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 January 31, 2004
Commission file no: 1-4121
DEERE & COMPANY
| Delaware | 36-2382580 | |
| (State of incorporation) | (IRS employer identification no.) |
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 is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes x No ¨
At January 31, 2004, 246,941,740 shares of common stock, $1 par value, of the registrant were outstanding.
Index to Exhibits: Page 28
PART I. FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended January 31, 2004 and 2003
(In millions of dollars except per share amounts) Unaudited
| 2004 |
2003 |
||||||
| Net Sales and Revenues |
|||||||
| Net sales |
$ | 2,911.6 | $ | 2,273.7 | |||
| Finance and interest income |
294.7 | 310.9 | |||||
| Health care premiums and fees |
181.4 | 151.0 | |||||
| Other income |
96.1 | 58.0 | |||||
| Total |
3,483.8 | 2,793.6 | |||||
| Costs and Expenses |
|||||||
| Cost of sales |
2,294.5 | 1,857.4 | |||||
| Research and development expenses |
138.2 | 117.5 | |||||
| Selling, administrative and general expenses |
417.7 | 357.3 | |||||
| Interest expense |
147.4 | 152.0 | |||||
| Health care claims and costs |
150.6 | 120.4 | |||||
| Other operating expenses |
73.2 | 83.5 | |||||
| Total |
3,221.6 | 2,688.1 | |||||
| Income of Consolidated Group Before Income Taxes |
262.2 | 105.5 | |||||
| Provision for income taxes |
92.6 | 37.5 | |||||
| Income of Consolidated Group |
169.6 | 68.0 | |||||
| Equity in Income (Loss) of Unconsolidated Affiliates |
|||||||
| Credit |
.2 | .1 | |||||
| Other |
1.0 | (.1 | ) | ||||
| Total |
1.2 | ||||||
| Net Income |
$ | 170.8 | $ | 68.0 | |||
| Per Share: |
|||||||
| Net income - basic |
$ | .70 | $ | .28 | |||
| Net income - diluted |
$ | .68 | $ | .28 | |||
See Notes to Interim Financial Statements.
2
DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited
| January 31 2004 |
October 31 2003 |
January 31 2003 |
||||||||||
| Assets |
||||||||||||
| Cash and cash equivalents |
$ | 4,087.8 | $ | 4,384.5 | $ | 3,553.4 | ||||||
| Marketable securities |
262.8 | 231.8 | 187.7 | |||||||||
| Receivables from unconsolidated affiliates |
23.8 | 303.2 | 296.0 | |||||||||
| Trade accounts and notes receivable - net |
2,837.8 | 2,619.3 | 2,911.3 | |||||||||
| Financing receivables - net |
9,396.9 | 9,974.2 | 8,893.4 | |||||||||
| Other receivables |
352.1 | 428.3 | 282.5 | |||||||||
| Equipment on operating leases - net |
1,289.5 | 1,381.9 | 1,513.9 | |||||||||
| Inventories |
2,169.8 | 1,366.1 | 1,929.3 | |||||||||
| Property and equipment - net |
2,098.6 | 2,075.6 | 2,001.9 | |||||||||
| Investments in unconsolidated affiliates |
113.7 | 195.5 | 176.2 | |||||||||
| Goodwill |
938.2 | 872.1 | 830.9 | |||||||||
| Other intangible assets - net |
256.0 | 252.9 | 90.5 | |||||||||
| Prepaid pension costs |
62.3 | 62.6 | 51.4 | |||||||||
| Other assets |
566.4 | 534.3 | 642.3 | |||||||||
| Deferred income taxes |
1,517.1 | 1,476.1 | 1,492.8 | |||||||||
| Deferred charges |
115.6 | 99.6 | 100.1 | |||||||||
| Total Assets |
$ | 26,088.4 | $ | 26,258.0 | $ | 24,953.6 | ||||||
| Liabilities and Stockholders’ Equity |
||||||||||||
| Short-term borrowings |
$ | 3,458.1 | $ | 4,347.2 | $ | 4,170.1 | ||||||
| Payables to unconsolidated affiliates |
122.8 | 87.8 | 64.4 | |||||||||
| Accounts payable and accrued expenses |
3,021.2 | 3,105.5 | 2,834.2 | |||||||||
| Health care claims and reserves |
111.3 | 94.1 | 102.2 | |||||||||
| Accrued taxes |
218.6 | 226.5 | 117.2 | |||||||||
| Deferred income taxes |
30.1 | 30.7 | 24.8 | |||||||||
| Long-term borrowings |
10,746.7 | 10,404.2 | 10,469.7 | |||||||||
| Retirement benefit accruals and other liabilities |
4,095.1 | 3,959.9 | 3,914.1 | |||||||||
| Total liabilities |
21,803.9 | 22,255.9 | 21,696.7 | |||||||||
| Common stock, $1 par value (issued shares at January 31, 2004 – 268,215,602) |
1,990.6 | 1,987.8 | 1,957.0 | |||||||||
| Common stock in treasury |
(997.5 | ) | (1,141.4 | ) | (1,307.6 | ) | ||||||
| Unamortized restricted stock compensation |
(17.8 | ) | (5.8 | ) | (8.5 | ) | ||||||
| Retained earnings |
4,446.2 | 4,329.5 | 3,924.4 | |||||||||
| Total |
5,421.5 | 5,170.1 | 4,565.3 | |||||||||
| Accumulated other comprehensive income (loss) |
(1,137.0 | ) | (1,168.0 | ) | (1,308.4 | ) | ||||||
| Stockholders’ equity |
4,284.5 | 4,002.1 | 3,256.9 | |||||||||
| Total Liabilities and Stockholders’ Equity |
$ | 26,088.4 | $ | 26,258.0 | $ | 24,953.6 | ||||||
See Notes to Interim Financial Statements.
3
DEERE & COMPANY
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
For the Three Months Ended January 31, 2004 and 2003
(In millions of dollars) Unaudited
| 2004 |
2003 |
|||||||
| Cash Flows from Operating Activities |
||||||||
| Net income |
$ | 170.8 | $ | 68.0 | ||||
| Adjustments to reconcile net income to net cash used for operating activities |
(397.2 | ) | (605.4 | ) | ||||
| Net cash used for operating activities |
(226.4 | ) | (537.4 | ) | ||||
| Cash Flows from Investing Activities |
||||||||
| Collections of receivables |
2,822.6 | 2,233.3 | ||||||
| Proceeds from sales of financing receivables |
696.0 | 292.0 | ||||||
| Proceeds from maturities and sales of marketable securities |
10.8 | 9.8 | ||||||
| Proceeds from sales of equipment on operating leases |
114.9 | 107.7 | ||||||
| Proceeds from sales of businesses |
74.5 | 22.5 | ||||||
| Cost of receivables acquired |
(2,867.0 | ) | (2,282.7 | ) | ||||
| Purchases of marketable securities |
(33.5 | ) | (7.4 | ) | ||||
| Purchases of property and equipment |
(53.7 | ) | (48.4 | ) | ||||
| Cost of operating leases acquired |
(87.0 | ) | (76.9 | ) | ||||
| Acquisitions of businesses, net of cash acquired |
(108.6 | ) | (4.0 | ) | ||||
| Increase in receivables with unconsolidated affiliates |
(14.9 | ) | (4.6 | ) | ||||
| Other |
(2.3 | ) | (.4 | ) | ||||
| Net cash provided by investing activities |
551.8 | 240.9 | ||||||
| Cash Flows from Financing Activities |
||||||||
| Increase (decrease) in short-term borrowings |
(438.2 | ) | 62.4 | |||||
| Proceeds from long-term borrowings |
267.5 | 1,842.4 | ||||||
| Principal payments on long-term borrowings |
(532.6 | ) | (857.2 | ) | ||||
| Proceeds from issuance of common stock |
133.2 | 19.8 | ||||||
| Repurchases of common stock |
(.2 | ) | (.4 | ) | ||||
| Dividends paid |
(53.4 | ) | (52.5 | ) | ||||
| Other |
(1.2 | ) | ||||||
| Net cash provided by (used for) financing activities |
(623.7 | ) | 1,013.3 | |||||
| Effect of Exchange Rate Changes on Cash |
1.6 | 21.7 | ||||||
| Net Increase (Decrease) in Cash and Cash Equivalents |
(296.7 | ) | 738.5 | |||||
| Cash and Cash Equivalents at Beginning of Period |
4,384.5 | 2,814.9 | ||||||
| Cash and Cash Equivalents at End of Period |
$ | 4,087.8 | $ | 3,553.4 | ||||
See Notes to Interim Financial Statements.
4
Notes to Interim Financial Statements (Unaudited)
| (1) | 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 Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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 financial statements and the notes thereto included 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 United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.
Certain amounts for prior years have been reclassified to conform with 2004 financial statement presentations.
| (2) | 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 agricultural equipment, commercial and consumer equipment and construction and forestry operations with Financial Services reflected on the equity basis.
Financial Services - Includes the Company’s credit and health care operations.
Consolidated - Represents the consolidation of the Equipment Operations and Financial Services. References to “Deere & Company” or “the Company” refer to the entire enterprise.
| (3) | An analysis of the Company’s retained earnings in millions of dollars follows: |
| Three Months Ended January 31 |
||||||||
| 2004 |
2003 |
|||||||
| Balance, beginning of period |
$ | 4,329.5 | $ | 3,912.6 | ||||
| Net income |
170.8 | 68.0 | ||||||
| Dividends declared |
(54.1 | ) | (52.6 | ) | ||||
| Other adjustments |
(3.6 | ) | ||||||
| Balance, end of period |
$ | 4,446.2 | $ | 3,924.4 | ||||
5
| (4) | The Company uses the intrinsic value method to account for stock-based employee compensation in its financial statements. The pro forma net income and net income per share, as if the fair value method in Financial Accounting Standards Board (FASB) Statement No. 123 had been used to account for stock-based compensation, with dollars in millions except per share amounts, were as follows: |
| Three Months Ended January 31 |
||||||||
| 2004 |
2003 |
|||||||
| Net income as reported |
$ | 170.8 | $ | 68.0 | ||||
| Add: |
||||||||
| Stock-based employee compensation costs, net of tax, included in net income |
1.2 | .6 | ||||||
| Less: |
||||||||
| Stock-based employee compensation costs, net of tax, as if fair value method had been applied |
(7.9 | ) | (8.3 | ) | ||||