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EX-32 - EX-32 - DEERE & COde-20170129xex32.htm
EX-31.2 - EX-31.2 - DEERE & COde-20170129ex3123ea529.htm
EX-31.1 - EX-31.1 - DEERE & COde-20170129ex311270953.htm
EX-12 - EX-12 - DEERE & COde-20170129ex128e5d608.htm
EX-10.2 - EX-10.2 - DEERE & COde-20170129ex102f96993.htm
EX-10.1 - EX-10.1 - DEERE & COde-20170129ex101dc9336.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 January 29, 2017

 

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 January 29, 2017, 318,283,154 shares of common stock, $1 par value, of the registrant were outstanding.

 

 

 

Index to Exhibits: Page 43

 

 


 

 

PART I.  FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

ITEM 1.  FINANCIAL STATEMENTS

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED INCOME

 

 

 

 

 

 

 

For the Three Months Ended January 29, 2017 and January 31, 2016

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

2017

 

2016

 

Net Sales and Revenues

 

 

 

 

 

 

 

Net sales

 

$

4,697.8

 

$

4,769.2

 

Finance and interest income

 

 

655.5

 

 

599.0

 

Other income

 

 

271.9

 

 

156.3

 

Total

 

 

5,625.2

 

 

5,524.5

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

Cost of sales

 

 

3,796.8

 

 

3,840.1

 

Research and development expenses

 

 

310.9

 

 

319.3

 

Selling, administrative and general expenses

 

 

659.4

 

 

592.9

 

Interest expense

 

 

208.1

 

 

173.2

 

Other operating expenses

 

 

322.0

 

 

247.8

 

Total

 

 

5,297.2

 

 

5,173.3

 

 

 

 

 

 

 

 

 

Income of Consolidated Group before Income Taxes

 

 

328.0

 

 

351.2

 

Provision for income taxes

 

 

134.4

 

 

95.5

 

Income of Consolidated Group

 

 

193.6

 

 

255.7

 

Equity in loss of unconsolidated affiliates

 

 

(.4)

 

 

(1.9)

 

Net Income

 

 

193.2

 

 

253.8

 

Less: Net loss attributable to noncontrolling interests

 

 

(.6)

 

 

(.6)

 

Net Income Attributable to Deere & Company

 

$

193.8

 

$

254.4

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

Basic

 

$

.61

 

$

.80

 

Diluted

 

$

.61

 

$

.80

 

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

 

Basic

 

 

316.7

 

 

316.4

 

Diluted

 

 

319.8

 

 

317.6

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

2


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

 

 

 

 

 

 

 

For the Three Months Ended January 29, 2017 and January 31, 2016

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Net Income

 

$

193.2

 

$

253.8

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

 

 

 

 

 

Retirement benefits adjustment

 

 

43.0

 

 

38.1

 

Cumulative translation adjustment

 

 

(17.7)

 

 

(158.0)

 

Unrealized gain on derivatives 

 

 

2.0

 

 

 

 

Unrealized loss on investments

 

 

(5.8)

 

 

(10.8)

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

21.5

 

 

(130.7)

 

 

 

 

 

 

 

 

 

Comprehensive Income of Consolidated Group

 

 

214.7

 

 

123.1

 

Less: Comprehensive loss attributable to noncontrolling interests

 

 

(.6)

 

 

(.6)

 

Comprehensive Income Attributable to Deere & Company

 

$

215.3

 

$

123.7

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

3


 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

 

 

 

    

January 29

    

October 30

    

January 31

 

 

 

2017

 

2016

 

2016

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,890.0

 

$

4,335.8

 

$

3,459.9

 

Marketable securities

 

 

445.5

 

 

453.5

 

 

476.3

 

Receivables from unconsolidated affiliates

 

 

28.9

 

 

16.5

 

 

22.9

 

Trade accounts and notes receivable – net

 

 

3,236.3

 

 

3,011.3

 

 

3,406.8

 

Financing receivables – net

 

 

23,030.9

 

 

23,702.3

 

 

23,630.4

 

Financing receivables securitized – net

 

 

4,250.4

 

 

5,126.5

 

 

4,003.2

 

Other receivables

 

 

876.8

 

 

1,018.5

 

 

1,094.0

 

Equipment on operating leases – net

 

 

5,825.3

 

 

5,901.5

 

 

5,074.4

 

Inventories

 

 

3,959.6

 

 

3,340.5

 

 

4,249.5

 

Property and equipment – net

 

 

5,030.4

 

 

5,170.6

 

 

5,039.2

 

Investments in unconsolidated affiliates

 

 

220.9

 

 

232.6

 

 

299.5

 

Goodwill

 

 

809.2

 

 

815.7

 

 

718.7

 

Other intangible assets – net

 

 

95.5

 

 

104.1

 

 

59.6

 

Retirement benefits

 

