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EX-32 - EX-32 - DEERE & COde-20160731xex32.htm
EX-31.2 - EX-31.2 - DEERE & COde-20160731ex312de1a99.htm
EX-31.1 - EX-31.1 - DEERE & COde-20160731ex3112e79be.htm
EX-12 - EX-12 - DEERE & COde-20160731ex1236eb92f.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, 2016

 

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, 2016, 314,422,919 shares of common stock, $1 par value, of the registrant were outstanding.

 

 

 

Index to Exhibits: Page 51

 

 


 

 

PART I.  FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

ITEM 1.  FINANCIAL STATEMENTS

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED INCOME

 

 

 

 

 

 

 

For the Three Months Ended July 31, 2016 and 2015

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

2016

 

2015

 

Net Sales and Revenues

 

 

 

 

 

 

 

Net sales

 

$

5,861.4

 

$

6,839.5

 

Finance and interest income

 

 

638.5

 

 

596.7

 

Other income

 

 

224.5

 

 

157.5

 

Total

 

 

6,724.4

 

 

7,593.7

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

Cost of sales

 

 

4,494.2

 

 

5,358.0

 

Research and development expenses

 

 

338.8

 

 

346.8

 

Selling, administrative and general expenses

 

 

709.0

 

 

755.3

 

Interest expense

 

 

200.7

 

 

171.5

 

Other operating expenses

 

 

276.6

 

 

223.6

 

Total

 

 

6,019.3

 

 

6,855.2

 

 

 

 

 

 

 

 

 

Income of Consolidated Group before Income Taxes

 

 

705.1

 

 

738.5

 

Provision for income taxes

 

 

226.5

 

 

241.0

 

Income of Consolidated Group

 

 

478.6

 

 

497.5

 

Equity in income of unconsolidated affiliates

 

 

10.0

 

 

14.2

 

Net Income

 

 

488.6

 

 

511.7

 

Less: Net income (loss) attributable to noncontrolling interests

 

 

(.2)

 

 

.1

 

Net Income Attributable to Deere & Company

 

$

488.8

 

$

511.6

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

Basic

 

$

1.55

 

$

1.54

 

Diluted

 

$

1.55

 

$

1.53

 

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

 

Basic

 

 

314.3

 

 

331.4

 

Diluted

 

 

315.7

 

 

334.1

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

2


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

 

 

 

 

 

 

 

For the Three Months Ended July 31, 2016 and 2015

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Net Income

 

$

488.6

 

$

511.7

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

 

 

 

 

 

Retirement benefits adjustment

 

 

30.3

 

 

41.3

 

Cumulative translation adjustment

 

 

(99.5)

 

 

(255.9)

 

Unrealized loss on derivatives 

 

 

(.2)

 

 

(.8)

 

Unrealized gain on investments

 

 

6.0

 

 

1.5

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

(63.4)

 

 

(213.9)

 

 

 

 

 

 

 

 

 

Comprehensive Income of Consolidated Group

 

 

425.2

 

 

297.8

 

Less: Comprehensive loss attributable to noncontrolling interests

 

 

(.2)

 

 

 

 

Comprehensive Income Attributable to Deere & Company

 

$

425.4

 

$

297.8

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

3


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED INCOME

 

 

 

 

 

 

 

For the Nine Months Ended July 31, 2016 and 2015

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

    

2016

    

2015

 

Net Sales and Revenues

 

 

 

 

 

 

 

Net sales

 

$

17,737.1

 

$

19,843.1

 

Finance and interest income

 

 

1,849.0

 

 

1,766.7

 

Other income

 

 

538.3

 

 

537.7

 

Total

 

 

20,124.4

 

 

22,147.5

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

Cost of sales

 

 

13,865.3

 

 

15,472.8

 

Research and development expenses

 

 

1,003.1

 

 

1,021.1

 

Selling, administrative and general expenses

 

 

2,016.8

 

 

2,154.2

 

Interest expense

 

 

564.9

 

 

517.1

 

Other operating expenses

 

 

884.7

 

 

659.1

 

Total

 

 

18,334.8

 

 

19,824.3

 

 

 

 

 

 

 

 

 

Income of Consolidated Group before Income Taxes

 

 

1,789.6

 

 

2,323.2

 

Provision for income taxes

 

 

559.9

 

 

735.6

 

Income of Consolidated Group

 

 

1,229.7

 

 

1,587.6

 

Equity in income of unconsolidated affiliates

 

 

7.3

 

 

1.8

 

Net Income

 

 

1,237.0

 

 

1,589.4

 

Less: Net income (loss) attributable to noncontrolling interests

 

 

(1.6)

 

 

.6

 

Net Income Attributable to Deere & Company

 

$

1,238.6

 

$

1,588.8

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

Basic

 

$

3.93

 

$

4.71

 

Diluted

 

$

3.91

 

$

4.67

 

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

 

Basic

 

 

315.4

 

 

337.3

 

Diluted

 

 

316.7

 

 

339.9

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

4


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

 

 

 

 

 

 

 

For the Nine Months Ended July 31, 2016 and 2015

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Net Income

 

$

1,237.0

 

$

1,589.4

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

 

 

 

 

 

Retirement benefits adjustment

 

 

87.5

 

 

104.5

 

Cumulative translation adjustment

 

 

54.3

 

 

(832.9)

 

Unrealized gain (loss) on derivatives 

 

 

.8

 

 

(1.0)

 

Unrealized gain on investments

 

 

4.7

 

 

4.6

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

147.3

 

 

(724.8)

 

 

 

 

 

 

 

 

 

Comprehensive Income of Consolidated Group

 

 

1,384.3

 

 

864.6

 

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

(1.5)

 

 

.2

 

Comprehensive Income Attributable to Deere & Company

 

$

1,385.8

 

$

864.4

 

 

 

 

 

 

 

 

 

 

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

 

 

 

2016

 

2015

 

2015

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,321.0

 

$

4,162.2

 

$

4,130.8

 

Marketable securities

 

 

468.9

 

 

437.4

 

 

421.1

 

Receivables from unconsolidated affiliates

 

 

18.7

 

 

33.3

 

 

43.2

 

Trade accounts and notes receivable - net

 

 

3,924.6

 

 

3,051.1

 

 

4,220.4

 

Financing receivables - net

 

 

22,594.8

 

 

24,809.0

 

 

24,973.4

 

Financing receivables securitized - net

 

 

5,947.4

 

 

4,834.6

 

 

4,737.8

 

Other receivables

 

 

811.9

 

 

991.2

 

 

823.1

 

Equipment on operating leases - net

 

 

5,602.7

 

 

4,970.4

 

 

4,426.0

 

Inventories

 

 

3,851.3

 

 

3,817.0

 

 

4,319.0

 

Property and equipment - net

 

 

5,047.3

 

 

5,181.5

 

 

5,126.4

 

Investments in unconsolidated affiliates

 

 

246.2

 

 

303.5

 

 

310.6

 

Goodwill

 

 

823.6

 

 

726.0

 

 

715.9

 

Other intangible assets - net

 

 

109.5

 

 

63.6

 

 

57.8

 

Retirement benefits

 

 

323.1

 

 

215.6

 

 

335.0

 

Deferred income taxes

 

 

2,612.6

 

 

2,767.3

 

 

2,705.0

 

Other assets

 

 

1,902.8

 

 

1,583.9

 

 

1,586.7

 

Total Assets

 

$

58,606.4

 

$

57,947.6

 

$

58,932.2

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

7,362.1

 

$

8,426.6

 

$

9,347.9

 

Short-term securitization borrowings

 

 

5,728.9

 

 

4,590.0

 

 

4,595.4

 

Payables to unconsolidated affiliates

 

 

74.2

 

 

80.6

 

 

73.7

 

Accounts payable and accrued expenses

 

 

6,799.5

 

 

7,311.5

 

 

7,235.8

 

Deferred income taxes

 

 

172.3

 

 

160.8

 

 

150.9

 

Long-term borrowings

 

 

24,128.4

 

 

23,832.8

 

 

23,200.9

 

Retirement benefits and other liabilities

 

 

6,886.9

 

 

6,787.7

 

 

6,602.6

 

Total liabilities

 

 

51,152.3

 

 

51,190.0

 

 

51,207.2

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest (Note 18)

 

 

14.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

Common stock, $1 par value (issued shares at
July 31, 2016 – 536,431,204)

 

 

3,883.9

 

 

3,825.6

 

 

3,806.5

 

Common stock in treasury

 

 

(15,688.3)

 

 

(15,497.6)

 

 

(14,562.5)

 

Retained earnings

 

 

23,815.0

 

 

23,144.8

 

 

22,986.5

 

Accumulated other comprehensive income (loss)

 

 

(4,582.2)

 

 

(4,729.4)

 

 

(4,507.4)

 

Total Deere & Company stockholders’ equity

 

 

7,428.4

 

 

6,743.4

 

 

7,723.1

 

Noncontrolling interests

 

 

11.3

 

 

14.2

 

 

1.9

 

Total stockholders’ equity

 

 

7,439.7

 

 

6,757.6

 

 

7,725.0

 

Total Liabilities and Stockholders’ Equity

 

$

58,606.4

 

$

57,947.6

 

$

58,932.2

 

 

 

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

6


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED CASH FLOWS

 

 

 

 

 

 

 

For the Nine Months Ended July 31, 2016 and 2015

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

    

2016

    

2015

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net income

 

$

1,237.0

 

$

1,589.4

 

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

 

 

 

 

 

 

 

Provision for credit losses

 

 

70.3

 

 

35.4

 

Provision for depreciation and amortization

 

 

1,158.4

 

 

1,029.2

 

Impairment charges

 

 

49.7

 

 

 

 

Share-based compensation expense

 

 

51.8

 

 

47.7

 

Undistributed earnings of unconsolidated affiliates

 

 

.7

 

 

(5.2)

 

Provision for deferred income taxes

 

 

155.5

 

 

73.0

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Trade, notes and financing receivables related to sales

 

 

(588.1)

 

 

(598.0)

 

Insurance receivables

 

 

 

 

 

333.4

 

Inventories

 

 

(380.1)

 

 

(941.5)

 

Accounts payable and accrued expenses

 

 

(461.9)

 

 

(594.6)

 

Accrued income taxes payable/receivable

 

 

78.3

 

 

(58.1)

 

Retirement benefits

 

 

145.8

 

 

293.4

 

Other

 

 

(197.5)

 

 

(12.3)

 

Net cash provided by operating activities

 

 

1,319.9

 

 

1,191.8

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Collections of receivables (excluding receivables related to sales)

 

 

11,312.7

 

 

11,517.9

 

Proceeds from maturities and sales of marketable securities

 

 

139.2

 

 

833.0

 

Proceeds from sales of equipment on operating leases

 

 

916.6

 

 

773.7

 

Proceeds from sales of business and unconsolidated affiliates, net of cash sold

 

 

81.1

 

 

149.2

 

Cost of receivables acquired (excluding receivables related to sales)

 

 

(10,423.4)

 

 

(11,162.9)

 

Purchases of marketable securities

 

 

(149.9)

 

 

(100.8)

 

Purchases of property and equipment

 

 

(387.0)

 

 

(461.4)

 

Cost of equipment on operating leases acquired

 

 

(1,730.6)

 

 

(1,355.7)

 

Acquisitions of businesses, net of cash acquired

 

 

(198.9)

 

 

 

 

Other

 

 

77.8

 

 

(23.4)

 

Net cash provided by (used for) investing activities

 

 

(362.4)

 

 

169.6

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Increase (decrease) in total short-term borrowings

 

 

(133.7)

 

 

1,805.2

 

Proceeds from long-term borrowings

 

 

4,115.2

 

 

3,639.8

 

Payments of long-term borrowings

 

 

(3,977.3)

 

 

(3,980.1)

 

Proceeds from issuance of common stock

 

 

17.5

 

 

170.4

 

Repurchases of common stock

 

 

(205.4)

 

 

(1,833.9)

 

Dividends paid

 

 

(572.6)

 

 

(617.9)

 

Excess tax benefits from share-based compensation

 

 

3.8

 

 

18.5

 

Other

 

 

(53.6)

 

 

(56.9)

 

Net cash used for financing activities

 

 

(806.1)

 

 

(854.9)

 

 

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

7.4

 

 

(162.7)

 

 

 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

 

158.8

 

 

343.8

 

Cash and Cash Equivalents at Beginning of Period

 

 

4,162.2

 

 

3,787.0

 

Cash and Cash Equivalents at End of Period

 

$

4,321.0

 

$

4,130.8

 

 

 

 

 

 

 

 

 

 

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, 2015 and 2016

 

(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 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 31, 2015

 

$

6,757.6

 

$

3,825.6

 

$

(15,497.6)

 

$

23,144.8

 

$

(4,729.4)

 

$

14.2

 

 

 

 

 

Net income (loss)

 

 

1,236.6

 

 

 

 

 

 

 

 

1,238.6

 

 

 

 

 

(2.0)

 

 

$

.4

 

Other comprehensive income

 

 

147.3

 

 

 

 

 

 

 

 

 

 

 

147.2

 

 

.1

 

 

 

 

 

Repurchases of common stock

 

 

(205.4)

 

 

 

 

 

(205.4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares reissued

 

 

14.7

 

 

 

 

 

14.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

(569.2)

 

 

 

 

 

 

 

 

(568.3)

 

 

 

 

 

(.9)

 

 

 

 

 

Acquisition (Note 18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14.0

 

Stock options and other

 

 

58.1

 

 

58.3

 

 

 

 

 

(.1)

 

 

 

 

 

(.1)

 

 

 

 

 

Balance July 31, 2016

 

$

7,439.7

 

$

3,883.9

 

$

(15,688.3)

 

$

23,815.0

 

$

(4,582.2)

 

$

11.3

 

 

$

14.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 OperationsIncludes the Company’s agriculture and turf operations and construction and forestry operations with financial services reflected on the equity basis.

Financial ServicesIncludes primarily the Company’s financing operations.

ConsolidatedRepresents the consolidation of the equipment operations and financial services. References to "Deere & Company" or "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 2016 and 2015 were July 31, 2016 and August 2, 2015, respectively. Both periods contained 13 weeks. For ease of presentation, the consolidated financial statements and notes continue to be dated July 31.

(2)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.

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 $440 million and $468 million in the first nine months of 2016 and 2015, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $40 million and $42 million at July 31, 2016 and 2015, respectively.

 

(3)New accounting standard adopted is as follows:

In September 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update, (ASU) No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which amends Accounting Standards Codification (ASC) 805, Business Combinations. This ASU requires that acquiring entities recognize measurement period adjustments in the reporting period the amounts are determined, including earnings adjustments that would have been recorded in previous periods if the adjustments were known at the acquisition date. Acquiring entities are no longer required to retrospectively adjust amounts in comparative periods. The adjustment amounts and reasons are still disclosed. The Company early adopted this ASU in the second quarter of 2016. The adoption did not have a material effect on the Company’s consolidated financial statements.

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 ASC 605, Revenue Recognition. This ASU is

9


 

 

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. In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends ASU 2014-09. ASU No. 2016-08 provides additional guidance for revenue transactions that involve a third party in providing goods or services to a customer. The reporting entity must determine if the obligation to the customer is to provide the goods or services, i.e., as the principal, or to arrange for a third party to provide the goods or services, i.e., as the agent. In April 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing, which amends ASU 2014-09. ASU No. 2016-10 clarifies that goods or services that are immaterial in the context of the contract are not required to be identified as separate performance obligations. In addition, the ASU provides an accounting policy election to treat shipping and handling activities as a fulfillment cost and not part of the revenue transaction. The ASU also provides guidance regarding licensing arrangements to determine whether the license grants the right to use functional or symbolic intellectual property. Revenue for licenses of functional intellectual property, such as software, is generally recognized at a point in time, while revenue for licenses of symbolic intellectual property, such as tradenames, is generally recognized over time. In May 2016, the FASB issued ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients, which amends ASU 2014-09. This ASU clarifies the requirement to assess collectability of contract consideration, clarifies the treatment of noncash consideration and provides a policy election to exclude from revenue amounts collected from customers for sales and similar taxes. The adoption will use one of two retrospective application methods. The Company plans to adopt the ASU effective the first quarter of fiscal year 2019 and is evaluating 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 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. 2015-09, 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

10


 

 

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.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends ASC 825-10, Financial Instruments - Overall. This ASU changes the treatment for available for sale equity investments by recognizing unrealized fair value changes directly in net income, and no longer in other comprehensive income. In addition, the impairment assessment of equity securities without readily determinable fair values is simplified by allowing a qualitative assessment. The ASU eliminates the disclosure requirement of methods and assumptions used to estimate fair value for financial instruments measured at amortized cost on the balance sheet. Additional disclosure of financial assets and financial liabilities by measurement category and form is also required. The effective date will be the first quarter of fiscal year 2019. Early adoption of the provisions affecting the Company is not permitted. The amendment will be adopted with a cumulative-effect adjustment to the balance sheet in the year of adoption. The Company is evaluating the potential effects on the consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. The ASU does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. The ASU’s primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term on operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting under the ASU is largely unchanged from the previous accounting standard. In addition, the ASU expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach. The effective date will be the first quarter of fiscal year 2020 with early adoption permitted. The Company is evaluating the potential effects on the consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which amends ASC 323 Investments - Equity Method and Joint Ventures. This ASU eliminates the requirement to retroactively restate the investment, results of operations and retained earnings on a step by step basis when an investment qualifies for use of the equity method as a result of an increase in ownership or degree of influence. The ASU requires that the equity method investor add the cost of acquiring the additional ownership interest to the current basis of the entity’s previously held interest and adopt the equity method of accounting as of that date. The effective date will be the first quarter of fiscal year 2018, with early adoption permitted, and will be adopted prospectively. The adoption will not have a material effect on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC 718, Compensation - Stock Compensation. This ASU simplifies the treatment of share based payment transactions by recognizing the impact of excess tax benefits or deficiencies related to exercised or vested awards in income tax expense in the period of exercise or vesting. The ASU also modifies the diluted earnings per share calculation using the treasury stock method by eliminating the excess tax benefits or deficiencies from the calculation. These changes will be recognized prospectively. The presentation of excess tax benefits in the statement of consolidated cash flows is also modified to be included with other income tax cash flows as an operating activity. The change can be adopted using a prospective or retrospective transition method. The ASU also provides an accounting policy election to account for award forfeitures in compensation cost when the forfeitures occur. The requirement

11


 

 

for an award to qualify for equity classification was also modified by the ASU to permit withholding up to maximum statutory tax rates in the applicable jurisdictions. The modification regarding award forfeitures and withholding rates are adopted by a cumulative effect adjustment to equity at the beginning of the period adopted. The ASU clarifies that cash paid by an employer when directly withholding shares for tax withholding purposes should be presented as a financing activity in the statement of consolidated cash flows and should be applied retrospectively. The effective date will be the first quarter of fiscal year 2018, with early adoption permitted. The Company is evaluating the potential effects on the consolidated financial statements.

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. This ASU requires that financial assets measured at amortized cost be presented at the net amount to be collected. To determine this amount, the ASU revises the measurement of credit losses from an incurred loss methodology to an expected loss methodology that requires consideration of historical information and supportable forecasts to determine credit loss estimates. The ASU affects trade receivables, debt securities, net investment in leases and most other financial assets that represent a right to receive cash. The treatment for available for sale debt securities is also modified by presenting credit losses as an allowance rather than as a write-down. Additional disclosures about significant estimates and credit quality are also required. The effective date will be the first quarter of fiscal year 2021, with early adoption permitted beginning in fiscal year 2020. The ASU 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 should be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.

(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, 2015

 

$

(3,501)

 

$

(1,238)

 

$

(2)

 

$

12

 

$

(4,729)

 

Other comprehensive income (loss) items before reclassification

 

 

(23)

 

 

54

 

 

(2)

 

 

7

 

 

36

 

Amounts reclassified from accumulated other comprehensive income

 

 

110

 

 

 

 

 

3

 

 

(2)

 

 

111

 

Net current period other comprehensive income (loss)

 

 

87

 

 

54

 

 

1

 

 

5

 

 

147

 

Balance July 31, 2016

 

$

(3,414)

 

$

(1,184)

 

$

(1)

 

$

17

 

$

(4,582)

 

 

12


 

 

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