(1)  Organization and Consolidation

The information in the notes and related commentary are presented in a format which includes data grouped as follows:

Equipment OperationsIncludes the Company’s agriculture and turf operations and construction and forestry operations with financial services reflected on the equity basis.

Financial ServicesIncludes primarily the Company’s financing operations.

ConsolidatedRepresents the consolidation of the equipment operations and financial services. References to "Deere & Company" or "the Company" refer to the entire enterprise.

The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The first quarter ends for fiscal year 2020 and 2019 were February 2, 2020 and January 27, 2019, respectively. Both periods contained 13 weeks.

Variable Interest Entities

The Company consolidates certain Variable Interest Entities (VIEs) related to retail note securitizations (see Note 12).

The Company also has an interest in a joint venture that manufactures construction equipment in Brazil for local and overseas markets. The joint venture is a VIE; however, the Company is not the primary beneficiary. Therefore, the entity’s financial results are not fully consolidated in the Company’s consolidated financial statements, but are included on the equity basis. The maximum exposure to loss was $19 million, $22 million, and $27 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively.

(2)  Summary of Significant Accounting Policies and Cash Flow Information

The interim consolidated financial statements of Deere & Company have been prepared by the Company, 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 adjustments, consisting of normal recurring adjustments, have been included. Management believes that 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 that these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.

Cash Flow Information

All cash flows from the changes in trade accounts and notes receivable are classified as operating activities in the statement of consolidated cash flows as these receivables arise from sales to the Company’s customers. Cash flows from financing receivables that are related to sales to the Company’s customers are also included in operating activities. The remaining financing receivables are related to the financing of equipment sold by independent dealers and are included in investing activities.

The Company had the following non-cash operating and investing activities that were not included in the statement of consolidated cash flows. The Company transferred inventory to equipment on operating leases of approximately $112 million and $106 million in the first three months of 2020 and 2019, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $48 million and $33 million at February 2, 2020 and January 27, 2019, respectively.

7

The Company’s restricted cash held at February 2, 2020, November 3, 2019, January 27, 2019, and October 28, 2018 was as follows in millions of dollars:

February 2

November 3

January 27

October 28

2020

2019

2019

2018

Equipment operations

$

21

$

21

$

10

$

7

Financial services

87

78

87

104

Total

$

108

$

99

$

97

$

111

The equipment operations’ restricted cash relates to miscellaneous operational activities. The financial services restricted cash primarily relates to securitization of financing receivables (see Note 12). The restricted cash is recorded in “Other assets” in the consolidated balance sheet.

(3)  New Accounting Standards

New Accounting Standards Adopted

In the first quarter of 2020, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which supersedes Accounting Standards Codification (ASC) 840, Leases. This ASU was adopted using a modified-retrospective approach. The ASU’s primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset during the term of operating lease arrangements. The ASU did not significantly change the lessee’s recognition, measurement, and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. The ASU adds new disclosures about the Company’s leasing activities. The Company elected the optional practical expedients to not reassess whether existing contracts contain leases, not reassess lease classification, and not reassess initial direct costs for existing leases. The Company did not elect the hindsight practical expedient. In addition, the Company elected to combine lease and non-lease components for all asset classes and to not recognize a right of use asset or lease liability for arrangements that qualify as short-term leases.

The operating lease liabilities are recorded in “Accounts payable and accrued expenses” and the operating lease right of use assets are recorded in “Other assets.” The finance lease liabilities are recorded in “Short-term borrowings” or “Long-term borrowings” based on the remaining lease term, and the finance lease right of use assets are recorded in “Property and equipment - net.” In addition to the lease liabilities and right of use assets, land use rights were reclassified from “Other intangible assets - net” to “Other assets” and finance lease liabilities were reclassified from “Accounts payable and accrued expenses” to “Short-term borrowings” and “Long-term borrowings.” The effect of adopting the ASU on the consolidated balance sheet follows in millions of dollars:

November 3, 2019

Cumulative Effect
from Adoption

November 4, 2019

Assets

Other intangible assets - net

$

1,380

$

(23)

$

1,357

Other assets

1,899

402

2,301

Liabilities

Short-term borrowings

$

10,784

$

11

$

10,795

Accounts payable and accrued expenses

9,656

348

10,004

Long-term borrowings

30,229

20

30,249

The Company implemented a new system for lessee accounting with new processes and controls at the time of adopting the ASU. The adoption did not have a material effect on the Company’s operating results or cash flows. See Note 15 for additional information.