 

133.7

 

 

93.6

 

 

253.7

 

Deferred income taxes

 

 

2,963.4

 

 

2,964.4

 

 

2,516.6

 

Other assets

 

 

1,499.8

 

 

1,631.1

 

 

1,667.3

 

Total Assets

 

$

56,296.6

 

$

57,918.5

 

$

55,972.0

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

7,441.6

 

$

6,910.7

 

$

7,824.7

 

Short-term securitization borrowings

 

 

4,220.2

 

 

4,997.8

 

 

3,874.9

 

Payables to unconsolidated affiliates

 

 

94.7

 

 

81.6

 

 

79.6

 

Accounts payable and accrued expenses

 

 

6,334.5

 

 

7,240.1

 

 

6,196.4

 

Deferred income taxes

 

 

168.9

 

 

166.0

 

 

149.6

 

Long-term borrowings

 

 

22,916.6

 

 

23,703.0

 

 

24,474.4

 

Retirement benefits and other liabilities

 

 

8,270.4

 

 

8,274.5

 

 

6,768.6

 

Total liabilities

 

 

49,446.9

 

 

51,373.7

 

 

49,368.2

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

14.0

 

 

14.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

Common stock, $1 par value (issued shares at
January 29, 2017 – 536,431,204)

 

 

4,084.8

 

 

3,911.8

 

 

3,843.1

 

Common stock in treasury

 

 

(15,569.1)

 

 

(15,677.1)

 

 

(15,601.9)

 

Retained earnings

 

 

23,914.3

 

 

23,911.3

 

 

23,209.1

 

Accumulated other comprehensive income (loss)

 

 

(5,604.5)

 

 

(5,626.0)

 

 

(4,860.1)

 

Total Deere & Company stockholders’ equity

 

 

6,825.5

 

 

6,520.0

 

 

6,590.2

 

Noncontrolling interests

 

 

10.2

 

 

10.8

 

 

13.6

 

Total stockholders’ equity

 

 

6,835.7

 

 

6,530.8

 

 

6,603.8

 

Total Liabilities and Stockholders’ Equity

 

$

56,296.6

 

$

57,918.5

 

$

55,972.0

 

 

 

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

4


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED CASH FLOWS

 

 

 

 

 

 

 

For the Three Months Ended January 29, 2017 and January 31, 2016

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

    

2017

    

2016

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net income

 

$

193.2

 

$

253.8

 

Adjustments to reconcile net income to net cash used for operating activities:

 

 

 

 

 

 

 

Provision for credit losses

 

 

6.5

 

 

9.4

 

Provision for depreciation and amortization

 

 

415.7

 

 

374.2

 

Impairment charges

 

 

 

 

 

12.6

 

Share-based compensation expense

 

 

18.2

 

 

17.5

 

Undistributed earnings of unconsolidated affiliates

 

 

(1.0)

 

 

(.6)

 

Provision for deferred income taxes

 

 

6.0

 

 

240.4

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Trade, notes and financing receivables related to sales

 

 

61.9

 

 

44.9

 

Inventories

 

 

(743.1)

 

 

(565.3)

 

Accounts payable and accrued expenses

 

 

(717.7)

 

 

(869.5)

 

Accrued income taxes payable/receivable

 

 

15.5

 

 

(241.5)

 

Retirement benefits

 

 

46.5

 

 

22.8

 

Other

 

 

(44.1)

 

 

(76.3)

 

Net cash used for operating activities

 

 

(742.4)

 

 

(777.6)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Collections of receivables (excluding receivables related to sales)

 

 

4,814.8

 

 

4,633.4

 

Proceeds from maturities and sales of marketable securities

 

 

23.7

 

 

18.7

 

Proceeds from sales of equipment on operating leases

 

 

368.2

 

 

290.8

 

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

 

 

113.9

 

 

 

 

Cost of receivables acquired (excluding receivables related to sales)

 

 

(3,644.6)

 

 

(3,316.6)

 

Purchases of marketable securities

 

 

(21.7)

 

 

(71.7)

 

Purchases of property and equipment

 

 

(155.2)

 

 

(140.0)

 

Cost of equipment on operating leases acquired

 

 

(382.6)

 

 

(570.4)

 

Other

 

 

(12.1)

 

 

7.4

 

Net cash provided by investing activities

 

 

1,104.4

 

 

851.6

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Decrease in total short-term borrowings

 

 

(1,064.9)

 

 

(1,074.9)

 

Proceeds from long-term borrowings

 

 

1,295.8

 

 

1,832.0

 

Payments of long-term borrowings

 

 

(1,048.9)

 

 

(1,181.3)

 

Proceeds from issuance of common stock

 

 

263.3

 

 

2.7

 

Repurchases of common stock

 

 

(6.2)

 

 

(107.8)

 

Dividends paid

 

 

(188.9)

 

 

(193.1)

 

Excess tax benefits from share-based compensation

 

 

5.7

 

 

1.0

 

Other

 

 

(24.4)

 

 

(21.5)

 

Net cash used for financing activities

 

 

(768.5)

 

 

(742.9)

 

 

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

(39.3)

 

 

(33.4)

 

 

 

 

 

 

 

 

 

Net Decrease in Cash and Cash Equivalents

 

 

(445.8)

 

 

(702.3)

 

Cash and Cash Equivalents at Beginning of Period

 

 

4,335.8

 

 

4,162.2

 

Cash and Cash Equivalents at End of Period

 

$

3,890.0

 

$

3,459.9

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

 

 

 

5


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

 

For the Three Months Ended January 29, 2017 and January 31, 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 November 1, 2015

 

$

6,757.6

 

$

3,825.6

 

$

(15,497.6)

 

$

23,144.8

 

$

(4,729.4)

 

$

14.2

 

 

 

 

 

Net income (loss)

 

 

253.8

 

 

 

 

 

 

 

 

254.4

 

 

 

 

 

(.6)

 

 

 

 

 

Other comprehensive loss

 

 

(130.7)

 

 

 

 

 

 

 

 

 

 

 

(130.7)

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

(107.8)

 

 

 

 

 

(107.8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares reissued

 

 

3.5

 

 

 

 

 

3.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

(190.1)

 

 

 

 

 

 

 

 

(190.1)

 

 

 

 

 

 

 

 

 

 

 

Stock options and other

 

 

17.5

 

 

17.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 31, 2016

 

$

6,603.8

 

$

3,843.1

 

$

(15,601.9)

 

$

23,209.1

 

$

(4,860.1)

 

$

13.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 30, 2016

 

$

6,530.8

 

$

3,911.8

 

$

(15,677.1)

 

$

23,911.3

 

$

(5,626.0)

 

$

10.8

 

 

$

14.0

 

Net income (loss)

 

 

193.2

 

 

 

 

 

 

 

 

193.8

 

 

 

 

 

(.6)

 

 

 

 

 

Other comprehensive income

 

 

21.5

 

 

 

 

 

 

 

 

 

 

 

21.5

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

(6.2)

 

 

 

 

 

(6.2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares reissued

 

 

114.2

 

 

 

 

 

114.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

(190.9)

 

 

 

 

 

 

 

 

(190.9)

 

 

 

 

 

 

 

 

 

 

 

Stock options and other

 

 

173.1

 

 

173.0

 

 

 

 

 

.1

 

 

 

 

 

 

 

 

 

 

 

Balance January 29, 2017

 

$

6,835.7

 

$

4,084.8

 

$

(15,569.1)

 

$

23,914.3

 

$

(5,604.5)

 

$

10.2

 

 

$

14.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 See Condensed Notes to Interim Consolidated Financial Statements.

 

6


 

 

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 first quarter ends for fiscal year 2017 and 2016 were January 29, 2017 and January 31, 2016, respectively. Both periods contained 13 weeks.

 

(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 $119 million and $115 million in the first three months of 2017 and 2016, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $29 million and $25 million at January 29, 2017 and January 31, 2016, respectively.

 

(3)New accounting standards adopted are as follows:

In the first quarter of 2017, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standard Update (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 Accounting Standards Codification (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. 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 the 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 adoption did not have a material effect on the Company’s consolidated financial statements.

In the first quarter of 2017, the Company adopted 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

7


 

 

amount of the borrowing. As required, the presentation and disclosure requirements were adopted through retrospective application with the consolidated balance sheet and related notes in prior periods adjusted for a consistent presentation. Debt issuance costs of $63 million and $64 million at October 30, 2016 and January 31, 2016, respectively, were reclassified from other assets to borrowings in the consolidated balance sheet.

In the first quarter of 2017, the Company adopted 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. The Company presents these costs in other assets and amortizes the costs ratably over the term of the line of credit arrangement, regardless of whether there are outstanding borrowings on the arrangement. The adoption did not have a material effect on the Company’s consolidated financial statements.

In the first quarter of 2017, the Company prospectively adopted 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 adoption did not have a material effect on the Company’s consolidated financial statements.

