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 29, 201828, 2019
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)
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Delaware | | 36-2382580 |
One John Deere Place
Moline, Illinois61265
(Address of principal executive offices)
Telephone Number: (309) (309) 765-8000
Securities Registered Pursuant to Section 12(b) of the Act:
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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 X ☒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 X ☒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 X ☒
At July 29, 2018, 321,673,52328, 2019, 314,872,834 shares of common stock, $1 par value, of the registrant were outstanding.
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS |
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DEERE & COMPANY |
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STATEMENT OF CONSOLIDATED INCOME |
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For the Three Months Ended July 29, 2018 and July 30, 2017 |
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(In millions of dollars and shares except per share amounts) Unaudited |
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| 2018 |
| 2017 |
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Net Sales and Revenues |
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Net sales |
| $ | 9,286.4 |
| $ | 6,833.0 |
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Finance and interest income |
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| 786.4 |
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| 688.8 |
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Other income |
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| 235.5 |
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| 286.0 |
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Total |
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| 10,308.3 |
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| 7,807.8 |
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Costs and Expenses |
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Cost of sales |
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| 7,152.7 |
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| 5,248.6 |
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Research and development expenses |
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| 415.7 |
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| 336.8 |
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Selling, administrative and general expenses |
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| 912.7 |
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| 799.1 |
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Interest expense |
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| 291.1 |
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| 216.3 |
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Other operating expenses |
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| 346.0 |
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| 317.1 |
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Total |
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| 9,118.2 |
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| 6,917.9 |
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Income of Consolidated Group before Income Taxes |
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| 1,190.1 |
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| 889.9 |
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Provision for income taxes |
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| 288.7 |
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| 253.2 |
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Income of Consolidated Group |
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| 901.4 |
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| 636.7 |
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Equity in income of unconsolidated affiliates |
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| 9.9 |
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| 5.6 |
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Net Income |
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| 911.3 |
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| 642.3 |
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Less: Net income attributable to noncontrolling interests |
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| 1.0 |
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| .5 |
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Net Income Attributable to Deere & Company |
| $ | 910.3 |
| $ | 641.8 |
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Per Share Data |
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Basic |
| $ | 2.81 |
| $ | 2.00 |
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Diluted |
| $ | 2.78 |
| $ | 1.97 |
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Average Shares Outstanding |
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Basic |
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| 323.5 |
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| 320.8 |
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Diluted |
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| 328.0 |
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| 325.1 |
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ITEM 1. FINANCIAL STATEMENTS | | | | | | | |
DEERE & COMPANY | | | | | | | |
STATEMENT OF CONSOLIDATED INCOME | | | | | | | |
For the Three Months Ended July 28, 2019 and July 29, 2018 | | | | | | | |
(In millions of dollars and shares except per share amounts) Unaudited | | | | | | | |
| | 2019 | | 2018 |
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Net Sales and Revenues | | | | | | | |
Net sales | | $ | 8,969 | | $ | 9,286 | |
Finance and interest income | | | 884 | |
| 786 | |
Other income | | | 183 | |
| 236 | |
Total | | | 10,036 | |
| 10,308 | |
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Costs and Expenses | | | | | | | |
Cost of sales | | | 6,870 | |
| 7,152 | |
Research and development expenses | | | 431 | |
| 416 | |
Selling, administrative and general expenses | | | 896 | |
| 913 | |
Interest expense | | | 374 | |
| 291 | |
Other operating expenses | | | 352 | |
| 346 | |
Total | | | 8,923 | |
| 9,118 | |
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Income of Consolidated Group before Income Taxes | | | 1,113 | |
| 1,190 | |
Provision for income taxes | | | 221 | |
| 289 | |
Income of Consolidated Group | | | 892 | |
| 901 | |
Equity in income of unconsolidated affiliates | | | 7 | |
| 10 | |
Net Income | | | 899 | |
| 911 | |
Less: Net income attributable to noncontrolling interests | | | | |
| 1 | |
Net Income Attributable to Deere & Company | | $ | 899 | | $ | 910 | |
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Per Share Data | | | | | | | |
Basic | | $ | 2.84 | | $ | 2.81 | |
Diluted | | $ | 2.81 | | $ | 2.78 | |
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Average Shares Outstanding | | | | | | | |
Basic | | | 315.9 | | �� | 323.5 | |
Diluted | | | 319.8 | | | 328.0 | |
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See Condensed Notes to Interim Consolidated Financial Statements.
2
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DEERE & COMPANY | | | | | | | |
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME | | | | | | | |
For the Three Months Ended July 28, 2019 and July 29, 2018 | | | | | | | |
(In millions of dollars) Unaudited | | | | | | | |
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| 2019 |
| 2018 |
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Net Income |
| $ | 899 | | $ | 911 | |
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Other Comprehensive Income (Loss), Net of Income Taxes | | | | | | | |
Retirement benefits adjustment | | | 15 | |
| 40 | |
Cumulative translation adjustment | | | 26 | |
| (421) | |
Unrealized loss on derivatives | | | (22) | |
| (1) | |
Unrealized gain on debt securities | | | 10 | |
| 1 | |
Other Comprehensive Income (Loss), Net of Income Taxes | | | 29 | |
| (381) | |
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Comprehensive Income of Consolidated Group | | | 928 | |
| 530 | |
Less: Comprehensive income attributable to noncontrolling interests | | | | |
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Comprehensive Income Attributable to Deere & Company |
| $ | 928 | | $ | 530 | |
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2
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DEERE & COMPANY |
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STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME |
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For the Three Months Ended July 29, 2018 and July 30, 2017 |
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(In millions of dollars) Unaudited |
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| 2018 |
| 2017 |
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Net Income |
| $ | 911.3 |
| $ | 642.3 |
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Other Comprehensive Income (Loss), Net of Income Taxes |
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Retirement benefits adjustment |
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| 40.2 |
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| 44.0 |
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Cumulative translation adjustment |
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| (421.3) |
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| 326.1 |
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Unrealized loss on derivatives |
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| (.9) |
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| (.5) |
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Unrealized gain (loss) on investments |
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| 1.3 |
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| (53.7) |
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Other Comprehensive Income (Loss), Net of Income Taxes |
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| (380.7) |
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| 315.9 |
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Comprehensive Income of Consolidated Group |
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| 530.6 |
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| 958.2 |
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Less: Comprehensive income attributable to noncontrolling interests |
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| .4 |
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| .7 |
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Comprehensive Income Attributable to Deere & Company |
| $ | 530.2 |
| $ | 957.5 |
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See Condensed Notes to Interim Consolidated Financial Statements.
3
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DEERE & COMPANY | | | | | | | |
STATEMENT OF CONSOLIDATED INCOME | | | | | | | |
For the Nine Months Ended July 28, 2019 and July 29, 2018 | | | | | | | |
(In millions of dollars and shares except per share amounts) Unaudited | | | | | | | |
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| 2019 |
| 2018 |
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Net Sales and Revenues | | | | | | | |
Net sales |
| $ | 26,182 | | $ | 25,007 | |
Finance and interest income | | | 2,537 | |
| 2,263 | |
Other income | | | 643 | |
| 672 | |
Total | | | 29,362 | |
| 27,942 | |
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Costs and Expenses | | | | | | | |
Cost of sales | | | 20,056 | |
| 19,190 | |
Research and development expenses | | | 1,295 | |
| 1,188 | |
Selling, administrative and general expenses | | | 2,607 | |
| 2,557 | |
Interest expense | | | 1,078 | |
| 881 | |
Other operating expenses | | | 1,063 | |
| 1,034 | |
Total | | | 26,099 | |
| 24,850 | |
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Income of Consolidated Group before Income Taxes | | | 3,263 | |
| 3,092 | |
Provision for income taxes | | | 748 | |
| 1,524 | |
Income of Consolidated Group | | | 2,515 | |
| 1,568 | |
Equity in income of unconsolidated affiliates | | | 20 | |
| 18 | |
Net Income | | | 2,535 | |
| 1,586 | |
Less: Net income attributable to noncontrolling interests | | | 3 | |
| 2 | |
Net Income Attributable to Deere & Company |
| $ | 2,532 | | $ | 1,584 | |
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Per Share Data | | | | | | | |
Basic |
| $ | 7.98 | | $ | 4.90 | |
Diluted |
| $ | 7.87 | | $ | 4.82 | |
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Average Shares Outstanding | | | | | | | |
Basic | | | 317.3 | |
| 323.4 | |
Diluted | | | 321.5 | |
| 328.2 | |
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3
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DEERE & COMPANY |
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STATEMENT OF CONSOLIDATED INCOME |
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For the Nine Months Ended July 29, 2018 and July 30, 2017 |
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(In millions of dollars and shares except per share amounts) Unaudited |
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| 2018 |
| 2017 |
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Net Sales and Revenues |
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Net sales |
| $ | 25,007.4 |
| $ | 18,790.7 |
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Finance and interest income |
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| 2,263.2 |
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| 2,009.3 |
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Other income |
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| 671.2 |
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| 920.0 |
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Total |
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| 27,941.8 |
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| 21,720.0 |
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Costs and Expenses |
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Cost of sales |
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| 19,190.5 |
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| 14,457.8 |
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Research and development expenses |
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| 1,187.7 |
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| 974.2 |
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Selling, administrative and general expenses |
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| 2,557.0 |
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| 2,250.0 |
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Interest expense |
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| 881.0 |
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| 651.3 |
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Other operating expenses |
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| 1,033.8 |
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| 999.5 |
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Total |
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| 24,850.0 |
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| 19,332.8 |
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Income of Consolidated Group before Income Taxes |
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| 3,091.8 |
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| 2,387.2 |
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Provision for income taxes |
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| 1,523.4 |
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| 748.7 |
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Income of Consolidated Group |
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| 1,568.4 |
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| 1,638.5 |
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Equity in income of unconsolidated affiliates |
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| 17.8 |
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| 10.0 |
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Net Income |
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| 1,586.2 |
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| 1,648.5 |
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Less: Net income (loss) attributable to noncontrolling interests |
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| 2.6 |
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| (.3) |
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Net Income Attributable to Deere & Company |
| $ | 1,583.6 |
| $ | 1,648.8 |
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Per Share Data |
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Basic |
| $ | 4.90 |
| $ | 5.17 |
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Diluted |
| $ | 4.82 |
| $ | 5.11 |
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Average Shares Outstanding |
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Basic |
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| 323.4 |
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| 318.8 |
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Diluted |
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| 328.2 |
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| 322.5 |
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See Condensed Notes to Interim Consolidated Financial Statements.
4
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DEERE & COMPANY | | | | | | | |
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME | | | | | | | |
For the Nine Months Ended July 28, 2019 and July 29, 2018 | | | | | | | |
(In millions of dollars) Unaudited | | | | | | | |
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| 2019 |
| 2018 |
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Net Income |
| $ | 2,535 | | $ | 1,586 | |
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Other Comprehensive Income (Loss), Net of Income Taxes | | | | | | | |
Retirement benefits adjustment | | | 84 | |
| 205 | |
Cumulative translation adjustment | | | (218) | |
| (197) | |
Unrealized gain (loss) on derivatives | | | (37) | |
| 10 | |
Unrealized gain (loss) on debt securities | | | 25 | |
| (8) | |
Other Comprehensive Income (Loss), Net of Income Taxes | | | (146) | |
| 10 | |
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Comprehensive Income of Consolidated Group | | | 2,389 | |
| 1,596 | |
Less: Comprehensive income attributable to noncontrolling interests | | | 3 | |
| 1 | |
Comprehensive Income Attributable to Deere & Company |
| $ | 2,386 | | $ | 1,595 | |
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4
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DEERE & COMPANY |
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STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME |
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For the Nine Months Ended July 29, 2018 and July 30, 2017 |
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(In millions of dollars) Unaudited |
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| 2018 |
| 2017 |
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Net Income |
| $ | 1,586.2 |
| $ | 1,648.5 |
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Other Comprehensive Income (Loss), Net of Income Taxes |
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Retirement benefits adjustment |
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| 205.4 |
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| 120.6 |
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Cumulative translation adjustment |
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| (196.4) |
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| 325.1 |
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Unrealized gain on derivatives |
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| 9.4 |
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| 1.5 |
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Unrealized loss on investments |
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| (8.2) |
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| (.8) |
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Other Comprehensive Income (Loss), Net of Income Taxes |
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| 10.2 |
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| 446.4 |
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Comprehensive Income of Consolidated Group |
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| 1,596.4 |
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| 2,094.9 |
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Less: Comprehensive income (loss) attributable to noncontrolling interests |
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| 2.4 |
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| (.1) |
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Comprehensive Income Attributable to Deere & Company |
| $ | 1,594.0 |
| $ | 2,095.0 |
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See Condensed Notes to Interim Consolidated Financial Statements.
5
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DEERE & COMPANY | | | | | | | | | | |
CONDENSED CONSOLIDATED BALANCE SHEET | | | | | | | | | | |
(In millions of dollars) Unaudited | | | | | | | | | | |
|
| July 28 |
| October 28 |
| July 29 |
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| | 2019 | | 2018 | | 2018 |
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Assets | | | | | | | | | | |
Cash and cash equivalents |
| $ | 3,383 | | $ | 3,904 | | $ | 3,923 | |
Marketable securities | | | 565 | |
| 490 | |
| 488 | |
Receivables from unconsolidated affiliates | | | 54 | |
| 22 | |
| 28 | |
Trade accounts and notes receivable – net | | | 6,758 | |
| 5,004 | |
| 6,208 | |
Financing receivables – net | | | 27,049 | |
| 27,054 | |
| 25,213 | |
Financing receivables securitized – net | | | 5,200 | |
| 4,022 | |
| 4,662 | |
Other receivables | | | 1,535 | |
| 1,736 | |
| 1,300 | |
Equipment on operating leases – net | | | 7,269 | |
| 7,165 | |
| 6,805 | |
Inventories | | | 6,747 | |
| 6,149 | |
| 6,239 | |
Property and equipment – net | | | 5,798 | |
| 5,868 | |
| 5,638 | |
Investments in unconsolidated affiliates | | | 219 | |
| 207 | |
| 199 | |
Goodwill | | | 3,013 | |
| 3,101 | |
| 3,047 | |
Other intangible assets – net | | | 1,444 | |
| 1,562 | |
| 1,581 | |
Retirement benefits | | | 1,431 | |
| 1,298 | |
| 737 | |
Deferred income taxes | | | 1,088 | |
| 808 | |
| 1,645 | |
Other assets | | | 1,977 | |
| 1,718 | |
| 1,677 | |
Total Assets |
| $ | 73,530 | | $ | 70,108 | | $ | 69,390 | |
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Liabilities and Stockholders’ Equity | | | | | | | | | | |
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Liabilities | | | | | | | | | | |
Short-term borrowings | | $ | 11,142 | | $ | 11,062 | | $ | 11,004 | |
Short-term securitization borrowings | | | 5,048 | |
| 3,957 | |
| 4,528 | |
Payables to unconsolidated affiliates | | | 136 | |
| 129 | |
| 111 | |
Accounts payable and accrued expenses | | | 9,390 | |
| 10,111 | |
| 9,483 | |
Deferred income taxes | | | 507 | |
| 556 | |
| 524 | |
Long-term borrowings | | | 29,242 | |
| 27,237 | |
| 26,838 | |
Retirement benefits and other liabilities | | | 5,781 | |
| 5,751 | |
| 6,522 | |
Total liabilities | | | 61,246 | |
| 58,803 | |
| 59,010 | |
| | | | | | | | | | |
Commitments and contingencies (Note 15) | | | | | | | | | | |
Redeemable noncontrolling interest | | | 14 | | | 14 | | | 14 | |
| | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | | |
Common stock, $1 par value (issued shares at | | | 4,599 | |
| 4,474 | |
| 4,451 | |
Common stock in treasury | | | (17,121) | |
| (16,312) | |
| (15,814) | |
Retained earnings | | | 29,369 | |
| 27,553 | |
| 26,272 | |
Accumulated other comprehensive income (loss) | | | (4,581) | |
| (4,427) | |
| (4,553) | |
Total Deere & Company stockholders’ equity | | | 12,266 | |
| 11,288 | |
| 10,356 | |
Noncontrolling interests | | | 4 | |
| 3 | |
| 10 | |
Total stockholders’ equity | | | 12,270 | |
| 11,291 | |
| 10,366 | |
Total Liabilities and Stockholders’ Equity | | $ | 73,530 | | $ | 70,108 | | $ | 69,390 | |
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5
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DEERE & COMPANY |
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CONDENSED CONSOLIDATED BALANCE SHEET |
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(In millions of dollars) Unaudited |
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| July 29 |
| October 29 |
| July 30 |
| |||
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| 2018 |
| 2017 |
| 2017 |
| |||
Assets |
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Cash and cash equivalents |
| $ | 3,923.3 |
| $ | 9,334.9 |
| $ | 6,537.4 |
|
Marketable securities |
|
| 488.2 |
|
| 451.6 |
|
| 426.1 |
|
Receivables from unconsolidated affiliates |
|
| 27.9 |
|
| 35.9 |
|
| 28.5 |
|
Trade accounts and notes receivable – net |
|
| 6,207.9 |
|
| 3,924.9 |
|
| 4,389.8 |
|
Financing receivables – net |
|
| 25,213.0 |
|
| 25,104.1 |
|
| 23,722.1 |
|
Financing receivables securitized – net |
|
| 4,661.7 |
|
| 4,158.8 |
|
| 4,923.1 |
|
Other receivables |
|
| 1,300.0 |
|
| 1,200.0 |
|
| 829.2 |
|
Equipment on operating leases – net |
|
| 6,804.9 |
|
| 6,593.7 |
|
| 6,235.6 |
|
Inventories |
|
| 6,239.3 |
|
| 3,904.1 |
|
| 4,252.9 |
|
Property and equipment – net |
|
| 5,638.5 |
|
| 5,067.7 |
|
| 4,968.5 |
|
Investments in unconsolidated affiliates |
|
| 198.7 |
|
| 182.5 |
|
| 220.8 |
|
Goodwill |
|
| 3,046.5 |
|
| 1,033.3 |
|
| 845.8 |
|
Other intangible assets – net |
|
| 1,580.8 |
|
| 218.0 |
|
| 92.0 |
|
Retirement benefits |
|
| 737.2 |
|
| 538.2 |
|
| 219.1 |
|
Deferred income taxes |
|
| 1,645.0 |
|
| 2,415.0 |
|
| 3,067.7 |
|
Other assets |
|
| 1,677.2 |
|
| 1,623.6 |
|
| 1,591.3 |
|
Total Assets |
| $ | 69,390.1 |
| $ | 65,786.3 |
| $ | 62,349.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
| $ | 11,004.5 |
| $ | 10,035.3 |
| $ | 9,019.4 |
|
Short-term securitization borrowings |
|
| 4,527.7 |
|
| 4,118.7 |
|
| 4,780.9 |
|
Payables to unconsolidated affiliates |
|
| 110.8 |
|
| 121.9 |
|
| 77.8 |
|
Accounts payable and accrued expenses |
|
| 9,482.7 |
|
| 8,417.0 |
|
| 7,599.0 |
|
Deferred income taxes |
|
| 524.6 |
|
| 209.7 |
|
| 190.0 |
|
Long-term borrowings |
|
| 26,838.0 |
|
| 25,891.3 |
|
| 23,674.3 |
|
Retirement benefits and other liabilities |
|
| 6,521.9 |
|
| 7,417.9 |
|
| 8,419.6 |
|
Total liabilities |
|
| 59,010.2 |
|
| 56,211.8 |
|
| 53,761.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest |
|
| 14.0 |
|
| 14.0 |
|
| 14.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
Common stock, $1 par value (issued shares at |
|
| 4,450.8 |
|
| 4,280.5 |
|
| 4,245.1 |
|
Common stock in treasury |
|
| (15,813.5) |
|
| (15,460.8) |
|
| (15,477.3) |
|
Retained earnings |
|
| 26,272.3 |
|
| 25,301.3 |
|
| 24,984.2 |
|
Accumulated other comprehensive income (loss) |
|
| (4,553.3) |
|
| (4,563.7) |
|
| (5,179.8) |
|
Total Deere & Company stockholders’ equity |
|
| 10,356.3 |
|
| 9,557.3 |
|
| 8,572.2 |
|
Noncontrolling interests |
|
| 9.6 |
|
| 3.2 |
|
| 2.7 |
|
Total stockholders’ equity |
|
| 10,365.9 |
|
| 9,560.5 |
|
| 8,574.9 |
|
Total Liabilities and Stockholders’ Equity |
| $ | 69,390.1 |
| $ | 65,786.3 |
| $ | 62,349.9 |
|
|
|
|
|
|
|
|
|
|
|
|
See Condensed Notes to Interim Consolidated Financial Statements.
6
| | | | | | | |
DEERE & COMPANY | | | | | | | |
STATEMENT OF CONSOLIDATED CASH FLOWS | | | | | | | |
For the Nine Months Ended July 28, 2019 and July 29, 2018 | | | | | | | |
(In millions of dollars) Unaudited | | | | | | | |
|
| 2019 |
| 2018 |
| ||
Cash Flows from Operating Activities | | |
| | |
| |
Net income |
| $ | 2,535 | | $ | 1,586 | |
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | | | | | |
Provision for credit losses | | | 58 | |
| 66 | |
Provision for depreciation and amortization | | | 1,522 | |
| 1,445 | |
Share-based compensation expense | | | 63 | |
| 63 | |
Gain on sales of businesses | | | | |
| (25) | |
Undistributed earnings of unconsolidated affiliates | | | 10 | |
| (10) | |
Provision (credit) for deferred income taxes | | | (332) | |
| 641 | |
Changes in assets and liabilities: | | | | | | | |
Trade, notes, and financing receivables related to sales | | | (2,206) | |
| (2,365) | |
Inventories | | | (1,168) | |
| (1,539) | |
Accounts payable and accrued expenses | | | (306) | |
| 213 | |
Accrued income taxes payable/receivable | | | 253 | |
| 176 | |
Retirement benefits | | | 40 | |
| (814) | |
Other | | | (65) | |
| (109) | |
Net cash provided by (used for) operating activities | | | 404 | |
| (672) | |
| | | | | | | |
Cash Flows from Investing Activities | | | | | | | |
Collections of receivables (excluding receivables related to sales) | | | 12,685 | |
| 12,162 | |
Proceeds from maturities and sales of marketable securities | | | 72 | |
| 56 | |
Proceeds from sales of equipment on operating leases | | | 1,171 | |
| 1,116 | |
Proceeds from sales of businesses, net of cash sold | | | | |
| 133 | |
Cost of receivables acquired (excluding receivables related to sales) | | | (13,662) | |
| (12,586) | |
Acquisitions of businesses, net of cash acquired | | | | |
| (5,171) | |
Purchases of marketable securities | | | (110) | |
| (101) | |
Purchases of property and equipment | | | (756) | |
| (571) | |
Cost of equipment on operating leases acquired | | | (1,462) | |
| (1,428) | |
Other | | | (67) | |
| (103) | |
Net cash used for investing activities | | | (2,129) | |
| (6,493) | |
| | | | | | | |
Cash Flows from Financing Activities | | | | | | | |
Increase (decrease) in total short-term borrowings | | | (336) | |
| 1,183 | |
Proceeds from long-term borrowings | | | 7,440 | |
| 5,739 | |
Payments of long-term borrowings | | | (4,356) | |
| (4,372) | |
Proceeds from issuance of common stock | | | 133 | |
| 209 | |
Repurchases of common stock | | | (880) | |
| (454) | |
Dividends paid | | | (703) | |
| (583) | |
Other | | | (82) | |
| (66) | |
Net cash provided by financing activities | | | 1,216 | |
| 1,656 | |
| | | | | | | |
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | | | (24) | |
| 71 | |
| | | | | | | |
Net Decrease in Cash, Cash Equivalents, and Restricted Cash | | | (533) | | | (5,438) | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | | | 4,015 | |
| 9,467 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | | $ | 3,482 | | $ | 4,029 | |
| | | | | | | |
6
|
|
|
|
|
|
|
|
DEERE & COMPANY |
|
|
|
|
|
|
|
STATEMENT OF CONSOLIDATED CASH FLOWS |
|
|
|
|
|
|
|
For the Nine Months Ended July 29, 2018 and July 30, 2017 |
|
|
|
|
|
|
|
(In millions of dollars) Unaudited |
|
|
|
|
|
|
|
|
| 2018 |
| 2017 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
Net income |
| $ | 1,586.2 |
| $ | 1,648.5 |
|
Adjustments to reconcile net income to net cash provided by (used for) operating activities: |
|
|
|
|
|
|
|
Provision for credit losses |
|
| 66.1 |
|
| 76.8 |
|
Provision for depreciation and amortization |
|
| 1,444.8 |
|
| 1,279.0 |
|
Share-based compensation expense |
|
| 62.8 |
|
| 50.7 |
|
Gain on sale of affiliates and investments |
|
| (25.1) |
|
| (375.1) |
|
Undistributed earnings of unconsolidated affiliates |
|
| (9.8) |
|
| (9.3) |
|
Provision (credit) for deferred income taxes |
|
| 640.8 |
|
| (77.5) |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
Trade, notes and financing receivables related to sales |
|
| (2,365.0) |
|
| (1,091.1) |
|
Inventories |
|
| (1,538.8) |
|
| (1,348.0) |
|
Accounts payable and accrued expenses |
|
| 213.0 |
|
| 316.2 |
|
Accrued income taxes payable/receivable |
|
| 175.7 |
|
| 167.8 |
|
Retirement benefits |
|
| (814.7) |
|
| 173.1 |
|
Other |
|
| (110.7) |
|
| (81.8) |
|
Net cash provided by (used for) operating activities |
|
| (674.7) |
|
| 729.3 |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
Collections of receivables (excluding receivables related to sales) |
|
| 12,161.9 |
|
| 11,334.4 |
|
Proceeds from maturities and sales of marketable securities |
|
| 55.8 |
|
| 388.8 |
|
Proceeds from sales of equipment on operating leases |
|
| 1,115.6 |
|
| 1,086.6 |
|
Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold |
|
| 133.0 |
|
| 113.9 |
|
Cost of receivables acquired (excluding receivables related to sales) |
|
| (12,585.6) |
|
| (11,325.6) |
|
Acquisitions of businesses, net of cash acquired |
|
| (5,170.9) |
|
|
|
|
Purchases of marketable securities |
|
| (101.4) |
|
| (77.0) |
|
Purchases of property and equipment |
|
| (570.6) |
|
| (373.7) |
|
Cost of equipment on operating leases acquired |
|
| (1,427.7) |
|
| (1,395.3) |
|
Other |
|
| (75.1) |
|
| (53.3) |
|
Net cash used for investing activities |
|
| (6,465.0) |
|
| (301.2) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
Increase in total short-term borrowings |
|
| 1,183.4 |
|
| 1,648.9 |
|
Proceeds from long-term borrowings |
|
| 5,739.1 |
|
| 4,364.5 |
|
Payments of long-term borrowings |
|
| (4,371.8) |
|
| (4,205.6) |
|
Proceeds from issuance of common stock |
|
| 208.7 |
|
| 488.6 |
|
Repurchases of common stock |
|
| (454.0) |
|
| (6.2) |
|
Dividends paid |
|
| (582.6) |
|
| (571.3) |
|
Other |
|
| (66.8) |
|
| (62.9) |
|
Net cash provided by financing activities |
|
| 1,656.0 |
|
| 1,656.0 |
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
| 72.1 |
|
| 117.5 |
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| (5,411.6) |
|
| 2,201.6 |
|
Cash and Cash Equivalents at Beginning of Period |
|
| 9,334.9 |
|
| 4,335.8 |
|
Cash and Cash Equivalents at End of Period |
| $ | 3,923.3 |
| $ | 6,537.4 |
|
|
|
|
|
|
|
|
|
See Condensed Notes to Interim Consolidated Financial Statements.
7
7
| | | | | | | | | | | | | | | | | | | | | | | |
DEERE & COMPANY | | ||||||||||||||||||||||
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY | | ||||||||||||||||||||||
For the Three and Nine Months Ended July 28, 2019 and July 29, 2018 | | ||||||||||||||||||||||
(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 | | |||||||
| | | | | | | | | | | | | | | | | |
| | | |
| |
Three Months Ended July 29, 2018 | | | | | | | | | | | | | | | | | | | | | |||
Balance April 29, 2018 |
| $ | 10,420 | | $ | 4,423 | | $ | (15,426) | | $ | 25,586 | | $ | (4,173) | | $ | 10 | | | $ | 14 | |
Net income | |
| 911 | | | | | | | | | 910 | | | | | | 1 | | | | | |
Other comprehensive loss | |
| (381) | | | | | | | | | | | | (380) | | | (1) | | | | | |
Repurchases of common stock | |
| (394) | | | | | | (394) | | | | | | | | | | | | | | |
Treasury shares reissued | |
| 6 | | | | | | 6 | | | | | | | | | | | | | | |
Dividends declared | |
| (223) | | | | | | | | | (223) | | | | | | | | | | | |
Stock options and other | |
| 27 | | | 28 | | | | | | (1) | | | | | | | | | | | |
Balance July 29, 2018 | | $ | 10,366 | | $ | 4,451 | | $ | (15,814) | | $ | 26,272 | | $ | (4,553) | | $ | 10 | | | $ | 14 | |
| | | | | | | �� | | | | | | | | | | | | | | | | |
Nine Months Ended July 29, 2018 | | | | | | | | | | | | | | |
| | | |
| | |||
Balance October 29, 2017 |
| $ | 9,560 | | $ | 4,281 | | $ | (15,461) | | $ | 25,301 | | $ | (4,564) | | $ | 3 | | | $ | 14 |
|
Net income | |
| 1,585 | | | | | | | | | 1,584 | | | | | | 1 | | | | 1 | |
Other comprehensive | |
| 10 | | | | | | | | | | | | 11 | | | (1) | | | | | |
Repurchases of common stock | |
| (454) | | | | | | (454) | | | | | | | | | | | | | | |
Treasury shares reissued | |
| 101 | | | | | | 101 | | | | | | | | | | | | | | |
Dividends declared | |
| (615) | | | | | | | | | (613) | | | | | | (2) | | | | (1) | |
Acquisitions | | | 8 | | | | | | | | | | | | | | | 8 | | | | | |
Stock options and other | |
| 171 | | | 170 | | | | | | | | | | | | 1 | | | | | |
Balance July 29, 2018 | | $ | 10,366 | | $ | 4,451 | | $ | (15,814) | | $ | 26,272 | | $ | (4,553) | | $ | 10 | | | $ | 14 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended July 28, 2019 | | | | | | | | | | | | | | | | | | | | | |||
Balance April 28, 2019 | | $ | 11,924 | | $ | 4,559 | | $ | (16,739) | | $ | 28,709 | | $ | (4,610) | | $ | 5 | | | $ | 14 | |
Net income | | | 899 | | | | | | | | | 899 | | | | | | | | | | | |
Other comprehensive income | | | 29 | | | | | | | | | | | | 29 | | | | | | | | |
Repurchases of common stock | | | (400) | | | | | | (400) | | | | | | | | | | | | | | |
Treasury shares reissued | | | 18 | | | | | | 18 | | | | | | | | | | | | | | |
Dividends declared | | | (241) | | | | | | | | | (240) | | | | | | (1) | | | | | |
Stock options and other | | | 41 | | | 40 | | | | | | 1 | | | | | | | | | | | |
Balance July 28, 2019 | | $ | 12,270 | | $ | 4,599 | | $ | (17,121) | | $ | 29,369 | | $ | (4,581) | | $ | 4 | | | $ | 14 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended July 28, 2019 | | | | | | | | | | | | | | | | | | | | | |||
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 | | | 2,535 | | | | | | | | | 2,532 | | | | | | 3 | | | | | |
Other comprehensive loss | | | (146) | | | | | | | | | | | | (146) | | | | | | | | |
Repurchases of common stock | | | (880) | | | | | | (880) | | | | | | | | | | | | | | |
Treasury shares reissued | | | 71 | | | | | | 71 | | | | | | | | | | | | | | |
Dividends declared | | | (727) | | | | | | | | | (725) | | | | | | (2) | | | | | |
Stock options and other | | | 126 | | | 125 | | | | | | 1 | | | | | | | | | | | |
Balance July 28, 2019 | | $ | 12,270 | | $ | 4,599 | | $ | (17,121) | | $ | 29,369 | | $ | (4,581) | | $ | 4 | | | $ | 14 | |
* See Note 3. | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEERE & COMPANY |
| ||||||||||||||||||||||
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY |
| ||||||||||||||||||||||
For the Nine Months Ended July 29, 2018 and July 30, 2017 |
| ||||||||||||||||||||||
(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 30, 2016 |
| $ | 6,530.8 |
| $ | 3,911.8 |
| $ | (15,677.1) |
| $ | 23,911.3 |
| $ | (5,626.0) |
| $ | 10.8 |
|
| $ | 14.0 |
|
Net income (loss) |
|
| 1,648.5 |
|
|
|
|
|
|
|
| 1,648.8 |
|
|
|
|
| (.3) |
|
|
|
|
|
Other comprehensive income |
|
| 446.4 |
|
|
|
|
|
|
|
|
|
|
| 446.2 |
|
| .2 |
|
|
|
|
|
Repurchases of common stock |
|
| (6.2) |
|
|
|
|
| (6.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury shares reissued |
|
| 206.0 |
|
|
|
|
| 206.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
|
| (577.1) |
|
|
|
|
|
|
|
| (575.9) |
|
|
|
|
| (1.2) |
|
|
|
|
|
Stock options and other |
|
| 326.5 |
|
| 333.3 |
|
|
|
|
|
|
|
|
|
|
| (6.8) |
|
|
|
|
|
Balance July 30, 2017 |
| $ | 8,574.9 |
| $ | 4,245.1 |
| $ | (15,477.3) |
| $ | 24,984.2 |
| $ | (5,179.8) |
| $ | 2.7 |
|
| $ | 14.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
Balance October 29, 2017 |
| $ | 9,560.5 |
| $ | 4,280.5 |
| $ | (15,460.8) |
| $ | 25,301.3 |
| $ | (4,563.7) |
| $ | 3.2 |
|
| $ | 14.0 |
|
Net income |
|
| 1,585.1 |
|
|
|
|
|
|
|
| 1,583.6 |
|
|
|
|
| 1.5 |
|
|
| 1.1 |
|
Other comprehensive |
|
| 10.2 |
|
|
|
|
|
|
|
|
|
|
| 10.4 |
|
| (.2) |
|
|
|
|
|
Repurchases of common stock |
|
| (454.0) |
|
|
|
|
| (454.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury shares reissued |
|
| 101.3 |
|
|
|
|
| 101.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
|
| (615.7) |
|
|
|
|
|
|
|
| (613.0) |
|
|
|
|
| (2.7) |
|
|
| (1.1) |
|
Acquisitions (Note 18) |
|
| 7.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7.5 |
|
|
|
|
|
Stock options and other |
|
| 171.0 |
|
| 170.3 |
|
|
|
|
| .4 |
|
|
|
|
| .3 |
|
|
|
|
|
Balance July 29, 2018 |
| $ | 10,365.9 |
| $ | 4,450.8 |
| $ | (15,813.5) |
| $ | 26,272.3 |
| $ | (4,553.3) |
| $ | 9.6 |
|
| $ | 14.0 |
|
|
|
|
|
|
|
|
|
|
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|
See Condensed Notes to Interim Consolidated Financial Statements.
8
8
Condensed Notes to Interim Consolidated Financial Statements (Unaudited)
(1) Organization and Consolidation
(1)The information in the notes and related commentary are presented in a format which includes data grouped as follows:
Equipment Operations – Includes the Company’s agriculture and turf operations and construction and forestry operations with financial services reflected on the equity basis. On December 1, 2017, the Company acquired the stock and certain assets of substantially all of the business of Wirtgen Group Holding GmbH (Wirtgen). Wirtgen results are included in the construction and forestry operations (see Note 18).
Financial Services – Includes primarily the Company’s financing operations.
Consolidated – Represents the consolidation of the equipment operations and financial services. References to "Deere“Deere & Company"Company” or "the Company"“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 third quarter ends for fiscal year 20182019 and 20172018 were July 29, 201828, 2019 and July 30, 2017,29, 2018, 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 an equity basis. During the second quarter of 2019, the Company made an additional contribution to the joint venture in exchange for non-voting preferred stock and terminated the loan guarantee. The maximum exposure to losses at July 28, 2019 and October 28, 2018 in millions of dollars follows:
| | | | | | | |
| | July 28, 2019 | | October 28, 2018 | | ||
Receivables from unconsolidated affiliates | | $ | 3 | | $ | 2 | |
Investment in unconsolidated affiliates | | | 20 | | | | |
Loan guarantee | | | | | | 25 | |
Total | | $ | 23 | | $ | 27 | |
(2)TheSummary 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.
9
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 $564$498 million and $519$564 million in the first nine months of 20182019 and 2017,2018, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $70 million and $57 million at July 28, 2019 and $37July 29, 2018, respectively.
The Company’s equipment operations held restricted cash of $9 million, $7 million, $7 million, and $6 million at July 28, 2019, October 28, 2018, July 29, 2018, and July 30,October 29, 2017, respectively. The equipment operation’s restricted cash relates to miscellaneous operational activities. The Company’s financial services operations held restricted cash of $90 million, $104 million, $99 million, and $126 million at July 28, 2019, October 28, 2018, July 29, 2018, and October 29, 2017, respectively. The financial services operations’ 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
(3)New accounting standards adopted are as follows:Accounting Standards Adopted
In the first quarter of 2018,2019, the Company early adopted Financial Accounting Standards Board (FASB) Accounting StandardStandards Update (ASU) No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends Accounting Standards Codification (ASC) 715, Compensation – Retirement Benefits. This ASU required that employers report only the service cost component of the total defined benefit pension and postretirement benefit cost in the same income statement lines as compensation for the participating employees. The other components of these benefit costs are reported outside of operating profit in the income statement line other operating expenses. The ASU was adopted on a retrospective basis that increased operating profit in the third quarter and first nine months of 2018 by none and $12 million, respectively, and third quarter and first nine months of 2017 by $7 million and $21 million, respectively. The income statement line changes for the third quarter and first nine months of 2017 were cost of sales decreased $17 million and $49 million, research and development expenses increased $2 million and $4 million, selling, administrative and general expenses increased $8 million and
9
$24 million, and other operating expenses increased $7 million and $21 million, respectively. In addition, only the service cost component of the benefit costs is eligible for capitalization, which was adopted beginning the first quarter of 2018.
In the first quarter of 2018, the Company adopted ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which amends ASC 323, Investments – Equity Method and Joint Ventures, which did not have a material effect on the Company’s consolidated financial statements.
In March 2018, the FASB issued ASU No. 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which amends ASC 740, Income Taxes. In December 2017, the U.S. government enacted new tax legislation (tax reform). This ASU incorporates SEC Staff Accounting Bulletin No. 118, which was also issued in December 2017, into the ASC. The ASU provides guidance on when to record and disclose provisional amounts related to tax reform. In addition, the ASU allows for a measurement period up to one year after the enactment date of tax reform to complete the related accounting requirements and was effective when issued. The Company will complete the adjustments related to tax reform within the allowed period. The effects of tax reform on the Company’s consolidated financial statements are outlined in Note 8.
New accounting standards to be adopted are as follows:
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASCAccounting Standards Codification (ASC) 605, Revenue Recognition. ThisThe ASU was adopted using a modified-retrospective approach to all incomplete contracts as of the adoption date. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. A five step model is used to determine the amount and timing of revenue recognized. The ASU also requires additional disclosure about the nature, amount, timing,expanded disclosures to include disaggregated revenue by geographic regions and uncertainty of revenue. The FASB issued several amendments clarifying various aspects of the ASU, including revenue transactions that involve a third party, goods or services that are immaterial in the context of the contract, and licensing arrangements. The Company will adopt the ASU effective the first quarter of fiscal year 2019 using a modified retrospective method. The Company’s evaluation of the ASU is largely complete, with the exception of the Wirtgen acquisition (see Note 18). major product lines.
The ASU requiresrequired that a gross asset and liability rather than a net liability be recorded for the value of estimated service parts returns and the related refund liability. The gross asset will beis recorded in other assets for the inventory value of estimated parts returns and the gross liability will beis recorded in accounts payable and accrued expenses. In addition, certain revenue disclosures will be expanded. At this point ofexpenses for the evaluation,estimated dealer refund. The table below reflects the Company has not identified an item that will have a material effect onchange for the Company’s consolidated financial statements. The Company continues to evaluateestimated parts returns in the ASU’s potential effectsaffected lines on the consolidated financial statements.balance sheet in millions of dollars.
| | | | | | | | | | |
| | October 28, 2018 | | Cumulative Effect | | October 29, 2018 | | |||
Assets | | | | | | | | | | |
Other assets | | $ | 1,718 | | $ | 110 | | $ | 1,828 | |
Liabilities | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 10,111 | | $ | 110 | | $ | 10,221 | |
There were no significant changes affecting the timing of revenue recognition from the adoption. The Company’s updated revenue policies and additional disclosures are included in Note 4.
In January 2016, the FASB issuedfirst quarter of 2019, the Company adopted ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends ASC 825-10, Financial Instruments -– Overall. This ASU changeschanged the treatment for available-for-saleavailable for sale equity investments by recognizing unrealized fair value changes directly in net income and no longer in Other Comprehensive Incomeother comprehensive income (OCI). The effective date will becumulative effect of adoption resulted in an $8 million after-tax reclassification from OCI to retained earnings.
In the first quarter of fiscal year 2019. Early adoption of the provisions affecting2019, the Company is not permitted.adopted ASU No. 2016-18, Restricted Cash, which amends ASC 230, Statement of Cash Flows. The ASU willrequires that restricted cash be included with cash and cash equivalents in the statement of cash flows. The ASU was adopted withusing a cumulative-effect adjustmentretrospective transition approach
10
resulting in an update to the balance sheet in2018 consolidated and supplemental consolidating statement of cash flows (see Note 2). The ASU did not have a material effect on the yearCompany’s consolidated financial statements.
In the first quarter of adoption.2019, the Company early adopted ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815, Derivatives and Hedging. The purpose of this ASU is to better align a company’s risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements. The adoption did not have a material effect on the Company’s consolidated financial statements (see Note 17). The Company continues to evaluate potential additional hedge accounting relationships provided by the ASU’s potential effectsnew standard to further improve risk management.
The Company also adopted the following standards in the first quarter of 2019, none of which had a material effect on the Company’s consolidated financial statements.statements:
Accounting Standards Updates
| | |
2016-15 | Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows | |
2016-16 | Intra-Entity Transfers of Assets Other Than Inventory, which amends ASC 740, | |
2017-01 | Clarifying the Definition of a Business, which amends ASC 805, Business Combinations | |
2017-09 | Scope of Modification Accounting, which amends ASC 718, Compensation - | |
2018-13 | Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement | |
2018-14 | Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715-20, Compensation - Retirement Benefits - Defined Benefit | |
2018-16 | Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which amends ASC 815, Derivatives and Hedging | |
New Accounting Standards to be Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. 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 does 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. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. The amendments in the ASU affect specific aspects of the guidance under ASU No. 2016-02Leases and are not expected to have a material impact on the Company’s adoption. The ASU requires that lessees and lessors use a modified retrospective transition approach. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, which amendsImprovements. Both ASUs amend ASC 842, Leases. This ASU provides forThe provisions affecting the Company in these ASUs are an adoption option that will not require earlier periods to be restated at the adoption date. In addition, this ASU providesdate and an option for lessors, if certain criteria are met, to avoid separating the lease and nonlease components (such as preventative maintenance services) in an agreement. In December 2018, the FASB issued ASU No. 2018-20, Narrow-Scope Improvements for Lessors. This ASU provides an election for lessors to exclude sales and related taxes from consideration in the contract, requires lessors to exclude from revenue and expense lessor costs paid directly to a third party by lessees, and clarifies lessors’ accounting for variable payments related to both lease and nonlease components. In March 2019, the FASB issued ASU No. 2019-01, Leases: Codification Improvements. The income is recognized based onASU allows certain lessors, including captive finance companies, to use their cost as the predominant component under eitherfair value of the revenue standard orto-be-leased asset. The ASU also clarifies the leasing standard.presentation of lease payments in the statement of cash flows and the required transition disclosures. The effective date for the ASUs will be the first quarter of fiscal year 2020 with early adoption permitted.2020. The Company is implementing a software application for lessee accounting, designing new processes and controls, and evaluating the potential adoption options and the effects on the consolidated financial statements.
10
The ASU will be adopted using the modified-retrospective approach that will not require earlier periods to be restated.
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 methodology to an expected loss methodology. The ASU affects trade 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. In November 2018, the FASB issued ASU No. 2018-19,
11
Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In May 2019, the FASB issued ASU No. 2019-05, Targeted Transition Relief, which amends ASC 326. This ASU provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. The effective date will be the first quarter of fiscal year 2021, with early adoption permitted beginning in fiscal year 2020.2021. The ASUASUs will be adopted using a modified-retrospective approach. The Company is evaluating the potential effects on the consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted. The ASU will be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which amends ASC 740, Income Taxes. This ASU requires that the income tax consequences of an intra-entity asset transfer other than inventory are recognized at the time of the transfer. The effective date will be the first quarter of fiscal year 2019. The ASU will be adopted using a modified-retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amends ASC 230, Statement of Cash Flows. This ASU requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted, and will be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which amends ASC 805, Business Combinations. This ASU provides further guidance on the definition of a business to determine whether transactions should be accounted for as acquisitions of assets or businesses. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted in certain cases. The ASU will be adopted on a prospective basis and will not have a material effect on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amends ASC 310-20, Receivables – Nonrefundable Fees and Other Costs. This ASU reduces the amortization period for certain callable debt securities held at a premium to the earliest call date. The treatment of securities held at a discount is unchanged. The effective date is the first quarter of fiscal year 2020, with early adoption permitted.2020. The ASU will be adopted using a modified-retrospective approach. The adoption will not have a material effect on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, which amends ASC 718, Compensation – Stock Compensation. This ASU provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. The ASU will be adopted on a prospective basis. The effective date is the first quarter of fiscal year 2019, with early adoption permitted. The adoption will not have a material effect on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815, Derivatives and Hedging. The purpose of this ASU is to better align a company’s risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements. The effective date is fiscal year 2020, with early adoption permitted. The Company is evaluating the potential effects on the consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends ASC 220, Income Statement – Reporting
11
Comprehensive Income. Included in the provisions of tax reform is a reduction of the corporate income tax rate from 35 percent to 21 percent. Accounting principles generally accepted in the U.S. require that deferred taxes are remeasured to the new corporate tax rate in the period legislation is enacted. The deferred tax adjustment is recorded in the provision for income taxes, including items for which the tax effects were originally recorded in OCI. This treatment results in the items in OCI not reflecting the appropriate tax rate, which are referred to as stranded tax effects. This ASU allows a reclassification from accumulated OCI to retained earnings for stranded tax effects resulting from tax reform. The effective date is fiscal year 2020, with early adoption permitted, including in interim periods. The ASU can be adopted at the beginning of an interim or annual period or retrospectively to each period affected by tax reform. The Company is evaluating the potential effects of the ASU on the consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which amends ASC 718, Compensation – Stock Compensation. ThisThe ASU requires that most of the guidance related to stock compensation granted to employees be followed for non-employees, including the measurement date, valuation approach, and performance conditions. The expense is recognized in the same period as though cash were paid for the good or service. The effective date is the first quarter of fiscal year 2020, with early adoption permitted, including in interim periods.2020. The ASU will be adopted using a modified-retrospective transition approach. The adoption will not have a material effect on the consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements2018-15, Customer’s Accounting for Fair Value Measurement,Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 820, Fair Value Measurement.350-40, Intangibles – Goodwill and Other – Internal-Use Software. This ASU modifiesrequires customers in a hosting arrangement that is a service contract to evaluate the disclosure requirements for fair value measurements by removing, modifying,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 adding certain disclosures.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: (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, (2) clarifications to ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, is the first quarter of fiscal year 2020, with early adoption permitted, which will not have a material effect, and (3) clarifications to ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, is the first quarter of fiscal year 2021, with early adoption permitted, for the removed disclosures and delayed adoption until fiscal year 2021 permitted for the new disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The adoptionwhich will not have a material effecteffect.
12
(4) Revenue Recognition
Sales of equipment and service parts. Sales of equipment and service parts are recognized when each of the following criteria are met: (1) the Company and an independent customer approve a contract with commercial substance, (2) the sales price is determinable and collectability of the payments are probable based on the Company’s consolidated financial statements.terms outlined in the contract, and (3) control of the goods has transferred to the customer. Transfer of control generally occurs for equipment and service parts when the good is delivered as specified in the contract and the risks and rewards of ownership are transferred. In the U.S. and most international locations, this transfer occurs primarily when goods are shipped. In Canada and some other international locations, certain goods are shipped to dealers on a consignment basis under which the risks and rewards of ownership are not transferred to the dealer at the time the goods are shipped. Accordingly, in these locations, sales are not recorded until a retail customer has purchased the goods. Generally, no right of return exists on sales of equipment.
In August 2018,limited instances, equipment is transferred to a customer or a financial institution with an obligation to repurchase the FASB issued ASU No. 2018-14, Disclosure Framework – Changes toequipment for a specified amount, which is exercisable at the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715-20, Compensation – Retirement Benefits – Defined Benefit Plans – General. This ASU modifiescustomer’s option. When the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated OCIequipment is expected to be repurchased, those arrangements are accounted for as leases. When the operating lease criteria are met, no sale is recorded at the time of the equipment transfer and the difference between sale price and the specified repurchase amount is recognized as revenue on a straight-line basis until the customer’s option expires. When this equipment is not expected to be repurchased, a sale is recorded with a return obligation.
Under the terms of sales agreements with dealers, interest-free periods are determined based on the type of equipment sold and the time of year of the sale. These periods range from one to twelve months for most equipment. Interest-free periods may not be extended. Interest is primarily charged to dealers on outstanding balances, from the earlier of the date when goods are sold to retail customers by the dealer or the expiration of certain interest-free periods granted at the time of the sale to the dealer, until payment is received by the Company. Interest charged may not be forgiven and the past due interest rates exceed market rates. Dealers cannot cancel purchases after the equipment is shipped and are responsible for payment even if the equipment is not sold to retail customers. If the interest-free or below market interest rate period exceeds one year, the Company adjusts the expected sales revenue for the effects of the time value of money using a current market interest rate. The revenue related to the financing component is recognized in finance and interest income using the interest method. The Company elected to not adjust the sales price to account for a financing component if the expected interest-free or below market period is one year or less.
Service parts and certain attachments returns are estimable and accrued at the time a sale is recognized. The estimated parts returns are recorded in other assets for the inventory value of estimated part returns, adjusted for restocking fees. The estimated dealer refund liability, adjusted for restocking fees, is recorded in accounts payable and accrued expenses. The estimated returns are based on historical return rates, current dealer inventory levels, and current economic conditions.
Sales incentives. In certain markets, the Company provides sales incentives to dealers. These incentives may be based on a dealer’s purchase volume, or on retail sales incentive programs for allowances and financing programs that will be due when the dealer sells the equipment to a retail customer. At the time of the sale to a dealer, the Company records an estimated cost of these programs as a reduction to the sales price. The estimated cost is based on historical data, field inventory levels, and forecasted sales volumes. The final cost of these programs is determined at the end of the measurement period for volume based incentives or when the dealer sells the equipment to a retail customer. Actual cost differences from the original cost estimate are recognized in net periodic benefitsales.
Product warranties. For most equipment and parts sales, the Company provides a standard warranty to provide assurance that the equipment will function as intended for a specified period. At the time a sale is recognized, the estimated future warranty costs are recorded. The Company generally determines its total warranty liability by applying historical warranty claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs with consideration of current quality developments. The Company also offers extended warranty arrangements for purchase at the customer’s option. The premiums for extended warranties are recognized in other income in the statement of consolidated income primarily in proportion to the costs expected to be incurred over the next fiscal yearcontract period. The unamortized extended warranty premiums (deferred revenue) are recorded in accounts payable and (b)accrued expenses in the effects ofconsolidated balance sheet.
13
Remanufactured components and parts. The Company remanufactures used engines and components (cores) that are sold to dealers and end customers for maintenance and repair parts. Revenue for remanufactured components is recognized using the same criteria as other parts sales. When a one-percentage-point changeremanufactured part is sold, the Company collects a deposit that is repaid if the customer returns a core that meets certain specifications within a defined time period. The deposit received from the customer is recognized as a liability in assumed health care cost trend rates on the net periodic benefit costsaccounts payable and accrued expenses and the benefitused component that is expected to be returned is recognized in other assets in the consolidated balance sheet. When a customer returns a core, the deposit is repaid, the liability reversed, and the returned core is recorded in inventory to be remanufactured and sold to another customer. If a core is not returned within the required time as estimated, the deposit is recognized as revenue in net sales, and the estimated core return is recorded as an expense in cost of sales in the statement of consolidated income.
Precision guidance, telematics, and other information enabled solutions. Certain equipment is sold with precision guidance, telematics, and other information gathering and analyzing capabilities. The solutions require hardware, software, and include an obligation to provide telematic services for postretirement health care benefits.a specific period of time. These solutions are generally bundled with the sale of the equipment and can also be purchased or renewed separately. The new disclosures includerevenue related to the interest crediting rateshardware and embedded software is generally recognized at the time of the equipment sale and recorded in net sales in the consolidated statement of income. The revenue for cashthe future services is generally deferred and recognized over the service period. The deferred revenue is recorded as a contract liability in accounts payable and accrued expenses in the consolidated balance plans,sheet and is recognized in other income with the associated expenses recognized in other operating expenses in the statement of consolidated income.
Allowance for credit losses. The Company also records an explanation of significant gains andallowance for credit losses related to changesthe receivables from sales (trade receivables and certain financing receivables) in benefit obligations.selling, administrative and general expenses. The effective dateallowance represents an estimate of the losses inherent in the receivable portfolio. The allowance is based on many quantitative and qualitative factors. The adequacy of the allowance is reviewed quarterly.
Sales and transaction taxes. The Company collects and remits taxes assessed by different governmental authorities that are both imposed on and concurrent with revenue producing transactions between the Company and its customers. These taxes include sales, use, value-added, and some excise taxes. The Company elected to exclude these taxes from the determination of sales price (excluded from revenues).
Shipping and handling costs. Shipping and handling costs related to the sales of the Company’s equipment after a customer obtains control of the equipment are accrued at the time of the sale in cost of sales.
Contract costs. The Company elected to recognize the incremental costs of obtaining a contract as an expense when incurred because the asset’s amortization period would be one year or less.
14
The Company’s revenue by primary geographical market, major product line, and timing of revenue recognition in millions of dollars follow:
| | | | | | | | | | | | | |
Three Months Ended July 28, 2019 |
| Agriculture |
| Construction |
| Financial |
| Total | | ||||
Primary geographical markets: | | | | | | | | |
| | |
| |
United States | | $ | 2,870 | | $ | 1,594 | | $ | 632 | | $ | 5,096 | |
Canada | | | 299 | | | 260 | |
| 148 | |
| 707 | |
Western Europe | | | 1,154 | | | 458 | |
| 22 | |
| 1,634 | |
Central Europe and CIS | | | 324 | | | 229 | |
| 10 | |
| 563 | |
Latin America | | | 708 | | | 171 | |
| 66 | |
| 945 | |
Asia, Africa, Australia, New Zealand, | | | 684 | | | 375 | | | 32 | | | 1,091 | |
Total | | $ | 6,039 | | $ | 3,087 | | $ | 910 | | $ | 10,036 | |
| | | | | | | | | | | | | |
Major product lines: | | | | | | | | |
| | |
| |
Large Agriculture | | $ | 2,985 | | | | | | | | $ | 2,985 | |
Small Agriculture | | | 2,172 | | | | |
| | |
| 2,172 | |
Turf | | | 704 | | | | |
| | |
| 704 | |
Construction | | | | | $ | 1,319 | |
| | |
| 1,319 | |
Compact Construction | | | | | | 320 | | | | | | 320 | |
Road Building | | | | | | 1,008 | |
| | |
| 1,008 | |
Forestry | | | | | | 333 | |
| | |
| 333 | |
Financial Products | | | 25 | | | 7 | | $ | 910 | |
| 942 | |
Other | | | 153 | | | 100 | |
| | |
| 253 | |
Total | | $ | 6,039 | | $ | 3,087 | | $ | 910 | | $ | 10,036 | |
| | | | | | | | | | | | | |
Timing of revenue recognition: | | | | | | | | |
| | |
| |
Revenue recognized at a point in time | | $ | 5,988 | | $ | 3,055 | | | | | $ | 9,043 | |
Revenue recognized over time | | | 51 | | | 32 | | $ | 910 | | | 993 | |
Total | | $ | 6,039 | | $ | 3,087 | | $ | 910 | | $ | 10,036 | |
| | | | | | | | | | | | | |
Nine Months Ended July 28, 2019 |
| Agriculture |
| Construction |
| Financial |
| Total | | ||||
Primary geographical markets: | | | | | | | | | | | | | |
United States | | $ | 9,411 | | $ | 4,495 | | $ | 1,810 | | $ | 15,716 | |
Canada | | | 784 | | | 773 | |
| 458 | |
| 2,015 | |
Western Europe | | | 3,362 | | | 1,174 | |
| 63 | |
| 4,599 | |
Central Europe and CIS | | | 865 | | | 555 | |
| 28 | |
| 1,448 | |
Latin America | | | 2,028 | | | 515 | |
| 199 | |
| 2,742 | |
Asia, Africa, Australia, New Zealand, | | | 1,784 | | | 966 | | | 92 | | | 2,842 | |
Total | | $ | 18,234 | | $ | 8,478 | | $ | 2,650 | | $ | 29,362 | |
| | | | | | | | | | | | | |
Major product lines: | | | | | | | | |
| | |
| |
Large Agriculture | | $ | 8,647 | | | | | | | | $ | 8,647 | |
Small Agriculture | | | 6,613 | | | | |
| | |
| 6,613 | |
Turf | | | 2,199 | | | | |
| | |
| 2,199 | |
Construction | | | | | $ | 3,806 | |
| | |
| 3,806 | |
Compact Construction | | | | | | 904 | | | | | | 904 | |
Road Building | | | | | | 2,420 | |
| | |
| 2,420 | |
Forestry | | | | | | 1,023 | | | | |
| 1,023 | |
Financial Products | | | 69 | | | 20 | | $ | 2,650 | |
| 2,739 | |
Other | | | 706 | | | 305 | |
| | |
| 1,011 | |
Total | | $ | 18,234 | | $ | 8,478 | | $ | 2,650 | | $ | 29,362 | |
| | | | | | | | | | | | | |
Timing of revenue recognition: | | | | | | | | |
| | |
| |
Revenue recognized at a point in time | | $ | 18,088 | | $ | 8,402 | | | | | $ | 26,490 | |
Revenue recognized over time | | | 146 | | | 76 | | $ | 2,650 | | | 2,872 | |
Total | | $ | 18,234 | | $ | 8,478 | | $ | 2,650 | | $ | 29,362 | |
15
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 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 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 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, related attachments, and related service parts.
Compact Construction – Includes net sales of smaller construction equipment, including compact excavators, compact track loaders, compact wheel loaders, skid steers, landscape loaders, related attachments, and related service parts.
Road Building – Includes net sales of equipment used in road building 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, related attachments, and related 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 logging attachments, and related 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 15, was $1,022 million and $915 million at July 28, 2019 and October 28, 2018, respectively. The contract liability is reduced as the revenue is recognized. During the third quarter and first nine months of 2019, $101 million and $360 million, respectively, of revenue was recognized from deferred revenue that was recorded as a contract liability at the beginning of 2019.
The Company entered into contracts with customers to deliver equipment and services that have not been recognized at July 28, 2019 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 $878 million at July 28, 2019. The estimated revenue to be recognized by fiscal year follows in millions of dollars: remainder of 2019 - $133, 2020 - $348, 2021 - $197, 2022 - $116, 2023 - $58, and later years - $26. As permitted, the Company elected only to disclose remaining performance obligations with early adoption permitted.an original contract duration greater than one year. The adoption will not have a material effect on the Company’s consolidated financial statements.
12
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.
16
(5)Other Comprehensive Income Items
(4)The after-tax changes in accumulated other comprehensive income (loss) in millions of dollars follow:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
|
|
|
|
|
| Unrealized |
| Unrealized |
| Accumulated |
| ||||
|
| Retirement |
| Cumulative |
| Gain (Loss) |
| Gain (Loss) |
| Other |
| |||||
|
| Benefits |
| Translation |
| on |
| on |
| Comprehensive |
| |||||
|
| Adjustment |
| Adjustment |
| Derivatives |
| Investments |
| Income (Loss) |
| |||||
Balance October 30, 2016 |
| $ | (4,409) |
| $ | (1,229) |
| $ | 1 |
| $ | 11 |
| $ | (5,626) |
|
Other comprehensive income (loss) items before reclassification |
|
| (13) |
|
| 325 |
|
| (1) |
|
| 172 |
|
| 483 |
|
Amounts reclassified from accumulated other comprehensive income |
|
| 134 |
|
|
|
|
| 2 |
|
| (173) |
|
| (37) |
|
Net current period other comprehensive income (loss) |
|
| 121 |
|
| 325 |
|
| 1 |
|
| (1) |
|
| 446 |
|
Balance July 30, 2017 |
| $ | (4,288) |
| $ | (904) |
| $ | 2 |
| $ | 10 |
| $ | (5,180) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 29, 2017 |
| $ | (3,580) |
| $ | (999) |
| $ | 5 |
| $ | 10 |
| $ | (4,564) |
|
Other comprehensive income (loss) items before reclassification |
|
| 81 |
|
| (196) |
|
| 12 |
|
| (7) |
|
| (110) |
|
Amounts reclassified from accumulated other comprehensive income |
|
| 124 |
|
|
|
|
| (2) |
|
| (1) |
|
| 121 |
|
Net current period other comprehensive income (loss) |
|
| 205 |
|
| (196) |
|
| 10 |
|
| (8) |
|
| 11 |
|
Balance July 29, 2018 |
| $ | (3,375) |
| $ | (1,195) |
| $ | 15 |
| $ | 2 |
| $ | (4,553) |
|
13
| | | | | | | | | | | | | | | | |
|
| |
| | |
| | |
| | |
| 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 29, 2017 | | $ | (3,580) | | $ | (999) |
| $ | 5 | | $ | 10 | | $ | (4,564) | |
Other comprehensive income (loss) items before reclassification | |
| 81 | | | (196) | | | 12 | | | (7) | |
| (110) | |
Amounts reclassified from accumulated other comprehensive income | |
| 124 | | | | | | (2) | | | (1) | |
| 121 | |
Net current period other comprehensive income (loss) | |
| 205 | |
| (196) | |
| 10 | |
| (8) | |
| 11 | |
Balance July 29, 2018 | | $ | (3,375) | | $ | (1,195) | | $ | 15 | | $ | 2 | | $ | (4,553) | |
| | | | | | | | | | | | | | | | |
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 | | | 30 | | | (218) | | | (33) | | | 26 | | | (195) | |
Amounts reclassified from accumulated other comprehensive income | | | 54 | | | | | | (4) | | | (1) | | | 49 | |
Net current period other comprehensive income (loss) | | | 84 | | | (218) | | | (37) | | | 25 | | | (146) | |
Balance July 28, 2019 | | $ | (3,153) |
| $ | (1,421) |
| $ | (22) |
| $ | 15 |
| $ | (4,581) | |
* See Note 3. | | | | | | | | | | | | | | | | |
17
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 July 28, 2019 | | Amount | | Credit | | Amount |
| |||
Cumulative translation adjustment |
| $ | 27 | | $ | (1) | | $ | 26 | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | |
Unrealized hedging gain (loss) | | | (27) | | | 6 | | | (21) | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Interest rate contracts – Interest expense | | | (1) | | | | | | (1) | |
Net unrealized gain (loss) on derivatives | | | (28) | | | 6 | | | (22) | |
Unrealized gain (loss) on debt securities: | | | | | | | | | | |
Unrealized holding gain (loss) | | | 13 | | | (2) | | | 11 | |
Reclassification of realized (gain) loss – Other income | | | (1) | | | | | | (1) | |
Net unrealized gain (loss) on debt securities | | | 12 | | | (2) | | | 10 | |
Retirement benefits adjustment: | | | | | | | | | | |
Pensions | | | | | | | | | | |
Net actuarial gain (loss) | | | (3) | | | 1 | | | (2) | |
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * | | | | | | | | | | |
Actuarial (gain) loss | | | 35 | | | (9) | | | 26 | |
Prior service (credit) cost | | | 2 | | | | | | 2 | |
Settlements/curtailments | | | 1 | | | | | | 1 | |
OPEB | | | | | | | | | | |
Net actuarial gain (loss) | | | | | | | | | | |
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * | | | | | | | | | | |
Actuarial (gain) loss | | | 4 | | | (1) | | | 3 | |
Prior service (credit) cost | | | (19) | | | 4 | | | (15) | |
Net unrealized gain (loss) on retirement benefits adjustment | | | 20 | | | (5) | | | 15 | |
Total other comprehensive income (loss) |
| $ | 31 | | $ | (2) | | $ | 29 | |
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| Before |
| Tax |
| After |
| |||
|
| Tax |
| (Expense) |
| Tax |
| |||
Three Months Ended July 29, 2018 |
| Amount |
| Credit |
| Amount |
| |||
Cumulative translation adjustment |
| $ | (422) |
| $ | 1 |
| $ | (421) |
|
Unrealized gain (loss) on derivatives: |
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Unrealized hedging gain (loss) |
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| 1 |
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| 1 |
|
Reclassification of realized (gain) loss to: |
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Interest rate contracts – Interest expense |
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| (2) |
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| (2) |
|
Net unrealized gain (loss) on derivatives |
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| (1) |
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|
| (1) |
|
Unrealized gain (loss) on investments: |
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|
Unrealized holding gain (loss) |
|
| 2 |
|
| (1) |
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| 1 |
|
Reclassification of realized (gain) loss – Other income |
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Net unrealized gain (loss) on investments |
|
| 2 |
|
| (1) |
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| 1 |
|
Retirement benefits adjustment: |
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Pensions |
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Net actuarial gain (loss) |
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Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * |
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|
|
|
|
|
Actuarial (gain) loss |
|
| 53 |
|
| (14) |
|
| 39 |
|
Prior service (credit) cost |
|
| 3 |
|
| (1) |
|
| 2 |
|
Settlements/curtailments |
|
| 1 |
|
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|
|
| 1 |
|
Health care and life insurance |
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) |
|
|
|
|
|
|
|
|
|
|
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * |
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss |
|
| 16 |
|
| (4) |
|
| 12 |
|
Prior service (credit) cost |
|
| (19) |
|
| 5 |
|
| (14) |
|
Net unrealized gain (loss) on retirement benefits adjustments |
|
| 54 |
|
| (14) |
|
| 40 |
|
Total other comprehensive income (loss) |
| $ | (367) |
| $ | (14) |
| $ | (381) |
|
*These accumulated other comprehensive income amounts are components of net periodic pension and postretirement costs. See Note 7 for additional detail.
14
|
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|
|
| Before |
| Tax |
| After |
| |||
|
| Tax |
| (Expense) |
| Tax |
| |||
Nine Months Ended July 29, 2018 |
| Amount |
| Credit |
| Amount |
| |||
Cumulative translation adjustment |
| $ | (196) |
|
|
|
| $ | (196) |
|
Unrealized gain (loss) on derivatives: |
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|
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|
|
|
|
|
|
|
Unrealized hedging gain (loss) |
|
| 16 |
| $ | (4) |
|
| 12 |
|
Reclassification of realized (gain) loss to: |
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|
|
|
|
|
|
|
|
|
Interest rate contracts – Interest expense |
|
| (3) |
|
| 1 |
|
| (2) |
|
Net unrealized gain (loss) on derivatives |
|
| 13 |
|
| (3) |
|
| 10 |
|
Unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) |
|
| (9) |
|
| 2 |
|
| (7) |
|
Reclassification of realized (gain) loss – Other income |
|
| (1) |
|
|
|
|
| (1) |
|
Net unrealized gain (loss) on investments |
|
| (10) |
|
| 2 |
|
| (8) |
|
Retirement benefits adjustment: |
|
|
|
|
|
|
|
|
|
|
Pensions |
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) |
|
| 46 |
|
| (11) |
|
| 35 |
|
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * |
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss |
|
| 168 |
|
| (48) |
|
| 120 |
|
Prior service (credit) cost |
|
| 9 |
|
| (3) |
|
| 6 |
|
Settlements/curtailments |
|
| 7 |
|
| (2) |
|
| 5 |
|
Health care and life insurance |
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) |
|
| 60 |
|
| (14) |
|
| 46 |
|
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * |
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss |
|
| 47 |
|
| (13) |
|
| 34 |
|
Prior service (credit) cost |
|
| (57) |
|
| 16 |
|
| (41) |
|
Net unrealized gain (loss) on retirement benefits adjustments |
|
| 280 |
|
| (75) |
|
| 205 |
|
Total other comprehensive income (loss) |
| $ | 87 |
| $ | (76) |
| $ | 11 |
|
*These accumulated other comprehensive income amounts are components of net periodic pension and postretirement costs. See Note 7 for additional detail.
15
|
|
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|
|
|
|
|
|
|
|
| Before |
| Tax |
| After |
| |||
|
| Tax |
| (Expense) |
| Tax |
| |||
Three Months Ended July 30, 2017 |
| Amount |
| Credit |
| Amount |
| |||
Cumulative translation adjustment |
| $ | 328 |
| $ | (2) |
| $ | 326 |
|
Unrealized gain (loss) on derivatives: |
|
|
|
|
|
|
|
|
|
|
Unrealized hedging gain (loss) |
|
| (2) |
|
| 1 |
|
| (1) |
|
Reclassification of realized (gain) loss to: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts – Interest expense |
|
| 1 |
|
|
|
|
| 1 |
|
Foreign exchange contracts – Other operating expenses |
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on derivatives |
|
| (1) |
|
| 1 |
|
|
|
|
Unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) |
|
| 11 |
|
| (4) |
|
| 7 |
|
Reclassification of realized (gain) loss – Other income |
|
| (96) |
|
| 35 |
|
| (61) |
|
Net unrealized gain (loss) on investments |
|
| (85) |
|
| 31 |
|
| (54) |
|
Retirement benefits adjustment: |
|
|
|
|
|
|
|
|
|
|
Pensions |
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) |
|
| (1) |
|
|
|
|
| (1) |
|
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * |
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss |
|
| 61 |
|
| (22) |
|
| 39 |
|
Prior service (credit) cost |
|
| 3 |
|
| (1) |
|
| 2 |
|
Settlements/curtailments |
|
| 1 |
|
| (1) |
|
|
|
|
Health care and life insurance |
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) |
|
|
|
|
|
|
|
|
|
|
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * |
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss |
|
| 25 |
|
| (9) |
|
| 16 |
|
Prior service (credit) cost |
|
| (20) |
|
| 8 |
|
| (12) |
|
Net unrealized gain (loss) on retirement benefits adjustments |
|
| 69 |
|
| (25) |
|
| 44 |
|
Total other comprehensive income (loss) |
| $ | 311 |
| $ | 5 |
| $ | 316 |
|
*These accumulated other comprehensive income amounts are components of net periodic pension and postretirement costs. See Note 7 for additional detail.
In the third quarter of 2018 and 2017, the noncontrolling interests’ comprehensive income was $.4 million and $.7 million, respectively, which consisted of net income of $1.0 million and $.5 million and cumulative translation adjustments of $(.6) million and $.2 million, respectively.
16
|
|
|
|
|
|
|
|
|
|
|
|
| Before |
| Tax |
| After |
| |||
|
| Tax |
| (Expense) |
| Tax |
| |||
Nine Months Ended July 30, 2017 |
| Amount |
| Credit |
| Amount |
| |||
Cumulative translation adjustment |
| $ | 327 |
| $ | (2) |
| $ | 325 |
|
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 |
|
Foreign exchange contracts – Other operating expenses |
|
| 2 |
|
| (1) |
|
| 1 |
|
Net unrealized gain (loss) on derivatives |
|
| 2 |
|
| (1) |
|
| 1 |
|
Unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) |
|
| 273 |
|
| (101) |
|
| 172 |
|
Reclassification of realized (gain) loss – Other income |
|
| (274) |
|
| 101 |
|
| (173) |
|
Net unrealized gain (loss) on investments |
|
| (1) |
|
|
|
|
| (1) |
|
Retirement benefits adjustment: |
|
|
|
|
|
|
|
|
|
|
Pensions |
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) |
|
| (10) |
|
| 3 |
|
| (7) |
|
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * |
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss |
|
| 182 |
|
| (66) |
|
| 116 |
|
Prior service (credit) cost |
|
| 9 |
|
| (3) |
|
| 6 |
|
Settlements/curtailments |
|
| 2 |
|
| (1) |
|
| 1 |
|
Health care and life insurance |
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) |
|
| (10) |
|
| 4 |
|
| (6) |
|
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * |
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss |
|
| 74 |
|
| (27) |
|
| 47 |
|
Prior service (credit) cost |
|
| (58) |
|
| 22 |
|
| (36) |
|
Net unrealized gain (loss) on retirement benefits adjustments |
|
| 189 |
|
| (68) |
|
| 121 |
|
Total other comprehensive income (loss) |
| $ | 517 |
| $ | (71) |
| $ | 446 |
|
*These accumulated other comprehensive income amounts are included in net periodic pension and postretirementOPEB costs. See Note 78 for additional detail.
18
| | | | | | | | | | |
|
| Before |
| Tax |
| After |
| |||
| | Tax | | (Expense) | | Tax |
| |||
Nine Months Ended July 28, 2019 | | Amount | | Credit | | Amount |
| |||
Cumulative translation adjustment |
| $ | (217) |
| $ | (1) |
| $ | (218) | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | |
Unrealized hedging gain (loss) | | | (42) | | | 9 | | | (33) | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Interest rate contracts – Interest expense | | | (6) | | | 2 | | | (4) | |
Net unrealized gain (loss) on derivatives | | | (48) | | | 11 | | | (37) | |
Unrealized gain (loss) on debt securities: | | | | | | | | | | |
Unrealized holding gain (loss) | | | 32 | | | (6) | | | 26 | |
Reclassification of realized (gain) loss – Other income | | | (1) | | | | | | (1) | |
Net unrealized gain (loss) on debt securities | | | 31 | | | (6) | | | 25 | |
Retirement benefits adjustment: | | | | | | | | | | |
Pensions | | | | | | | | | | |
Net actuarial gain (loss) | | | (21) | | | 5 | | | (16) | |
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * | | | | | | | | | | |
Actuarial (gain) loss | | | 106 | | | (26) | | | 80 | |
Prior service (credit) cost | | | 8 | | | (2) | | | 6 | |
Settlements/curtailments | | | 1 | | | | | | 1 | |
OPEB | | | | | | | | | | |
Net actuarial gain (loss) | | | 60 | | | (14) | | | 46 | |
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * | | | | | | | | | | |
Actuarial (gain) loss | | | 12 | | | (3) | | | 9 | |
Prior service (credit) cost | | | (55) | | | 13 | | | (42) | |
Net unrealized gain (loss) on retirement benefits adjustment | | | 111 | | | (27) | | | 84 | |
Total other comprehensive income (loss) |
| $ | (123) | | $ | (23) | | $ | (146) | |
*These accumulated other comprehensive income amounts are included in net periodic pension and OPEB costs. See Note 8 for additional detail.
19
| | | | | | | | | | |
|
| Before |
| Tax |
| After |
| |||
| | Tax | | (Expense) | | Tax |
| |||
Three Months Ended July 29, 2018 | | Amount | | Credit | | Amount |
| |||
Cumulative translation adjustment |
| $ | (421) | | $ | 1 | | $ | (420) | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | |
Unrealized hedging gain (loss) | | | 1 | | | | | | 1 | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Interest rate contracts – Interest expense | | | (2) | | | | | | (2) | |
Net unrealized gain (loss) on derivatives | | | (1) | | | | | | (1) | |
Unrealized gain (loss) on investments: | | | | | | | | | | |
Unrealized holding gain (loss) | | | 2 | | | (1) | | | 1 | |
Reclassification of realized (gain) loss – Other income | | | | | | | | | | |
Net unrealized gain (loss) on investments | | | 2 | | | (1) | | | 1 | |
Retirement benefits adjustment: | | | | | | | | | | |
Pensions | | | | | | | | | | |
Net actuarial gain (loss) | | | | | | | | | | |
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * | | | | | | | | | | |
Actuarial (gain) loss | | | 53 | | | (14) | | | 39 | |
Prior service (credit) cost | | | 3 | | | (1) | | | 2 | |
Settlements/curtailments | | | 1 | | | | | | 1 | |
OPEB | | | | | | | | | | |
Net actuarial gain (loss) | | | | | | | | | | |
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * | | | | | | | | | | |
Actuarial (gain) loss | | | 16 | | | (4) | | | 12 | |
Prior service (credit) cost | | | (19) | | | 5 | | | (14) | |
Net unrealized gain (loss) on retirement benefits adjustment | | | 54 | | | (14) | | | 40 | |
Total other comprehensive income (loss) |
| $ | (366) | | $ | (14) | | $ | (380) | |
*These accumulated other comprehensive income amounts are included in net periodic pension and OPEB costs. See Note 8 for additional detail.
In the third quarter of 2019 and 2018, the noncontrolling interests’ comprehensive income in both periods was none, which consisted of net income of none and $1 million and cumulative translation adjustments of none and $(1) million, respectively.
20
| | | | | | | | | | |
|
| Before |
| Tax |
| After |
| |||
| | Tax | | (Expense) | | Tax |
| |||
Nine Months Ended July 29, 2018 | | Amount | | Credit | | Amount |
| |||
Cumulative translation adjustment |
| $ | (196) |
| | | | $ | (196) | |
Unrealized gain (loss) on derivatives: | | | | | | | | | | |
Unrealized hedging gain (loss) | | | 16 | | $ | (4) | | | 12 | |
Reclassification of realized (gain) loss to: | | | | | | | | | | |
Interest rate contracts – Interest expense | | | (3) | | | 1 | | | (2) | |
Net unrealized gain (loss) on derivatives | | | 13 | | | (3) | | | 10 | |
Unrealized gain (loss) on investments: | | | | | | | | | | |
Unrealized holding gain (loss) | | | (9) | | | 2 | | | (7) | |
Reclassification of realized (gain) loss – Other income | | | (1) | | | | | | (1) | |
Net unrealized gain (loss) on investments | | | (10) | | | 2 | | | (8) | |
Retirement benefits adjustment: | | | | | | | | | | |
Pensions | | | | | | | | | | |
Net actuarial gain (loss) | | | 46 | | | (11) | | | 35 | |
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * | | | | | | | | | | |
Actuarial (gain) loss | | | 168 | | | (48) | | | 120 | |
Prior service (credit) cost | | | 9 | | | (3) | | | 6 | |
Settlements/curtailments | | | 7 | | | (2) | | | 5 | |
OPEB | | | | | | | | | | |
Net actuarial gain (loss) | | | 60 | | | (14) | | | 46 | |
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: * | | | | | | | | | | |
Actuarial (gain) loss | | | 47 | | | (13) | | | 34 | |
Prior service (credit) cost | | | (57) | | | 16 | | | (41) | |
Net unrealized gain (loss) on retirement benefits adjustment | | | 280 | | | (75) | | | 205 | |
Total other comprehensive income (loss) |
| $ | 87 | | $ | (76) | | $ | 11 | |
*These accumulated other comprehensive income amounts are included in net periodic pension and OPEB costs. See Note 8 for additional detail.
In the first nine months of 20182019 and 2017,2018, the noncontrolling interests’ comprehensive income (loss) was $2.4$3 million and $(.1)$1 million, respectively, which consisted of net income (loss) of $2.6$3 million and $(.3)$2 million and cumulative translation adjustments of $(.2) millionnone and $.2$(1) million, respectively.
(6)Dividends Declared and Paid
(5)Dividends declared and paid on a per share basis were as follows:
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| ||||||||
| | July 28 | | July 29 | | July 28 | | July 29 |
| ||||
| | 2019 | | 2018 | | 2019 | | 2018 |
| ||||
Dividends declared |
| $ | .76 |
| $ | .69 |
| $ | 2.28 |
| $ | 1.89 | |
Dividends paid | | $ | .76 | | $ | .60 | | $ | 2.21 | | $ | 1.80 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||
|
| July 29 |
| July 30 |
| July 29 |
| July 30 |
| |||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||||||
Dividends declared |
| $ | .69 |
| $ | .60 |
| $ | 1.89 |
| $ | 1.80 |
| |||||
Dividends paid |
| $ | .60 |
| $ | .60 |
| $ | 1.80 |
| $ | 1.80 |
|
17
21
(7)Earnings Per Share
(6)A reconciliation of basic and diluted net income per share attributable to Deere & Company follows in millions, except per share amounts:
| | | | | | | | | | | | | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| | Three Months Ended | | Nine Months Ended |
| ||||||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||
|
| July 29 |
| July 30 |
| July 29 |
| July 30 |
| |||||||||||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||||||||||||||
| | July 28 | | July 29 | | July 28 | | July 29 |
| |||||||||||||||||
| | 2019 | | 2018 | | 2019 | | 2018 |
| |||||||||||||||||
Net income attributable to Deere & Company |
| $ | 910.3 |
| $ | 641.8 |
| $ | 1,583.6 |
| $ | 1,648.8 |
|
| $ | 899 |
| $ | 910 |
| $ | 2,532 |
| $ | 1,584 | |
Less income allocable to participating securities |
|
| .1 |
|
| .2 |
|
| .3 |
|
| .4 |
| |||||||||||||
Income allocable to common stock |
| $ | 910.2 |
| $ | 641.6 |
| $ | 1,583.3 |
| $ | 1,648.4 |
| |||||||||||||
Average shares outstanding |
|
| 323.5 |
|
| 320.8 |
|
| 323.4 |
|
| 318.8 |
| | | 315.9 | |
| 323.5 | | | 317.3 | |
| 323.4 | |
Basic per share |
| $ | 2.81 |
| $ | 2.00 |
| $ | 4.90 |
| $ | 5.17 |
| | $ | 2.84 | | $ | 2.81 | | $ | 7.98 | | $ | 4.90 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Average shares outstanding |
|
| 323.5 |
|
| 320.8 |
|
| 323.4 |
|
| 318.8 |
| | | 315.9 | |
| 323.5 | | | 317.3 | |
| 323.4 | |
Effect of dilutive share-based compensation |
|
| 4.5 |
|
| 4.3 |
|
| 4.8 |
|
| 3.7 |
| | | 3.9 | |
| 4.5 | | | 4.2 | |
| 4.8 | |
Total potential shares outstanding |
|
| 328.0 |
|
| 325.1 |
|
| 328.2 |
|
| 322.5 |
| | | 319.8 | |
| 328.0 | | | 321.5 | |
| 328.2 | |
Diluted per share |
| $ | 2.78 |
| $ | 1.97 |
| $ | 4.82 |
| $ | 5.11 |
| | $ | 2.81 | | $ | 2.78 | | $ | 7.87 | | $ | 4.82 | |
The income allocable to participating securities was insignificant for all periods and is reflected in the earnings per share.
During the third quarter and first nine months of 2018, .52019, .9 million shares and .4.7 million shares, respectively, were excluded from the computation because the incremental shares would have been antidilutive. During the third quarter and first nine months of 2017, none2018, .5 million shares and .3.4 million shares, respectively, were excluded infrom the above per share computation.
(8)Pension and Other Postretirement Benefits
(7)The Company has several defined benefit pension plans and defined postretirement benefit (OPEB) plans, primarily health care and life insurance plans, covering many of its U.S. employees and employees in certain foreign countries.
The worldwide components of net periodic pension cost consisted of the following in millions of dollars:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||
|
| July 29 |
| July 30 |
| July 29 |
| July 30 |
| |||||||||||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | Three Months Ended | | Nine Months Ended |
| |||||||||||||||||||||
| | July 28 | | July 29 | | July 28 | | July 29 |
| |||||||||||||||||
| | 2019 | | 2018 | | 2019 | | 2018 |
| |||||||||||||||||
Service cost |
| $ | 75 |
| $ | 68 |
| $ | 223 |
| $ | 203 |
|
| $ | 65 |
| $ | 75 |
| $ | 197 |
| $ | 223 | |
Interest cost |
|
| 97 |
|
| 90 |
|
| 292 |
|
| 270 |
| | | 112 | |
| 97 | | | 334 | |
| 292 | |
Expected return on plan assets |
|
| (193) |
|
| (197) |
|
| (581) |
|
| (591) |
| | | (200) | |
| (193) | | | (600) | |
| (581) | |
Amortization of actuarial loss |
|
| 53 |
|
| 61 |
|
| 168 |
|
| 182 |
| | | 35 | |
| 53 | | | 106 | |
| 168 | |
Amortization of prior service cost |
|
| 3 |
|
| 3 |
|
| 9 |
|
| 9 |
| | | 2 | |
| 3 | | | 8 | |
| 9 | |
Settlements/curtailments |
|
| 1 |
|
| 1 |
|
| 7 |
|
| 2 |
| | | 1 | |
| 1 | | | 1 | |
| 7 | |
Net cost |
| $ | 36 |
| $ | 26 |
| $ | 118 |
| $ | 75 |
| | $ | 15 | | $ | 36 | | $ | 46 | | $ | 118 | |
The worldwide components of net periodic postretirement benefitsOPEB cost (health care and life insurance) consisted of the following in millions of dollars:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||
|
| July 29 |
| July 30 |
| July 29 |
| July 30 |
| |||||||||||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | Three Months Ended | | Nine Months Ended |
| |||||||||||||||||||||
| | July 28 | | July 29 | | July 28 | | July 29 |
| |||||||||||||||||
| | 2019 | | 2018 | | 2019 | | 2018 |
| |||||||||||||||||
Service cost |
| $ | 11 |
| $ | 11 |
| $ | 33 |
| $ | 32 |
|
| $ | 11 |
| $ | 11 |
| $ | 31 |
| $ | 33 | |
Interest cost |
|
| 47 |
|
| 48 |
|
| 143 |
|
| 146 |
| | | 53 | |
| 47 | | | 160 | |
| 143 | |
Expected return on plan assets |
|
| (5) |
|
| (4) |
|
| (16) |
|
| (13) |
| | | (8) | |
| (5) | | | (26) | |
| (16) | |
Amortization of actuarial loss |
|
| 16 |
|
| 25 |
|
| 47 |
|
| 74 |
| | | 4 | |
| 16 | | | 12 | |
| 47 | |
Amortization of prior service credit |
|
| (19) |
|
| (20) |
|
| (57) |
|
| (58) |
| | | (19) | |
| (19) | | | (55) | |
| (57) | |
Net cost |
| $ | 50 |
| $ | 60 |
| $ | 150 |
| $ | 181 |
| | $ | 41 | | $ | 50 | | $ | 122 | | $ | 150 | |
The components of net periodic pension and postretirement benefits costOPEB costs excluding the service cost component are included in the line item other operating expenses in the Statementstatement of Consolidated Income.consolidated income.
In the second quarter,August 2019, a committee of the Company’s Board of Directors approved a voluntary $1,000 million contribution to itsa U.S. pension and other postretirement benefit plans.OPEB plan for up to $500 million. During the first nine months of 2018,2019, the Company contributed approximately $922$47 million to its pension plans and $168$97 million to its other postretirement benefitOPEB plans. The Company presently
22
anticipates contributing an additional $20 million to its pension plans and $340 million to its OPEB plans during the remainder of fiscal year 2019. The anticipated OPEB contributions includedinclude a voluntary contributions of $870$300 million to a U.S. pension plan and $130 million to a U.S. other postretirement benefit plan, which will increase plan assets. The Company presently anticipates contributing an additional $16 million to its pension plans and $2
18
million to its other postretirement benefit plans during the remainder of fiscal year 2018. The remaining anticipated contributions and thoseOPEB contributions exceeding the voluntary amounts primarily include direct benefit payments from Company funds to plan participants.funds.
(9)Income Taxes
In 2019, the fourth quarter, a committeeCompany is subject to additional provisions of the Company’s Board of Directors approved an additional, voluntary contribution to a U.S. other postretirement benefit plan to increase plan assets. The amount of this potential contribution will be based on actual and forecasted operating cash flows, which will be determined in October 2018. The contribution, if any, will be made in October 2018.
(8)On December 22, 2017, the U.S. government enacted tax reform. The primary provisions of tax reform impacting the Companylegislation enacted in fiscal year 2018 are a reduction to the corporate income tax rate from 35 percent to 21 percent and a transition from a worldwide corporate tax system to a territorial tax system. The reduction in the corporate income tax rate requires the Company to remeasure its net deferred tax assets to the new corporate tax rate and the transition to a territorial tax system requires payment of a one-time tax on deemed repatriation of undistributed and previously untaxed non-U.S. earnings. The Company currently plans to pay the deemed repatriation tax over an eight year period, as allowed by tax reform.
In December 2017 the SEC issued a staff accounting bulletin that allows for a measurement period up to one year after the enactment date of tax reform to complete the related accounting requirements.(tax reform). The provisional income tax expense (benefit) and measurement period adjustments recorded in the third quarter and first nine months of 2018 in millions of dollars follow:
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|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||||
|
| Equipment Operations |
|
| Financial Services |
| Total |
| Equipment Operations |
|
| Financial Services |
| Total |
| ||||
Net deferred tax asset remeasurement |
| $ | (58) |
| $ | (4) |
| $ | (62) |
| $ | 795 |
| $ | (318) |
| $ | 477 |
|
Deemed earnings repatriation tax |
|
|
|
|
|
|
|
|
|
|
| 179 |
|
| 85 |
|
| 264 |
|
Total discrete tax expense (benefit) |
| $ | (58) |
| $ | (4) |
| $ | (62) |
| $ | 974 |
| $ | (233) |
| $ | 741 |
|
The third quarter measurement period benefit on the net deferred tax assets primarily resulted from refining the net deferred tax asset position with the completion of the fiscal year 2017Company’s 2019 U.S. income tax return and changing tax accounting methods that affected the timing of certain U.S. tax deductions. The provision for income taxes was also affected by other tax reform items, primarily the lower corporate income tax rate on current year income.
The 21 percentstatutory corporate income tax rate is effective January 1, 2018. Based on the Company’s October fiscal year end, the U.S. statutory income tax rate for fiscal year 2018 is21 percent and was approximately 23.3 percent.
The first nine months of 2018 tax expense is provisional as outlined below and may change during the remaining measurement period. The Company completed a preliminary assessment of earnings that could be repatriated based on reinvestment needs of non-U.S. operations and earnings availablepercent for repatriation.2018. The estimated withholding tax that would be incurred from the repatriation of those earnings is included in the first nine months of 2018 provisional income tax expense. The Company continues to analyze the provisions of tax reform addressing the net deferred tax asset remeasurement and the deemed earnings repatriation tax, including the recently issued proposed regulations. In addition,affecting the Company is evaluating actions such as repatriating additional non-U.S. earnings. The Company also continues to undergo income tax audits and monitor potential legislative action and regulatory interpretations related to tax reform.
Based on the effective date of certain provisions, the Company will be subject to additional requirements of tax reform beginning in fiscal year 2019. Those provisions2019 include a tax on global intangible low-taxed income (GILTI), a tax determined by base erosion and anti-abuse tax benefits (BEAT) fromfor certain payments between a U.S. corporation and foreign subsidiaries, a limitation on the deductibility of certain executive compensation, a deduction for foreign derived intangible income (FDII), and interest expense limitations. Based on the current interpretations of tax reform legislation and related regulations, along with the Company’s 2019 forecasts, the Company does not expect the combined effect of these provisions to be significant for the 2019 provision for income taxes.
In 2019 and 2018, the Company recorded discrete tax adjustments related to the remeasurement of the Company’s net deferred tax assets to the new corporate income tax rate and for the deemed earnings repatriation tax (repatriation tax). Those adjustments for the third quarter and first nine months of 2019 and 2018 in millions of dollars follow:
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||||||||
| | Equipment Operations | | | Financial Services | | Total | | Equipment Operations | | | Financial Services | | Total | | ||||
Net deferred tax asset remeasurement |
| | |
| | |
| | |
| | |
| $ | 5 |
| $ | 5 | |
Deemed earnings repatriation tax | | $ | (24) | | $ | (8) | | $ | (32) | | $ | (24) | | | (8) | |
| (32) | |
Total discrete tax expense (benefit) | | $ | (24) | | $ | (8) | | $ | (32) | | $ | (24) | | $ | (3) | | $ | (27) | |
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||||||||
| | Equipment Operations | | | Financial Services | | Total | | Equipment Operations | | | Financial Services | | Total | | ||||
Net deferred tax asset remeasurement |
| $ | (58) |
| $ | (4) |
| $ | (62) |
| $ | 795 |
| $ | (318) |
| $ | 477 | |
Deemed earnings repatriation tax | | | | | | | |
| | | | 179 | | | 85 | |
| 264 | |
Total discrete tax expense (benefit) | | $ | (58) | | $ | (4) | | $ | (62) | | $ | 974 | | $ | (233) | | $ | 741 | |
The full year 2018 discrete tax expense for the remeasurement of the net deferred tax assets was $414 million and the repatriation tax was $290 million. The full year 2018 repatriation tax included an accrual of approximately $63 million for foreign withholding taxes on earnings of subsidiaries outside the U.S. that were previously expected to be indefinitely reinvested. The repatriation tax determination for the 2018 U.S. income tax return was completed in the third quarter of 2019 and resulted in a discrete tax benefit of approximately $32 million. The discrete benefit was based on adjustments from completing the 2018 income tax returns and the interpretation of the tax law and associated regulations for the repatriation tax, primarily related to fiscal year end companies. The Company has not completed its analysis of those provisions andpaid the estimated effects. The Company also has not determined its accounting policy to treat the taxes due on GILTI asrepatriation tax in 2019 with a period cost or include them in the determination of deferred taxes.
19
U.S. income tax overpayment.
The Company’s unrecognized tax benefits at July 29, 201828, 2019 were $325$630 million, compared to $221$279 million at October 29, 2017. The increase is primarily due to positions related to liabilities assumed in acquisitions, transfer pricing, and certain tax accounting methods. These positions remain under review.28, 2018. The liability at July 29,28, 2019, October 28, 2018, October 29, 2017, and July 30, 201729, 2018 consisted of approximately $137$274 million, $86$128 million, and $83$137 million, respectively, which would affect the effective tax rate if the tax benefits were recognized. The increase from the previously reported periods primarily relates to the interpretation of a recently issued repatriation tax regulation for fiscal year end companies. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. Based onThe Company expects that any reasonably possible change in the ongoing review of tax accounting methods affecting the timing of certain U.S. tax deductions, the Company believes a reductionamounts of unrecognized tax benefits of approximately $38 million, with a positive impact on the effective tax rate of approximately $13 million, in the next 12 months is reasonably possible.would not be significant.
23
(10)Segment Reporting
(9)Worldwide net sales and revenues, operating profit, and identifiable assets by segment in millions of dollars follow:
| | | | | | | | | | | | | | | | | | |||||||||||||||||
| | Three Months Ended | | Nine Months Ended |
| |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | July 28 | | July 29 | | % | | July 28 | | July 29 | | % |
| ||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||||||||||
|
| July 29 |
| July 30 |
| % |
| July 29 |
| July 30 |
| % |
| |||||||||||||||||||||
|
| 2018 |
| 2017 |
| Change |
| 2018 |
| 2017 |
| Change |
| |||||||||||||||||||||
| | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
| |||||||||||||||||||||
Net sales and revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
|
| | |
| |
|
|
| |
Agriculture and turf |
| $ | 6,293 |
| $ | 5,338 |
| +18 |
| $ | 17,585 |
| $ | 14,730 |
| +19 |
|
| $ | 5,946 | | $ | 6,293 | | -6 |
| $ | 17,909 | | $ | 17,585 | | +2 | |
Construction and forestry |
|
| 2,993 |
|
| 1,495 |
| +100 |
|
| 7,422 |
|
| 4,061 |
| +83 |
| | | 3,023 | |
| 2,993 | | +1 | | | 8,273 | |
| 7,422 | | +11 | |
Total net sales |
|
| 9,286 |
|
| 6,833 |
| +36 |
|
| 25,007 |
|
| 18,791 |
| +33 |
| | | 8,969 | |
| 9,286 | | -3 | | | 26,182 | |
| 25,007 | | +5 | |
Financial services |
|
| 830 |
|
| 741 |
| +12 |
|
| 2,402 |
|
| 2,153 |
| +12 |
| | | 910 | |
| 830 | | +10 | | | 2,650 | |
| 2,402 | | +10 | |
Other revenues |
|
| 192 |
|
| 234 |
| -18 |
|
| 533 |
|
| 776 |
| -31 |
| | | 157 | |
| 192 | | -18 | | | 530 | |
| 533 | | -1 | |
Total net sales and revenues |
| $ | 10,308 |
| $ | 7,808 |
| +32 |
| $ | 27,942 |
| $ | 21,720 |
| +29 |
|
| $ | 10,036 | | $ | 10,308 | | -3 |
| $ | 29,362 | | $ | 27,942 | | +5 | |
Operating profit: * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | |
Agriculture and turf |
| $ | 806 |
| $ | 693 |
| +16 |
| $ | 2,249 |
| $ | 1,920 |
| +17 |
|
| $ | 612 | | $ | 806 | | -24 |
| $ | 1,978 | | $ | 2,249 | | -12 | |
Construction and forestry |
|
| 281 |
|
| 111 |
| +153 |
|
| 573 |
|
| 259 |
| +121 |
| | | 378 | |
| 281 | | +35 | | | 954 | |
| 573 | | +66 | |
Financial services |
|
| 196 |
|
| 198 |
| -1 |
|
| 591 |
|
| 523 |
| +13 |
| | | 204 | |
| 196 | | +4 | | | 566 | |
| 591 | | -4 | |
Total operating profit |
|
| 1,283 |
|
| 1,002 |
| +28 |
|
| 3,413 |
|
| 2,702 |
| +26 |
| | | 1,194 | |
| 1,283 | | -7 | | | 3,498 | |
| 3,413 | | +2 | |
Reconciling items ** |
|
| (84) |
|
| (107) |
| -21 |
|
| (306) |
|
| (304) |
| +1 |
| | | (74) | |
| (84) | | -12 | | | (218) | |
| (305) | | -29 | |
Income taxes |
|
| (289) |
|
| (253) |
| +14 |
|
| (1,523) |
|
| (749) |
| +103 |
| | | (221) | |
| (289) | | -24 | | | (748) | |
| (1,524) | | -51 | |
Net income attributable to Deere & Company |
| $ | 910 |
| $ | 642 |
| +42 |
| $ | 1,584 |
| $ | 1,649 |
| -4 |
|
| $ | 899 | | $ | 910 | | -1 |
| $ | 2,532 | | $ | 1,584 | | +60 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||
Intersegment sales and revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | |
Agriculture and turf net sales |
| $ | 14 |
| $ | 12 |
| +17 |
| $ | 38 |
| $ | 29 |
| +31 |
|
| $ | 9 | | $ | 14 | | -36 |
| $ | 27 | | $ | 38 | | -29 | |
Construction and forestry net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | 1 | |
| | | | |
Financial services |
|
| 89 |
|
| 67 |
| +33 |
|
| 234 |
|
| 178 |
| +31 |
| | | 93 | |
| 89 | | +4 | | | 261 | |
| 234 | | +12 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||
Equipment operations outside the U.S. and Canada: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | |
Net sales |
| $ | 4,232 |
| $ | 2,925 |
| +45 |
| $ | 11,036 |
| $ | 7,785 |
| +42 |
|
| $ | 4,026 | | $ | 4,232 | | -5 |
| $ | 10,985 | | $ | 11,036 | | | |
Operating profit |
|
| 398 |
|
| 354 |
| +12 |
|
| 1,079 |
|
| 821 |
| +31 |
| | | 430 | |
| 398 | | +8 | | | 1,088 | |
| 1,079 | | +1 | |
|
|
|
|
|
|
|
|
|
| |||||||||
|
| July 29 |
| October 29 |
|
|
| |||||||||||
|
| 2018 |
| 2017 |
|
|
| |||||||||||
| | | | | | | | | | |||||||||
|
| July 28 |
| October 28 | | |
| |||||||||||
| | 2019 | | 2018 | |
|
| |||||||||||
Identifiable assets: |
|
|
|
|
|
|
|
|
| | | | | | | | | |
Agriculture and turf |
| $ | 10,152 |
| $ | 9,359 |
| +8 |
|
| $ | 10,629 | | $ | 10,161 |
| +5 | |
Construction and forestry |
|
| 9,920 |
|
| 3,212 |
| +209 |
| | | 10,161 | |
| 9,855 | | +3 | |
Financial services |
|
| 45,038 |
|
| 42,596 |
| +6 |
| | | 48,444 | |
| 45,720 | | +6 | |
Corporate |
|
| 4,280 |
|
| 10,619 |
| -60 |
| | | 4,296 | |
| 4,372 | | -2 | |
Total assets |
| $ | 69,390 |
| $ | 65,786 |
| +5 |
|
| $ | 73,530 | | $ | 70,108 | | +5 | |
*Operating profit is income from continuing operations before corporate expenses, certain external interest expense, certain foreign exchange gains and losses, and income taxes. Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains and losses.
**Reconciling items are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, pension and postretirement benefitOPEB costs excluding the service cost component, and net income attributable to noncontrolling interests.
(11)Financing Receivables
20
(10)Past due balances of financing receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date. Non-performing financing receivables represent loans for which the Company has ceased accruing finance income. TheseBeginning in the first quarter of 2019, the Company ceased accruing finance income when these receivables are generally 90 days delinquent. Previously, finance income ceased accruing when the receivables were generally 120 days delinquent. This change in estimate was made on a prospective basis and did not have a significant effect on the Company’s consolidated financial statements. Management’s methodology to determine the collectability of delinquent accounts was not affected by the change.
24
Generally, when receivables are 120 days delinquent and the estimated uncollectible amount, after charging the dealer’s withholding account, if any, has beenis written off to the allowance for credit losses. Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.
An age analysis of past due financing receivables that are still accruing interest and non-performing financing receivables in millions of dollars follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| July 29, 2018 |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
| 90 Days |
|
|
|
| ||||||||||||||
|
| 30-59 Days |
| 60-89 Days |
| or Greater |
| Total |
| |||||||||||||||||
|
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | July 28, 2019 | | |||||||||||||||||||||||
|
| | |
| | |
| 90 Days |
| | |
| ||||||||||||||
| | 30-59 Days | | 60-89 Days | | or Greater | | Total | | |||||||||||||||||
| | Past Due | | Past Due | | Past Due | | Past Due | | |||||||||||||||||
Retail Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Agriculture and turf |
| $ | 138 |
| $ | 53 |
| $ | 54 |
| $ | 245 |
|
| $ | 136 |
| $ | 63 |
| $ | 3 |
| $ | 202 | |
Construction and forestry |
|
| 105 |
|
| 43 |
|
| 50 |
|
| 198 |
| | | 87 | | | 35 | | | 2 | | | 124 | |
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Agriculture and turf |
|
| 37 |
|
| 14 |
|
| 12 |
|
| 63 |
| | | 38 | | | 22 | | | | | | 60 | |
Construction and forestry |
|
| 12 |
|
| 6 |
|
| 3 |
|
| 21 |
| | | 17 | | | 7 | | | | | | 24 | |
Total |
| $ | 292 |
| $ | 116 |
| $ | 119 |
| $ | 527 |
|
| $ | 278 |
| $ | 127 |
| $ | 5 |
| $ | 410 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
| Total |
| ||||||||||||||
|
| Total |
| Total |
|
|
|
| Financing |
| ||||||||||||||||
|
| Past Due |
| Non-Performing |
| Current |
| Receivables |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
|
| | | | | | |
| | | Total | | ||||||||||||||
| | Total | | Total | | | | | Financing | | ||||||||||||||||
| | Past Due | | Non-Performing | | Current | | Receivables | | |||||||||||||||||
Retail Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Agriculture and turf |
| $ | 245 |
| $ | 203 |
| $ | 17,048 |
| $ | 17,496 |
|
| $ | 202 |
| $ | 301 |
| $ | 18,038 |
| $ | 18,541 | |
Construction and forestry |
|
| 198 |
|
| 42 |
|
| 2,967 |
|
| 3,207 |
| | | 124 | | | 135 | | | 3,249 | | | 3,508 | |
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Agriculture and turf |
|
| 63 |
|
| 14 |
|
| 8,009 |
|
| 8,086 |
| | | 60 | | | 37 | | | 8,833 | | | 8,930 | |
Construction and forestry |
|
| 21 |
|
| 3 |
|
| 1,249 |
|
| 1,273 |
| | | 24 | | | 14 | | | 1,417 | | | 1,455 | |
Total |
| $ | 527 |
| $ | 262 |
| $ | 29,273 |
|
| 30,062 |
|
| $ | 410 |
| $ | 487 |
| $ | 31,537 | | | 32,434 | |
Less allowance for credit losses |
|
|
|
|
|
|
|
|
|
|
| 187 |
| | | | | | | | | | | | 185 | |
Total financing receivables – net |
|
|
|
|
|
|
|
|
|
| $ | 29,875 |
| | | | | | | | | |
| $ | 32,249 | |
| | | | | | | | | | | | | |
| | October 28, 2018 | | ||||||||||
|
| | |
| | |
| 90 Days |
| | |
| |
| | 30-59 Days | | 60-89 Days | | or Greater | | Total | | ||||
| | Past Due | | Past Due | | Past Due | | Past Due |
| ||||
Retail Notes: | | | | | | | | | | | | | |
Agriculture and turf | | $ | 133 | | $ | 74 | | $ | 63 | | $ | 270 | |
Construction and forestry | |
| 79 | | | 45 |
| | 52 |
| | 176 |
|
Other: | | | | | | | | | | | | | |
Agriculture and turf | |
| 36 | | | 16 |
| | 8 |
| | 60 |
|
Construction and forestry | |
| 18 | | | 5 |
| | 3 |
| | 26 |
|
Total | | $ | 266 | | $ | 140 | | $ | 126 | | $ | 532 | |
| | �� | | | | | | | | | | | |
| | | | | | |
| | |
| Total |
| |
| | Total | | Total |
| | | | Financing |
| |||
| | Past Due | | Non-Performing | | Current | | Receivables |
| ||||
Retail Notes: | | | | | | | | | | | | | |
Agriculture and turf | | $ | 270 | | $ | 201 | | $ | 17,836 | | $ | 18,307 | |
Construction and forestry | | | 176 |
| | 40 |
| | 3,101 |
| | 3,317 |
|
Other: | | | | | | | | | | | | | |
Agriculture and turf | | | 60 |
| | 15 |
| | 8,274 |
| | 8,349 |
|
Construction and forestry | | | 26 |
| | 3 |
| | 1,252 |
| | 1,281 |
|
Total | | $ | 532 | | $ | 259 | | $ | 30,463 | | | 31,254 |
|
Less allowance for credit losses | | | | | | | | | | | | 178 |
|
Total financing receivables – net | | | | | | | | | | | $ | 31,076 | |
21
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| October 29, 2017 |
| ||||||||||
|
|
|
|
|
|
|
| 90 Days |
|
|
|
| |
|
| 30-59 Days |
| 60-89 Days |
| or Greater |
| Total |
| ||||
|
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| ||||
Retail Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
| $ | 118 |
| $ | 54 |
| $ | 49 |
| $ | 221 |
|
Construction and forestry |
|
| 75 |
|
| 33 |
|
| 39 |
|
| 147 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
| 27 |
|
| 14 |
|
| 7 |
|
| 48 |
|
Construction and forestry |
|
| 11 |
|
| 6 |
|
| 2 |
|
| 19 |
|
Total |
| $ | 231 |
| $ | 107 |
| $ | 97 |
| $ | 435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Total |
| Total |
|
|
|
| Financing |
| |||
|
| Past Due |
| Non-Performing |
| Current |
| Receivables |
| ||||
Retail Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
| $ | 221 |
| $ | 173 |
| $ | 17,508 |
| $ | 17,902 |
|
Construction and forestry |
|
| 147 |
|
| 30 |
|
| 2,618 |
|
| 2,795 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
| 48 |
|
| 12 |
|
| 7,610 |
|
| 7,670 |
|
Construction and forestry |
|
| 19 |
|
| 5 |
|
| 1,059 |
|
| 1,083 |
|
Total |
| $ | 435 |
| $ | 220 |
| $ | 28,795 |
|
| 29,450 |
|
Less allowance for credit losses |
|
|
|
|
|
|
|
|
|
|
| 187 |
|
Total financing receivables – net |
|
|
|
|
|
|
|
|
|
| $ | 29,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| July 30, 2017 |
| ||||||||||
|
|
|
|
|
|
|
| 90 Days |
|
|
|
| |
|
| 30-59 Days |
| 60-89 Days |
| or Greater |
| Total |
| ||||
|
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| ||||
Retail Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
| $ | 133 |
| $ | 53 |
| $ | 58 |
| $ | 244 |
|
Construction and forestry |
|
| 93 |
|
| 41 |
|
| 40 |
|
| 174 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
| 35 |
|
| 17 |
|
| 8 |
|
| 60 |
|
Construction and forestry |
|
| 7 |
|
| 5 |
|
| 1 |
|
| 13 |
|
Total |
| $ | 268 |
| $ | 116 |
| $ | 107 |
| $ | 491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| |
|
| Total |
| Total |
|
|
|
| Financing |
| |||
|
| Past Due |
| Non-Performing |
| Current |
| Receivables |
| ||||
Retail Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
| $ | 244 |
| $ | 218 |
| $ | 17,025 |
| $ | 17,487 |
|
Construction and forestry |
|
| 174 |
|
| 34 |
|
| 2,546 |
|
| 2,754 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
| 60 |
|
| 11 |
|
| 7,494 |
|
| 7,565 |
|
Construction and forestry |
|
| 13 |
|
| 16 |
|
| 999 |
|
| 1,028 |
|
Total |
| $ | 491 |
| $ | 279 |
| $ | 28,064 |
|
| 28,834 |
|
Less allowance for credit losses |
|
|
|
|
|
|
|
|
|
|
| 189 |
|
Total financing receivables – net |
|
|
|
|
|
|
|
|
|
| $ | 28,645 |
|
22
| | | | | | | | | | | | | |
| | July 29, 2018 | | ||||||||||
|
| | |
| | |
| 90 Days |
| | |
| |
| | 30-59 Days | | 60-89 Days | | or Greater | | Total | | ||||
| | Past Due | | Past Due | | Past Due | | Past Due | | ||||
Retail Notes: | | | | | | | | | | | | | |
Agriculture and turf |
| $ | 138 | | $ | 53 |
| $ | 54 |
| $ | 245 |
|
Construction and forestry | | | 105 | | | 43 | |
| 50 | | | 198 | |
Other: | | | | | | | | | | | | | |
Agriculture and turf | | | 37 | | | 14 | |
| 12 | | | 63 | |
Construction and forestry | | | 12 | | | 6 | |
| 3 | | | 21 | |
Total | | $ | 292 | | $ | 116 | | $ | 119 | | $ | 527 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | Total | | |
| | Total | | Total | | | | | Financing | | |||
| | Past Due | | Non-Performing | | Current | | Receivables | | ||||
Retail Notes: | | | | | | | | | | | | | |
Agriculture and turf | | $ | 245 | | $ | 203 | | $ | 17,048 | | $ | 17,496 | |
Construction and forestry | | | 198 | |
| 42 | |
| 2,967 | | | 3,207 | |
Other: | | | | | | | | | | | | | |
Agriculture and turf | | | 63 | |
| 14 | |
| 8,009 | | | 8,086 | |
Construction and forestry | | | 21 | |
| 3 | �� |
| 1,249 | | | 1,273 | |
Total | | $ | 527 | | $ | 262 | | $ | 29,273 | | | 30,062 | |
Less allowance for credit losses | | | | | | | | | | | | 187 | |
Total financing receivables – net | | | | | | | | | | | $ | 29,875 | |
An analysis of the allowance for credit losses and investment in financing receivables in millions of dollars during the periods follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended July 29, 2018 |
| |||||||||||||||||||||||
|
|
|
|
| Revolving |
|
|
|
|
|
|
| ||||||||||||||
|
| Retail |
| Charge |
|
|
|
|
|
|
| |||||||||||||||
|
| Notes |
| Accounts |
| Other |
| Total |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | | | | Revolving | | | | | | | | ||||||||||||||
| | Retail | | Charge | | | | | | | | |||||||||||||||
| | Notes | | Accounts | | Other | | Total | | |||||||||||||||||
Three Months Ended July 28, 2019 | | | | | | | | | | | | | | |||||||||||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | |
|
Beginning of period balance |
| $ | 120 |
| $ | 40 |
| $ | 27 |
| $ | 187 |
|
| $ | 115 |
| $ | 43 | | $ | 24 | | $ | 182 | |
Provision |
|
| 8 |
|
| 21 |
|
| 3 |
|
| 32 |
| | | 7 | | | 18 | | | 1 | | | 26 | |
Write-offs |
|
| (9) |
|
| (26) |
|
| (1) |
|
| (36) |
| | | (9) | | | (26) | | | (1) | | | (36) | |
Recoveries |
|
| 3 |
|
| 5 |
|
|
|
|
| 8 |
| | | 5 | | | 8 | | | | | | 13 | |
Translation adjustments |
|
| (4) |
|
|
|
|
|
|
|
| (4) |
| | | 2 | | | | | | (2) | | | | |
End of period balance * |
| $ | 118 |
| $ | 40 |
| $ | 29 |
| $ | 187 |
|
| $ | 120 |
| $ | 43 | | $ | 22 | | $ | 185 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Nine Months Ended July 29, 2018 |
| |||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Nine Months Ended July 28, 2019 | | | | | | | | | | | | | | |||||||||||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Beginning of period balance |
| $ | 121 |
| $ | 40 |
| $ | 26 |
| $ | 187 |
|
| $ | 113 |
| $ | 43 | | $ | 22 | | $ | 178 | |
Provision |
|
| 13 |
|
| 29 |
|
| 7 |
|
| 49 |
| | | 21 | | | 34 | | | 7 | | | 62 | |
Write-offs |
|
| (23) |
|
| (44) |
|
| (5) |
|
| (72) |
| | | (29) | | | (51) | | | (5) | | | (85) | |
Recoveries |
|
| 13 |
|
| 15 |
|
| 1 |
|
| 29 |
| | | 15 | | | 17 | | | 1 | | | 33 | |
Translation adjustments |
|
| (6) |
|
|
|
|
|
|
|
| (6) |
| | | | | | | | | (3) | | | (3) | |
End of period balance * |
| $ | 118 |
| $ | 40 |
| $ | 29 |
| $ | 187 |
|
| $ | 120 |
| $ | 43 | | $ | 22 | | $ | 185 | |
Financing receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
End of period balance |
| $ | 20,703 |
| $ | 3,750 |
| $ | 5,609 |
| $ | 30,062 |
|
| $ | 22,049 |
| $ | 3,877 | | $ | 6,508 | | $ | 32,434 | |
Balance individually evaluated ** |
| $ | 120 |
| $ | 1 |
| $ | 13 |
| $ | 134 |
|
| $ | 145 |
| | | | $ | 10 | | $ | 155 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended July 30, 2017 |
| ||||||||||
|
|
|
|
| Revolving |
|
|
|
|
|
|
| |
|
| Retail |
| Charge |
|
|
|
|
|
|
| ||
|
| Notes |
| Accounts |
| Other |
| Total |
| ||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period balance |
| $ | 111 |
| $ | 43 |
| $ | 23 |
| $ | 177 |
|
Provision |
|
| 21 |
|
| 18 |
|
| 3 |
|
| 42 |
|
Write-offs |
|
| (15) |
|
| (26) |
|
| (1) |
|
| (42) |
|
Recoveries |
|
| 5 |
|
| 5 |
|
|
|
|
| 10 |
|
Translation adjustments |
|
| 1 |
|
|
|
|
| 1 |
|
| 2 |
|
End of period balance * |
| $ | 123 |
| $ | 40 |
| $ | 26 |
| $ | 189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended July 30, 2017 |
| ||||||||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period balance |
| $ | 113 |
| $ | 40 |
| $ | 23 |
| $ | 176 |
|
Provision |
|
| 38 |
|
| 32 |
|
| 6 |
|
| 76 |
|
Write-offs |
|
| (41) |
|
| (47) |
|
| (4) |
|
| (92) |
|
Recoveries |
|
| 13 |
|
| 15 |
|
|
|
|
| 28 |
|
Translation adjustments |
|
|
|
|
|
|
|
| 1 |
|
| 1 |
|
End of period balance * |
| $ | 123 |
| $ | 40 |
| $ | 26 |
| $ | 189 |
|
Financing receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period balance |
| $ | 20,241 |
| $ | 3,454 |
| $ | 5,139 |
| $ | 28,834 |
|
Balance individually evaluated ** |
| $ | 144 |
| $ | 1 |
| $ | 27 |
| $ | 172 |
|
*Individual allowances were not significant.
**Remainder is collectively evaluated.
23
26
| | | | | | | | | | | | | |
| | | | | Revolving | | | | | | |
| |
| | Retail | | Charge | | | | | | |
| ||
| | Notes | | Accounts | | Other | | Total | | ||||
Three Months Ended July 29, 2018 | | | | | | | | | | | | | |
Allowance: |
| |
|
| |
|
| |
|
| |
| |
Beginning of period balance | | $ | 120 |
| $ | 40 | | $ | 27 | | $ | 187 | |
Provision | |
| 8 | | | 21 | | | 3 | |
| 32 | |
Write-offs | |
| (9) | | | (26) | | | (1) | |
| (36) | |
Recoveries | |
| 3 | | | 5 | | | | |
| 8 | |
Translation adjustments | |
| (4) | | | | | | | |
| (4) | |
End of period balance * | | $ | 118 | | $ | 40 | | $ | 29 | | $ | 187 | |
| | | | | | | | | | | | | |
Nine Months Ended July 29, 2018 | | | | | | | | | | | | | |
Allowance: |
|
|
|
|
|
|
|
|
|
| | | |
Beginning of period balance | | $ | 121 |
| $ | 40 | | $ | 26 | | $ | 187 | |
Provision | |
| 13 | | | 29 | | | 7 | |
| 49 | |
Write-offs | |
| (23) | | | (44) | | | (5) | |
| (72) | |
Recoveries | |
| 13 | | | 15 | | | 1 | |
| 29 | |
Translation adjustments | | | (6) | | | | | | | |
| (6) | |
End of period balance * | | $ | 118 | | $ | 40 | | $ | 29 | | $ | 187 | |
Financing receivables: | | | | | | | | | | | | | |
End of period balance | | $ | 20,703 |
| $ | 3,750 | | $ | 5,609 | | $ | 30,062 | |
Balance individually evaluated ** | | $ | 120 |
| $ | 1 | | $ | 13 | | $ | 134 | |
*Individual allowances were not significant.
**Remainder is collectively evaluated.
Financing receivables are considered impaired when it is probable the Company will be unable to collect all amounts due according to the contractual terms. Receivables reviewed for impairment generally include those that are either past due, or have provided bankruptcy notification, or require significant collection efforts. Receivables that are impaired are generally classified as non-performing.
An analysis of the impaired financing receivables in millions of dollars follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
| Unpaid |
|
|
|
| Average |
| |||||||||||||||
|
| Recorded |
| Principal |
| Specific |
| Recorded |
| |||||||||||||||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
|
| | |
| Unpaid |
| | |
| Average |
| |||||||||||||||
| | Recorded | | Principal | | Specific | | Recorded | | |||||||||||||||||
| | Investment | | Balance | | Allowance | | Investment | | |||||||||||||||||
July 28, 2019* | | | | | | | | | | | | | | |||||||||||||
Receivables with specific allowance ** |
| $ | 37 |
| $ | 36 |
| $ | 13 | | $ | 37 | | |||||||||||||
Receivables without a specific allowance ** | | | 35 | | | 33 | | | | | | 39 | | |||||||||||||
Total |
| $ | 72 |
| $ | 69 |
| $ | 13 | | $ | 76 | | |||||||||||||
Agriculture and turf |
| $ | 51 |
| $ | 50 |
| $ | 9 | | $ | 52 | | |||||||||||||
Construction and forestry |
| $ | 21 |
| $ | 19 | | $ | 4 |
| $ | 24 | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
October 28, 2018* | | | | | | | | | | | | | | |||||||||||||
Receivables with specific allowance ** | | $ | 28 | | $ | 27 | | $ | 10 | | $ | 30 | | |||||||||||||
Receivables without a specific allowance ** | |
| 37 | |
| 35 | | | | |
| 41 | | |||||||||||||
Total | | $ | 65 |
| $ | 62 |
| $ | 10 | | $ | 71 | | |||||||||||||
Agriculture and turf | | $ | 50 | | $ | 48 | | $ | 9 | | $ | 54 | | |||||||||||||
Construction and forestry | | $ | 15 | | $ | 14 | | $ | 1 | | $ | 17 | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
July 29, 2018* |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Receivables with specific allowance ** |
| $ | 31 |
| $ | 30 |
| $ | 12 |
| $ | 33 |
| | $ | 31 | | $ | 30 | | $ | 12 | | $ | 33 | |
Receivables without a specific allowance ** |
|
| 37 |
|
| 35 |
|
|
|
|
| 40 |
| |
| 37 | |
| 35 | | | | |
| 40 | |
Total |
| $ | 68 |
| $ | 65 |
| $ | 12 |
| $ | 73 |
| | $ | 68 |
| $ | 65 |
| $ | 12 | | $ | 73 | |
Agriculture and turf |
| $ | 51 |
| $ | 49 |
| $ | 10 |
| $ | 54 |
| | $ | 51 | | $ | 49 | | $ | 10 | | $ | 54 | |
Construction and forestry |
| $ | 17 |
| $ | 16 |
| $ | 2 |
| $ | 19 |
| | $ | 17 | | $ | 16 | | $ | 2 | | $ | 19 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
October 29, 2017* |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Receivables with specific allowance ** |
| $ | 36 |
| $ | 33 |
| $ | 10 |
| $ | 30 |
| |||||||||||||
Receivables without a specific allowance *** |
|
| 28 |
|
| 27 |
|
|
|
|
| 24 |
| |||||||||||||
Total |
| $ | 64 |
| $ | 60 |
| $ | 10 |
| $ | 54 |
| |||||||||||||
Agriculture and turf |
| $ | 49 |
| $ | 46 |
| $ | 10 |
| $ | 38 |
| |||||||||||||
Construction and forestry |
| $ | 15 |
| $ | 14 |
|
|
|
| $ | 16 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
July 30, 2017* |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Receivables with specific allowance ** |
| $ | 56 |
| $ | 51 |
| $ | 13 |
| $ | 51 |
| |||||||||||||
Receivables without a specific allowance *** |
|
| 30 |
|
| 27 |
|
|
|
|
| 31 |
| |||||||||||||
Total |
| $ | 86 |
| $ | 78 |
| $ | 13 |
| $ | 82 |
| |||||||||||||
Agriculture and turf |
| $ | 54 |
| $ | 50 |
| $ | 10 |
| $ | 50 |
| |||||||||||||
Construction and forestry |
| $ | 32 |
| $ | 28 |
| $ | 3 |
| $ | 32 |
|
*Finance income recognized was not material.
**Primarily retail notes.
***Primarily retail notes and wholesale receivables.27
A troubled debt restructuring is generally the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During the first nine months of 2018,2019, the Company identified 410 financing416 receivable contracts, primarily trade receivables and retail notes, as troubled debt restructurings with aggregate balances of $22$34 million pre-modification and $22$33 million post-modification. During the first nine months of 2017,2018, there were 321 financing410 receivable contracts, primarily retail notes, identified as troubled debt restructurings with aggregate balances of $9$22 million pre-modification and $8$22 million post-modification. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At July 29, 2018,28, 2019, the Company had commitments to lend approximately $7$13 million to borrowers whose accounts were modified in troubled debt restructurings.
24
(11)(12)Securitization of financing receivables:Financing Receivables
The Company, as a part of its overall funding strategy, periodically transfers certain financing receivables (retail notes) into variable interest entities (VIEs) that are special purpose entities (SPEs), or non-VIE banking operations, as part of its asset-backed securities programs (securitizations). The structure of these transactions is such that the transfer of the retail notes did not meet the accounting criteria for sales of receivables, and is, therefore, accounted for as a secured borrowing. SPEs utilized in securitizations of retail notes differ from other entities included in the Company’s consolidated statements because the assets they hold are legally isolated. Use of the assets held by the SPEs or the non-VIEs is restricted by terms of the documents governing the securitization transactions.
In these securitizations, the retail notes are transferred to certain SPEs or to non-VIE banking operations, which in turn issue debt to investors. The debt securities issued to the third party investors resulted in secured borrowings, which are recorded as “Short-term securitization borrowings” on the balance sheet. The securitized retail notes are recorded as “Financing receivables securitized – net” on the balance sheet. The total restricted assets on the consolidated balance sheet related to these securitizations include the financing receivables securitized less an allowance for credit losses, and other assets primarily representing restricted cash. Restricted cash results from contractual requirements in securitized borrowing arrangements and serves as a credit enhancement. The restricted cash is used to satisfy payment deficiencies, if any, in the required payments on secured borrowings. The balance of restricted cash is contractually stipulated and is either a fixed amount as determined by the initial balance of the financing receivables securitized or a fixed percentage of the outstanding balance of the securitized financing receivables. The restriction is removed either after all secured borrowing payments are made or proportionally as these receivables are collected and borrowing obligations reduced. For those securitizations in which retail notes are transferred into SPEs, the SPEs supporting the secured borrowings are consolidated unless the Company does not have both the power to direct the activities that most significantly impact the SPEs’ economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the SPEs. No additional support to these SPEs beyond what was previously contractually required has been provided during the reporting periods.
In certain securitizations, the Company consolidates the SPEs since it has both the power to direct the activities that most significantly impact the SPEs’ economic performance through its role as servicer of all the receivables held by the SPEs and the obligation through variable interests in the SPEs to absorb losses or receive benefits that could potentially be significant to the SPEs. The restricted assets (retail notes securitized, allowance for credit losses, and other assets) of the consolidated SPEs totaled $2,971$3,425 million, $2,631$2,593 million, and $3,139$2,971 million at July 29,28, 2019, October 28, 2018, October 29, 2017, and July 30, 2017,29, 2018, respectively. The liabilities (short-term securitization borrowings and accrued interest) of these SPEs totaled $2,860$3,316 million, $2,571$2,520 million, and $3,018$2,860 million at July 29,28, 2019, October 28, 2018, October 29, 2017, and July 30, 2017,29, 2018, respectively. The credit holders of these SPEs do not have legal recourse to the Company’s general credit.
In certain securitizations, the Company transfers retail notes to non-VIE banking operations, which are not consolidated since the Company does not have a controlling interest in the entities. The Company’s carrying values and interests related to the securitizations with the unconsolidated non-VIEs were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of $592$587 million, $478$504 million, and $557$592 million at July 29,28, 2019, October 28, 2018, October 29, 2017, and July 30, 2017,29, 2018, respectively. The liabilities (short-term securitization borrowings and accrued interest) were $553$546 million, $454$475 million, and $517$553 million at July 28, 2019, October 28, 2018, and July 29, 2018, October 29, 2017, and July 30, 2017, respectively.
28
In certain securitizations, the Company transfers retail notes into bank-sponsored, multi-seller, commercial paper conduits, which are SPEs that are not consolidated. The Company does not service a significant portion of the conduits’ receivables, and therefore, does not have the power to direct the activities that most significantly impact the conduits’ economic performance. These conduits provide a funding source to the Company (as well as other transferors into the conduit) as they fund the retail notes through the issuance of commercial paper. The Company’s carrying values and variable interest related to these conduits were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of $1,213$1,286 million, $1,155$1,033 million, and $1,346$1,213 million at July 29,28, 2019, October 28, 2018, October 29, 2017, and July 30, 2017,29, 2018, respectively. The liabilities (short-term securitization borrowings and accrued interest) related to these conduits were $1,118$1,190 million, $1,096$965 million, and $1,249$1,118 million at July 28, 2019, October 28, 2018, and July 29, 2018, October 29, 2017, and July 30, 2017, respectively.
25
The Company’s carrying amount of the liabilities to the unconsolidated conduits, compared to the maximum exposure to loss related to these conduits, which would only be incurred in the event of a complete loss on the restricted assets, was as follows in millions of dollars:
|
|
|
|
| ||||
|
| July 29, 2018 |
| |||||
| | | | | ||||
|
| July 28 |
| |||||
| | 2019 | | |||||
Carrying value of liabilities |
| $ | 1,118 |
|
| $ | 1,190 | |
Maximum exposure to loss |
|
| 1,213 |
| | | 1,286 | |
The total assets of unconsolidated VIEs related to securitizations were approximately $36$34 billion at July 29, 2018.28, 2019.
The components of consolidated restricted assets related to secured borrowings in securitization transactions follow in millions of dollars:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| July 29 |
| October 29 |
| July 30 |
| |||||||||||||
|
| 2018 |
| 2017 |
| 2017 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
|
| July 28 |
| October 28 |
| July 29 |
| |||||||||||||
| | 2019 | | 2018 | | 2018 |
| |||||||||||||
Financing receivables securitized (retail notes) |
| $ | 4,674 |
| $ | 4,172 |
| $ | 4,936 |
|
| $ | 5,214 | | $ | 4,032 | | $ | 4,674 | |
Allowance for credit losses |
|
| (12) |
|
| (13) |
|
| (13) |
| | | (14) | |
| (10) | |
| (12) | |
Other assets |
|
| 114 |
|
| 105 |
|
| 119 |
| | | 98 | |
| 108 | |
| 114 | |
Total restricted securitized assets |
| $ | 4,776 |
| $ | 4,264 |
| $ | 5,042 |
|
| $ | 5,298 | | $ | 4,130 | | $ | 4,776 | |
The components of consolidated secured borrowings and other liabilities related to securitizations follow in millions of dollars:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| July 29 |
| October 29 |
| July 30 |
| |||||||||||||
|
| 2018 |
| 2017 |
| 2017 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
|
| July 28 |
| October 28 |
| July 29 |
| |||||||||||||
| | 2019 | | 2018 | | 2018 |
| |||||||||||||
Short-term securitization borrowings |
| $ | 4,528 |
| $ | 4,119 |
| $ | 4,781 |
|
| $ | 5,048 | | $ | 3,957 | | $ | 4,528 | |
Accrued interest on borrowings |
|
| 3 |
|
| 2 |
|
| 3 |
| | | 4 | |
| 3 | |
| 3 | |
Total liabilities related to restricted securitized assets |
| $ | 4,531 |
| $ | 4,121 |
| $ | 4,784 |
|
| $ | 5,052 | | $ | 3,960 | | $ | 4,531 | |
The secured borrowings related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash flows generated by the restricted assets. Due to the Company’s short-term credit rating, cash collections from these restricted assets are not required to be placed into a segregated collection account until immediately prior to the time payment is required to the secured creditors. At July 29, 2018,28, 2019, the maximum remaining term of all securitized retail notes was approximately six years.
29
(13)Inventories
(12)Most inventoriesA majority of inventory owned by Deere & Company and its U.S. equipment subsidiaries and certain foreign equipment subsidiaries are valued at cost on the “last-in, first-out” (LIFO) method. If all of the Company’s inventories had been valued on a “first-in, first-out” (FIFO) method, estimated inventories by major classification in millions of dollars would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| July 29 |
| October 29 |
| July 30 |
| |||
|
| 2018 |
| 2017 |
| 2017 |
| |||
Raw materials and supplies |
| $ | 2,126 |
| $ | 1,688 |
| $ | 1,571 |
|
Work-in-process |
|
| 795 |
|
| 495 |
|
| 517 |
|
Finished goods and parts |
|
| 4,768 |
|
| 3,182 |
|
| 3,571 |
|
Total FIFO value |
|
| 7,689 |
|
| 5,365 |
|
| 5,659 |
|
Less adjustment to LIFO value |
|
| 1,450 |
|
| 1,461 |
|
| 1,406 |
|
Inventories |
| $ | 6,239 |
| $ | 3,904 |
| $ | 4,253 |
|
| | | | | | | | | | |
|
| July 28 |
| October 28 |
| July 29 |
| |||
| | 2019 | | 2018 | | 2018 |
| |||
Raw materials and supplies |
| $ | 2,365 | | $ | 2,233 | | $ | 2,126 | |
Work-in-process | | | 815 | |
| 776 | |
| 795 | |
Finished goods and parts | | | 5,345 | |
| 4,777 | |
| 4,768 | |
Total FIFO value | | | 8,525 | |
| 7,786 | |
| 7,689 | |
Less adjustment to LIFO value | | | 1,778 | |
| 1,637 | |
| 1,450 | |
Inventories |
| $ | 6,747 | | $ | 6,149 | | $ | 6,239 | |
26
(13)
(14)Goodwill and Other Intangible Assets–Net
The changes in amounts of goodwill by operating segments were as follows in millions of dollars:
|
|
|
|
|
|
|
|
|
|
|
|
| Agriculture |
| Construction |
|
|
|
| ||
|
| and Turf |
| and Forestry |
| Total |
| |||
Goodwill at October 30, 2016 |
| $ | 323 |
| $ | 493 |
| $ | 816 |
|
Translation adjustments and other |
|
| 5 |
|
| 25 |
|
| 30 |
|
Goodwill at July 30, 2017 |
| $ | 328 |
| $ | 518 |
| $ | 846 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at October 29, 2017 |
| $ | 521 |
| $ | 512 |
| $ | 1,033 |
|
Acquisitions * |
|
| 28 |
|
| 2,067 |
|
| 2,095 |
|
Divestitures ** |
|
|
|
|
| (18) |
|
| (18) |
|
Translation adjustments |
|
| (4) |
|
| (59) |
|
| (63) |
|
Goodwill at July 29, 2018 |
| $ | 545 |
| $ | 2,502 |
| $ | 3,047 |
|
* See Note 18.
** See Note 19.
| | | | | | | | | | |
|
| Agriculture |
| Construction |
| | |
| ||
| | and Turf | | and Forestry | | Total |
| |||
Goodwill at October 29, 2017 | | $ | 521 | | $ | 512 | | $ | 1,033 | |
Acquisitions | |
| 28 | | | 2,067 | | | 2,095 | |
Divestitures | | | | | | (18) | | | (18) | |
Translation adjustments | |
| (4) | | | (59) | | | (63) | |
Goodwill at July 29, 2018 | | $ | 545 | | $ | 2,502 | | $ | 3,047 | |
| | | | | | | | | | |
Goodwill at October 28, 2018 | | $ | 583 | | $ | 2,518 | | $ | 3,101 | |
Translation adjustments | | | (1) | | | (87) | | | (88) | |
Goodwill at July 28, 2019 | | $ | 582 | | $ | 2,431 | | $ | 3,013 | |
There were no accumulated impairment losses in the reported periods.
The components of other intangible assets were as follows in millions of dollars:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Useful Lives * |
| July 29 |
| October 29 |
| July 30 |
| |||||||||||||||
|
| (Years) |
| 2018 |
| 2017 |
| 2017 |
| |||||||||||||||
| | | | | | | | | | | | | ||||||||||||
|
| Useful Lives * |
| July 28 |
| October 28 |
| July 29 |
| |||||||||||||||
| | (Years) | | 2019 | | 2018 | | 2018 |
| |||||||||||||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Customer lists and relationships |
| 16 |
| $ | 562 |
| $ | 42 |
| $ | 42 |
| | 16 |
| $ | 525 | | $ | 542 | | $ | 562 | |
Technology, patents, trademarks, and other |
| 18 |
|
| 1,052 |
|
| 139 |
|
| 132 |
| | 18 | | | 1,057 | |
| 1,080 | |
| 1,052 | |
Total at cost |
|
|
|
| 1,614 |
|
| 181 |
|
| 174 |
| | | | | 1,582 | |
| 1,622 | |
| 1,614 | |
Less accumulated amortization ** |
|
|
|
| 156 |
|
| 86 |
|
| 82 |
| | | | | 261 | |
| 183 | |
| 156 | |
Total |
|
|
|
| 1,458 |
|
| 95 |
|
| 92 |
| | | | | 1,321 | | | 1,439 | | | 1,458 | |
Unamortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
In-process research and development |
|
|
|
| 123 |
|
| 123 |
|
|
|
| | | | | 123 | | | 123 | | | 123 | |
Other intangible assets – net |
|
|
| $ | 1,581 |
| $ | 218 |
| $ | 92 |
| | |
| $ | 1,444 | | $ | 1,562 | | $ | 1,581 | |
*Weighted-averages
**Accumulated amortization at July 29,28, 2019, October 28, 2018, October 29, 2017, and July 30, 201729, 2018 for customer lists and relationships totaled $38$71 million, $17$46 million, and $16$38 million and technology, patents, trademarks, and other totaled $190 million, $137 million, and $118 million, $69 million, and $66 million, respectively.
The amortization of other intangible assets in the third quarter and the first nine months of 2019 was $27 million and $82 million and for 2018 was $27 million and $71 million and for 2017 was $4 million and $13 million, respectively. The estimated amortization expense for the next five years is as follows in millions of dollars: remainder of 2018 – $29, 2019 – $116,$26, 2020 – $103,$104, 2021 – $99, and$103, 2022 – $98.$102, and 2023 – $100.
(14)30
(15)Commitments and contingencies:Contingencies
The Company generally determines its total warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs and current quality developments.
The premiums for extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. These unamortized extended warranty premiums (deferred revenue) included in the following table totaled $486$542 million and $454$486 million at July 28, 2019 and July 29, 2018, and July 30, 2017, respectively.
27
A reconciliation of the changes in the warranty liability and unearned premiums in millions of dollars follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||
|
| July 29 |
| July 30 |
| July 29 |
| July 30 |
| |||||||||||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | Three Months Ended | | Nine Months Ended |
| |||||||||||||||||||||
| | July 28 | | July 29 | | July 28 | | July 29 |
| |||||||||||||||||
| | 2019 | | 2018 | | 2019 | | 2018 |
| |||||||||||||||||
Beginning of period balance |
| $ | 1,591 |
| $ | 1,365 |
| $ | 1,468 |
| $ | 1,226 |
|
| $ | 1,714 |
| $ | 1,591 |
| $ | 1,652 |
| $ | 1,468 | |
Payments |
|
| (212) |
|
| (197) |
|
| (642) |
|
| (529) |
| | | (252) | |
| (212) | | | (714) | |
| (642) | |
Amortization of premiums received |
|
| (56) |
|
| (53) |
|
| (170) |
|
| (149) |
| | | (57) | |
| (56) | | | (168) | |
| (170) | |
Accruals for warranties |
|
| 250 |
|
| 248 |
|
| 704 |
|
| 717 |
| | | 263 | |
| 250 | | | 772 | |
| 704 | |
Premiums received |
|
| 72 |
|
| 58 |
|
| 198 |
|
| 153 |
| | | 75 | |
| 72 | | | 209 | |
| 198 | |
Acquisitions * |
|
|
|
|
|
|
|
| 80 |
|
|
|
| |||||||||||||
Acquisitions | | | | | | | | | | | | 80 | | |||||||||||||
Foreign exchange |
|
| (21) |
|
| 17 |
|
| (14) |
|
| 20 |
| | | 3 | |
| (21) | | | (5) | |
| (14) | |
End of period balance |
| $ | 1,624 |
| $ | 1,438 |
| $ | 1,624 |
| $ | 1,438 |
| | $ | 1,746 | | $ | 1,624 | | $ | 1,746 | | $ | 1,624 | |
* See Note 18.
At July 29, 2018,28, 2019, the Company had approximately $445$325 million of guarantees issued primarily to banks outside the U.S. and Canada related to third-party receivables for the retail financing of John Deere and Wirtgen equipment. The increase from October 29, 2017 primarily relates to the Wirtgen acquisition. The Company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At July 29, 2018,28, 2019, the Company had accrued losses of approximately $20$14 million under these agreements. The maximum remaining term of the receivables guaranteed at July 29, 201828, 2019 was approximately seven years.
At July 29, 2018,28, 2019, the Company had commitments of approximately $397$452 million for the construction and acquisition of property and equipment. The increase from October 29, 2017 primarily relates to the Wirtgen acquisition. Also, at July 29, 2018,28, 2019, the Company had restricted assets of $101$93 million, primarily restrictedclassified as other assets. See Note 1112 for additional restricted assets associated with borrowings related to securitizations.
The Company also had other miscellaneous contingent liabilities totaling approximately $125$70 million at July 29, 2018.28, 2019. The accrued liability for these contingencies was not material at July 29, 2018.28, 2019.
The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, and trademark matters. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements.
(16)Fair Value Measurements
(15)Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine fair value, the Company uses various methods including market and income approaches. The Company utilizes valuation models and techniques that maximize the use of observable inputs. The models are industry-standard models that consider various assumptions including time values and yield curves as well as other economic measures. These valuation techniques are consistently applied.
Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs. Level 3 measurements include significant unobservable inputs.
28
31
The fair values of financial instruments that do not approximate the carrying values in millions of dollars follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| July 29, 2018 |
| October 29, 2017 |
| July 30, 2017 |
| |||||||||||||||||||||||||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair |
| |||||||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | July 28, 2019 | | October 28, 2018 | | July 29, 2018 |
| |||||||||||||||||||||||||||||||
| | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair |
| |||||||||||||||||||||||||
Financing receivables – net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | |
| | |
| | | | | | | | | | ||||||
Equipment operations ** |
| $ | 78 |
| $ | 75 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Equipment operations | | $ | 100 | | $ | 93 | | $ | 93 | | $ | 91 | | $ | 78 | | $ | 75 | | |||||||||||||||||||
Financial services |
|
| 25,135 |
|
| 24,911 |
| $ | 25,104 |
| $ | 24,946 |
| $ | 23,722 |
| $ | 23,592 |
| | | 26,949 | | | 26,921 | | | 26,961 | | | 26,722 |
| | 25,135 |
| | 24,911 | |
Total |
| $ | 25,213 |
| $ | 24,986 |
| $ | 25,104 |
| $ | 24,946 |
| $ | 23,722 |
| $ | 23,592 |
| | $ | 27,049 | | $ | 27,014 | | $ | 27,054 | | $ | 26,813 | | $ | 25,213 | | $ | 24,986 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||||||||
Financing receivables securitized – net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | |
| | | | | | | | | |||||||||
Equipment operations ** |
| $ | 90 |
| $ | 89 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Equipment operations | | $ | 54 | | $ | 52 | | $ | 76 | | $ | 73 | | $ | 90 | | $ | 89 | | |||||||||||||||||||
Financial services |
|
| 4,572 |
|
| 4,517 |
| $ | 4,159 |
| $ | 4,130 |
| $ | 4,923 |
| $ | 4,892 |
| | | 5,146 | | | 5,154 | | | 3,946 | | | 3,895 | | | 4,572 | | | 4,517 | |
Total |
| $ | 4,662 |
| $ | 4,606 |
| $ | 4,159 |
| $ | 4,130 |
| $ | 4,923 |
| $ | 4,892 |
| | $ | 5,200 | | $ | 5,206 | | $ | 4,022 | | $ | 3,968 | | $ | 4,662 | | $ | 4,606 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
Short-term securitization borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | |
| | | | | | | | | |||||||||
Equipment operations ** |
| $ | 90 |
| $ | 89 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Equipment operations | | $ | 53 | | $ | 54 | | $ | 75 | | $ | 75 | | $ | 90 | | $ | 89 | | |||||||||||||||||||
Financial services |
|
| 4,438 |
|
| 4,426 |
| $ | 4,119 |
| $ | 4,118 |
| $ | 4,781 |
| $ | 4,786 |
| | | 4,995 | | | 5,017 | | | 3,882 | | | 3,870 | | | 4,438 | | | 4,426 | |
Total |
| $ | 4,528 |
| $ | 4,515 |
| $ | 4,119 |
| $ | 4,118 |
| $ | 4,781 |
| $ | 4,786 |
| | $ | 5,048 | | $ | 5,071 | | $ | 3,957 | | $ | 3,945 | | $ | 4,528 | | $ | 4,515 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||||||||
Long-term borrowings due within one year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | ||||||||||
Equipment operations ** |
| $ | 238 |
| $ | 239 |
| $ | 154 |
| $ | 154 |
| $ | 142 |
| $ | 141 |
| |||||||||||||||||||
Equipment operations | | $ | 1,009 | | $ | 1,013 | | $ | 970 |
| $ | 979 | | $ | 238 | | $ | 239 | | |||||||||||||||||||
Financial services |
|
| 5,955 |
|
| 5,947 |
|
| 6,064 |
|
| 6,079 |
|
| 5,382 |
|
| 5,394 |
| | | 6,922 | | | 6,914 | |
| 5,427 | |
| 5,411 | |
| 5,955 | |
| 5,947 | |
Total |
| $ | 6,193 |
| $ | 6,186 |
| $ | 6,218 |
| $ | 6,233 |
| $ | 5,524 |
| $ | 5,535 |
| | $ | 7,931 | | $ | 7,927 | | $ | 6,397 | | $ | 6,390 | | $ | 6,193 | | $ | 6,186 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||||||||
Long-term borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | ||||||||||
Equipment operations ** |
| $ | 5,526 |
| $ | 5,838 |
| $ | 5,491 |
| $ | 6,026 |
| $ | 4,523 |
| $ | 5,110 |
| |||||||||||||||||||
Equipment operations | | $ | 5,364 | | $ | 6,017 | | $ | 4,714 |
| $ | 4,948 | | $ | 5,526 | | $ | 5,838 | | |||||||||||||||||||
Financial services |
|
| 21,312 |
|
| 21,388 |
|
| 20,400 |
|
| 20,606 |
|
| 19,151 |
|
| 19,339 |
| | | 23,878 | | | 24,143 | |
| 22,523 | |
| 22,590 | |
| 21,312 | |
| 21,388 | |
Total |
| $ | 26,838 |
| $ | 27,226 |
| $ | 25,891 |
| $ | 26,632 |
| $ | 23,674 |
| $ | 24,449 |
| | $ | 29,242 | | $ | 30,160 | | $ | 27,237 | | $ | 27,538 | | $ | 26,838 | | $ | 27,226 | |
*Fair value measurements above were Level 3 for all financing receivables, Level 3 for equipment operations short-term securitization borrowings, and Level 2 for all other borrowings.
**See Note 18.
Fair values of the financing receivables that were issued long-term were based on the discounted values of their related cash flows at interest rates currently being offered by the Company for similar financing receivables. The fair values of the remaining financing receivables approximated the carrying amounts.
Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or on the discounted values of their related cash flows at current market interest rates. Certain long-term borrowings have been swapped to current variable interest rates. The carrying values of these long-term borrowings included adjustments related to fair value hedges.
29
32
Assets and liabilities measured at fair value on a recurring basis in millions of dollars follow:follow*:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| July 29 |
| October 29 |
| July 30 |
| |||||||||||||
|
| 2018* |
| 2017* |
| 2017* |
| |||||||||||||
| | | | | | | | | | | ||||||||||
|
| July 28 |
| October 28 |
| July 29 |
| |||||||||||||
| | 2019 | | 2018 | | 2018 |
| |||||||||||||
Level 1: | | | | | | | | | | | ||||||||||
Marketable securities |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Equity fund |
| $ | 46 |
| $ | 48 |
| $ | 45 |
| ||||||||||
Fixed income fund |
|
| 9 |
|
| 15 |
|
| 15 |
| ||||||||||
Equity fund *** | | $ | 59 | | $ | 46 | | $ | 46 | | ||||||||||
Fixed income fund *** | | | | |
| | |
| 9 | | ||||||||||
U.S. government debt securities | | | 49 | |
| 44 | |
| 39 | | ||||||||||
Total Level 1 marketable securities | | | 108 | | | 90 | | | 94 | | ||||||||||
| | | | | | | | | | | ||||||||||
Level 2: | | | | | | | | | | | ||||||||||
Marketable securities | | | | | | | | | | | ||||||||||
U.S. government debt securities |
|
| 99 |
|
| 77 |
|
| 77 |
| | | 73 | | | 67 | | | 60 | |
Municipal debt securities |
|
| 47 |
|
| 39 |
|
| 39 |
| | | 57 | |
| 46 | |
| 47 | |
Corporate debt securities |
|
| 138 |
|
| 135 |
|
| 120 |
| | | 156 | |
| 140 | |
| 138 | |
International debt securities |
|
| 13 |
|
| 20 |
|
| 22 |
| | | 9 | | | 2 | | | 3 | |
Mortgage-backed securities ** |
|
| 136 |
|
| 118 |
|
| 108 |
| | | 158 | |
| 137 | |
| 136 | |
Total marketable securities |
|
| 488 |
|
| 452 |
|
| 426 |
| ||||||||||
Total Level 2 marketable securities | | | 453 | |
| 392 | |
| 384 | | ||||||||||
Other assets |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Derivatives: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Interest rate contracts |
|
| 68 |
|
| 116 |
|
| 142 |
| | | 265 | |
| 80 | |
| 68 | |
Foreign exchange contracts |
|
| 50 |
|
| 108 |
|
| 32 |
| | | 53 | |
| 83 | |
| 50 | |
Cross-currency interest rate contracts |
|
| 6 |
|
| 11 |
|
| 10 |
| | | 2 | |
| 5 | |
| 6 | |
Total assets *** |
| $ | 612 |
| $ | 687 |
| $ | 610 |
| ||||||||||
Total Level 2 other assets |
| | 320 | | | 168 | | | 124 | | ||||||||||
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Derivatives: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Interest rate contracts |
| $ | 330 |
| $ | 131 |
| $ | 81 |
|
| | 99 | | | 350 | | | 330 | |
Foreign exchange contracts |
|
| 52 |
|
| 26 |
|
| 95 |
| | | 45 | |
| 49 | |
| 52 | |
Cross-currency interest rate contracts |
|
| 2 |
|
| 1 |
|
| 4 |
| | | 2 | | | | | | 2 | |
Total liabilities |
| $ | 384 |
| $ | 158 |
| $ | 180 |
| ||||||||||
Total Level 2 accounts payable and accrued expenses |
| | 146 | | | 399 | | | 384 | | ||||||||||
| | | | | | | | | | | ||||||||||
Level 3: | | | | | | | | | | | ||||||||||
Marketable securities | | | | | | | | | | | ||||||||||
International debt securities |
| | 4 | | | 8 | | | 10 | |
*All measurements above were Level 2 measurements except for Level 1 measurements of the equity fund of $46 million, $48 million, and $45 million at July 29, 2018, October 29, 2017, and July 30, 2017, respectively; the fixed income fund of $9 million, $15 million, and $15 million at July 29, 2018, October 29, 2017, and July 30, 2017, respectively; and U.S. government debt securities of $39 million, $44 million, and $46 million at July 29, 2018, October 29, 2017, and July 30, 2017, respectively. In addition, $10 million, $17 million, and $18 million of the international debt securities were Level 3 measurements at July 29, 2018, October 29, 2017, and July 30, 2017, respectively. There were no transfers between Level 1 and Level 2 during the first nine months of 2018 or 2017.
**Primarily issued by U.S. government sponsored enterprises.
***Excluded from this table were the Company’s cash equivalents, which were carried at cost that approximates fair value. The cash equivalents consist primarily of money market funds and time deposits.
**Primarily issued by U.S. government sponsored enterprises.
***During the third quarter and first nine months of 2019, $1 million and $7 million, respectively, of net unrealized gains on equity securities were recorded in “Other income”.
The contractual maturities of debt securities at July 29, 201828, 2019 in millions of dollars are shown below. Actual maturities may differ from those scheduled as a result of prepayments by the issuers. Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity.
|
|
|
|
|
|
|
|
|
| Amortized |
| Fair |
| ||
|
| Cost |
| Value |
| ||
Due in one year or less |
| $ | 23 |
| $ | 22 |
|
Due after one through five years |
|
| 118 |
|
| 116 |
|
Due after five through 10 years |
|
| 93 |
|
| 91 |
|
Due after 10 years |
|
| 69 |
|
| 68 |
|
Mortgage-backed securities |
|
| 142 |
|
| 136 |
|
Debt securities |
| $ | 445 |
| $ | 433 |
|
30
| | | | | | | |
| | Amortized | | Fair | | ||
| | Cost | | Value | | ||
Due in one year or less |
| $ | 30 | | $ | 30 | |
Due after one through five years | | | 101 | | | 102 | |
Due after five through 10 years | | | 92 | | | 96 | |
Due after 10 years | | | 115 | | | 120 | |
Mortgage-backed securities | | | 155 | | | 158 | |
Debt securities |
| $ | 493 |
| $ | 506 | |
33
Fair value, recurring Level 3 measurements from available-for-sale marketable securities in millions of dollars follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||
|
| July 29 |
| July 30 |
| July 29 |
| July 30 |
| |||||||||||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
|
| Three Months Ended | | Nine Months Ended | | |||||||||||||||||||||
| | July 28 | | July 29 | | July 28 | | July 29 | | |||||||||||||||||
| | 2019 | | 2018 | | 2019 | | 2018 | | |||||||||||||||||
Beginning of period balance |
| $ | 14 |
| $ | 23 |
| $ | 17 |
| $ | 28 |
|
| $ | 4 | | $ | 14 | | $ | 8 | | $ | 17 | |
Principal payments |
|
| (4) |
|
| (5) |
|
| (7) |
|
| (12) |
| | | | | | (4) | | | (5) | | | (7) | |
Change in unrealized gain |
|
|
|
|
|
|
|
|
|
|
| 2 |
| |||||||||||||
Other | | | | | | | | | 1 | | | | | |||||||||||||
End of period balance |
| $ | 10 |
| $ | 18 |
| $ | 10 |
| $ | 18 |
| | $ | 4 |
| $ | 10 | | $ | 4 | | $ | 10 | |
FairThere were no fair value, nonrecurring Level 1 measurements from impairments in millions of dollars follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value * |
| Losses |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| July 29 |
| October 29 |
| July 30 |
| July 29 |
| July 30 |
| July 29 |
| July 30 |
| |||||||
|
| 2018 |
| 2017 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||||
Investments in unconsolidated affiliates |
|
|
|
| $ | 28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* See financingthe reported periods. Financing receivables with specific allowances are shown in Note 10.11. Losses were not significant.
The following is a description of the valuation methodologies the Company uses to measure certain financial instruments on the balance sheet at fair value:
Marketable Securities – The portfolio of investments, except for the Level 3 measurement international debt securities, is primarily valued on a market approach (matrix pricing model) in which all significant inputs are observable or can be derived from or corroborated by observable market data such as interest rates, yield curves, volatilities, credit risk, and prepayment speeds. Funds are primarily valued using the fund’s net asset value, based on the fair value of the underlying securities. The Level 3 measurement international debt securities are primarily valued using an income approach based on discounted cash flows using yield curves derived from limited, observable market data.
Derivatives – The Company’s derivative financial instruments consist of interest rate swaps and caps, foreign currency futures, forwards and swaps, and cross-currency interest rate 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.
Financing Receivables – Specific reserve impairments are based on the fair value of the collateral, which is measured using a market approach (appraisal values or realizable values). Inputs include a selection of realizable values.
Investment in Unconsolidated Affiliates – Other than temporary impairments for investments are measured as the difference between the implied fair value and the carrying value of the investments. The fair value for publicly traded entities is the share price multiplied by the shares owned.
(17)Derivative Instruments
(16)It is the Company’s policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. The Company’s financial services operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. The Company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling, and financing in currencies other than the functional currencies. In addition, the Company has interest rate exposure at certain equipment operations units for below market retail financing programs that are used as sales incentives and are offered for extended periods, along with periodic long-term debt issuances.
All derivatives are recorded at fair value on the balance sheet. Cash collateral received or paid is not offset against the derivative fair values on the balance sheet. Each derivative is designated as a cash flow hedge, a fair value hedge, or remains undesignated. All designated hedges are formally documented as to the relationship with the hedged item as well as the risk-management strategy. Both at inception and on an ongoing basis the hedging instrument is assessed as to its effectiveness. If and when a derivative is determined not to be highly effective as a hedge, or the underlying hedged transaction is no longer likely to occur, or the hedge designation is removed, or the derivative is terminated, hedge accounting is discontinued.
31
Any past or future changes in the derivative’s fair value, which will not be effective as an offset to the income effects of the item being hedged, are recognized currently in the income statement.
Cash flow hedgesFlow Hedges
Certain interest rate and cross-currency interest rate contracts (swaps) were designated as hedges of future cash flows from borrowings. The total notional amounts of the receive-variable/pay-fixed interest rate contracts at July 28, 2019, October 28, 2018, and July 29, 2018 October 29, 2017,were $2,750 million, $3,050 million, and July 30, 2017 were $2,400 million, $1,700respectively. Included in the July 28, 2019 notional amount is $250 million and $1,700 million, respectively.for a forecasted debt issuance expected to occur in the fourth quarter of 2019. The total notional amountsamount of the
34
cross-currency interest rate contractscontract at July 29, 2018 October 29, 2017, and July 30, 2017 werewas $11 million, $22 million, and $32 million, respectively. The effective portions of the fairmillion. Fair value gains or losses on these cash flow hedges were recorded in OCI and subsequently reclassified into interest expense or other operating expenses (foreign exchange) in the same periods during which the hedged transactions affected earnings. These amounts offset the effects of interest rate or foreign currency exchange rate changes on the related borrowings. Any ineffective portions of the gains or losses on all cash flow interest rate contracts designated as cash flow hedges were recognized currently in interest expense or other operating expenses (foreign exchange) and were not material during any periods presented. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.
The amount of gainloss recorded in OCI at July 29, 201828, 2019 that is expected to be reclassified to interest expense or other operating expenses in the next twelve months if interest rates or exchange rates remain unchanged is approximately $9$6 million after-tax. These contracts matureThe Company is hedging a portion of its expected exposure to interest rate changes in up to 23 months.a forecasted, fourth quarter 2019 debt issuance using an interest rate contract with a term of 30 years. There were no gains or losses reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur.
Fair value hedgesValue Hedges
Certain interest rate contracts (swaps) were designated as fair value hedges of borrowings. The total notional amounts of the receive-fixed/pay-variable interest rate contracts at July 28, 2019, October 28, 2018, and July 29, 2018 October 29, 2017, and July 30, 2017 were $7,792$9,245 million, $8,661$8,479 million, and $7,716$7,792 million, respectively. The effective portions of the fair value gains or losses on these contracts were generally offset by fair value gains or losses on the hedged items (fixed-rate borrowings). Any ineffective portions of the gains or losses were recognized currently with both items recorded in interest expense.
The ineffective portions were a loss of $1 million and a gain of $1 million during the third quarter of 2018 and 2017, respectively, and a loss of $4 million and a gain of $3 million during the first nine months of 2018 and 2017, respectively. The cash flows from these contracts wereamounts recorded in operating activitiesthe consolidated balance sheet related to borrowings designated in the statement of consolidated cash flows.
The gains (losses) on these contracts and the underlying borrowings recorded in interest expense followfair value hedging relationships in millions of dollars:dollars follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| July 29 |
| July 30 |
| July 29 |
| July 30 |
| ||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
Interest rate contracts * |
| $ | (8) |
| $ | 5 |
| $ | (279) |
| $ | (197) |
|
Borrowings ** |
|
| 7 |
|
| (4) |
|
| 275 |
|
| 200 |
|
| | | | | | | | | | | | | |
| | | | | Cumulative Increase (Decrease) of Fair |
| |||||||
| | | | | Value Hedging Adjustments Included in | | |||||||
| | | | | the Carrying Amount | | |||||||
| | Carrying | | Active | | | | |
| ||||
| | Amount of | | Hedging | | Discontinued | | | | | |||
July 28, 2019 | | Hedged Item | | Relationships | | Relationships | | Total |
| ||||
Long-term borrowings due within one year* |
| $ | 187 |
| $ | 1 |
| $ | (5) |
| $ | (4) | |
Long-term borrowings | | | 9,154 | |
| 184 | | | (50) | |
| 134 | |
*Includes changesPresented in fair values of interest rate contracts excluding net accrued interest expense of $2 million and net accrued interest income of $16 million during the third quarter of 2018 and 2017, respectively, and net accrued interest income of $15 million and $64 million during the first nine months of 2018 and 2017, respectively.short-term borrowings
**Includes adjustments for fair values of hedged borrowings excluding accrued interest expense of $60 million and $56 million during the third quarter of 2018 and 2017, respectively, and $187 million and $182 million during the first nine months of 2018 and 2017, respectively.
Derivatives not designated as hedging instruments
The Company has certain interest rate contracts (swaps and caps), foreign exchange contracts (futures, forwards, and swaps), and cross-currency interest rate contracts (swaps), which were not formally designated as hedges. These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures, primarily for certain borrowings, and purchases or sales of inventory.inventory, and below market retail financing programs. The total notional amounts of these interest rate swaps at July 28, 2019, October 28, 2018, and July 29, 2018 October 29, 2017, and July 30, 2017 were $6,519$7,607 million, $6,757$8,075 million, and $6,715$6,519 million, the foreign exchange contracts were $7,752$6,362 million, $8,499$6,842 million, and
32
$5,111 $7,752 million, and the cross-currency interest rate contracts were $90 million, $81 million, and $96 million, $66 million, and $80 million, respectively. The increase in the total notional amounts of foreign exchange contracts at October 29, 2017 primarily relates to the Wirtgen acquisition (see Note 18). At July 29, 2018, October 29, 2017, and July 30, 2017, there were also $92 million, $253 million, and $308 million, respectively, of interest rate caps purchased and the same amounts sold at the same capped interest rate toTo facilitate borrowings through securitization of retail notes.notes, interest rate caps were sold with notional amounts of $8 million, $66 million, and $92 million at July 28, 2019, October 28, 2018, and July 29, 2018, respectively. Interest rate caps were also purchased with notional amounts of $8 million, $66 million, and $92 million at the same dates. The fair value gains or losses from the interest rate contracts were recognized currently in interest expense or net sales, and the gains or losses from foreign exchange contracts in cost of sales or other operating expenses, generally offsetting over time the expenses on the exposures being hedged. The cash flows from these non-designated contracts were recorded in operating activities in the statement of consolidated cash flows.
35
Fair values of derivative instruments in the condensed consolidated balance sheet in millions of dollars follow:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| July 29 |
| October 29 |
| July 30 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
|
| July 28 |
| October 28 |
| July 29 |
| |||||||||||||
Other Assets |
| 2018 |
| 2017 |
| 2017 |
| | 2019 | | 2018 | | 2018 |
| ||||||
Designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Interest rate contracts |
| $ | 24 |
| $ | 74 |
| $ | 104 |
|
| $ | 232 | | $ | 29 | | $ | 24 | |
Cross-currency interest rate contracts |
|
| 3 |
|
| 5 |
|
| 6 |
| | | | |
| | |
| 3 | |
Total designated |
|
| 27 |
|
| 79 |
|
| 110 |
| | | 232 | |
| 29 | |
| 27 | |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Interest rate contracts |
|
| 44 |
|
| 42 |
|
| 38 |
| | | 33 | |
| 51 | |
| 44 | |
Foreign exchange contracts |
|
| 50 |
|
| 108 |
|
| 32 |
| | | 53 | |
| 83 | |
| 50 | |
Cross-currency interest rate contracts |
|
| 3 |
|
| 6 |
|
| 4 |
| | | 2 | |
| 5 | |
| 3 | |
Total not designated |
|
| 97 |
|
| 156 |
|
| 74 |
| | | 88 | |
| 139 | |
| 97 | |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Total derivative assets |
| $ | 124 |
| $ | 235 |
| $ | 184 |
|
| $ | 320 | | $ | 168 | | $ | 124 | |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Accounts Payable and Accrued Expenses |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Interest rate contracts |
| $ | 305 |
| $ | 112 |
| $ | 63 |
|
| $ | 55 | | $ | 321 | | $ | 305 | |
Total designated |
|
| 305 |
|
| 112 |
|
| 63 |
| | | 55 | | | 321 | | | 305 | |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Interest rate contracts |
|
| 25 |
|
| 19 |
|
| 18 |
| | | 44 | | | 29 | | | 25 | |
Foreign exchange contracts |
|
| 52 |
|
| 26 |
|
| 95 |
| | | 45 | |
| 49 | |
| 52 | |
Cross-currency interest rate contracts |
|
| 2 |
|
| 1 |
|
| 4 |
| | | 2 | |
| | |
| 2 | |
Total not designated |
|
| 79 |
|
| 46 |
|
| 117 |
| | | 91 | |
| 78 | |
| 79 | |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Total derivative liabilities |
| $ | 384 |
| $ | 158 |
| $ | 180 |
|
| $ | 146 | | $ | 399 | | $ | 384 | |
33
The classification and gains (losses) including accrued interest expense related to derivative instruments on the statement of consolidated income consisted of the following in millions of dollars:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expense or |
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| OCI |
| July 29 |
| July 30 |
| July 29 |
| July 30 |
| ||||
|
| Classification |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
Fair Value Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| Interest |
| $ | (10) |
| $ | 21 |
| $ | (264) |
| $ | (133) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in OCI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Effective Portion): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| OCI (pretax) * |
|
| 1 |
|
| (2) |
|
| 15 |
|
|
|
|
Foreign exchange contracts |
| OCI (pretax) * |
|
|
|
|
|
|
|
| 1 |
|
| (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified from OCI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Effective Portion): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| Interest * |
|
| 2 |
|
| (1) |
|
| 3 |
|
| (2) |
|
Foreign exchange contracts |
| Other operating * |
|
|
|
|
|
|
|
|
|
|
| (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized Directly in Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Ineffective Portion) |
|
|
|
| ** |
|
| ** |
|
| ** |
|
| ** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Designated as Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| Interest * |
| $ | (3) |
| $ | 11 |
| $ | (3) |
| $ | 11 |
|
Foreign exchange contracts |
| Cost of sales |
|
| (10) |
|
| (29) |
|
| (22) |
|
| (41) |
|
Foreign exchange contracts |
| Other operating * |
|
| 144 |
|
| (192) |
|
| 92 |
|
| (205) |
|
Total not designated |
|
|
| $ | 131 |
| $ | (210) |
| $ | 67 |
| $ | (235) |
|
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| ||||||||
| | July 28 | | July 29 | | July 28 | | July 29 |
| ||||
| | 2019 | | 2018 | | 2019 | | 2018 |
| ||||
Fair Value Hedges: |
|
|
|
| | |
|
|
|
| | |
|
Interest rate contracts - Interest expense |
| $ | 193 | | $ | (10) |
| $ | 468 | | $ | (264) | |
| | | | | | | | | | | | | |
Cash Flow Hedges: | | | | | | | | | | | | | |
Recognized in OCI | | | | | | | | | | | | | |
Interest rate contracts - OCI (pretax) * | | | (27) | |
| 1 | | | (42) | |
| 15 | |
Foreign exchange contracts - OCI (pretax) * | | | | |
| | | | | |
| 1 | |
| | | | | | | | | | | | | |
Reclassified from OCI | | | | | | | | | | | | | |
Interest rate contracts - Interest expense * | | | 1 | |
| 2 | | | 6 | |
| 3 | |
| | | | | | | | | | | | | |
Not Designated as Hedges: | | | | | | | | | | | | | |
Interest rate contracts - Net sales | | $ | (6) | | | | | $ | (23) | | | | |
Interest rate contracts - Interest expense * |
| | (7) | | $ | (3) |
| | (25) | | $ | (3) | |
Foreign exchange contracts - Cost of sales | | | (8) | |
| (10) | | | (1) | | | (22) | |
Foreign exchange contracts - Other operating * | | | (12) | |
| 144 | | | 88 | |
| 92 | |
Total not designated |
| $ | (33) | | $ | 131 |
| $ | 39 | | $ | 67 | |
*Includes interest and foreign exchange gains (losses) from cross-currency interest rate contracts.
**The amounts are not significant.
Counterparty Risk and Collateral
Derivative instruments are subject to significant concentrations of credit risk to the banking sector. The Company manages individual counterparty exposure by setting limits that consider the credit rating of the
36
counterparty, the credit default swap spread of the counterparty, and other financial commitments and exposures between the Company and the counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Each master agreement permits the net settlement of amounts owed in the event of default or termination.
Certain of the Company’s derivative agreements contain credit support provisions that may require the Company to post collateral based on the size of the net liability positions and credit ratings. The aggregate fair value of all derivatives with credit-risk-related contingent features that were in a net liability position at July 28, 2019, October 28, 2018, and July 29, 2018, October 29, 2017, and July 30, 2017, was $331$101 million, $132$350 million, and $85$331 million, respectively. In accordance with the limits established in these agreements, the Company postedpaid $59 million and $34 million in cash collateral at October 28, 2018 and July 29, 2018.2018, respectively. No cash collateral was postedpaid or received at either October 29, 2017 or July 30, 2017.
34
28, 2019.
Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities related to netting arrangements and any collateral received or paid in millions of dollars follows:
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Gross Amounts |
| Netting |
| Cash Collateral |
|
|
| |||||||||||||||||
July 29, 2018 |
| Recognized |
| Arrangements |
| Received/Paid |
| Net Amount |
| |||||||||||||||||
| | | | | | | | | | |||||||||||||||||
| | Gross Amounts | | Netting | | Collateral | | |
| |||||||||||||||||
July 28, 2019 |
| Recognized |
| Arrangements |
| Paid |
| Net Amount |
| |||||||||||||||||
Assets |
| $ | 124 |
| $ | (67) |
|
|
| $ | 57 |
|
| $ | 320 |
| $ | (70) |
| | |
| $ | 250 | | |
Liabilities |
| 384 |
| (67) |
| $ | (34) |
| 283 |
| | 146 | | (70) | | | | 76 | |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Gross Amounts |
| Netting |
| Cash Collateral |
|
|
| |||||||||||||||||
October 29, 2017 |
| Recognized |
| Arrangements |
| Received/Paid |
| Net Amount |
| |||||||||||||||||
| | | | | | | | | | |||||||||||||||||
| | Gross Amounts | | Netting | | Collateral | | |
| |||||||||||||||||
October 28, 2018 |
| Recognized |
| Arrangements |
| Paid |
| Net Amount |
| |||||||||||||||||
Assets |
| $ | 235 |
| $ | (65) |
|
|
| $ | 170 |
| | $ | 168 |
| $ | (65) |
| | |
| $ | 103 | | |
Liabilities |
|
| 158 |
|
| (65) |
|
|
|
|
| 93 |
| | | 399 | |
| (65) | | $ | (59) | | | 275 | |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Gross Amounts |
| Netting |
| Cash Collateral |
|
|
|
| ||||||||||||||||
July 30, 2017 |
| Recognized |
| Arrangements |
| Received/Paid |
| Net Amount |
| |||||||||||||||||
| | | | | | | | | | |||||||||||||||||
|
| Gross Amounts |
| Netting |
| Collateral |
| | |
| ||||||||||||||||
July 29, 2018 | | Recognized | | Arrangements | | Paid | | Net Amount |
| |||||||||||||||||
Assets |
| $ | 184 |
| $ | (56) |
|
|
| $ | 128 |
| | $ | 124 | | $ | (67) | | | | $ | 57 | | ||
Liabilities |
|
| 180 |
|
| (56) |
|
|
|
|
| 124 |
| |
| 384 | |
| (67) | | $ | (34) | |
| 283 | |
(17)
(18)Stock Option and Restricted Stock Awards
In December 2017,2018, the Company granted stock options to employees for the purchase of 476402 thousand shares of common stock at an exercise price of $151.95$148.14 per share and a binomial lattice model fair value of $39.11$46.96 per share at the grant date. At July 29, 2018,28, 2019, options for 8.97.5 million shares were outstanding with a weighted-average exercise price of $86.82$91.97 per share. The Company also granted 413446 thousand restricted stock units to employees and non-employee directors in the first nine months of 2018,2019, of which 328355 thousand are subject to service based only conditions and 8591 thousand are subject to performance/service based conditions. The weighted-average fair value of the service based only units at the grant date was $151.78$149.54 per unit based on the market price of a share of underlying common stock. The weighted-average fair value of the performance/service based units at the grant date was $145.33$140.49 per unit based on the market price of a share of underlying common stock excluding dividends. At July 29, 2018,28, 2019, the Company was authorized to grant an additional 9.98.3 million shares related to stock option and restricted stock awards.
37
(19)Acquisitions
(18)On December 1, 2017,In September 2018, the Company acquired Wirtgen, which wasPLA, a privately-held international companyprivately held manufacturer of sprayers, planters, and specialty products for agriculture. PLA is the leading manufacturer worldwide of road construction equipment. Headquarteredbased in Germany, Wirtgen has six brands across the road construction sector spanning processing, mixing, paving, compaction,Argentina, with manufacturing facilities in Las Roses, Argentina and rehabilitation. Wirtgen sells products in more than 100 countries and had approximately 8,200 employees at the acquisition date.
Canoas, Brazil. The total cash purchase price after the final adjustment, net of cash acquired of $197$1 million, was $5,130$69 million a portion of which is held inwith $4 million retained by the Company as escrow to secure certain indemnity obligations of Wirtgen.obligations. In addition to the cash purchase price, the Company assumed $1,717 million in liabilities, which represented substantially all of Wirtgen’s liabilities. The Company financed the acquisition and associated transaction expenses from a combination of cash and new debt financing, which consisted of medium-term notes, including €850 million issued in September 2017.
35
The preliminary fair values assigned to the assets and liabilities of the acquired entity in millions of dollars, which is based on information as of the acquisition date and available at July 29, 2018 follows:
|
|
|
|
|
Trade accounts and notes receivable |
| $ | 457 |
|
Financing receivables |
|
| 43 |
|
Financing receivables securitized |
|
| 125 |
|
Other receivables |
|
| 100 |
|
Inventories |
|
| 1,538 |
|
Property and equipment |
|
| 750 |
|
Goodwill |
|
| 2,067 |
|
Other intangible assets |
|
| 1,458 |
|
Deferred income taxes |
|
| 96 |
|
Other assets |
|
| 221 |
|
Total assets |
| $ | 6,855 |
|
|
|
|
|
|
Short-term borrowings |
| $ | 285 |
|
Short-term securitization borrowings |
|
| 127 |
|
Accounts payable and accrued expenses |
|
| 726 |
|
Deferred income taxes |
|
| 501 |
|
Long-term borrowings |
|
| 50 |
|
Retirement benefits and other liabilities |
|
| 28 |
|
Total liabilities |
| $ | 1,717 |
|
|
|
|
|
|
Noncontrolling interests |
| $ | 8 |
|
During the third quarter of 2018, measurement period adjustments decreased property and equipment by $7 million and increased goodwill by $7 million. The Company continues to review the fair value of the assets and liabilities acquired, which may be updated during the measurement period.
The identifiable intangible assets’ preliminary fair values in millions of dollars and weighted-average useful lives in years follows:
|
|
|
|
|
|
|
|
| Weighted-Average |
| Preliminary |
| |
Customer lists and relationships |
| 16 |
| $ | 534 |
|
Technology, patents, trademarks, and other |
| 19 |
| $ | 924 |
|
The goodwill was the result of future cash flows and related fair value of Wirtgen exceeding the fair value of the identified assets and liabilities. The goodwill is not expected to be deductible for income tax purposes and is included in the construction and forestry segment.
Wirtgen’s results were included in the Company’s consolidated financial statements beginning on the acquisition date. The results are incorporated using a 30-day lag period and are included in the construction and forestry segment. The net sales and revenues and operating profit included in the Company’s statement of consolidated income in the third quarter of 2018 and first nine months of 2018 were $1,155 million and $2,282 million, and $88 million and $37 million, respectively. The Company also recognized $1 million of acquisition related costs in the third quarter of 2018, which were recorded in selling, administrative and general expenses. In the first nine months of 2018, the Company recognized $54 million of acquisition related costs, which were recorded $28 million in selling, administrative and general expenses and $26 million in other operating expenses.
The unaudited pro forma consolidated net sales and revenues and net income are prepared as if the acquisition closed at the beginning of fiscal year 2017 and follow in millions of dollars:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||
|
| July 29 |
| July 30 |
|
| July 29 |
| July 30 |
| ||||
|
| 2018 |
| 2017 |
|
| 2018 |
| 2017 |
| ||||
Net sales and revenues |
| $ | 10,308 |
| $ | 8,810 |
|
| $ | 28,406 |
| $ | 24,062 |
|
Net income attributable to Deere & Company |
| $ | 986 |
| $ | 731 |
|
| $ | 1,862 |
| $ | 1,673 |
|
36
The pro forma amounts have been calculated using policies consistent with the Company’s accounting policies and include the additional expense from the amortization from the allocated purchase price adjustments. The pro forma results exclude acquisition related costs incurred in both periods and assume the medium-term notes used to fund the acquisition were issued in fiscal year 2016 at the interest rate of the actual notes. In addition, the pro forma results for the third quarter and nine months ended July 30, 2017 include nonrecurring pretax expenses of $22 million and $286 million, for the higher cost basis from the inventory fair value adjustment and $21 million and $63 million for the amortization of identifiable intangible assets. Anticipated synergies or other expected benefits of the acquisition are not included in the pro forma results. As a result, the unaudited pro forma financial information may not be indicative of the results for future operations or the results if the acquisition closed at the beginning of fiscal year 2017.
In March 2018, the Company acquired King Agro, a privately held manufacturer of carbon fiber technology products with headquarters in Valencia, Spain and a production facility in Campana, Argentina. The total cash purchase price before the final adjustment, net of cash acquired of $3 million, was $41 million, excluding a loan to King Agro of $4 million that was forgiven on the acquisition date. In addition to the cash purchase price, the Company assumed $11$29 million of liabilities. The preliminary asset and liability fair values are as follows:at the acquisition date in millions of dollars follow:
|
|
|
|
| ||||
| | | | | ||||
| | September 2018 | | |||||
Trade accounts and notes receivable |
| $ | 2 |
| | $ | 2 | |
Other receivables |
|
| 2 |
| | | 14 | |
Inventories |
|
| 5 |
| |
| 14 | |
Property and equipment |
|
| 6 |
| | | 1 | |
Goodwill |
|
| 28 |
| |
| 44 | |
Other intangible assets |
|
| 13 |
| |
| 22 | |
Other assets | | | 1 | | ||||
Total assets |
| $ | 56 |
| | $ | 98 | |
|
|
|
|
| ||||
| | | | | ||||
Short-term borrowings |
| $ | 2 |
| | $ | 8 | |
Accounts payable and accrued expenses |
|
| 4 |
| | | 17 | |
Deferred income taxes |
|
| 4 |
| | | 4 | |
Long-term borrowings |
|
| 1 |
| ||||
Total liabilities |
| $ | 11 |
| | $ | 29 | |
The identifiable intangiblesintangible assets were primarily related to trade nametechnology, trademarks, and technology,customer relationships, which have a weighted-average amortization period of 10five years.
The goodwill was the result of future cash flows and related fair values of the entity exceeding the fair value of the identified assets and liabilities, whichand is not expected to be deducted for tax purposes. The results of King AgroPLA were included in the Company’s consolidated financial statements in the agriculture and turf segment since the date of acquisition. The pro forma results of operations as if the acquisition had occurred at the beginning of the prior fiscal year would not differ significantly from the reported results.
(19)In November 2017, the Company sold its construction and forestry retail locations in Florida. At the time of the sale, total assets were $93 million and liabilities were $1 million. The assets consisted of inventory of $61 million, property and equipment – net of $21 million, goodwill of $10 million, and $1 million of other assets. The liabilities consisted of $1 million of accounts payable and accrued expenses. The total proceeds from the sale will be approximately $105 million, with $80 million received in the first nine months of 2018. The remaining sales price is due based on standard payment terms of new equipment sales to independent dealers. A pretax gain of $13 million was recorded in other income in the construction and forestry segment.
In May 2018, the Company sold seven construction and forestry retail locations in Michigan, Minnesota, and Wisconsin. At the time of the sale, total assets for these locations were $74 million and liabilities were approximately $2 million. The assets consisted of trade accounts and notes receivable – net of $3 million, inventory of $52 million, property and equipment – net of $11 million, and goodwill of $8 million. The liabilities consisted of $2 million of accounts payable and accrued expenses. The total proceeds from the sale will be approximately $84 million, with $53 million received in the third quarter of 2018. The remaining sales price is due based on standard payment terms of new equipment sales to independent dealers. A pretax gain of $12 million was recorded in other income in the construction and forestry segment.
For the retail location sales, the Company sells equipment, service parts, and provides other services to the purchasers as independent dealers.
37
38
| | | | | | | | | | | | | |
(20) SUPPLEMENTAL CONSOLIDATING DATA | | | | | | | | | | | | | |
STATEMENT OF INCOME | | | | | | | | | | | | | |
For the Three Months Ended July 28, 2019 and July 29, 2018 | | | | | | | | | | | | | |
(In millions of dollars) Unaudited | | EQUIPMENT OPERATIONS* | | FINANCIAL SERVICES |
| ||||||||
| | 2019 | | 2018 | | 2019 | | 2018 |
| ||||
Net Sales and Revenues |
| |
|
| | |
| |
|
| | | |
Net sales | | $ | 8,969 | | $ | 9,286 | | | | | | | |
Finance and interest income | | | 30 | |
| 31 | | $ | 952 | | $ | 852 | |
Other income | | | 185 | |
| 231 | | | 51 | |
| 67 | |
Total | | | 9,184 | |
| 9,548 | | | 1,003 | |
| 919 | |
| | | | | | | | | | | | | |
Costs and Expenses | | | | | | | | | | | | | |
Cost of sales | | | 6,871 | |
| 7,153 | | | | | | | |
Research and development expenses | | | 431 | |
| 416 | | | | | | | |
Selling, administrative and general expenses | | | 751 | |
| 769 | | | 147 | |
| 145 | |
Interest expense | | | 67 | |
| 52 | | | 311 | |
| 250 | |
Interest compensation to Financial Services | | | 93 | |
| 86 | | | | | | | |
Other operating expenses | | | 64 | |
| 80 | | | 339 | |
| 326 | |
Total | | | 8,277 | |
| 8,556 | | | 797 | |
| 721 | |
| | | | | | | | | | | | | |
Income of Consolidated Group before Income Taxes | | | 907 | |
| 992 | | | 206 | |
| 198 | |
Provision for income taxes | | | 190 | |
| 242 | | | 31 | |
| 47 | |
Income of Consolidated Group | | | 717 | |
| 750 | | | 175 | |
| 151 | |
| | | | | | | | | | | | | |
Equity in Income of Unconsolidated Subsidiaries and Affiliates | | | | | | | | | | | | | |
Financial Services | | | 175 | |
| 151 | | | | |
| | |
Other | | | 7 | |
| 10 | | | | | | | |
Total | | | 182 | |
| 161 | | | | |
| | |
Net Income | | | 899 | |
| 911 | | | 175 | |
| 151 | |
Less: Net income attributable to noncontrolling interests | | | | |
| 1 | | | | | | | |
Net Income Attributable to Deere & Company | | $ | 899 | | $ | 910 | | $ | 175 | | $ | 151 | |
| | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20) SUPPLEMENTAL CONSOLIDATING DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENT OF INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended July 29, 2018 and July 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of dollars) Unaudited |
| EQUIPMENT OPERATIONS* |
| FINANCIAL SERVICES |
| ||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
Net Sales and Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 9,286.4 |
| $ | 6,833.0 |
|
|
|
|
|
|
|
Finance and interest income |
|
| 30.9 |
|
| 20.3 |
| $ | 851.9 |
| $ | 744.8 |
|
Other income |
|
| 231.2 |
|
| 266.6 |
|
| 66.8 |
|
| 63.4 |
|
Total |
|
| 9,548.5 |
|
| 7,119.9 |
|
| 918.7 |
|
| 808.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 7,153.1 |
|
| 5,249.0 |
|
|
|
|
|
|
|
Research and development expenses |
|
| 415.7 |
|
| 336.8 |
|
|
|
|
|
|
|
Selling, administrative and general expenses |
|
| 768.9 |
|
| 645.7 |
|
| 145.6 |
|
| 154.6 |
|
Interest expense |
|
| 51.4 |
|
| 65.8 |
|
| 249.8 |
|
| 161.3 |
|
Interest compensation to Financial Services |
|
| 86.2 |
|
| 65.4 |
|
|
|
|
|
|
|
Other operating expenses |
|
| 80.3 |
|
| 67.2 |
|
| 326.1 |
|
| 292.4 |
|
Total |
|
| 8,555.6 |
|
| 6,429.9 |
|
| 721.5 |
|
| 608.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income of Consolidated Group before Income Taxes |
|
| 992.9 |
|
| 690.0 |
|
| 197.2 |
|
| 199.9 |
|
Provision for income taxes |
|
| 242.3 |
|
| 184.2 |
|
| 46.4 |
|
| 69.0 |
|
Income of Consolidated Group |
|
| 750.6 |
|
| 505.8 |
|
| 150.8 |
|
| 130.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in Income of Unconsolidated Subsidiaries and Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services |
|
| 151.2 |
|
| 131.2 |
|
| .4 |
|
| .3 |
|
Other |
|
| 9.5 |
|
| 5.3 |
|
|
|
|
|
|
|
Total |
|
| 160.7 |
|
| 136.5 |
|
| .4 |
|
| .3 |
|
Net Income |
|
| 911.3 |
|
| 642.3 |
|
| 151.2 |
|
| 131.2 |
|
Less: Net income attributable to noncontrolling interests |
|
| 1.0 |
|
| .5 |
|
|
|
|
|
|
|
Net Income Attributable to Deere & Company |
| $ | 910.3 |
| $ | 641.8 |
| $ | 151.2 |
| $ | 131.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Deere & Company with Financial Services on the equity basis.
The supplemental consolidating data is presented for informational purposes. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.
38
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CONSOLIDATING DATA (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENT OF INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended July 29, 2018 and July 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of dollars) Unaudited |
| EQUIPMENT OPERATIONS* |
| FINANCIAL SERVICES |
| ||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
Net Sales and Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 25,007.4 |
| $ | 18,790.7 |
|
|
|
|
|
|
|
Finance and interest income |
|
| 70.3 |
|
| 60.3 |
| $ | 2,441.3 |
| $ | 2,148.6 |
|
Other income |
|
| 630.5 |
|
| 864.2 |
|
| 194.5 |
|
| 182.5 |
|
Total |
|
| 25,708.2 |
|
| 19,715.2 |
|
| 2,635.8 |
|
| 2,331.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 19,191.9 |
|
| 14,459.1 |
|
|
|
|
|
|
|
Research and development expenses |
|
| 1,187.7 |
|
| 974.2 |
|
|
|
|
|
|
|
Selling, administrative and general expenses |
|
| 2,159.2 |
|
| 1,835.2 |
|
| 403.3 |
|
| 419.2 |
|
Interest expense |
|
| 225.5 |
|
| 199.6 |
|
| 675.0 |
|
| 479.4 |
|
Interest compensation to Financial Services |
|
| 228.5 |
|
| 171.5 |
|
|
|
|
|
|
|
Other operating expenses |
|
| 219.0 |
|
| 215.9 |
|
| 962.1 |
|
| 905.0 |
|
Total |
|
| 23,211.8 |
|
| 17,855.5 |
|
| 2,040.4 |
|
| 1,803.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income of Consolidated Group before Income Taxes |
|
| 2,496.4 |
|
| 1,859.7 |
|
| 595.4 |
|
| 527.5 |
|
Provision (credit) for income taxes |
|
| 1,607.0 |
|
| 569.2 |
|
| (83.6) |
|
| 179.5 |
|
Income of Consolidated Group |
|
| 889.4 |
|
| 1,290.5 |
|
| 679.0 |
|
| 348.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in Income of Unconsolidated Subsidiaries and Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services |
|
| 680.6 |
|
| 349.1 |
|
| 1.6 |
|
| 1.1 |
|
Other |
|
| 16.2 |
|
| 8.9 |
|
|
|
|
|
|
|
Total |
|
| 696.8 |
|
| 358.0 |
|
| 1.6 |
|
| 1.1 |
|
Net Income |
|
| 1,586.2 |
|
| 1,648.5 |
|
| 680.6 |
|
| 349.1 |
|
Less: Net income (loss) attributable to noncontrolling interests |
|
| 2.6 |
|
| (.3) |
|
|
|
|
|
|
|
Net Income Attributable to Deere & Company |
| $ | 1,583.6 |
| $ | 1,648.8 |
| $ | 680.6 |
| $ | 349.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
SUPPLEMENTAL CONSOLIDATING DATA (Continued) | | | | | | | | | | | | | |
STATEMENT OF INCOME | | | | | | | | | | | | | |
For the Nine Months Ended July 28, 2019 and July 29, 2018 | | | | | | | | | | | | | |
(In millions of dollars) Unaudited | | EQUIPMENT OPERATIONS* | | FINANCIAL SERVICES |
| ||||||||
| | 2019 | | 2018 | | 2019 | | 2018 |
| ||||
Net Sales and Revenues | | | | | | | | | | | | | |
Net sales | | $ | 26,182 | | $ | 25,007 | | | | | | | |
Finance and interest income | | | 79 | |
| 70 | | $ | 2,727 | | $ | 2,441 | |
Other income | | | 614 | |
| 631 | | | 184 | |
| 195 | |
Total | | | 26,875 | |
| 25,708 | | | 2,911 | |
| 2,636 | |
| | | | | | | | | | | | | |
Costs and Expenses | | | | | | | | | | | | | |
Cost of sales | | | 20,058 | |
| 19,192 | | | | | | | |
Research and development expenses | | | 1,295 | |
| 1,188 | | | | | | | |
Selling, administrative and general expenses | | | 2,191 | |
| 2,159 | | | 422 | |
| 403 | |
Interest expense | | | 182 | |
| 226 | | | 910 | |
| 675 | |
Interest compensation to Financial Services | | | 254 | |
| 228 | | | | | | | |
Other operating expenses | | | 203 | |
| 219 | | | 1,008 | |
| 962 | |
Total | | | 24,183 | |
| 23,212 | | | 2,340 | |
| 2,040 | |
| | | | | | | | | | | | | |
Income of Consolidated Group before Income Taxes | | | 2,692 | |
| 2,496 | | | 571 | |
| 596 | |
Provision (credit) for income taxes | | | 625 | |
| 1,607 | | | 123 | |
| (83) | |
Income of Consolidated Group | | | 2,067 | |
| 889 | | | 448 | |
| 679 | |
| | | | | | | | | | | | | |
Equity in Income of Unconsolidated Subsidiaries and Affiliates | | | | | | | | | | | | | |
Financial Services | | | 450 | |
| 681 | | | 2 | |
| 2 | |
Other | | | 18 | |
| 16 | | | | | | | |
Total | | | 468 | |
| 697 | | | 2 | |
| 2 | |
Net Income | | | 2,535 | |
| 1,586 | | | 450 | |
| 681 | |
Less: Net income attributable to noncontrolling interests | | | 3 | |
| 2 | | | | | | | |
Net Income Attributable to Deere & Company | | $ | 2,532 | | $ | 1,584 | | $ | 450 | | $ | 681 | |
| | | | | | | | | | | | | |
*Deere & Company with Financial Services on the equity basis.
The supplemental consolidating data is presented for informational purposes. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.
39
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CONSOLIDATING DATA (Continued) |
|
|
|
|
|
|
|
|
|
| |||||||||
CONDENSED BALANCE SHEET |
|
|
|
|
|
|
|
|
|
| |||||||||
(In millions of dollars) Unaudited |
| EQUIPMENT OPERATIONS* |
| FINANCIAL SERVICES |
| ||||||||||||||
|
| July 29 |
| October 29 |
| July 30 |
| July 29 |
| October 29 |
| July 30 |
| ||||||
|
| 2018 |
| 2017 |
| 2017 |
| 2018 |
| 2017 |
| 2017 |
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 2,802.9 |
| $ | 8,168.4 |
| $ | 5,338.4 |
| $ | 1,120.4 |
| $ | 1,166.5 |
| $ | 1,199.0 |
|
Marketable securities |
|
| 11.4 |
|
| 20.2 |
|
| 21.4 |
|
| 476.8 |
|
| 431.4 |
|
| 404.7 |
|
Receivables from unconsolidated subsidiaries |
|
| 1,794.4 |
|
| 1,032.1 |
|
| 2,570.9 |
|
|
|
|
|
|
|
|
|
|
Trade accounts and notes receivable – net |
|
| 1,586.2 |
|
| 876.3 |
|
| 758.8 |
|
| 6,079.5 |
|
| 4,134.1 |
|
| 4,828.8 |
|
Financing receivables – net |
|
| 78.0 |
|
|
|
|
|
|
|
| 25,135.0 |
|
| 25,104.1 |
|
| 23,722.1 |
|
Financing receivables securitized – net |
|
| 90.2 |
|
|
|
|
|
|
|
| 4,571.5 |
|
| 4,158.8 |
|
| 4,923.1 |
|
Other receivables |
|
| 1,130.6 |
|
| 1,045.6 |
|
| 708.0 |
|
| 176.1 |
|
| 195.5 |
|
| 147.1 |
|
Equipment on operating leases – net |
|
|
|
|
|
|
|
|
|
|
| 6,804.9 |
|
| 6,593.7 |
|
| 6,235.6 |
|
Inventories |
|
| 6,239.3 |
|
| 3,904.1 |
|
| 4,252.9 |
|
|
|
|
|
|
|
|
|
|
Property and equipment – net |
|
| 5,592.2 |
|
| 5,017.3 |
|
| 4,919.1 |
|
| 46.3 |
|
| 50.4 |
|
| 49.4 |
|
Investments in unconsolidated subsidiaries |
|
| 4,992.1 |
|
| 4,812.3 |
|
| 4,800.4 |
|
| 15.1 |
|
| 13.8 |
|
| 13.8 |
|
Goodwill |
|
| 3,046.5 |
|
| 1,033.3 |
|
| 845.8 |
|
|
|
|
|
|
|
|
|
|
Other intangible assets – net |
|
| 1,580.8 |
|
| 218.0 |
|
| 92.0 |
|
|
|
|
|
|
|
|
|
|
Retirement benefits |
|
| 727.2 |
|
| 538.1 |
|
| 219.1 |
|
| 13.7 |
|
| 16.9 |
|
| 17.9 |
|
Deferred income taxes |
|
| 1,983.9 |
|
| 3,098.8 |
|
| 3,720.6 |
|
| 68.1 |
|
| 79.8 |
|
| 68.8 |
|
Other assets |
|
| 1,148.3 |
|
| 973.9 |
|
| 948.5 |
|
| 530.4 |
|
| 651.4 |
|
| 644.7 |
|
Total Assets |
| $ | 32,804.0 |
| $ | 30,738.4 |
| $ | 29,195.9 |
| $ | 45,037.8 |
| $ | 42,596.4 |
| $ | 42,255.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
| $ | 789.5 |
| $ | 375.5 |
| $ | 342.8 |
| $ | 10,215.0 |
| $ | 9,659.8 |
| $ | 8,676.6 |
|
Short-term securitization borrowings |
|
| 90.2 |
|
|
|
|
|
|
|
| 4,437.5 |
|
| 4,118.7 |
|
| 4,780.9 |
|
Payables to unconsolidated subsidiaries |
|
| 110.8 |
|
| 121.9 |
|
| 77.8 |
|
| 1,766.5 |
|
| 996.2 |
|
| 2,542.4 |
|
Accounts payable and accrued expenses |
|
| 9,046.9 |
|
| 7,718.1 |
|
| 7,213.5 |
|
| 1,901.8 |
|
| 1,827.1 |
|
| 1,611.2 |
|
Deferred income taxes |
|
| 431.5 |
|
| 115.6 |
|
| 105.2 |
|
| 500.1 |
|
| 857.7 |
|
| 806.5 |
|
Long-term borrowings |
|
| 5,525.7 |
|
| 5,490.9 |
|
| 4,523.6 |
|
| 21,312.3 |
|
| 20,400.4 |
|
| 19,150.7 |
|
Retirement benefits and other liabilities |
|
| 6,429.5 |
|
| 7,341.9 |
|
| 8,344.1 |
|
| 96.1 |
|
| 92.9 |
|
| 93.4 |
|
Total liabilities |
|
| 22,424.1 |
|
| 21,163.9 |
|
| 20,607.0 |
|
| 40,229.3 |
|
| 37,952.8 |
|
| 37,661.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest |
|
| 14.0 |
|
| 14.0 |
|
| 14.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $1 par value (issued shares at July 29, 2018 – 536,431,204) |
|
| 4,450.8 |
|
| 4,280.5 |
|
| 4,245.1 |
|
| 2,099.4 |
|
| 2,099.1 |
|
| 2,099.1 |
|
Common stock in treasury |
|
| (15,813.5) |
|
| (15,460.8) |
|
| (15,477.3) |
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
| 26,272.3 |
|
| 25,301.3 |
|
| 24,984.2 |
|
| 3,008.9 |
|
| 2,782.0 |
|
| 2,699.2 |
|
Accumulated other comprehensive income (loss) |
|
| (4,553.3) |
|
| (4,563.7) |
|
| (5,179.8) |
|
| (299.8) |
|
| (237.5) |
|
| (205.0) |
|
Total Deere & Company stockholders' equity |
|
| 10,356.3 |
|
| 9,557.3 |
|
| 8,572.2 |
|
| 4,808.5 |
|
| 4,643.6 |
|
| 4,593.3 |
|
Noncontrolling interests |
|
| 9.6 |
|
| 3.2 |
|
| 2.7 |
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
| 10,365.9 |
|
| 9,560.5 |
|
| 8,574.9 |
|
| 4,808.5 |
|
| 4,643.6 |
|
| 4,593.3 |
|
Total Liabilities and Stockholders’ Equity |
| $ | 32,804.0 |
| $ | 30,738.4 |
| $ | 29,195.9 |
| $ | 45,037.8 |
| $ | 42,596.4 |
| $ | 42,255.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | |
SUPPLEMENTAL CONSOLIDATING DATA (Continued) | | | | | | | | | | | |||||||||
CONDENSED BALANCE SHEET | | | | | | | | | | | |||||||||
(In millions of dollars) Unaudited | | EQUIPMENT OPERATIONS* | | FINANCIAL SERVICES |
| ||||||||||||||
| | July 28 | | October 28 | | July 29 | | July 28 | | October 28 | | July 29 |
| ||||||
| | 2019 | | 2018 | | 2018 | | 2019 | | 2018 | | 2018 |
| ||||||
Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Cash and cash equivalents | | $ | 2,694 | | $ | 3,195 | | $ | 2,803 | | $ | 689 | | $ | 709 | | $ | 1,120 | |
Marketable securities | | | 5 | |
| 8 | |
| 11 | | | 560 | |
| 482 | |
| 477 | |
Receivables from unconsolidated subsidiaries | | | 2,395 | |
| 1,700 | |
| 1,795 | | | | | | | | | | |
Trade accounts and notes receivable – net | | | 1,606 | |
| 1,374 | |
| 1,586 | | | 6,807 | |
| 4,906 | |
| 6,080 | |
Financing receivables – net | | | 100 | |
| 93 | |
| 78 | | | 26,949 | |
| 26,961 | |
| 25,135 | |
Financing receivables securitized – net | | | 54 | | | 76 | | | 90 | | | 5,146 | |
| 3,946 | |
| 4,572 | |
Other receivables | | | 1,428 | |
| 1,010 | |
| 1,131 | | | 126 | |
| 776 | |
| 176 | |
Equipment on operating leases – net | | | | | | | | | | | | 7,269 | |
| 7,165 | |
| 6,805 | |
Inventories | | | 6,747 | |
| 6,149 | |
| 6,239 | | | | | | | | | | |
Property and equipment – net | | | 5,753 | |
| 5,821 | |
| 5,592 | | | 45 | |
| 47 | |
| 46 | |
Investments in unconsolidated subsidiaries | | | 5,309 | |
| 5,231 | |
| 4,992 | | | 16 | |
| 15 | |
| 15 | |
Goodwill | | | 3,013 | |
| 3,101 | |
| 3,047 | | | | | | | | | | |
Other intangible assets – net | | | 1,444 | |
| 1,562 | |
| 1,581 | | | | |
| | |
| | |
Retirement benefits | | | 1,374 | |
| 1,241 | |
| 727 | | | 57 | |
| 57 | |
| 14 | |
Deferred income taxes | | | 1,579 | |
| 1,503 | |
| 1,984 | | | 72 | |
| 69 | |
| 68 | |
Other assets | | | 1,269 | |
| 1,133 | |
| 1,148 | | | 708 | |
| 587 | |
| 530 | |
Total Assets | | $ | 34,770 | | $ | 33,197 | | $ | 32,804 | | $ | 48,444 | | $ | 45,720 | | $ | 45,038 | |
| | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | |
Short-term borrowings | | $ | 1,372 | | $ | 1,434 | | $ | 789 | | $ | 9,770 | | $ | 9,628 | | $ | 10,215 | |
Short-term securitization borrowings | | | 53 | | | 75 | | | 90 | | | 4,995 | |
| 3,882 | |
| 4,438 | |
Payables to unconsolidated subsidiaries | | | 136 | |
| 129 | |
| 111 | | | 2,341 | |
| 1,678 | |
| 1,766 | |
Accounts payable and accrued expenses | | | 9,422 | |
| 9,383 | |
| 9,047 | | | 1,641 | |
| 2,056 | |
| 1,902 | |
Deferred income taxes | | | 454 | |
| 497 | |
| 431 | | | 616 | |
| 823 | |
| 500 | |
Long-term borrowings | | | 5,364 | |
| 4,714 | |
| 5,526 | | | 23,878 | |
| 22,523 | |
| 21,312 | |
Retirement benefits and other liabilities | | | 5,685 | |
| 5,660 | |
| 6,430 | | | 97 | |
| 91 | |
| 96 | |
Total liabilities | | | 22,486 | | | 21,892 | | | 22,424 | | | 43,338 | | | 40,681 | | | 40,229 | |
| | | | | | | | | | | | | | | | | | | |
Commitments and contingencies (Note 15) | | | | | | | | | | | | | | | | | | | |
Redeemable noncontrolling interest | | | 14 | | | 14 | | | 14 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | | | | | | | | | | | |
Common stock, $1 par value (issued shares at July 28, 2019 – 536,431,204) | | | 4,599 | |
| 4,474 | |
| 4,451 | | | 2,107 | |
| 2,100 | |
| 2,100 | |
Common stock in treasury | | | (17,121) | |
| (16,312) | |
| (15,814) | | | | | | | | | | |
Retained earnings | | | 29,369 | |
| 27,553 | |
| 26,272 | | | 3,338 | |
| 3,257 | |
| 3,009 | |
Accumulated other comprehensive income (loss) | | | (4,581) | |
| (4,427) | |
| (4,553) | | | (339) | |
| (318) | |
| (300) | |
Total Deere & Company stockholders’ equity | | | 12,266 | |
| 11,288 | |
| 10,356 | | | 5,106 | | | 5,039 | | | 4,809 | |
Noncontrolling interests | | | 4 | |
| 3 | |
| 10 | | | | | | | | | | |
Total stockholders’ equity | | | 12,270 | |
| 11,291 | |
| 10,366 | | | 5,106 | |
| 5,039 | |
| 4,809 | |
Total Liabilities and Stockholders’ Equity | | $ | 34,770 | | $ | 33,197 | | $ | 32,804 | | $ | 48,444 | | $ | 45,720 | | $ | 45,038 | |
| | | | | | | | | | | | | | | | | | | |
*Deere & Company with Financial Services on the equity basis.
The supplemental consolidating data is presented for informational purposes. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CONSOLIDATING DATA (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENT OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended July 29, 2018 and July 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of dollars) Unaudited |
| EQUIPMENT OPERATIONS* |
| FINANCIAL SERVICES |
| ||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 1,586.2 |
| $ | 1,648.5 |
| $ | 680.6 |
| $ | 349.1 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
| 18.8 |
|
| 1.5 |
|
| 47.3 |
|
| 75.3 |
|
Provision for depreciation and amortization |
|
| 740.8 |
|
| 640.1 |
|
| 800.6 |
|
| 725.1 |
|
Gain on sale of affiliates and investments |
|
| (25.1) |
|
| (375.1) |
|
|
|
|
|
|
|
Undistributed earnings of unconsolidated subsidiaries and affiliates |
|
| (235.2) |
|
| (37.3) |
|
| (1.4) |
|
| (1.0) |
|
Provision (credit) for deferred income taxes |
|
| 986.0 |
|
| (145.1) |
|
| (345.2) |
|
| 67.6 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables |
|
| (331.0) |
|
| (104.2) |
|
|
|
|
|
|
|
Inventories |
|
| (975.1) |
|
| (829.4) |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
| 519.4 |
|
| 471.8 |
|
| 66.1 |
|
| 28.9 |
|
Accrued income taxes payable/receivable |
|
| 230.9 |
|
| 150.9 |
|
| (55.2) |
|
| 16.9 |
|
Retirement benefits |
|
| (821.5) |
|
| 166.6 |
|
| 6.8 |
|
| 6.5 |
|
Other |
|
| (87.8) |
|
| (50.9) |
|
| 141.1 |
|
| 116.0 |
|
Net cash provided by operating activities |
|
| 1,606.4 |
|
| 1,537.4 |
|
| 1,340.7 |
|
| 1,384.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Collections of receivables (excluding trade and wholesale) |
|
|
|
|
|
|
|
| 13,245.7 |
|
| 12,275.9 |
|
Proceeds from maturities and sales of marketable securities |
|
| 9.0 |
|
| 296.3 |
|
| 46.8 |
|
| 92.5 |
|
Proceeds from sales of equipment on operating leases |
|
|
|
|
|
|
|
| 1,115.6 |
|
| 1,086.6 |
|
Proceeds from sales of businesses and unconsolidated |
|
| 133.0 | �� |
| 113.9 |
|
|
|
|
|
|
|
Cost of receivables acquired (excluding trade and wholesale) |
|
|
|
|
|
|
|
| (13,830.0) |
|
| (12,366.5) |
|
Acquisitions of businesses, net of cash acquired |
|
| (5,170.9) |
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities |
|
|
|
|
|
|
|
| (101.4) |
|
| (77.0) |
|
Purchases of property and equipment |
|
| (569.1) |
|
| (372.5) |
|
| (1.5) |
|
| (1.2) |
|
Cost of equipment on operating leases acquired |
|
|
|
|
|
|
|
| (2,189.6) |
|
| (2,096.2) |
|
Increase in trade and wholesale receivables |
|
|
|
|
|
|
|
| (2,329.7) |
|
| (1,070.9) |
|
Other |
|
| 42.1 |
|
| (55.7) |
|
| (33.4) |
|
| (18.7) |
|
Net cash used for investing activities |
|
| (5,555.9) |
|
| (18.0) |
|
| (4,077.5) |
|
| (2,175.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in total short-term borrowings |
|
| 119.0 |
|
| 42.3 |
|
| 1,064.4 |
|
| 1,606.6 |
|
Change in intercompany receivables/payables |
|
| (796.8) |
|
| 634.9 |
|
| 796.8 |
|
| (634.9) |
|
Proceeds from long-term borrowings |
|
| 159.4 |
|
| 64.8 |
|
| 5,579.7 |
|
| 4,299.7 |
|
Payments of long-term borrowings |
|
| (117.6) |
|
| (44.5) |
|
| (4,254.2) |
|
| (4,161.1) |
|
Proceeds from issuance of common stock |
|
| 208.7 |
|
| 488.6 |
|
|
|
|
|
|
|
Repurchases of common stock |
|
| (454.0) |
|
| (6.2) |
|
|
|
|
|
|
|
Dividends paid |
|
| (582.6) |
|
| (571.3) |
|
| (453.7) |
|
| (320.2) |
|
Other |
|
| (41.7) |
|
| (43.2) |
|
| (24.8) |
|
| .3 |
|
Net cash provided by (used for) financing activities |
|
| (1,505.6) |
|
| 565.4 |
|
| 2,708.2 |
|
| 790.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
| 89.6 |
|
| 113.1 |
|
| (17.5) |
|
| 4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| (5,365.5) |
|
| 2,197.9 |
|
| (46.1) |
|
| 3.7 |
|
Cash and Cash Equivalents at Beginning of Period |
|
| 8,168.4 |
|
| 3,140.5 |
|
| 1,166.5 |
|
| 1,195.3 |
|
Cash and Cash Equivalents at End of Period |
| $ | 2,802.9 |
| $ | 5,338.4 |
| $ | 1,120.4 |
| $ | 1,199.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Deere & Company with Financial Services on the equity basis.
The supplemental consolidating data is presented for informational purposes. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.
41
41
| | | | | | | | | | | | | |
SUPPLEMENTAL CONSOLIDATING DATA (Continued) | | | | | | | | | | | | | |
STATEMENT OF CASH FLOWS | | | | | | | | | | | | | |
For the Nine Months Ended July 28, 2019 and July 29, 2018 | | | | | | | | | | | | | |
(In millions of dollars) Unaudited | | EQUIPMENT OPERATIONS* | | FINANCIAL SERVICES | | ||||||||
| | 2019 | | 2018 | | 2019 | | 2018 | | ||||
Cash Flows from Operating Activities |
| |
|
| |
|
| |
|
| |
| |
Net income | | $ | 2,535 | | $ | 1,586 | | $ | 450 | | $ | 681 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | |
Provision for credit losses | |
| 1 | |
| 19 | |
| 57 | |
| 47 | |
Provision for depreciation and amortization | |
| 782 | |
| 741 | |
| 836 | |
| 800 | |
Gain on sales of businesses | | | | |
| (25) | |
| | |
| | |
Undistributed earnings of unconsolidated subsidiaries and affiliates | |
| (62) | |
| (235) | |
| (1) | |
| (1) | |
Provision (credit) for deferred income taxes | |
| (123) | |
| 986 | |
| (209) | |
| (345) | |
Changes in assets and liabilities: | | | | | | | | | | | | | |
Trade receivables and Equipment Operations' financing receivables | |
| (248) | |
| (331) | | | | | | | |
Inventories | |
| (670) | |
| (975) | | | | | | | |
Accounts payable and accrued expenses | |
| 50 | | �� | 519 | |
| 23 | |
| 66 | |
Accrued income taxes payable/receivable | |
| (282) | |
| 231 | |
| 535 | |
| (55) | |
Retirement benefits | |
| 35 | |
| (821) | |
| 5 | |
| 7 | |
Other | |
| (59) | |
| (86) | |
| 140 | |
| 141 | |
Net cash provided by operating activities | |
| 1,959 | |
| 1,609 | |
| 1,836 | |
| 1,341 | |
| | | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | | |
Collections of receivables (excluding trade and wholesale) | | | | | | | |
| 13,807 | |
| 13,246 | |
Proceeds from maturities and sales of marketable securities | |
| 9 | |
| 9 | |
| 63 | |
| 47 | |
Proceeds from sales of equipment on operating leases | | | | | | | |
| 1,171 | |
| 1,116 | |
Proceeds from sales of businesses, net of cash sold | | | | | | 133 | | | | | | | |
Cost of receivables acquired (excluding trade and wholesale) | | | | | | | |
| (14,597) | |
| (13,830) | |
Acquisitions of businesses, net of cash acquired | | | | | | (5,171) | |
| | |
| | |
Purchases of marketable securities | | | (3) | |
| | |
| (107) | |
| (101) | |
Purchases of property and equipment | |
| (754) | |
| (569) | |
| (2) | |
| (2) | |
Cost of equipment on operating leases acquired | | | | | | | |
| (2,135) | |
| (2,190) | |
Increase in trade and wholesale receivables | | | | | | | |
| (2,551) | |
| (2,330) | |
Other | |
| (64) | |
| 42 | |
| 12 | |
| (61) | |
Net cash used for investing activities | |
| (812) | |
| (5,556) | |
| (4,339) | |
| (4,105) | |
| | | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | | |
Increase (decrease) in total short-term borrowings | |
| (119) | |
| 119 | |
| (217) | |
| 1,064 | |
Change in intercompany receivables/payables | |
| (683) | |
| (797) | |
| 683 | |
| 797 | |
Proceeds from long-term borrowings | |
| 868 | |
| 159 | |
| 6,572 | |
| 5,580 | |
Payments of long-term borrowings | |
| (194) | |
| (118) | |
| (4,162) | |
| (4,254) | |
Proceeds from issuance of common stock | |
| 133 | |
| 209 | | | | | | | |
Repurchases of common stock | |
| (880) | |
| (454) | | | | | | | |
Dividends paid | |
| (703) | |
| (583) | |
| (377) | | | (454) | |
Other | |
| (52) | |
| (41) | |
| (22) | |
| (25) | |
Net cash provided by (used for) financing activities | |
| (1,630) | |
| (1,506) | |
| 2,477 | |
| 2,708 | |
| | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | |
| (16) | |
| 89 | |
| (8) | |
| (18) | |
| | | | | | | | | | | | | |
Net Decrease in Cash, Cash Equivalents, and Restricted Cash | |
| (499) | |
| (5,364) | |
| (34) | |
| (74) | |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | |
| 3,202 | |
| 8,174 | |
| 813 | |
| 1,293 | |
Cash, Cash Equivalents, and Restricted Cash at End of Period | | $ | 2,703 | | $ | 2,810 | | $ | 779 | | $ | 1,219 | |
| | | | | | | | | | | | | |
*Deere & Company with Financial Services on the equity basis.
The supplemental consolidating data is presented for informational purposes. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.
42
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
Organization
The Company’s equipment operations generate revenues and cash primarily from the sale of equipment to John Deere dealers and distributors. The equipment operations manufacture and distribute a full line of agricultural equipment; a variety of commercial and consumer equipment; and a broad range of equipment for construction, road building, and forestry. The Company’s financial services primarily provide credit services, which mainly finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the equipment operations. In addition, financial services offers extended equipment warranties. The information in the following discussion is presented in a format that includes information grouped as consolidated, equipment operations, and financial services. The Company also views its operations as consisting of two geographic areas, the U.S. and Canada, and outside the U.S. and Canada. The Company’s operating segments consist of agriculture and turf, construction and forestry, and financial services.
Trends and Economic Conditions
Industry sales of agricultural machineryequipment in the U.S. and Canada are forecast to increase approximately 10 percentas well as for 2018. Industry sales in the European Union (EU) 28 nations are forecast to increase approximately 5 to 10 percent. Inbe about the same as last year. South America,American industry sales of tractors and combines are projected to be about the same or increase aboutto 5 percent.percent higher. Asian sales are forecast to be in line with 2017.about the same or decrease slightly. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be about the same or increaseto 5 percent higher for 2018.2019. The Company’s agriculture and turf segment sales increased 18decreased 6 percent in the third quarter and 19increased 2 percent for the first nine months. These sales are forecast to increase about 152 percent for fiscal year 2018.2019. Construction equipment markets reflect continued improvement in demand driven by higher housing starts in the U.S., increased activity in the oil and gas sector,generally positive fundamentals and economic growth worldwide. In forestry, global industry sales are expected to be up about 10 percent.the same to 5 percent higher. The Company’s construction and forestry segment sales increased 1001 percent in the third quarter and 8311 percent for the first nine months, with Wirtgen adding 77 percent and 56 percent for the respective periods.months. These sales are forecast to increase about 8110 percent in 2018,2019, with the two additional months of Wirtgen adding 554 percent to the segment’ssegment sales. Net income attributable to Deere & Company for the Company’s financial services operations is forecast to be approximately $815$620 million in 2018, which includes a provisional income tax benefit of $232 million associated with tax reform.2019.
Items of concern include trade agreements, the uncertainty of the effectiveness of governmental actions in respect to monetary and fiscal policies, the impact of sovereign debt, eurozone and Argentine issues, capital market disruptions, trade agreements, labor supply issues, changes in demand and pricing for used equipment, and geopolitical events. Significant fluctuations in foreign currency exchange rates and volatility in the price of many commodities could also impact the Company’s results.
The Company’s third quarter results benefited from favorablereflect the uncertainty that continues in the agricultural sector. Concerns about export market conditions. Agricultural machinery sales in North Americaaccess, near-term demand for commodities, and Europe improved, whileoverall crop conditions have caused farmers to postpone major equipment purchases. General economic conditions remain positive and are contributing to strong results for the construction equipment sales increased sharply with significant support fromand forestry business. The global customer base continues to expand and the Wirtgen road building unit.Company is encouraged by the market’s positive response to its products and services. The Company is experiencingassessing its cost pressuresstructure through reviews of organization efficiency, a footprint assessment, and an increased focus on investments with the most opportunity for raw materials and freight, which are being addressed through a combination of cost management and pricing. Replacement demand for large agricultural equipment is driving sales in spite of global trade tensions and other geopolitical issues. With the global population growth trends and increased urbanization, the Company is confident in its position to continue to deliver value to customers and investors.differentiation.
20182019 Compared with 20172018
Net income attributable to Deere & Company was $910.3 million, or $2.78 per share, forThe following table provides the third quarter of 2018, compared with $641.8 million, or $1.97 per share, for the same period last year. For the first nine months of 2018, net income attributable to Deere & Company was $1,584 million, or $4.82in millions of dollars and diluted earnings per share compared with $1,649in dollars:
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
| | July 28 | | July 29 | | July 28 | | July 29 | | ||||
| | 2019 | | 2018 | | 2019 | | 2018 | | ||||
Net income attributable to Deere & Company | | $ | 899 | | $ | 910 | | $ | 2,532 | | $ | 1,584 | |
Diluted earnings per share | | | 2.81 | | | 2.78 | | | 7.87 | | | 4.82 | |
Affecting 2019 and 2018 results were discrete charges or benefits to the provision for income taxes due to U.S. tax reform legislation (tax reform). Net income was favorably impacted by $32 million or $5.11 per share, last year. Affectingin the third quarter of 2019 and
43
$27 million for the nine-month period ended July 28, 2019. Net income was favorably affected by $62 million in the third quarter of 2018 and unfavorably affected by $741 million in the nine-month period ended July 29, 2018. See Note 9 for more information on tax reform.
The worldwide net sales and revenue, price realization, and the effect of currency translation for worldwide, U.S. and Canada, and outside U.S. and Canada in millions of dollars follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||||||
| | July 28 | | July 29 | | % | | July 28 | | July 29 | | % | | ||||
| | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | ||||
Worldwide net sales and revenues | | $ | 10,036 | | $ | 10,308 | | -3 | | $ | 29,362 | | $ | 27,942 | | +5 | |
Worldwide equipment operations net sales | | | 8,969 | | | 9,286 | | -3 | | | 26,182 | | | 25,007 | | +5 | |
Price realization | | | | | | | | +3 | | | | | | | | +4 | |
Currency translation (unfavorable) | | | | | | | | -2 | | | | | | | | -3 | |
Wirtgen - two additional months | | | | | | | | | | | | | | | | +2 | |
| | | | | | | | | | | | | | | | | |
U.S. and Canada equipment operations net sales | | | 4,943 | | | 5,054 | | -2 | | | 15,197 | | | 13,971 | | +9 | |
Wirtgen - two additional months | | | | | | | | | | | | | | | | +1 | |
| | | | | | | | | | | | | | | | | |
Outside U.S. and Canada equipment operations net sales | | | 4,026 | | | 4,232 | | -5 | | | 10,985 | | | 11,036 | | | |
Currency translation (unfavorable) | | | | | | | | -4 | | | | | | | | -6 | |
Wirtgen - two additional months | | | | | | | | | | | | | | | | +3 | |
The Company’s equipment operations operating profit and net income and financial services operations net income follow in millions of dollars:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||||||
| | July 28 | | July 29 | | % | | July 28 | | July 29 | | % | | ||||
| | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | ||||
Equipment operations operating profit | | $ | 990 | | $ | 1,087 | | -9 | | $ | 2,932 | | $ | 2,822 | | +4 | |
Equipment operations net income | | | 717 | | | 750 | | -4 | | | 2,067 | | | 889 | | +133 | |
Financial services net income | | | 175 | | | 151 | | +16 | | | 450 | | | 681 | | -34 | |
The discussion on net sales and operating profit are included in the Business Segment Results below. Net income in the third quarter and the first nine months of 2019 and 2018 was affected by discrete adjustments to the provision for income taxes. See Note 9 for the discrete income tax adjustments related to tax reform.
Business Segment Results
Agriculture and Turf. The agriculture and turf segment results in millions of dollars follow:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||||||
| | July 28 | | July 29 | | % | | July 28 | | July 29 | | % | | ||||
| | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | ||||
Net sales | | $ | 5,946 | | $ | 6,293 | | -6 | | $ | 17,909 | | $ | 17,585 | | +2 | |
Operating profit | | | 612 | | | 806 | | -24 | | | 1,978 | | | 2,249 | | -12 | |
Operating margin | | | 10.3% | | | 12.8% | | | | | 11.0% | | | 12.8% | | | |
Segment sales decreased for the quarter due to lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. Sales for the first nine months increased mainly as a result of price realization and increased shipment volumes, partially offset by the unfavorable effects of currency translation. Operating profit declined for the quarter primarily due to lower shipment volumes, higher production costs, and the unfavorable effects of foreign currency exchange, partially offset by price realization. Operating profit for the first nine months was lower primarily as a result of higher production costs, the unfavorable effects of currency translation, increased research and development costs, and a less favorable sales mix. These factors were partially offset by price realization and higher shipment volumes.
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Construction and Forestry. The construction and forestry segment results in millions of dollars follow:
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| | July 28 | | July 29 | | % | | July 28 | | July 29 | | % | | ||||
| | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | ||||
Net sales | | $ | 3,023 | | $ | 2,993 | | +1 | | $ | 8,273 | | $ | 7,422 | | +11 | |
Operating profit | | | 378 | | | 281 | | +35 | | | 954 | | | 573 | | +66 | |
Operating margin | | | 12.5% | | | 9.4% | | | | | 11.5% | | | 7.7% | | | |
Segment sales increased for the quarter and first nine months primarily due to price realization, partially offset by the unfavorable effects of currency translation. Nine month sales also benefited from higher shipment volumes. The inclusion of Wirtgen’s sales for two additional months accounted for about 6 percent of the year to date net sales increase. Wirtgen’s operating profit for the third quarter and first nine months of 2018 were provisional adjustments to the provision for income taxes due to tax reform. Third quarter results included a favorable net adjustment to provisional income tax expense of $62was $159 million while the first nine months reflected an unfavorable net provisional income tax expense of $741and $275 million, (see Note 8).
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Worldwide net sales and revenues increased 32 percent to $10,308 million for the third quarter this year,respectively, compared with $7,808 million a year ago, and increased 29 percent to $27,942 million for the first nine months, compared with $21,720 million last year. Net sales of the worldwide equipment operations increased 36 percent to $9,286 million for the third quarter and 33 percent to $25,007 million for the first nine months, compared with $6,833 million and $18,791 million for the same periods last year. The Company’s acquisition of Wirtgen in December 2017 (see Note 18) added 17 percent to net sales for the quarter and 12 percent for the first nine months. Equipment net sales in the U.S. and Canada increased 29 percent for the third quarter and 27 percent year to date, with Wirtgen adding 6 percent and 4 percent for the respective periods. Outside the U.S. and Canada, net sales increased 45 percent for the third quarter and 42 percent for the first nine months, with Wirtgen adding 31 percent and 23 percent for the respective periods. Net sales included an unfavorable currency translation effect of 1 percent for the third quarter and a favorable currency translation effect of 3 percent for the first nine months.
The Company’s equipment operations reported operating profit of $1,087 million for the third quarter of 2018 and $2,822 million for the first nine months, compared with $804 million and $2,179 million, respectively, last year. Wirtgen, whose results are included in these amounts, had operating profit of $88 million for the quarter and $37 million for the first nine months.corresponding periods last year. Excluding Wirtgen, results, the improvement for both periodsin the third quarter was primarily driven by price realization, partially offset by a less favorable sales mix. Year to date operating profit, excluding Wirtgen, increased mainly due to price realization and higher shipment volumes, lower warranty costs, and price realization, partially offset by higher production costs and researchthe unfavorable effects of currency exchange.
Financial Services. The financial services segment revenue, interest expense, and development expenses.operating profit in millions of dollars, along with the ratio of earnings to fixed charges follow:
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| | July 28 | | July 29 | | % | | July 28 | | July 29 | | % | | ||||
| | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | ||||
Revenue (including intercompany revenue) | | $ | 1,003 | | $ | 919 | | +9 | | $ | 2,911 | | $ | 2,636 | | +10 | |
Interest expense | | | 311 | | | 250 | | +24 | | | 910 | | | 675 | | +35 | |
Operating profit | | | 204 | | | 196 | | +4 | | | 566 | | | 591 | | -4 | |
Consolidated ratio of earnings to fixed charges | | | 1.67 | | | 1.82 | | -8 | | | 1.63 | | | 1.90 | | -14 | |
Operating profit increased for the quarter due to income earned on a higher average portfolio, partially offset by higher losses on operating lease residual values and unfavorable financing spreads. Nine month operating profit declined due to unfavorable financing spreads and higher losses on operating lease residual values, largely offset by income earned on a higher average portfolio. The corresponding periodsaverage balance of 2017 included a gain on the sale of SiteOne Landscapes Supply, Inc. (SiteOne).
Net income of the Company’s equipment operationsreceivables and leases financed was $751 million for9 percent higher in the third quarter and $889 million for8 percent higher in the first nine months compared with $506 million and $1,291 million for the corresponding periods of 2017. In addition to the operating factors previously mentioned, the quarter was favorably affected by $58 million and the nine month period unfavorably affected by $974 million due to provisional income tax adjustments related to tax reform.
The Company’s financial services operations reported net income attributable to Deere & Company of $151.2 million for the third quarter and $680.6 million for the first nine months, compared with $131.2 million and $349.1 million for the same periods last year. Results for both periods benefited from a higher average portfolio and a lower provision for credit losses, partially offset by less favorable financing spreads. Results for the nine month period also improved from lower losses on lease residual values. Additionally, provisional income tax adjustments related to tax reform had favorable effects of $3.6 million for the quarter and $232.4 million for the first nine months.
Business Segment Results
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The cost of sales to net sales ratios for the third quarter and first nine months of 2018 were 77.0 percent and 76.7 percent, respectively, compared to 76.8 percent and 76.9 percent for the same periods last year. The increase in the third quarter was primarily driven by the unfavorable effects of purchase accounting related to Wirtgen (see Note 18) and higher production costs, partially offset by lower warranty costs and price realization. The improvement in the first nine months was primarily due to lower warranty costs, price realization, and the expenses incurred in 2017 associated with a voluntary employee-separation program, partially offset by the unfavorable effects of purchase accounting related to Wirtgen and higher production costs.
Other income decreased in the third quarter and first nine months of 20182019 primarily as a result of higher average borrowing rates and higher average borrowings.
The cost of sales to net sales ratio and other significant statement of consolidated income changes not previously discussed follow:
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| | Three Months Ended | | Nine Months Ended | | ||||||||||||
| | July 28 | | July 29 | | % | | July 28 | | July 29 | | % | | ||||
| | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | ||||
Cost of sales to net sales | | | 76.6% | | | 77.0% | | | | | 76.6% | | | 76.7% | | | |
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Research and development expenses | | $ | 431 | | $ | 416 | | +4 | | $ | 1,295 | | $ | 1,188 | | +9 | |
Selling, administrative and general expenses | | | 896 | | | 913 | | -2 | | | 2,607 | | | 2,557 | | +2 | |
Other operating expenses | | | 352 | | | 346 | | +2 | | | 1,063 | | | 1,034 | | +3 | |
The cost of sales to net sales ratio decreased in the third quarter and the first nine months due to price realization, partially offset by higher production costs, the gains on the saleunfavorable effects of the remaining interest in SiteOne in 2017.foreign currency exchange, and a less favorable product mix. Research and development expenses increased in both periods primarily as a result of spending to support new, products and the impact of acquisitions.advanced products. Selling, administrative and general expenses increaseddecreased in the third quarter primarily due to lower incentive compensation and the Wirtgen acquisition.favorable effects of foreign currency translation. These expenses increased in the first nine months mainly due toprimarily as a result of the Wirtgen acquisition and acquisition related costs, and higher incentive compensation expenses,effect of acquisitions, partially offset by voluntary employee-separation program expenses in 2017favorable effects of foreign currency translation and a lower provision for credit losses.incentive compensation. Other operating expenses increased in the third quarterboth periods primarily due to higher depreciation on operating leases. Other operating expenses increased in the first nine months primarily related to higher depreciationleases and losses on operating leases and acquisition related costs,lease
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residual values, partially offset by lower pension and postretirement benefit costs excluding the favorable effect of currency translation and lower losses on lease residual values.service cost component.
Market Conditions and Outlook
Company equipment sales are projected to increase by about 304 percent for fiscal 2018 and by2019 compared with 2018. Included in the forecast are Wirtgen results for the full fiscal year of 2019 compared with 10 months in 2018. This adds about 211 percent to the Company’s net sales for the current year. Also included in the forecast is a negative foreign currency translation effect of about 2 percent for the fourth quarter compared withyear. Net sales and revenues are projected to increase about 5 percent for fiscal 2019. Net income attributable to Deere & Company is forecast to be about $3,200 million.
Agriculture and Turf. The Company’s worldwide sales of agriculture and turf equipment are forecast to increase about 2 percent for fiscal year 2019, including a negative currency translation effect of about 2 percent. Industry sales of agricultural equipment are expected to be about the same periodsas last year for the U.S. and Canada as well as for the EU28 member nations. South American industry sales of 2017. Of these amounts, Wirtgen istractors and combines are forecast to be about the same to 5 percent higher benefiting from strength in Brazil. Asian sales are forecast to be about the same to down slightly. Industry sales of turf and utility equipment in the U.S. and Canada are expected to addbe about 12the same to 5 percent to Deerehigher for 2019.
Construction and Forestry. The Company’s worldwide sales for both the full yearof construction and the fourth quarter. Foreign currency rates are not expected to have a material translation effect onforestry equipment sales for the year but are anticipated to haveincrease about 10 percent for 2019, with foreign currency rates having an unfavorable translation effect of about 32 percent. The forecast includes a full year of Wirtgen sales, versus 10 months in fiscal 2018, with the two additional months adding about 4 percent to division sales for the fourth quarter. Netyear. The outlook reflects generally positive fundamentals and economic growth worldwide. In forestry, global industry sales and revenues are expected to increase bybe about 26the same to 5 percent for fiscal 2018 withhigher mainly as a result of improved demand in EU28 countries and Russia.
Financial Services. Fiscal year 2019 net income attributable to Deere & Company forecastfor the financial services segment is expected to be about $2,360approximately $620 million. The Company’sExcluding the 2018 benefit from tax reform, forecasted net income forecast includes $741 million of provisional income tax expense associated with tax reform, representing discrete items for the remeasurement of the Company’s net deferred tax assetsis expected to benefit from a higher average portfolio and favorable adjustments to the new U.S. corporate tax rateprovision for income taxes, largely offset by less favorable financing spreads, higher losses on operating lease residual values, and a one-time deemed earnings repatriation tax. The current outlookhigher provision for net income compares with previous guidance of $2,300 million, which included $803 million of provisional income tax expense.
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credit losses.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under “Overview,“Overview,” “Market Conditions and Outlook,” and other forward-looking statements herein that relate to future events, expectations, and trends involve factors that are subject to change, and risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the Company’s businesses.
The Company’s agricultural equipment business is subject to a number of uncertainties including the factors that affect farmers’ confidence and financial condition. These factors include demand for agricultural products, world grain stocks, weather conditions, soil conditions, harvest yields, prices for commodities and livestock, crop and livestock production expenses, availability of transport for crops, trade restrictions and tariffs, global trade agreements (including(e.g., the North American Free Trade Agreement and the Trans-Pacific Partnership)Agreement), the level of farm product exports (including concerns about genetically modified organisms), the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production), real estate values, available acreage for farming, the land ownership policies of governments, changes in government farm programs and policies, international reaction to such programs, changes in and effects of crop insurance programs, changes in environmental regulations and their impact on farming practices, animal diseases (e.g., African swine fever) and their effects on poultry, beef and pork consumption and prices and on livestock feed demand, and crop pests and diseases.
Factors affecting the outlook for the Company’s turf and utility equipment include consumer confidence, weather conditions, customer profitability, labor supply, consumer borrowing patterns, consumer purchasing preferences, housing starts and supply, infrastructure investment, spending by municipalities and golf courses, and consumable input costs.
Consumer spending patterns, real estate and housing prices, the number of housing starts, interest rates and the levels of public and non-residential construction are important to sales and results of the Company’s construction and forestry equipment. Prices for pulp, paper, lumber and structural panels are important to sales of forestry equipment.
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All of the Company’s businesses and its results are affected by general economic conditions in the global markets and industries in which the Companycompany operates; customer confidence in general economic conditions; government spending and taxing; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates; inflation and deflation rates; changes in weather patterns; the political and social stability of the global markets in which the Companycompany operates; the effects of, or response to, terrorism and security threats; wars and other conflicts; natural disasters; and the spread of major epidemics.
Significant changes in market liquidity conditions, changes in the Company’s credit ratings and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the Company’s earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of the Company’s products and customer confidence and purchase decisions, borrowing and repayment practices, and the number and size of customer loan delinquencies and defaults. A debt crisis, in Europe or elsewhere, could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, demand for equipment, and Companycompany operations and results. The Company’s investment management activities could be impaired by changes in the equity, bond and other financial markets, which would negatively affect earnings.
The anticipated withdrawal of the United Kingdom from the European Union and the perceptions as to the impact of the withdrawal may adversely affect business activity, political stability and economic conditions in the United Kingdom, the European Union and elsewhere. The economic conditions and outlook could be further adversely affected by (i) the uncertainty concerning the timing and terms of the exit, (ii) new or modified trading arrangements between the United Kingdom and other countries, (iii) the risk that one or more other European Union countries could come under increasing pressure to leave the European Union, or (iv) the risk that the euro as the single currency of the Eurozone could cease to exist. Any of these developments, or the perception that any of these developments are likely to occur, could affect economic growth or business activity in the United Kingdom or the European Union, and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, currency exchange rates, interest rates, financial institutions, and political, financial and monetary systems. Any of these developments could affect our businesses, liquidity, results of operations and financial position.
Additional factors that could materially affect the Company’s operations, access to capital, expenses and results include changes in, uncertainty surrounding and the impact of governmental trade, banking, monetary and fiscal
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policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs and other areas, and governmental programs, policies, tariffs and sanctions in particular jurisdictions or for the benefit of certain industries or sectors; retaliatory actions to such changes in trade, banking, monetary and fiscal policies; actions by central banks; actions by financial and securities regulators; actions by environmental, health and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, noise and the effects of climate change; changes to GPS radio frequency bands or their permitted uses; changes in labor and immigration regulations; changes to accounting standards; changes in tax rates, estimates, laws and regulations and Company actions related thereto; changes to and compliance with privacy regulations; compliance with U.S. and foreign laws when expanding to new markets and otherwise; and actions by other regulatory bodies.
Other factors that could materially affect results include production, design and technological innovations and difficulties, including capacity and supply constraints and prices; the loss of or challenges to intellectual property rights whether through theft, infringement, counterfeiting or otherwise; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the Company’s supply chain or the loss of liquidity by suppliers; disruptions of infrastructures that support communications, operations or distribution; the failure of suppliers or the Company to comply with laws, regulations and Company policy pertaining to employment, human rights, health, safety, the environment, anti-corruption, privacy and data protection and other ethical business practices; events that damage the Company’s reputation or brand; significant investigations, claims, lawsuits or other legal proceedings; start-up of new plants and products; the success of new product initiatives; changes in customer product preferences and sales mix; gaps or limitations in rural broadband coverage, capacity and speed needed to support technology solutions; oil and energy prices, supplies and volatility; the availability and cost of freight; actions of competitors in the various industries in which the Company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; changes in demand and pricing for used equipmentand resulting impacts on lease residual values; labor relations and contracts; changes in the ability to attract, train and retain qualified personnel; acquisitions and divestitures of businesses; greater than anticipated transaction costs; the integration of new businesses; the failure or delay in closing or realizing anticipated benefits of acquisitions, joint ventures or divestitures; the implementation of organizational changes; the failure to realize anticipated savings or benefits of cost reduction, productivity, or efficiency efforts; difficulties
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related to the conversion and implementation of enterprise resource planning systems; security breaches, cybersecurity attacks, technology failures and other disruptions to the Company’s and suppliers’ information technology infrastructure; changes in Company declared dividends and common stock issuances and repurchases; changes in the level and funding of employee retirement benefits; changes in market values of investment assets, compensation, retirement, discount and mortality rates which impact retirement benefit costs; and significant changes in health care costs.
The liquidity and ongoing profitability of John Deere Capital Corporation and other credit subsidiaries depend largely on timely access to capital in order to meet future cash flow requirements, and to fund operations, costs, and purchases of the Company’s products. If general economic conditions deteriorate or capital markets become more volatile, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses.
The Company’s outlook is based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The Company, except as required by law, undertakes no obligation to update or revise its outlook, whether as a result of new developments or otherwise. Further information concerning the Company and its businesses, including factors that could materially affect the Company’s financial results, is included in the Company’s other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. Risk Factors of the Company’s most recent annual report on Form 10-K and quarterly reports on Form 10-Q).
Critical Accounting Policies
See the Company’s critical accounting policies discussed in the Management’s Discussion and Analysis of the most recent annual report filed on Form 10-K. There have been no material changes to these policies.
CAPITAL RESOURCES AND LIQUIDITY
The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the Company’s consolidated totals, equipment operations, and financial services operations.
Consolidated
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Consolidated
Positive cash flows from consolidated operating activities in the first nine months of 2019 were $404 million. This cash inflow resulted primarily from net income adjusted for non-cash provisions, a change in accrued income taxes payable/receivable, and a change in net retirement benefits, partially offset by a seasonal increase in receivables and inventories, along with an increase in overall demand, and a decrease in accounts payable and accrued expenses. Cash outflows from investing activities were $2,129 million in the first nine months of 2019, primarily due to the cost of receivables and equipment on operating leases acquired exceeding collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases by $1,268 million, purchases of property and equipment of $756 million, and purchases of marketable securities exceeding proceeds from maturities and sales by $38 million. Positive cash flows from financing activities were $1,216 million in the first nine months of 2019 primarily due to an increase in borrowings of $2,748 million and proceeds from issuance of common stock of $133 million (resulting from the exercise of stock options), partially offset by repurchases of common stock of $880 million and dividends paid of $703 million. Cash, cash equivalents, and restricted cash decreased $533 million during the first nine months of this year. Negative cash flows from consolidated operating activities in the first nine months of 2018 were $675$672 million. This cash outflow resulted primarily from a seasonal increase in trade receivables and inventories, along with an increase in overall demand, and a change in net retirement benefits, partially offset by net income adjusted for non-cash provisions, an increase in accounts payable and accrued expenses, and a change in accrued income taxes payable/receivable. Cash outflows from investing activities were $6,465$6,493 million in the first nine months of 2018, primarily due to acquisitions of businesses, net of cash acquired, of $5,171 million, (see Note 18), costs of receivables (excluding receivables related to sales) and equipment on operating leases acquired exceeding the collections of receivables and proceeds from sales of equipment on operating leases acquired by $736 million, purchases of property and equipment of $571 million, and purchases of marketable securities exceeding proceeds from maturities and sales by $46$45 million. Partially offsetting these cash outflows were cash inflows from proceeds from sales of businesses and unconsolidated affiliates, net of cash sold, of $133 million. Positive cash flows from financing activities were $1,656 million in the first nine months of 2018 primarily due to an increase in borrowings of $2,551$2,550 million and proceeds from issuance of common stock of $209 million (resulting from the exercise of stock options), partially offset by dividends paid of $583 million and repurchases of common stock of $454 million. Cash, and cash equivalents, and
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restricted cash decreased $5,412$5,438 million during the first nine months of this year.
In the second quarter of 2018, a committee of the Company’s Board of Directors approved a voluntary $1,000 million contribution to its U.S. pension and postretirement plans in 2018. The Company contributed $50 million of the voluntary amount to its plans in the second quarter and the remaining $950 million during the third quarter. These voluntary contributions resulted in a tax deduction applicable to the 2017 tax year.
Positive cash flows from consolidated operating activities in the first nine months of 2017 were $729 million. This cash inflow resulted primarily from net income adjusted for non-cash provisions, an increase in accounts payable and accrued expenses, a change in net retirement benefits, and a change in accrued income taxes payable/receivable, which were partially offset by a seasonal increase in inventories and trade receivables, along with an increase in overall demand. Cash outflows from investing activities were $301 million in the first nine months of 2017, primarily due to purchases of property and equipment of $374 million and the cost of receivables (excluding receivables related to sales) and cost of equipment on operating leases exceeding the collections of receivables and the proceeds from sales of equipment on operating leases by $300 million. Partially offsetting these cash outflows were cash inflows from the sales of marketable securities exceeding the purchases of marketable securities by $312 million and the proceeds from the sales of businesses and unconsolidated affiliates, net of cash sold, of $114 million. Positive cash flows from financing activities were $1,656 million in the first nine months of 2017 primarily due to an increase in borrowings of $1,808 million and proceeds from issuance of common stock of $489 million (resulting from the exercise of stock options), partially offset by dividends paid of $571 million. Cash and cash equivalents increased $2,202 million during the first nine months of 2017.Wirtgen acquisition.
The Company has access to most global markets at a reasonable cost and expects to have sufficient sources of global funding and liquidity to meet its funding needs. Sources of liquidity for the Company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets), and committed and uncommitted bank lines of credit. The Company’s commercial paper outstanding at July 28, 2019, October 28, 2018, and July 29, 2018 October 29, 2017, and July 30, 2017 was $4,065$2,468 million, $3,439$3,857 million, and $3,190$4,065 million, respectively, while the total cash and cash equivalents and marketable securities position was $3,948 million, $4,394 million, and $4,412 million, $9,787 million, and $6,964 million, respectively. The decrease of $5,375 million during the first nine months of 2018 is primarily due to the Wirtgen acquisition (see Note 18). The total cash and cash equivalents and marketable securities held by foreign subsidiaries in which earnings are considered indefinitely reinvested, was $1,623$2,038 million, $3,386$2,433 million, and $4,720$2,299 million at July 28, 2019, October 28, 2018, and July 29, 2018, October 29, 2017, and July 30, 2017, respectively.
Lines of Credit. The Company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled $8,289$8,543 million at July 29, 2018, $3,47728, 2019, $5,332 million of which were unused. For the purpose of computing unused credit lines, commercial paper and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, were primarily considered to constitute utilization. Included in the total credit lines at July 29, 2018 were28, 2019 was a 364-day credit facility agreementsagreement of $750$2,800 million expiring in October 2018 and $1,750 million expiring infiscal April 2019.2020. In addition, total credit lines included long-term credit facility agreements of $2,500 million expiring in April 20212023 and $2,500 million expiring in April 2022.2024. These credit agreements require John Deere Capital Corporation (Capital Corporation) to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the 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. The credit agreements also require the equipment operations to maintain a ratio of total debt to total capital (total debt and stockholders’
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equity excluding accumulated other comprehensive income (loss)) of 65 percent or less at the end of each fiscal quarter. Under this provision, the Company’s excess equity capacity and retained earnings balance free of restriction at July 29, 201828, 2019 was $11,470$13,195 million. Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $21,302$24,505 million at July 29, 2018.28, 2019. All of these requirements of the credit agreement have been met during the periods included in the financial statements.
Debt Ratings. To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company’s 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 Company securities. A credit rating agency may change or withdraw Company ratings based on its assessment of the Company’s 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, and reduced access to debt capital markets. The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company debt securities by the rating agencies engaged by the Company are as follows:
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Fitch Ratings | | A | | F1 | | Stable | |
Moody’s Investors Service, Inc. |
| A2 |
| Prime-1 |
| Stable | |
Standard & Poor’s |
| A |
| A-1 |
| Stable | |
Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Trade receivables increased $2,283$1,754 million during the first nine months of 2018,2019, primarily due to a seasonal increase and higher shipment volumes, and the Wirtgen acquisition.volumes. These receivables increased $1,818$550 million, compared to a year ago, primarily due to higher shipment volumes, and the Wirtgen acquisition.partially offset by foreign currency translation. The ratios of worldwide trade accounts and notes receivable to the last 12 months’ net sales were 1920 percent at July 29, 2018,28, 2019, compared to 15 percent at October 29, 201728, 2018 and 1819 percent at July 30, 2017.29, 2018. Agriculture and turf trade receivables increased $843$200 million and construction and forestry trade receivables increased $975$350 million, compared to a year ago. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent at July 29,28, 2019, 2 percent at October 28, 2018, and 1 percent at OctoberJuly 29, 2017, and 2 percent at July 30, 2017.2018.
Deere & Company stockholders’ equity was $12,266 million at July 28, 2019, compared with $11,288 million at October 28, 2018 and $10,356 million at July 29, 2018, compared with $9,557 million at October 29, 2017 and $8,572 million at July 30, 2017.2018. The increase of $799$978 million during the first nine months of 20182019 resulted primarily from net income attributable to Deere & Company of $1,584$2,532 million, an increase in common stock of $125 million, and a change in the retirement benefits adjustment of $205 million, and an increase in common stock of $170$84 million, partially offset by a change in the cumulative translation adjustment of $196 million,
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an increase in treasury stock of $353$809 million, and dividends declared of $613$725 million, and a change in cumulative translation adjustment of $218 million.
In August 2019, a committee of the Company’s Board of Directors approved a voluntary contribution to its U.S. OPEB plan for up to $500 million, with an anticipated voluntary contribution of $300 million in the fourth quarter of 2019.
Equipment Operations
The Company’s equipment businesses are capital intensive and are subject to seasonal variations in financing requirements for inventories and certain receivables from dealers. The equipment operations sell a significant portion of their trade receivables to financial services. To the extent necessary, funds provided from operations are supplemented by external financing sources.
Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first nine months of 2019 was $1,959 million. This resulted primarily from cash inflows from net income adjusted for non-cash provisions, an increase in accounts payable and accrued expenses, and a change in net retirement benefits. Partially offsetting these operating cash inflows were cash outflows from a seasonal increase in inventories and trade receivables, along with an increase in overall demand, and a change in accrued income taxes payable/receivable. Cash, cash equivalents, and restricted cash decreased $499 million in the first nine months of 2019.
Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first nine months of 2018 was $1,606$1,609 million. This resulted primarily from cash inflows from net income adjusted for non-cash provisions, an increase in accounts payable and accrued expenses, and a change in accrued income taxes payable/receivable. Partially offsetting these operating cash inflows were cash outflows from a seasonal increase in inventories and trade receivables, along with an increase in overall demand, and a change in net retirement benefits. Cash, and cash equivalents, and restricted cash decreased $5,366$5,364 million in the first nine months of 2018, primarily due to the Wirtgen acquisition of $5,130 million (see Note 18).
Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first nine months of 2017 was $1,537 million. This resulted primarily from cash inflows from net income adjusted for non-cash provisions, an increase in accounts payable and accrued expenses, a change in net retirement benefits, and a change in accrued income taxes payable/receivable. Partially offsetting these operating cash inflows were cash outflows from a seasonal increase in inventories and trade receivables, along with an increase in overall demand. Cash and cash equivalents increased $2,198 million in the first nine months of 2017.
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Trade receivables held by the equipment operations increased $710$232 million during the first nine months and increased $827$20 million from a year ago. The increase in both periods was due primarily to the Wirtgen acquisition. The equipment operations sell a significant portion of their trade receivables to financial services. See the previous consolidated discussion of trade receivables.
Inventories increased by $2,335$598 million during the first nine months, primarily due to the Wirtgen acquisition and a seasonal increase partially offset by foreign currency translation.and higher production volumes based on increased demand. Inventories increased by $1,986$508 million compared to a year ago, primarily due to the Wirtgen acquisition and higher production volumes, based on increased demand, partially offset by foreign currency translation. MostA majority of these inventories are valued on the last-in, first-out (LIFO) method. The ratios of inventories on a first-in, first-out (FIFO) basis (see Note 12)13), which approximates current cost, to the last 12 months’ cost of sales were 32 percent at July 28, 2019, compared to 30 percent at October 28, 2018 and 31 percent at July 29, 2018, compared to 27 percent at October 29, 2017 and 30 percent at July 30, 2017.2018.
Total interest-bearing debt of the equipment operations was $6,789 million at July 28, 2019, compared with $6,223 million at October 28, 2018 and $6,405 million at July 29, 2018, compared with $5,866 million at October 29, 2017 and $4,866 million at July 30, 2017.2018. The ratios of debt to total capital (total interest-bearing debt and stockholders’ equity) were 3836 percent, 3836 percent, and 3638 percent at July 29,28, 2019, October 28, 2018, October 29, 2017, and July 30, 2017,29, 2018, respectively.
Property and equipment cash expenditures for the equipment operations in the first nine months of 20182019 were $569$754 million, compared with $373$569 million in the same period last year. Capital expenditures for the equipment operations in 20182019 are estimated to be approximately $925$1,100 million.
On July 31, 2018, the Company announced the signing of a definitive agreement to acquire PLA, a privately-held manufacturer of sprayers, planters, and specialty products for agriculture. PLA is based in Argentina, with manufacturing facilities in Argentina and Brazil. The cash purchase price is expected to be approximately $75 million and will be funded with existing cash. The purchase is subject to regulatory approval as well as customary closing conditions and is expected to close in the fourth quarter of 2018.
Financial Services
The financial services operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios. Their primary sources of funds for this purpose are a combination of commercial paper, term debt, securitization of retail notes, equity capital, and borrowings from Deere & Company.
During the first nine months of 2019, the cash provided by operating activities and financing activities was used primarily to increase receivables and leases. Cash flows provided by operating activities, including intercompany cash flows, were $1,836 million in the first nine months. Cash used for investing activities totaled $4,339 million in the first nine months of 2019 primarily due to an increase in trade and wholesale receivables of $2,551 million, the cost of receivables (excluding trade and wholesale) and the cost of equipment on operating leases acquired exceeding the collection of these receivables and proceeds from sales of equipment on operating leases by $1,754 million, and purchases of marketable securities exceeding proceeds from maturities and sales by $44 million. Cash
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provided by financing activities totaled $2,477 million, resulting primarily from an increase in external borrowings of $2,193 million and an increase in borrowings from Deere & Company of $683 million, partially offset by dividends paid to Deere & Company of $377 million. Cash, cash equivalents, and restricted cash decreased $34 million in the first nine months of 2019.
During the first nine months of 2018, the cash provided by operating activities and financing activities was used primarily to increase receivables and leases. Cash flows provided by operating activities, including intercompany cash flows, were $1,341 million in the first nine months. Cash used for investing activities totaled $4,078$4,105 million in the first nine months of 2018 primarily due to an increase in trade and wholesale receivables of $2,330 million and the cost of receivables (excluding trade and wholesale) and the cost of equipment on operating leases acquired exceeding the collection of these receivables and proceeds from sales of equipment on operating leases by $1,658 million. Cash provided by financing activities totaled $2,708 million, resulting primarily from an increase in external borrowings of $2,390 million and an increase in borrowings from Deere & Company of $797 million, partially offset by dividends paid to Deere & Company of $454 million. Cash, and cash equivalents, and restricted cash decreased $46$74 million in the first nine months of 2018.
During the first nine months of 2017, the cash provided by operating activities was used primarily to increase receivables and leases. Cash flows provided by operating activities, including intercompany cash flows, were $1,384 million in the first nine months of 2017. Cash used for investing activities totaled $2,176 million in the first nine months of 2017 primarily due to the cost of receivables (excluding trade and wholesale) and equipment on operating leases acquired exceeding the collection of these receivables and proceeds from sales of equipment on operating leases by $1,100 million and an increase in trade and wholesale receivables of $1,071 million. Cash provided by financing activities totaled $790 million, resulting primarily from an increase in external borrowings of $1,745 million, partially offset by a decrease in borrowings from Deere & Company of $635 million and dividends paid to Deere & Company of $320 million. Cash and cash equivalents increased $4 million in the first nine months of 2017.
Receivables and leases held by the financial services operations consist of retail notes originated in connection with retail sales of new and used equipment by dealers of John Deere products, retail notes from non-Deere equipment customers, trade receivables, wholesale notes, revolving charge accounts, credit enhanced international export financing generally involving John Deere products, and financing and operating leases. Total receivables and leases increased $2,600$3,193 million during the first nine months of 20182019 and increased $2,881$3,579 million in the past 12 months. Acquisition volumes of receivables (excluding trade and wholesale) and leases were 114 percent higher in the first nine months of 2018,2019, compared with the same period last year, as volumes of retail notes and revolving charge
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accounts were higher, while volumes of operating and financing leases and operating leases were all higher.lower. The amount of total trade receivables and wholesale notes increased compared to both October 29, 201728, 2018 and July 30, 2017.29, 2018. Total receivables and leases administered by the financial services operations, which include receivables administered but not owned, amounted to $46,177 million at July 28, 2019, compared with $42,985 million at October 28, 2018 and $42,598 million at July 29, 2018, compared with $40,001 million at October 29, 2017 and $39,721 million at July 30, 2017. At July 29, 2018, the unpaid balance of all receivables administered, but not owned, was $7 million, compared with $10 million at October 29, 2017 and $11 million at July 30, 2017.2018.
Total external interest-bearing debt of the financial services operations was $38,643 million at July 28, 2019, compared with $36,033 million at October 28, 2018 and $35,965 million at July 29, 2018, compared with $34,179 million at October 29, 2017 and $32,608 million at July 30, 2017.2018. Total external borrowings have changed generally corresponding with the level of receivable and lease portfolio, the level of cash and cash equivalents, the change in payables owed to Deere & Company, and the change in investment from Deere & Company. The financial services operations’ ratio of interest-bearing debt to stockholder’s equity was 8.0 to 1 at July 28, 2019, compared with 7.5 to 1 at October 28, 2018 and 7.8 to 1 at July 29, 2018, compared with 7.6 to 1 at October 29, 2017 and 7.7 to 1 at July 30, 2017.2018.
Capital Corporation has a revolving credit agreement to utilize bank conduit facilities to securitize retail notes (see Note 11)12). At July 29, 2018,28, 2019, this facility had a total capacity, or “financing limit,” of $3,500 million of secured financings at any time. After a two-year revolving period, unless the banks and Capital Corporation agree to renew, Capital Corporation would liquidate the secured borrowings over time as payments on the retail notes are collected. At July 29, 2018, $1,57928, 2019, $1,681 million of secured short-term borrowings was outstanding under the agreement.
In the first nine months of 2018,2019, the financial services operations issued $2,601$3,310 million and retired $2,280$2,194 million of retail note securitization borrowings. In addition, during the first nine months of 2018,2019, the financial services operations issued $5,580$6,572 million and retired $4,254$4,162 million of long-term borrowings, which were primarily medium-term notes.
Dividends
The Company’s Board of Directors at its meeting on August 29, 201827, 2019 declared a quarterly dividend of $.69$.76 per share payable November 1, 2018,8, 2019, to stockholders of record on September 28, 2018.30, 2019.
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the Company’s most recent annual report filed on Form 10-K (Part II, Item 7A). There has been no material change in this information.
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Item 4.CONTROLS AND PROCEDURES
The Company’s principal executive officer and its principal financial officer have concluded that the Company’s 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 29, 2018,28, 2019, 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, there were no changes that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1.Legal Proceedings
The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability), retail credit, employment, patent, and trademark matters. Item 103 of the SEC’s Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions that the Company reasonably believes could exceed $100,000. The following matters arematter is disclosed solely pursuant to that requirement: (a) on July 6, 2017, after self-reporting toOctober 3, 2018, the Iowa Department of Natural Resources, the Company receivedProvincia Santa Fe Ministerio de Medio Ambiente issued a Notice of Violation alleging that one Iowa facility location exceeded permitted emission limits.to Industrias John Deere Argentina in connection with alleged groundwater contamination at the site; the Company continues to work with the appropriate authorities to implement corrective actions to remediate the site. The Company respondedbelieves the reasonably possible range of losses for this and is actively cooperating with the Iowa Department of Natural Resources to revise the permits and resolve the notice; and (b)other unresolved legal actions would not have a material effect on its financial statements. As reported previously, on March 19, 2018, the Secretaria de Estado de Meio Ambiente e Desenvolvimento Sustentável in Minas Gerais, Brazil issued a fine of approximately $105,000 at current exchange rates against John Deere Equipamentos do Brasil in connection with an oil spill that occurred after an April 2016 roadway accident involving a Company truck. An administrative defense has been filed to cancel the fine. The Company believespaid approximately $120,000 (based on exchange rates), representing the reasonably possible rangefull amount of losses for thesesuch fine (including interest) to settle and other unresolved legal actions would not have a material effect on its financial statements.dismiss the proceeding.
Item 1A.Risk Factors
See the Company’s most recent annual report filed on Form 10-K (Part I, Item 1A). There has been no material change in this information. The risks described in the annual report on Form 10-K, and the “Safe Harbor Statement” in this report, are not the only risks faced by the Company. Additional risks and uncertainties may also materially affect the Company’s 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
The Company’s purchases of its common stock during the third quarter of 20182019 were as follows:
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| Total Number of |
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| | | | | | | Shares Purchased as | | Maximum Number of |
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| | Total Number of | | | | | Part of Publicly | | Shares that May Yet Be |
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| | Shares | | | | | Announced Plans or | | Purchased under the |
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| | Purchased | | Average Price | | Programs (1) | | Plans or Programs (1) |
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Period | | (thousands) | | Paid Per Share | | (thousands) | | (millions) |
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Apr 29 to May 26 | | 626 |
| $ | 148.28 | | 626 | | 10.3 | |
May 27 to Jun 23 | | 1,322 | | | 147.22 | | 1,322 | | 9.2 | |
Jun 24 to Jul 28 | | 682 | | | 164.49 | | 682 | | 8.5 | |
Total | | 2,630 | | | | | 2,630 | | | |
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| Total Number of |
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| Shares Purchased as |
| Maximum Number of |
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| Total Number of |
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| Part of Publicly |
| Shares that May Yet Be |
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| Shares |
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| Announced Plans or |
| Purchased under the |
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| Purchased |
| Average Price |
| Programs (1) |
| Plans or Programs (1) |
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Period |
| (thousands) |
| Paid Per Share |
| (thousands) |
| (millions) |
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Apr 30 to May 27 |
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| 22.8 |
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May 28 to Jun 24 |
| 626 |
| $ | 147.52 |
| 626 |
| 22.1 |
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Jun 25 to Jul 29 |
| 2,153 |
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| 139.82 |
| 2,153 |
| 20.0 |
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Total |
| 2,779 |
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| 2,779 |
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(1) | During the third quarter of |
Item 3.Defaults Upon Senior Securities
None.
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Item 5.Other Information
None.
Item 6.Exhibits
Certain instruments relating to long-term borrowings constituting less than 10% 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 file copies of such instruments upon request of the Commission.
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3.1 | Certificate of Incorporation |
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3.2 | Bylaws, as amended (Exhibit |
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31.1 | |
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31.2 | |
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32 | |
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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*Incorporated by reference. Copies of these exhibits are available from the Company upon request.
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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.
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| DEERE & COMPANY | |||
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Date: | August | | By: | /s/ |
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