8

The Company also adopted the following standards in the first quarter of 2020, none of which had a material effect on the Company’s consolidated financial statements:

Accounting Standards Updates

2017-08

Premium Amortization on Purchased Callable Debt Securities, which amends ASC 310-20, Receivables – Nonrefundable Fees and Other Costs

2018-07

Improvements to Nonemployee Share-Based Payment Accounting, which amends ASC 718, Compensation – Stock Compensation

2019-04

Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The adoption was for clarifications to ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities

New Accounting Standards to be Adopted

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASC 326, Financial Instruments – Credit Losses. The ASU revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss to an expected loss methodology. The ASU affects receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. The effective date will be the first quarter of fiscal year 2021. The ASU will be adopted using a modified-retrospective approach. The Company is developing models to estimate expected credit losses, assessing appropriate assumptions, designing new procedures and controls, and evaluating the potential effects on the consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software. This ASU requires customers in a hosting arrangement that is a service contract to evaluate the implementation costs of the hosting arrangement using the guidance to develop internal-use software. The project development stage determines the implementation costs that are capitalized or expensed. Capitalized implementation costs are amortized over the term of the service arrangement and are presented in the same income statement line item as the service contract costs. The effective date will be the first quarter of fiscal year 2021, with early adoption permitted. The Company will adopt the ASU on a prospective basis. The Company is evaluating the potential effects on the Company’s consolidated financial statements.

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The effective dates for the separate portions of the ASU and the expected effect on the consolidated financial statements are as follows for the portions that have not yet been adopted: (1) clarifications to ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, is the first quarter of fiscal year 2021, which is under evaluation, and (2) clarifications to ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities is the first quarter of fiscal year 2021, which will not have a material effect on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which amends ASC 740, Income Taxes. This ASU simplifies the accounting for income taxes by modifying the treatment of intraperiod tax allocation in certain circumstances, eliminating an exception to recognizing deferred tax liabilities for outside basis differences for foreign equity method investments and foreign subsidiaries when ownership or control changes, and modifying interim period tax calculations when a loss is forecast. In addition, the ASU also provides guidance for the accounting of a franchise tax that is partially based on income, requires that enacted changes in tax laws or rates be included in the annual effective rate determination in the period that includes the enactment date, and clarifies the tax accounting of a step up in tax basis of goodwill. The effective date will be the first quarter of fiscal year 2022, with early adoption permitted. The guidance related to the foreign equity method investments, foreign subsidiaries, and franchise taxes will be adopted using a modified-retrospective approach. The remaining provisions will be adopted prospectively. The adoption is not expected to have a material effect on the Company’s consolidated financial statements.

9

(4)  Revenue Recognition

The Company’s revenue by primary geographical market, major product line, and timing of revenue recognition in millions of dollars follow:

Three Months Ended February 2, 2020

Agriculture and Turf

Construction and Forestry

Financial Services

Total

Primary geographical markets:

   

   

             

   

             

United States

$

2,500

$

1,020

$

643

$

4,163

Canada

138

172

 

156

 

466

Western Europe

778

339

 

22

 

1,139

Central Europe and CIS

220

159

 

10

 

389

Latin America

455

159

 

66

 

680

Asia, Africa, Australia, New Zealand, and Middle East

504

256

34

794

Total

$

4,595

$

2,105

$

931

$

7,631

Major product lines:

             

             

Large Agriculture

$

2,139

$

2,139

Small Agriculture

1,765

 

 

1,765

Turf

468

 

 

468

Construction

$

841

 

 

841

Compact Construction

288

288

Roadbuilding

605

 

 

605

Forestry

274

 

 

274

Financial Products

27

7

$

931

 

965

Other

196

90

 

 

286

Total

$

4,595

$

2,105

$

931

$

7,631

Timing of revenue recognition:

             

             

Revenue recognized at a point in time

$

4,540

$

2,079

$

26

$

6,645

Revenue recognized over time

55

26

905

986

Total

$

4,595

$

2,105

$

931

$

7,631

Three Months Ended January 27, 2019

Agriculture and Turf

Construction and Forestry

Financial Services

Total

Primary geographical markets:

   

   

             

   

             

United States

$

2,628

$

1,163

$

575

$

4,366

Canada

172

248

 

157

 

577

Western Europe

848

337

 

20

 

1,205

Central Europe and CIS

148

171

 

9

 

328

Latin America

548

150

 

64

 

762

Asia, Africa, Australia, New Zealand, and Middle East

453

263

30

746

Total

$

4,797

$

2,332

$

855

$

7,984

Major product lines:

             

             

Large Agriculture

$

2,167

$

2,167

Small Agriculture

1,808

 

 

1,808

Turf

506

 

 

506

Construction

$

1,009

 

 

1,009

Compact Construction

265

265

Roadbuilding

598

 

 

598

Forestry

352

 

 

352

Financial Products

20

6

$

855

 

881

Other

296

102

 

 

398

Total

$

4,797

$

2,332

$

855

$

7,984

Timing of revenue recognition:

             

             

Revenue recognized at a point in time

$

4,755

$

2,313

$

7,068

Revenue recognized over time

42

19

$

855

916

Total

$

4,797

$

2,332

$

855

$

7,984

10

Following is a description of the Company’s major product lines:

Large Agriculture – Includes net sales of tractors with more than approximately 200 horsepower and associated attachments, combines, cotton pickers, cotton strippers, self-propelled forage harvesters and related attachments, and sugarcane harvesters, harvesting front-end equipment, sugarcane loaders and pull behind scrapers, tillage, seeding, and application equipment, including sprayers, nutrient management and soil preparation machinery, and related attachments and service parts.

Small Agriculture – Includes net sales of medium and utility tractors with less than approximately 200 horsepower, hay and forage equipment, balers, mowers, and related attachments and service parts.

Turf – Includes net sales of turf and utility equipment, including riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, and commercial mowing equipment, along with a broad line of associated implements, other outdoor power products, and related attachments and service parts.

Construction – Includes net sales of a broad range of machines used in construction, earthmoving, and material handling, including backhoe loaders, crawler dozers and loaders, four-wheel-drive loaders, excavators, motor graders, articulated dump trucks, and related attachments and service parts.

Compact Construction – Includes net sales of smaller construction equipment, including compact excavators, compact track loaders, compact wheel loaders, skid steers, landscape loaders, and related attachments and service parts.

Roadbuilding – Includes net sales of equipment used in roadbuilding and renovation, including milling machines, recyclers, slipform pavers, surface miners, asphalt pavers, compactors, tandem and static rollers, mobile crushers and screens, mobile and stationary asphalt plants, and related attachments and service parts.

Forestry – Includes net sales of equipment used in timber harvesting, including log skidders, feller bunchers, log loaders, log forwarders, log harvesters, and related attachments and service parts.

Financial Products – Includes finance and interest income primarily from retail notes related to sales of John Deere equipment to end customers, wholesale financing to dealers of John Deere equipment, and revolving charge accounts; lease income from retail leases of John Deere equipment; and revenue from extended warranties.

Other – Includes sales of certain components to other equipment manufacturers, revenue earned over time from precision guidance, telematics, and other information enabled solutions, revenue from service performed at company owned dealerships and service centers, gains on disposition of property and businesses, trademark licensing revenue, and other miscellaneous revenue items.

The Company invoices in advance of recognizing the sale of certain products and the revenue for certain services. These items are primarily for premiums for extended warranties, advance payments for future equipment sales, and subscription and service revenue related to precision guidance and telematic services. These advanced customer payments are presented as deferred revenue, a contract liability, in “Accounts payable and accrued expenses” in the consolidated balance sheet. The deferred revenue received, but not recognized in revenue, including extended warranty premiums also shown in Note 16, was $1,070 million, $1,010 million, and $956 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively. The contract liability is reduced as the revenue is recognized. During the three months ended February 2, 2020 and January 27, 2019, $181 million and $156 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year.

The Company entered into contracts with customers to deliver equipment and services that have not been recognized at February 2, 2020 because the equipment or services have not been provided. These contracts primarily relate to extended warranty and certain precision guidance and telematic services. The amount of unsatisfied performance obligations for contracts with an original duration greater than one year is $887 million at February 2, 2020. The estimated revenue to be recognized by fiscal year follows in millions of dollars: remainder of 2020 - $275, 2021 - $274, 2022 - $182, 2023 - $101, 2024 - $42, and later years - $13. The Company discloses unsatisfied performance obligations with an original contract duration greater than one year. The contracts with an expected duration of one year or less are generally for sales to dealers and end customers for equipment, service parts, repair services, and certain telematics services.

11

(5)  Other Comprehensive Income Items

The after-tax changes in accumulated other comprehensive income (loss) in millions of dollars follow:

 

    

    

    

    

    

Total

 

Unrealized

Unrealized

Accumulated

Retirement

Cumulative

Gain (Loss)

Gain (Loss)

Other

Benefits

Translation

on

on

Comprehensive

Adjustment

Adjustment

Derivatives

Debt Securities

Income (Loss)

Balance October 28, 2018

$

(3,237)

$

(1,203)

 

$

15

$

(2)

$

(4,427)

ASU No. 2016-01 adoption

(8)

(8)

Other comprehensive income (loss) items before reclassification

 

1

(162)

(7)

8

(160)

Amounts reclassified from accumulated other comprehensive income

 

19

(2)

17

Net current period other comprehensive income (loss)

 

20

 

(162)

 

(9)

 

8

 

(143)

Balance January 27, 2019

$

(3,217)

$

(1,365)

$

6

$

(2)

$

(4,578)

Balance November 3, 2019

$

(3,915)

$

(1,651)

 

$

(60)

$

19

$

(5,607)

Other comprehensive income (loss) items before reclassification

186

43

(1)

5

233

Amounts reclassified from accumulated other comprehensive income

44

1

45

Net current period other comprehensive income (loss)

230

43

5

278

Balance February 2, 2020

$

(3,685)

 

$

(1,608)

 

$

(60)

 

$

24

 

$

(5,329)

Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, in millions of dollars:

 

    

Before

    

Tax

    

After

 

Tax

(Expense)

Tax

 

Three Months Ended February 2, 2020

Amount

Credit

Amount

 

Cumulative translation adjustment

 

$

43

$

43

Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss)

(2)

$

1

(1)

Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense

2

(1)

1

Net unrealized gain (loss) on derivatives

Unrealized gain (loss) on debt securities:

Unrealized holding gain (loss)

6

(1)

5

Net unrealized gain (loss) on debt securities

6

(1)

5

Retirement benefits adjustment:

Pensions

Net actuarial gain (loss)

1

1

Reclassification to other operating expenses through amortization of: *

Actuarial (gain) loss

62

(26)

36

Prior service (credit) cost

3

(1)