DEERE & CO - Quarter Report: 2015 April (Form 10-Q)

 

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C.  20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 30, 2015

 

 

DEERE & COMPANY

(Exact name of registrant as specified in its charter)

 

 

One John Deere Place

Moline, Illinois 61265

(Address of principal executive offices)

Telephone Number:  (309) 765-8000

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes       X    No                

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large Accelerated Filer                                                                            X                                                                                                                          Accelerated Filer                                                                                                                                           

 

Non-Accelerated Filer                                                                                                                                                                                                                Smaller Reporting Company                                                                             

 

(Do not check if a smaller reporting company)

 

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 April 30, 2015, 333,871,447 shares of common stock, $1 par value, of the registrant were outstanding.

 

 

Index to Exhibits:  Page 52

 

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended April 30, 2015 and 2014
(In millions of dollars and shares except per share amounts) Unaudited

		2015				2014
Net Sales and Revenues
Net sales		$	7,398.5			$	9,246.2
Finance and interest income		576.3				544.1
Other income		195.9				157.6
Total		8,170.7				9,947.9
Costs and Expenses
Cost of sales		5,694.2				6,871.8
Research and development expenses		341.1				354.1
Selling, administrative and general expenses		740.0				846.5
Interest expense		165.5				165.8
Other operating expenses		212.9				245.9
Total		7,153.7				8,484.1
Income of Consolidated Group before Income Taxes		1,017.0				1,463.8
Provision for income taxes		324.0				479.0
Income of Consolidated Group		693.0				984.8
Equity in loss of unconsolidated affiliates		(2.2		)		(3.6		)
Net Income		690.8				981.2
Less: Net income attributable to noncontrolling interests		.3				.5
Net Income Attributable to Deere & Company		$	690.5			$	980.7
Per Share Data
Basic		$	2.05			$	2.67
Diluted		$	2.03			$	2.65
Average Shares Outstanding
Basic		337.1				366.6
Diluted		339.7				369.8

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

2

 

DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Three Months Ended April 30, 2015 and 2014
(In millions of dollars) Unaudited

		2015				2014
Net Income		$	690.8			$	981.2
Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		20.9				37.6
Cumulative translation adjustment		(66.6		)		106.5
Unrealized gain (loss) on derivatives		1.3				(.6		)
Unrealized gain (loss) on investments		(4.2		)		2.4
Other Comprehensive Income (Loss), Net of Income Taxes		(48.6		)		145.9
Comprehensive Income of Consolidated Group		642.2				1,127.1
Less: Comprehensive income attributable to noncontrolling interests		.3				.5
Comprehensive Income Attributable to Deere & Company		$	641.9			$	1,126.6

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

3

 

DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Six Months Ended April 30, 2015 and 2014
(In millions of dollars and shares except per share amounts) Unaudited

		2015				2014
Net Sales and Revenues
Net sales		$	13,003.6			$	16,194.8
Finance and interest income		1,169.9				1,075.6
Other income		380.3				331.6
Total		14,553.8				17,602.0
Costs and Expenses
Cost of sales		10,114.8				12,067.3
Research and development expenses		674.3				677.8
Selling, administrative and general expenses		1,398.9				1,612.5
Interest expense		345.6				337.5
Other operating expenses		435.5				478.2
Total		12,969.1				15,173.3
Income of Consolidated Group before Income Taxes		1,584.7				2,428.7
Provision for income taxes		494.6				759.6
Income of Consolidated Group		1,090.1				1,669.1
Equity in loss of unconsolidated affiliates		(12.4		)		(6.6		)
Net Income		1,077.7				1,662.5
Less: Net income attributable to noncontrolling interests		.5				.7
Net Income Attributable to Deere & Company		$	1,077.2			$	1,661.8
Per Share Data
Basic		$	3.17			$	4.50
Diluted		$	3.14			$	4.46
Average Shares Outstanding
Basic		340.2				369.2
Diluted		342.8				372.6

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

4

 

DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Six Months Ended April 30, 2015 and 2014
(In millions of dollars) Unaudited

		2015				2014
Net Income		$	1,077.7			$	1,662.5
Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		63.2				87.7
Cumulative translation adjustment		(577.0		)		(61.5		)
Unrealized gain (loss) on derivatives		(.2		)		2.3
Unrealized gain on investments		3.1				1.1
Other Comprehensive Income (Loss), Net of Income Taxes		(510.9		)		29.6
Comprehensive Income of Consolidated Group		566.8				1,692.1
Less:  Comprehensive income attributable to noncontrolling interests		.2				.7
Comprehensive Income Attributable to Deere & Company		$	566.6			$	1,691.4

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

5

 

DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited

		April 30				October 31				April 30
		2015				2014				2014
Assets
Cash and cash equivalents		$	4,355.4			$	3,787.0			$	3,078.5
Marketable securities		392.9				1,215.1				1,571.7
Receivables from unconsolidated affiliates		46.4				30.2				38.3
Trade accounts and notes receivable - net		4,717.1				3,277.6				5,119.7
Financing receivables - net		24,745.8				27,422.2				25,496.1
Financing receivables securitized - net		4,741.1				4,602.3				4,345.4
Other receivables		873.4				1,500.3				1,194.2
Equipment on operating leases - net		4,195.2				4,015.5				3,203.8
Inventories		4,624.2				4,209.7				5,849.6
Property and equipment - net		5,245.1				5,577.8				5,373.1
Investments in unconsolidated affiliates		299.2				303.2				308.5
Goodwill		737.0				791.2				839.6
Other intangible assets - net		60.4				68.8				71.2
Retirement benefits		313.9				262.0				580.7
Deferred income taxes		2,659.4				2,776.6				2,458.1
Other assets		1,587.5				1,496.9				1,249.2
Assets held for sale										84.7
Total Assets		$	59,594.0			$	61,336.4			$	60,862.4
Liabilities and Stockholders’ Equity
Short-term borrowings		$	8,989.0			$	8,019.2			$	8,763.0
Short-term securitization borrowings		4,702.7				4,558.5				4,329.5
Payables to unconsolidated affiliates		130.1				101.0				134.5
Accounts payable and accrued expenses		7,260.2				8,554.1				8,150.3
Deferred income taxes		149.3				160.9				162.0
Long-term borrowings		23,622.8				24,380.7				23,166.9
Retirement benefits and other liabilities		6,563.9				6,496.5				5,438.8
Liabilities held for sale										49.8
Total liabilities		51,418.0				52,270.9				50,194.8
Commitments and contingencies (Note 14)
Common stock, $1 par value (issued shares at April 30, 2015 – 536,431,204)		3,745.2				3,675.4				3,621.6
Common stock in treasury		(13,951.2		)		(12,834.2		)		(11,224.1		)
Retained earnings		22,673.4				22,004.4				20,931.3
Accumulated other comprehensive income (loss)		(4,293.6		)		(3,783.0		)		(2,663.5		)
Total Deere & Company stockholders’ equity		8,173.8				9,062.6				10,665.3
Noncontrolling interests		2.2				2.9				2.3
Total stockholders’ equity		8,176.0				9,065.5				10,667.6
Total Liabilities and Stockholders’ Equity		$	59,594.0			$	61,336.4			$	60,862.4

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

6

 

DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Six Months Ended April 30, 2015 and 2014
(In millions of dollars) Unaudited

		2015				2014
Cash Flows from Operating Activities
Net income		$	1,077.7			$	1,662.5
Adjustments to reconcile net income to net cash used for operating activities:
Provision for credit losses		15.1				9.8
Provision for depreciation and amortization		682.9				630.3
Impairment charges						62.3
Share-based compensation expense		28.7				44.7
Undistributed earnings of unconsolidated affiliates		8.8				7.9
Provision (credit) for deferred income taxes		117.8				(138.0		)
Changes in assets and liabilities:
Trade, notes and financing receivables related to sales		(860.8		)		(1,692.8		)
Insurance receivables		333.4				175.4
Inventories		(932.9		)		(1,268.2		)
Accounts payable and accrued expenses		(698.3		)		(578.7		)
Accrued income taxes payable/receivable		(76.3		)		86.8
Retirement benefits		186.6				138.0
Other		(37.4		)		28.1
Net cash used for operating activities		(154.7		)		(831.9		)
Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)		8,332.4				8,344.7
Proceeds from maturities and sales of marketable securities		791.9				611.3
Proceeds from sales of equipment on operating leases		552.3				570.9
Proceeds from sales of businesses, net of cash sold		148.8				307.2
Cost of receivables acquired (excluding receivables related to sales)		(7,426.1		)		(8,409.3		)
Purchases of marketable securities		(33.9		)		(562.8		)
Purchases of property and equipment		(324.3		)		(426.2		)
Cost of equipment on operating leases acquired		(830.2		)		(618.1		)
Other		(58.9		)		(85.1		)
Net cash provided by (used for) investing activities		1,152.0				(267.4		)
Cash Flows from Financing Activities
Increase in total short-term borrowings		1,147.0				956.7
Proceeds from long-term borrowings		2,512.2				4,253.8
Payments of long-term borrowings		(2,453.3		)		(3,135.5		)
Proceeds from issuance of common stock		86.1				108.7
Repurchases of common stock		(1,173.9		)		(1,093.4		)
Dividends paid		(415.8		)		(382.3		)
Excess tax benefits from share-based compensation		11.7				24.2
Other		(39.1		)		(32.9		)
Net cash provided by (used for) financing activities		(325.1		)		699.3
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(103.8		)		(25.5		)
Net Increase (Decrease) in Cash and Cash Equivalents		568.4				(425.5		)
Cash and Cash Equivalents at Beginning of Period		3,787.0				3,504.0
Cash and Cash Equivalents at End of Period		$	4,355.4			$	3,078.5

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

7

 

DEERE & COMPANY

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Six Months Ended April 30, 2014 and 2015

(In millions of dollars) Unaudited

					Deere & Company Stockholders
		Total Stockholders’ Equity			Common Stock			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interests
Balance October 31, 2013		$	10,267.7		$	3,524.2		$	(10,210.9	)	$	19,645.6		$	(2,693.1	)	$	1.9
Net income		1,662.5									1,661.8						.7
Other comprehensive income		29.6												29.6
Repurchases of common stock		(1,093.4		)				(1,093.4		)
Treasury shares reissued		80.2						80.2
Dividends declared		(376.4		)							(376.1		)				(.3		)
Stock options and other		97.4			97.4
Balance April 30, 2014		$	10,667.6		$	3,621.6		$	(11,224.1	)	$	20,931.3		$	(2,663.5	)	$	2.3
Balance October 31, 2014		$	9,065.5		$	3,675.4		$	(12,834.2	)	$	22,004.4		$	(3,783.0	)	$	2.9
Net income		1,077.7									1,077.2						.5
Other comprehensive loss		(510.9		)										(510.6		)	(.3		)
Repurchases of common stock		(1,173.9		)				(1,173.9		)
Treasury shares reissued		56.9						56.9
Dividends declared		(408.9		)							(408.0		)				(.9		)
Stock options and other		69.6			69.8						(.2		)
Balance April 30, 2015		$	8,176.0		$	3,745.2		$	(13,951.2	)	$	22,673.4		$	(4,293.6	)	$	2.2

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

8

 

Condensed Notes to Interim Consolidated Financial Statements (Unaudited)

 

(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.

 

Financial Services - Includes primarily the Company’s financing operations.

 

Consolidated - Represents the consolidation of the equipment operations and financial services.  References to “Deere & Company” or “the Company” refer to the entire enterprise.

 

(2)                  The consolidated financial statements of Deere & Company and consolidated subsidiaries 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 financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K.  Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.

 

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

 

Cash Flow Information

 

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

 

The Company had the following non-cash operating and investing activities that were not included in the Statement of Consolidated Cash Flows.  The Company transferred inventory to equipment on operating leases of approximately $276 million and $272 million in the first six months of 2015 and 2014, respectively.  The Company also had accounts payable related to purchases of property and equipment of approximately $39 million and $44 million at April 30, 2015 and 2014, respectively.

 

9

 

(3)                  New accounting standards to be adopted are as follows:

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) 605, Revenue Recognition.  This 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.  The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  In April 2015, the FASB issued a proposed ASU to defer the effective date by one year.  If the proposed ASU is finalized, the effective date will be the first quarter of fiscal year 2019 with early adoption permitted in the first quarter of fiscal year 2018.  The adoption will use one of two retrospective application methods.  The Company has not determined the potential effects on the consolidated financial statements.

 

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which amends ASC 718, Compensation - Stock Compensation.  This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  Therefore, the performance target should not be reflected in estimating the grant-date fair value of the award.  Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered.  The total compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest.  The effective date will be the first quarter of fiscal year 2017.  The adoption will not have a material effect on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amends ASC 835-30, Interest - Imputation of Interest.  This ASU requires that debt issuance costs related to borrowings be presented in the balance sheet as a direct deduction from the carrying amount of the borrowing.  This treatment is consistent with debt discounts.  The ASU does not affect the amount or timing of expenses for debt issuance costs.  The effective date will be the first quarter of fiscal year 2017 and will be applied retrospectively.  The adoption will not have a material effect on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which amends ASC 350-40, Intangibles-Goodwill and Other-Internal-Use Software.  This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license.  If an arrangement includes a software license, the accounting for the license will be consistent with licenses of other intangible assets.  If the arrangement does not include a license, the arrangement will be accounted for as a service contract.  The effective date will be the first quarter of fiscal year 2017 and can be adopted prospectively or retrospectively.  The Company has not determined the potential effects on the consolidated financial statements.

 

In May 2015, the FASB issued ASU No. 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which amends ASC 820, Fair Value Measurement.  This ASU removes the requirement to categorize within the fair value hierarchy investments without readily determinable fair values in entities that elect to measure fair value using net asset value per share or its equivalent.  The ASU requires that these investments continue to be shown in the investment disclosure amount to allow the disclosure to reconcile to the investment amount presented in the balance sheet.  The effective date will be the first quarter of fiscal year 2017 and will be applied retrospectively with early adoption permitted.  The Company is evaluating early adoption.  The adoption will not have a material effect on the Company’s consolidated financial statements.

 

10

 

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

 

		Retirement Benefits Adjustment			Cumulative Translation Adjustment			Unrealized Gain (Loss) on Derivatives			Unrealized Gain (Loss) on Investments			Total Accumulated Other Comprehensive Income (Loss)
Balance October 31, 2014		$	(3,493)		$	(303)					$	13		$	(3,783)
Other comprehensive income (loss) items before reclassification		(20)			(577)			$	(2)		5			(594)
Amounts reclassified from accumulated other comprehensive income		83						2			(2)			83
Net current period other comprehensive income (loss)		63			(577)						3			(511)
Balance April 30, 2015		$	(3,430)		$	(880)					$	16		$	(4,294)
Balance October 31, 2013		$	(2,809)		$	113		$	(3)		$	6		$	(2,693)
Other comprehensive income (loss) items before reclassification		12			(62)			(7)			1			(56)
Amounts reclassified from accumulated other comprehensive income		76						9						85
Net current period other comprehensive income (loss)		88			(62)			2			1			29
Balance April 30, 2014		$	(2,721)		$	51		$	(1)		$	7		$	(2,664)

 

11

 

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

 

Three Months April 30, 2015		Before Tax Amount				Tax (Expense) Credit				After Tax Amount
Cumulative translation adjustment:		$	(67	)						$	(67	)
Unrealized gain (loss) on derivatives:
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		3				$	(2	)		1
Foreign exchange contracts – Other operating expense		(1		)		1
Net unrealized gain (loss) on derivatives		2				(1		)		1
Unrealized gain (loss) on investments:
Unrealized holding gain (loss)		(5		)		2				(3		)
Reclassification of realized (gain) loss – Other income		(2		)		1				(1		)
Net unrealized gain (loss) on investments		(7		)		3				(4		)
Retirement benefits adjustment:
Pensions
Net actuarial gain (loss)		(17		)		6				(11		)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		55				(20		)		35
Prior service (credit) cost		6				(3		)		3
Health care and life insurance
Net actuarial gain (loss)		(12		)		3				(9		)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		23				(8		)		15
Prior service (credit) cost		(19		)		7				(12		)
Net unrealized gain (loss) on retirement benefits adjustments		36				(15		)		21
Total other comprehensive income (loss)		$	(36	)		$	(13	)		$	(49	)

 

*                          These accumulated other comprehensive income amounts are included in net periodic postretirement costs.  See Note 7 for additional detail.

 

12

 

Six Months Ended April 30, 2015		Before Tax Amount				Tax (Expense) Credit				After Tax Amount
Cumulative translation adjustment:		$	(575	)		$	(2	)		$	(577	)
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)		(4		)		2				(2		)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		6				(2		)		4
Foreign exchange contracts – Other operating expense		(2		)						(2		)
Net unrealized gain (loss) on derivatives
Unrealized gain (loss) on investments:
Unrealized holding gain (loss)		8				(3		)		5
Reclassification of realized (gain) loss – Other income		(4		)		2				(2		)
Net unrealized gain (loss) on investments		4				(1		)		3
Retirement benefits adjustment:
Pensions
Net actuarial gain (loss)		(17		)		6				(11		)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		110				(40		)		70
Prior service (credit) cost		12				(5		)		7
Settlements/curtailments		1								1
Health care and life insurance
Net actuarial gain (loss)		(12		)		3				(9		)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		46				(17		)		29
Prior service (credit) cost		(38		)		14				(24		)
Net unrealized gain (loss) on retirement benefits adjustments		102				(39		)		63
Total other comprehensive income (loss)		$	(469	)		$	(42	)		$	(511	)

 

*                          These accumulated other comprehensive income amounts are included in net periodic postretirement costs.  See Note 7 for additional detail.

 

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