In the first quarter of 2017, the Company early adopted, with a prospective application, 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 the last-in, first-out method. 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 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. In August 2015, the FASB amended the effective date to be the first quarter of fiscal year 2019 with early adoption permitted in the first quarter of fiscal year 2018. The FASB issued several amendments clarifying various aspects of the ASU, including revenue transactions that involve a third party, goods or services that are immaterial in the context of the contract and licensing arrangements. The 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 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. The effective date will be the first quarter of fiscal year 2019. Early adoption of the provisions affecting the Company is not permitted. The ASU 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’s primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset during the term of operating lease arrangements. The ASU does not significantly change the lessee’s recognition, measurement, and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. 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

8


 

 

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 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. This change 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 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. The ASU revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss methodology to an expected loss methodology. The ASU affects trade receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. 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 will be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which amends ASC 740, Income Taxes. This ASU requires that the income tax consequences of an intra-entity asset transfer other than inventory are recognized at the time of the transfer. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted. The ASU will be adopted using a modified-retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amends ASC 230, Statement of Cash Flows. This ASU requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted, and will be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which amends ASC 805, Business Combinations. This ASU provides further guidance on the definition of a business to determine whether transactions should be accounted for as acquisitions of assets or businesses. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted in certain cases. The ASU will be adopted on a prospective basis and will not have a material effect on the Company’s consolidated financial statements.

9


 

 

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, which amends ASC 350, Intangibles – Goodwill and Other. This ASU simplifies the goodwill impairment test by removing the requirement to perform a hypothetical purchase price allocation when the carrying value of a reporting unit exceeds its fair value. This ASU states the impairment will be measured as the excess of the reporting unit’s carrying value over the fair value, with a limit of the goodwill allocated to that reporting unit. The effective date is fiscal year 2021, with early adoption permitted after January 1, 2017. The ASU will be adopted on a prospective basis and 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 November 1, 2015

 

$

(3,501)

 

$

(1,238)

 

$

(2)

 

$

12

 

$

(4,729)

 

Other comprehensive income (loss) items before reclassification

 

 

(2)

 

 

(158)

 

 

(1)

 

 

(10)

 

 

(171)

 

Amounts reclassified from accumulated other comprehensive income

 

 

40

 

 

 

 

 

1

 

 

(1)

 

 

40

 

Net current period other comprehensive income (loss)

 

 

38

 

 

(158)

 

 

 

 

 

(11)

 

 

(131)

 

Balance January 31, 2016

 

$

(3,463)

 

$

(1,396)

 

$

(2)

 

$

1

 

$

(4,860)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 30, 2016

 

$

(4,409)

 

$

(1,229)

 

$

1

 

$

11

 

$

(5,626)

 

Other comprehensive income (loss) items before reclassification

 

 

(1)

 

 

(18)

 

 

2

 

 

(5)

 

 

(22)

 

Amounts reclassified from accumulated other comprehensive income

 

 

44

 

 

 

 

 

 

 

 

(1)

 

 

43

 

Net current period other comprehensive income (loss)

 

 

43

 

 

(18)

 

 

2

 

 

(6)

 

 

21

 

Balance January 29, 2017

 

$

(4,366)

 

$

(1,247)

 

$

3

 

$

5

 

$

(5,605)

 

 

10


 

 

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 January 29, 2017

 

Amount

 

Credit

 

Amount

 

Cumulative translation adjustment

 

$

(19)

 

$

1

 

$

(18)

 

Unrealized gain (loss) on derivatives:

 

 

 

 

 

 

 

 

 

 

Unrealized hedging gain (loss)

 

 

4

 

 

(2)

 

 

2

 

Reclassification of realized (gain) loss to:

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts – Other operating expense

 

 

(1)

 

 

1

 

 

 

 

Net unrealized gain (loss) on derivatives

 

 

3

 

 

(1)

 

 

2

 

Unrealized gain (loss) on investments:

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss)

 

 

(7)

 

 

2

 

 

(5)

 

Reclassification of realized (gain) loss – Other income

 

 

(1)

 

 

 

 

 

(1)

 

Net unrealized gain (loss) on investments

 

 

(8)

 

 

2

 

 

(6)

 

Retirement benefits adjustment:

 

 

 

 

 

 

 

 

 

 

Pensions

 

 

 

 

 

 

 

 

 

 

Net actuarial gain (loss)

 

 

(1)

 

 

 

 

 

(1)

 

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

 

 

 

 

 

 

 

 

 

 

Actuarial (gain) loss

 

 

60

 

 

(22)

 

 

38

 

Prior service (credit) cost

 

 

3

 

 

(1)

 

 

2

 

Health care and life insurance

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Actuarial (gain) loss

 

 

25

 

 

(9)

 

 

16

 

Prior service (credit) cost

 

 

(19)

 

 

7

 

 

(12)

 

Net unrealized gain (loss) on retirement benefits adjustments

 

 

68

 

 

(25)

 

 

43

 

Total other comprehensive income (loss)

 

$

44

 

$

(23)

 

$

21

 

 

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

11


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Before

    

Tax

    

After

 

 

 

Tax

 

(Expense)

 

Tax

 

Three Months Ended January 31, 2016

 

Amount

 

Credit

 

Amount

 

Cumulative translation adjustment

 

$

(158)

 

 

 

 

$

(158)

 

Unrealized gain (loss) on derivatives: