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EX-31.1 - EX-31.1 - DEERE & COde-20150731ex3112c1a61.htm
EX-12 - EX-12 - DEERE & COde-20150731ex127430440.htm
EX-31.2 - EX-31.2 - DEERE & COde-20150731ex312db1fd1.htm
EX-32 - EX-32 - DEERE & COde-20150731xex32.htm

 

 

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 July 31, 2015

 

Commission file no: 1-4121


 

DEERE  &  COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

Delaware
(State of incorporation)

 

36-2382580
(IRS employer identification no.)

 

One John Deere Place

Moline, Illinois 61265

(Address of principal executive offices)

Telephone Number:  (309) 765-8000

 


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 July 31, 2015,  328,166,270 shares of common stock, $1 par value, of the registrant were outstanding.

 

 

 

Index to Exhibits: Page 50

 


 

PART I.  FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

ITEM 1.  FINANCIAL STATEMENTS

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED INCOME

 

 

 

 

 

 

 

For the Three Months Ended July 31, 2015 and 2014

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

2015

 

2014

 

Net Sales and Revenues

 

 

 

 

 

 

 

Net sales

 

$

6,839.5

 

$

8,723.0

 

Finance and interest income

 

 

596.7

 

 

573.5

 

Other income

 

 

157.5

 

 

203.7

 

Total

 

 

7,593.7

 

 

9,500.2

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

Cost of sales

 

 

5,358.0

 

 

6,611.3

 

Research and development expenses

 

 

346.8

 

 

362.1

 

Selling, administrative and general expenses

 

 

755.3

 

 

820.7

 

Interest expense

 

 

171.5

 

 

153.9

 

Other operating expenses

 

 

223.6

 

 

260.0

 

Total

 

 

6,855.2

 

 

8,208.0

 

 

 

 

 

 

 

 

 

Income of Consolidated Group before Income Taxes

 

 

738.5

 

 

1,292.2

 

Provision for income taxes

 

 

241.0

 

 

450.2

 

Income of Consolidated Group

 

 

497.5

 

 

842.0

 

Equity in income of unconsolidated affiliates

 

 

14.2

 

 

8.9

 

Net Income

 

 

511.7

 

 

850.9

 

Less:  Net income attributable to noncontrolling interests

 

 

.1

 

 

.2

 

Net Income Attributable to Deere & Company

 

$

511.6

 

$

850.7

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

Basic

 

$

1.54

 

$

2.35

 

Diluted

 

$

1.53

 

$

2.33

 

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

 

Basic

 

 

331.4

 

 

361.9

 

Diluted

 

 

334.1

 

 

365.1

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

2


 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

 

 

 

 

 

 

 

For the Three Months Ended July 31, 2015 and 2014

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

    

2015

    

2014

 

 

 

 

 

 

 

 

 

Net Income

 

$

511.7

 

$

850.9

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

 

 

 

 

 

Retirement benefits adjustment

 

 

41.3

 

 

37.3

 

Cumulative translation adjustment

 

 

(255.9)

 

 

(24.5)

 

Unrealized gain (loss) on derivatives 

 

 

(.8)

 

 

1.8

 

Unrealized gain on investments

 

 

1.5

 

 

4.2

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

(213.9)

 

 

18.8

 

 

 

 

 

 

 

 

 

Comprehensive Income of Consolidated Group

 

 

297.8

 

 

869.7

 

Less:  Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

.2

 

Comprehensive Income Attributable to Deere & Company

 

$

297.8

 

$

869.5

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

3


 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED INCOME

 

 

 

 

 

 

 

For the Nine Months Ended July 31, 2015 and 2014

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

    

2015

    

2014

 

Net Sales and Revenues

 

 

 

 

 

 

 

Net sales

 

$

19,843.1

 

$

24,917.8

 

Finance and interest income

 

 

1,766.7

 

 

1,649.0

 

Other income

 

 

537.7

 

 

535.3

 

Total

 

 

22,147.5

 

 

27,102.1

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

Cost of sales

 

 

15,472.8

 

 

18,678.7

 

Research and development expenses

 

 

1,021.1

 

 

1,039.9

 

Selling, administrative and general expenses

 

 

2,154.2

 

 

2,433.0

 

Interest expense

 

 

517.1

 

 

491.5

 

Other operating expenses

 

 

659.1

 

 

738.1

 

Total

 

 

19,824.3

 

 

23,381.2

 

 

 

 

 

 

 

 

 

Income of Consolidated Group before Income Taxes

 

 

2,323.2

 

 

3,720.9

 

Provision for income taxes

 

 

735.6

 

 

1,209.6

 

Income of Consolidated Group

 

 

1,587.6

 

 

2,511.3

 

Equity in income of unconsolidated affiliates

 

 

1.8

 

 

2.2

 

Net Income

 

 

1,589.4

 

 

2,513.5

 

Less:  Net income attributable to noncontrolling interests

 

 

.6

 

 

1.0

 

Net Income Attributable to Deere & Company

 

$

1,588.8

 

$

2,512.5

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

Basic

 

$

4.71

 

$

6.85

 

Diluted

 

$

4.67

 

$

6.79

 

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

 

Basic

 

 

337.3

 

 

366.8

 

Diluted

 

 

339.9

 

 

370.1

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

4


 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

 

 

 

 

 

 

 

For the Nine Months Ended July 31, 2015 and 2014

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Net Income

 

$

1,589.4

 

$

2,513.5

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

 

 

 

 

 

Retirement benefits adjustment

 

 

104.5

 

 

125.0

 

Cumulative translation adjustment

 

 

(832.9)

 

 

(86.0)

 

Unrealized gain (loss) on derivatives 

 

 

(1.0)

 

 

4.1

 

Unrealized gain on investments

 

 

4.6

 

 

5.3

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

(724.8)

 

 

48.4

 

 

 

 

 

 

 

 

 

Comprehensive Income of Consolidated Group

 

 

864.6

 

 

2,561.9

 

Less:  Comprehensive income attributable to noncontrolling interests

 

 

.2

 

 

1.0

 

Comprehensive Income Attributable to Deere & Company

 

$

864.4

 

$

2,560.9

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

5


 

 

 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

 

 

 

 

July 31

 

October 31

 

July 31

 

 

 

2015

 

2014

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,130.8

 

$

3,787.0

 

$

3,034.7

 

Marketable securities

 

 

421.1

 

 

1,215.1

 

 

1,489.4

 

Receivables from unconsolidated affiliates

 

 

43.2

 

 

30.2

 

 

33.3

 

Trade accounts and notes receivable - net

 

 

4,220.4

 

 

3,277.6

 

 

4,551.8

 

Financing receivables - net

 

 

24,973.4

 

 

27,422.2

 

 

27,079.9

 

Financing receivables securitized - net

 

 

4,737.8

 

 

4,602.3

 

 

4,264.2

 

Other receivables

 

 

823.1

 

 

1,500.3

 

 

1,193.1

 

Equipment on operating leases - net

 

 

4,426.0

 

 

4,015.5

 

 

3,580.0

 

Inventories

 

 

4,319.0

 

 

4,209.7

 

 

5,439.0

 

Property and equipment - net

 

 

5,126.4

 

 

5,577.8

 

 

5,385.5

 

Investments in unconsolidated affiliates

 

 

310.6

 

 

303.2

 

 

310.2

 

Goodwill

 

 

715.9

 

 

791.2

 

 

829.8

 

Other intangible assets - net

 

 

57.8

 

 

68.8

 

 

69.4

 

Retirement benefits

 

 

335.0

 

 

262.0

 

 

611.7

 

Deferred income taxes

 

 

2,705.0

 

 

2,776.6

 

 

2,564.0

 

Other assets

 

 

1,586.7

 

 

1,496.9

 

 

1,312.5

 

Total Assets

 

$

58,932.2

 

$

61,336.4

 

$

61,748.5

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

9,347.9

 

$

8,019.2

 

$

8,580.8

 

Short-term securitization borrowings

 

 

4,595.4

 

 

4,558.5

 

 

4,142.8

 

Payables to unconsolidated affiliates

 

 

73.7

 

 

101.0

 

 

90.4

 

Accounts payable and accrued expenses

 

 

7,235.8

 

 

8,554.1

 

 

8,432.9

 

Deferred income taxes

 

 

150.9

 

 

160.9

 

 

160.1

 

Long-term borrowings

 

 

23,200.9

 

 

24,380.7

 

 

24,035.5

 

Retirement benefits and other liabilities

 

 

6,602.6

 

 

6,496.5

 

 

5,473.5

 

Total liabilities

 

 

51,207.2

 

 

52,270.9

 

 

50,916.0

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $1 par value (issued shares at
July 31, 2015 – 536,431,204)

 

 

3,806.5

 

 

3,675.4

 

 

3,652.8

 

Common stock in treasury

 

 

(14,562.5)

 

 

(12,834.2)

 

 

(11,742.7)

 

Retained earnings

 

 

22,986.5

 

 

22,004.4

 

 

21,564.6

 

Accumulated other comprehensive income (loss)

 

 

(4,507.4)

 

 

(3,783.0)

 

 

(2,644.7)

 

Total Deere & Company stockholders’ equity

 

 

7,723.1

 

 

9,062.6

 

 

10,830.0

 

Noncontrolling interests

 

 

1.9

 

 

2.9

 

 

2.5

 

Total stockholders’ equity

 

 

7,725.0

 

 

9,065.5

 

 

10,832.5

 

Total Liabilities and Stockholders’ Equity

 

$

58,932.2

 

$

61,336.4

 

$

61,748.5

 

 

 

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

6


 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED CASH FLOWS

 

 

 

 

 

 

 

For the Nine Months Ended July 31, 2015 and 2014

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

 

2015

 

2014

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net income

 

$

1,589.4

 

$

2,513.5

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Provision for credit losses

 

 

35.4

 

 

29.6

 

Provision for depreciation and amortization

 

 

1,029.2

 

 

957.4

 

Impairment charges

 

 

 

 

 

62.3

 

Share-based compensation expense

 

 

47.7

 

 

60.6

 

Undistributed earnings of unconsolidated affiliates

 

 

(5.2)

 

 

(2.3)

 

Provision (credit) for deferred income taxes

 

 

73.0

 

 

(249.1)

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Trade, notes and financing receivables related to sales

 

 

(598.0)

 

 

(1,679.3)

 

Insurance receivables

 

 

333.4

 

 

35.5

 

Inventories

 

 

(941.5)

 

 

(1,102.9)

 

Accounts payable and accrued expenses

 

 

(594.6)

 

 

(313.6)

 

Accrued income taxes payable/receivable

 

 

(58.1)

 

 

207.3

 

Retirement benefits

 

 

293.4

 

 

215.0

 

Other

 

 

(12.3)

 

 

(51.9)

 

Net cash provided by operating activities

 

 

1,191.8

 

 

682.1

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Collections of receivables (excluding receivables related to sales)

 

 

11,517.9

 

 

11,586.6

 

Proceeds from maturities and sales of marketable securities

 

 

833.0

 

 

718.7

 

Proceeds from sales of equipment on operating leases

 

 

773.7

 

 

803.3

 

Proceeds from sales of businesses, net of cash sold

 

 

149.2

 

 

339.8

 

Cost of receivables acquired (excluding receivables related to sales)

 

 

(11,162.9)

 

 

(12,664.2)

 

Purchases of marketable securities

 

 

(100.8)

 

 

(585.5)

 

Purchases of property and equipment

 

 

(461.4)

 

 

(640.9)

 

Cost of equipment on operating leases acquired

 

 

(1,355.7)

 

 

(1,049.5)

 

Other

 

 

(23.4)

 

 

(75.6)

 

Net cash provided by (used for) investing activities

 

 

169.6

 

 

(1,567.3)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Increase (decrease) in total short-term borrowings

 

 

1,805.2

 

 

(76.7)

 

Proceeds from long-term borrowings

 

 

3,639.8

 

 

6,672.2

 

Payments of long-term borrowings

 

 

(3,980.1)

 

 

(4,079.8)

 

Proceeds from issuance of common stock

 

 

170.4

 

 

138.8

 

Repurchases of common stock

 

 

(1,833.9)

 

 

(1,631.1)

 

Dividends paid

 

 

(617.9)

 

 

(568.6)

 

Excess tax benefits from share-based compensation

 

 

18.5

 

 

28.5

 

Other

 

 

(56.9)

 

 

(50.4)

 

Net cash provided by (used for) financing activities

 

 

(854.9)

 

 

432.9

 

 

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

(162.7)

 

 

(17.0)

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

343.8

 

 

(469.3)

 

Cash and Cash Equivalents at Beginning of Period

 

 

3,787.0

 

 

3,504.0

 

Cash and Cash Equivalents at End of Period

 

$

4,130.8

 

$

3,034.7

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

7


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Nine Months Ended July 31, 2014 and 2015

(In millions of dollars) Unaudited

 

 

 

 

 

Deere & Company Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Total

 

 

 

 

 

 

 

Other

 

Non-

 

 

 

Stockholders’

 

Common

 

Treasury

 

Retained

 

Comprehensive

 

controlling

 

 

 

Equity

 

Stock

 

Stock

 

Earnings

 

Income (Loss)

 

Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 31, 2013

  

$

10,267.7

  

$

3,524.2

  

$

(10,210.9)

  

$

19,645.6

  

$

(2,693.1)

  

$

1.9

 

Net income

 

 

2,513.5

 

 

 

 

 

 

 

 

2,512.5

 

 

 

 

 

1.0

 

Other comprehensive income

 

 

48.4

 

 

 

 

 

 

 

 

 

 

 

48.4

 

 

 

 

Repurchases of common stock

 

 

(1,631.1)

 

 

 

 

 

(1,631.1)

 

 

 

 

 

 

 

 

 

 

Treasury shares reissued

 

 

99.3

 

 

 

 

 

99.3

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

(593.8)

 

 

 

 

 

 

 

 

(593.5)

 

 

 

 

 

(.3)

 

Stock options and other

 

 

128.5

 

 

128.6

 

 

 

 

 

 

 

 

 

 

 

(.1)

 

Balance July 31, 2014

 

$

10,832.5

 

$

3,652.8

 

$

(11,742.7)

 

$

21,564.6

 

$

(2,644.7)

 

$

2.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 31, 2014

 

$

9,065.5

 

$

3,675.4

 

$

(12,834.2)

 

$

22,004.4

 

$

(3,783.0)

 

$

2.9

 

Net income

 

 

1,589.4

 

 

 

 

 

 

 

 

1,588.8

 

 

 

 

 

.6

 

Other comprehensive loss

 

 

(724.8)

 

 

 

 

 

 

 

 

 

 

 

(724.4)

 

 

(.4)

 

Repurchases of common stock

 

 

(1,833.9)

 

 

 

 

 

(1,833.9)

 

 

 

 

 

 

 

 

 

 

Treasury shares reissued

 

 

105.6

 

 

 

 

 

105.6

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

(607.7)

 

 

 

 

 

 

 

 

(606.4)

 

 

 

 

 

(1.3)

 

Stock options and other

 

 

130.9

 

 

131.1

 

 

 

 

 

(.3)

 

 

 

 

 

.1

 

Balance July 31, 2015

 

$

7,725.0

 

$

3,806.5

 

$

(14,562.5)

 

$

22,986.5

 

$

(4,507.4)

 

$

1.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 $468 million and $499 million in the first nine months of 2015 and 2014, respectively.  The Company also had accounts payable related to purchases of property and equipment of approximately $42 million and $50 million at July 31, 2015 and 2014, respectively.

 

(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 August 2015, the FASB issued ASU No. 2015-14, Deferral of the Effective Date, which amends ASU No. 2014-09.  As a result, 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

9


 

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 period(s) 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 will be adopted prospectively.  The adoption will not have a material effect on the Company’s 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 ASU will be early adopted in the fourth quarter of fiscal year 2015 and will be applied retrospectively.  The adoption will not have a material effect on the Company’s consolidated financial statements.

In May 2015, the FASB issued ASU No. 2015-09, Disclosures about Short-Duration Contracts, which amends ASC 944, Financial Services - Insurance.  This ASU requires disclosure of additional information about unpaid claims and claims adjustment expenses, including a rollforward of the liability of the claims adjustment liability.  The effective date will be the fourth quarter of fiscal year 2017.  The adoption will not have a material effect on the Company’s consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which amends ASC 330, Inventory.  This ASU simplifies the subsequent measurement of inventory by using only the lower of cost or net realizable value.  The ASU does not apply to inventory measured using last-in, first-out method.  The effective date will be the first quarter of fiscal year 2018 with early adoption permitted.  The adoption will not have a material effect on the Company’s consolidated financial statements.

In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which amends ASC 835-30, Interest - Imputation of Interest.  This ASU clarifies the presentation and subsequent measurement of debt issuance costs associated with lines of credit.  These costs may be presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are outstanding borrowings on the arrangement.  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.

 

10


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

 

    

 

 

    

Total

 

 

 

 

 

 

 

 

Unrealized

 

Unrealized

 

Accumulated

 

 

 

Retirement

 

Cumulative

 

Gain (Loss)

 

Gain (Loss)

 

Other

 

 

 

Benefits

 

Translation

 

on

 

on

 

Comprehensive

 

 

 

Adjustment

 

Adjustment

 

Derivatives

 

Investments

 

Income (Loss)

 

Balance October 31, 2014

 

$

(3,493)

 

$

(303)

 

 

 

 

$

13

 

$

(3,783)

 

Other comprehensive income (loss) items before reclassification

 

 

(23)

 

 

(832)

 

$

(5)

 

 

9

 

 

(851)

 

Amounts reclassified from accumulated other comprehensive income

 

 

127

 

 

 

 

 

4

 

 

(4)

 

 

127

 

Net current period other comprehensive income (loss)

 

 

104

 

 

(832)

 

 

(1)

 

 

5

 

 

(724)

 

Balance July 31, 2015

 

$

(3,389)

 

$

(1,135)

 

$

(1)

 

$

18

 

$

(4,507)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 31, 2013

 

$

(2,809)

 

$

113

 

$

(3)

 

$

6

 

$

(2,693)

 

Other comprehensive income (loss) items before reclassification

 

 

12

 

 

(95)

 

 

(7)

 

 

5

 

 

(85)

 

Amounts reclassified from accumulated other comprehensive income

 

 

113

 

 

9

*

 

11

 

 

 

 

 

133

 

Net current period other comprehensive income (loss)

 

 

125

 

 

(86)

 

 

4

 

 

5

 

 

48

 

Balance July 31, 2014

 

$

(2,684)

 

$

27

 

$

1

 

$

11

 

$

(2,645)

 

*Represents the accumulated translation adjustments related to the foreign subsidiaries of the Water operations that were sold (see Note 18).

 

11


 

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 31, 2015

 

Amount

 

Credit

 

Amount

 

Cumulative translation adjustment:

 

$

(256)

 

$

1

 

$

(255)

 

Unrealized gain (loss) on derivatives:

 

 

 

 

 

 

 

 

 

 

Unrealized hedging gain (loss)

 

 

(4)

 

 

2

 

 

(2)

 

Reclassification of realized (gain) loss to:

 

 

 

 

 

 

 

 

 

 

Interest rate contracts – Interest expense

 

 

3

 

 

(1)

 

 

2

 

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)

 

 

6

 

 

(3)

 

 

3

 

Reclassification of realized (gain) loss – Other income

 

 

(3)

 

 

1

 

 

(2)

 

Net unrealized gain (loss) on investments

 

 

3

 

 

(2)

 

 

1

 

Retirement benefits adjustment:

 

 

 

 

 

 

 

 

 

 

Pensions

 

 

 

 

 

 

 

 

 

 

Net actuarial gain (loss)

 

 

(4)

 

 

1

 

 

(3)

 

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

 

 

7

 

 

(2)

 

 

5

 

Settlements/curtailments

 

 

4

 

 

(2)

 

 

2

 

Health care and life insurance

 

 

 

 

 

 

 

 

 

 

Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *

 

 

 

 

 

 

 

 

 

 

Actuarial (gain) loss

 

 

22

 

 

(8)

 

 

14

 

Prior service (credit) cost

 

 

(19)

 

 

7

 

 

(12)

 

Net unrealized gain (loss) on retirement benefits adjustments

 

 

65

 

 

(24)

 

 

41

 

Total other comprehensive income (loss)

 

$

(190)

 

$

(24)

 

$

(214)

 

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

 

12


 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Before

    

Tax

    

After

 

 

 

Tax

 

(Expense)

 

Tax

 

Nine Months Ended July 31, 2015

 

Amount

 

Credit

 

Amount

 

Cumulative translation adjustment:

 

$

(831)

 

$

(1)

 

$

(832)

 

Unrealized gain (loss) on derivatives:

 

 

 

 

 

 

 

 

 

 

Unrealized hedging gain (loss)

 

 

(8)

 

 

3

 

 

(5)

 

Reclassification of realized (gain) loss to:

 

 

 

 

 

 

 

 

 

 

Interest rate contracts – Interest expense

 

 

9

 

 

(3)

 

 

6

 

Foreign exchange contracts – Other operating expense

 

 

(3)

 

 

1

 

 

(2)

 

Net unrealized gain (loss) on derivatives

 

 

(2)

 

 

1

 

 

(1)

 

Unrealized gain (loss) on investments: