REVENUE RECOGNITION

6 Months Ended

May 03, 2020

REVENUE RECOGNITION

REVENUE RECOGNITION

(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 May 3, 2020
	Agriculture and Turf		Construction and Forestry		Financial Services		Total
Primary geographical markets:
United States	$	3,381	$	1,263	$	604	$	5,248
Canada		266		166		151		583
Western Europe		1,111		358		22		1,491
Central Europe and CIS		338		140		8		486
Latin America		458		135		60		653
Asia, Africa, Australia, New Zealand, and Middle East		511		251		30		792
Total	$	6,065	$	2,313	$	875	$	9,253
Major product lines:
Large Agriculture	$	3,075					$	3,075
Small Agriculture		1,976						1,976
Turf		806						806
Construction			$	877				877
Compact Construction				339				339
Roadbuilding				723				723
Forestry				254				254
Financial Products		21		6	$	875		902
Other		187		114				301
Total	$	6,065	$	2,313	$	875	$	9,253
Timing of revenue recognition:
Revenue recognized at a point in time	$	6,016	$	2,287	$	26	$	8,329
Revenue recognized over time		49		26		849		924
Total	$	6,065	$	2,313	$	875	$	9,253

	Six Months Ended May 3, 2020
	Agriculture and Turf		Construction and Forestry		Financial Services		Total
Primary geographical markets:
United States	$	5,881	$	2,283	$	1,247	$	9,411
Canada		404		338		307		1,049
Western Europe		1,889		697		44		2,630
Central Europe and CIS		558		299		18		875
Latin America		913		294		126		1,333
Asia, Africa, Australia, New Zealand, and Middle East		1,015		507		64		1,586
Total	$	10,660	$	4,418	$	1,806	$	16,884
Major product lines:
Large Agriculture	$	5,214					$	5,214
Small Agriculture		3,741						3,741
Turf		1,274						1,274
Construction			$	1,718				1,718
Compact Construction				627				627
Roadbuilding				1,328				1,328
Forestry				528				528
Financial Products		48		13	$	1,806		1,867
Other		383		204				587
Total	$	10,660	$	4,418	$	1,806	$	16,884
Timing of revenue recognition:
Revenue recognized at a point in time	$	10,556	$	4,366	$	52	$	14,974
Revenue recognized over time		104		52		1,754		1,910
Total	$	10,660	$	4,418	$	1,806	$	16,884

	Three Months Ended April 28, 2019
	Agriculture and Turf		Construction and Forestry		Financial Services		Total
Primary geographical markets:
United States	$	3,912	$	1,738	$	604	$	6,254
Canada		313		265		153		731
Western Europe		1,360		379		21		1,760
Central Europe and CIS		393		155		9		557
Latin America		772		194		69		1,035
Asia, Africa, Australia, New Zealand, and Middle East		647		328		30		1,005
Total	$	7,397	$	3,059	$	886	$	11,342
Major product lines:
Large Agriculture	$	3,494					$	3,494
Small Agriculture		2,632						2,632
Turf		989						989
Construction			$	1,478				1,478
Compact Construction				320				320
Roadbuilding				814				814
Forestry				338				338
Financial Products		25		6	$	886		917
Other		257		103				360
Total	$	7,397	$	3,059	$	886	$	11,342
Timing of revenue recognition:
Revenue recognized at a point in time	$	7,345	$	3,034			$	10,379
Revenue recognized over time		52		25	$	886		963
Total	$	7,397	$	3,059	$	886	$	11,342

	Six Months Ended April 28, 2019
	Agriculture and Turf		Construction and Forestry		Financial Services		Total
Primary geographical markets:
United States	$	6,540	$	2,901	$	1,179	$	10,620
Canada		485		513		310		1,308
Western Europe		2,208		716		41		2,965
Central Europe and CIS		541		326		18		885
Latin America		1,320		344		133		1,797
Asia, Africa, Australia, New Zealand, and Middle East		1,100		591		60		1,751
Total	$	12,194	$	5,391	$	1,741	$	19,326
Major product lines:
Large Agriculture	$	5,661					$	5,661
Small Agriculture		4,441						4,441
Turf		1,495						1,495
Construction			$	2,487				2,487
Compact Construction				584				584
Roadbuilding				1,412				1,412
Forestry				690				690
Financial Products		44		13	$	1,741		1,798
Other		553		205				758
Total	$	12,194	$	5,391	$	1,741	$	19,326
Timing of revenue recognition:
Revenue recognized at a point in time	$	12,100	$	5,347			$	17,447
Revenue recognized over time		94		44	$	1,741		1,879
Total	$	12,194	$	5,391	$	1,741	$	19,326

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 $1,077 million, $1,010 million and $1,014 million at May 3, 2020, November 3, 2019, and April 28, 2019, respectively. The contract liability is reduced as the revenue is recognized. During the three months ended May 3, 2020 and April 28, 2019, $97 million and $103 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of the respective fiscal year. During the six months ended May 3, 2020 and April 28, 2019, $278 million and $265 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 May 3, 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 $907 million at May 3, 2020. The estimated revenue to be recognized by fiscal year follows in millions of dollars: remainder of 2020 - $214, 2021 - $320, 2022 - $205, 2023 - $109, 2024 - $45, and later years - $14. 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.

As explained in the 2019 Form 10-K, the Company’s policy on trade accounts and notes receivables is to not extend interest-free periods nor to forgive interest charged. During the second quarter of 2020, the Company provided short-term payment relief on trade accounts and notes receivables to independent dealers and certain other customers (customers) that are negatively affected by the economic effects of COVID. The relief was provided both in regional programs and case-by-case situations with creditworthy customers. This relief generally included payment deferrals not exceeding three months, extending interest-free periods for up to an additional three months with the total interest-free period not to exceed one year, or reducing interest rates for a maximum of three months. The trade receivable balance granted relief in the second quarter was $707 million with $585 million outstanding, or approximately 10 percent of the trade receivable portfolio, at May 3, 2020. These actions were taken in response to the sudden, severe economic effects of COVID on customers. Outside of these actions, the Company is not modifying its normal sales terms with customers that are outlined in the 2019 Form 10-K.

For customers who obtained payment relief, subsequent sales transactions are evaluated to confirm the revenue recognition criteria are met, including the sales price is determinable and collectability of the payments are probable based on the terms outlined in the contract.