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EX-32 - EX-32 - DEERE & COde-20170730xex32.htm
EX-31.2 - EX-31.2 - DEERE & COde-20170730ex312494d01.htm
EX-31.1 - EX-31.1 - DEERE & COde-20170730ex311f02cf0.htm
EX-12 - EX-12 - DEERE & COde-20170730ex129794d23.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 30, 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

Large accelerated filer

   X  

Accelerated filer

         

Non-accelerated filer

            (Do not check if a smaller reporting company)

Smaller reporting company

         

 

 

Emerging growth company

         

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.          

 

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 30, 2017, 321,296,852 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 30, 2017 and July 31, 2016

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

2017

 

2016

 

Net Sales and Revenues 

 

 

 

 

 

 

 

Net sales

 

$

6,833.0

 

$

5,861.4

 

Finance and interest income

 

 

688.8

 

 

638.5

 

Other income

 

 

286.0

 

 

224.5

 

Total

 

 

7,807.8

 

 

6,724.4

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

Cost of sales

 

 

5,265.1

 

 

4,494.2

 

Research and development expenses

 

 

335.4

 

 

338.8

 

Selling, administrative and general expenses

 

 

791.2

 

 

709.0

 

Interest expense

 

 

216.3

 

 

200.7

 

Other operating expenses

 

 

309.9

 

 

276.6

 

Total

 

 

6,917.9

 

 

6,019.3

 

 

 

 

 

 

 

 

 

Income of Consolidated Group before Income Taxes

 

 

889.9

 

 

705.1

 

Provision for income taxes

 

 

253.2

 

 

226.5

 

Income of Consolidated Group

 

 

636.7

 

 

478.6

 

Equity in income of unconsolidated affiliates

 

 

5.6

 

 

10.0

 

Net Income

 

 

642.3

 

 

488.6

 

Less: Net income (loss) attributable to noncontrolling interests

 

 

.5

 

 

(.2)

 

Net Income Attributable to Deere & Company

 

$

641.8

 

$

488.8

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

Basic

 

$

2.00

 

$

1.55

 

Diluted

 

$

1.97

 

$

1.55

 

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

 

Basic

 

 

320.8

 

 

314.3

 

Diluted

 

 

325.1

 

 

315.7

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

2


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

 

 

 

 

 

 

 

For the Three Months Ended July 30, 2017 and July 31, 2016

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Net Income

 

$

642.3

 

$

488.6

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

 

 

 

 

 

Retirement benefits adjustment

 

 

44.0

 

 

30.3

 

Cumulative translation adjustment

 

 

326.1

 

 

(99.5)

 

Unrealized loss on derivatives 

 

 

(.5)

 

 

(.2)

 

Unrealized gain (loss) on investments

 

 

(53.7)

 

 

6.0

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

315.9

 

 

(63.4)

 

 

 

 

 

 

 

 

 

Comprehensive Income of Consolidated Group

 

 

958.2

 

 

425.2

 

Less: Comprehensive gain (loss) attributable to noncontrolling interests

 

 

.7

 

 

(.2)

 

Comprehensive Income Attributable to Deere & Company

 

$

957.5

 

$

425.4

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

3


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED INCOME

 

 

 

 

 

 

 

For the Nine Months Ended July 30, 2017 and July 31, 2016

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

    

2017

    

2016

 

Net Sales and Revenues

 

 

 

 

 

 

 

Net sales

 

$

18,790.7

 

$

17,737.1

 

Finance and interest income

 

 

2,009.3

 

 

1,849.0

 

Other income

 

 

920.0

 

 

538.3

 

Total

 

 

21,720.0

 

 

20,124.4

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

Cost of sales

 

 

14,506.5

 

 

13,865.3

 

Research and development expenses

 

 

970.7

 

 

1,003.1

 

Selling, administrative and general expenses

 

 

2,225.8

 

 

2,016.8

 

Interest expense

 

 

651.3

 

 

564.9

 

Other operating expenses

 

 

978.5

 

 

884.7

 

Total

 

 

19,332.8

 

 

18,334.8

 

 

 

 

 

 

 

 

 

Income of Consolidated Group before Income Taxes

 

 

2,387.2

 

 

1,789.6

 

Provision for income taxes

 

 

748.7

 

 

559.9

 

Income of Consolidated Group

 

 

1,638.5

 

 

1,229.7

 

Equity in income of unconsolidated affiliates

 

 

10.0

 

 

7.3

 

Net Income

 

 

1,648.5

 

 

1,237.0

 

Less: Net loss attributable to noncontrolling interests

 

 

(.3)

 

 

(1.6)

 

Net Income Attributable to Deere & Company

 

$

1,648.8

 

$

1,238.6

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

Basic

 

$

5.17

 

$

3.93

 

Diluted

 

$

5.11

 

$

3.91

 

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

 

Basic

 

 

318.8

 

 

315.4

 

Diluted

 

 

322.5

 

 

316.7

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

4


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

 

 

 

 

 

 

 

For the Nine Months Ended July 30, 2017 and July 31, 2016

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Net Income

 

$

1,648.5

 

$

1,237.0

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

 

 

 

 

 

Retirement benefits adjustment

 

 

120.6

 

 

87.5

 

Cumulative translation adjustment

 

 

325.1

 

 

54.3

 

Unrealized gain on derivatives 

 

 

1.5

 

 

.8

 

Unrealized gain (loss) on investments

 

 

(.8)

 

 

4.7

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

446.4

 

 

147.3

 

 

 

 

 

 

 

 

 

Comprehensive Income of Consolidated Group

 

 

2,094.9

 

 

1,384.3

 

Less: Comprehensive loss attributable to noncontrolling interests

 

 

(.1)

 

 

(1.5)

 

Comprehensive Income Attributable to Deere & Company

 

$

2,095.0

 

$

1,385.8

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

5


 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

 

 

 

    

July 30

    

October 30

    

July 31

 

 

 

2017

 

2016

 

2016

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,537.4

 

$

4,335.8

 

$

4,321.0

 

Marketable securities

 

 

426.1

 

 

453.5

 

 

468.9

 

Receivables from unconsolidated affiliates

 

 

28.5

 

 

16.5

 

 

18.7

 

Trade accounts and notes receivable – net

 

 

4,389.8

 

 

3,011.3

 

 

3,924.6

 

Financing receivables – net

 

 

23,722.1

 

 

23,702.3

 

 

22,594.8

 

Financing receivables securitized – net

 

 

4,923.1

 

 

5,126.5

 

 

5,947.4

 

Other receivables

 

 

829.2

 

 

1,018.5

 

 

811.9

 

Equipment on operating leases – net

 

 

6,235.6

 

 

5,901.5

 

 

5,602.7

 

Inventories

 

 

4,252.9

 

 

3,340.5

 

 

3,851.3

 

Property and equipment – net

 

 

4,968.5

 

 

5,170.6

 

 

5,047.3

 

Investments in unconsolidated affiliates

 

 

220.8

 

 

232.6

 

 

246.2

 

Goodwill

 

 

845.8

 

 

815.7

 

 

823.6

 

Other intangible assets – net

 

 

92.0

 

 

104.1

 

 

109.5

 

Retirement benefits

 

 

219.1

 

 

93.6

 

 

323.1

 

Deferred income taxes

 

 

3,067.7

 

 

2,964.4

 

 

2,612.6

 

Other assets

 

 

1,591.3

 

 

1,631.1

 

 

1,835.5

 

Total Assets

 

$

62,349.9

 

$

57,918.5

 

$

58,539.1

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

9,019.4

 

$

6,910.7

 

$

7,360.6

 

Short-term securitization borrowings

 

 

4,780.9

 

 

4,997.8

 

 

5,722.6

 

Payables to unconsolidated affiliates

 

 

77.8

 

 

81.6

 

 

74.2

 

Accounts payable and accrued expenses

 

 

7,599.0

 

 

7,240.1

 

 

6,799.5

 

Deferred income taxes

 

 

190.0

 

 

166.0

 

 

172.3

 

Long-term borrowings

 

 

23,674.3

 

 

23,703.0

 

 

24,068.9

 

Retirement benefits and other liabilities

 

 

8,419.6

 

 

8,274.5

 

 

6,886.9

 

Total liabilities

 

 

53,761.0

 

 

51,373.7

 

 

51,085.0

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

14.0

 

 

14.0

 

 

14.4

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

Common stock, $1 par value (issued shares at
July 30, 2017 – 536,431,204)

 

 

4,245.1

 

 

3,911.8

 

 

3,883.9

 

Common stock in treasury

 

 

(15,477.3)

 

 

(15,677.1)

 

 

(15,688.3)

 

Retained earnings

 

 

24,984.2

 

 

23,911.3

 

 

23,815.0

 

Accumulated other comprehensive income (loss)

 

 

(5,179.8)

 

 

(5,626.0)

 

 

(4,582.2)

 

Total Deere & Company stockholders’ equity

 

 

8,572.2

 

 

6,520.0

 

 

7,428.4

 

Noncontrolling interests

 

 

2.7

 

 

10.8

 

 

11.3

 

Total stockholders’ equity

 

 

8,574.9

 

 

6,530.8

 

 

7,439.7

 

Total Liabilities and Stockholders’ Equity

 

$

62,349.9

 

$

57,918.5

 

$

58,539.1

 

 

 

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

6


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED CASH FLOWS

 

 

 

 

 

 

 

For the Nine Months Ended July 30, 2017 and July 31, 2016

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

    

2017

    

2016

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net income

 

$

1,648.5

 

$

1,237.0

 

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

 

 

 

 

 

 

 

Provision for credit losses

 

 

76.8

 

 

70.3

 

Provision for depreciation and amortization

 

 

1,279.0

 

 

1,158.4

 

Impairment charges

 

 

 

 

 

49.7

 

Share-based compensation expense

 

 

50.7

 

 

51.8

 

Gain on sale of unconsolidated affiliates and investments

 

 

(375.1)

 

 

(74.5)

 

Undistributed earnings of unconsolidated affiliates

 

 

(9.3)

 

 

.7

 

Provision (credit) for deferred income taxes

 

 

(77.5)

 

 

155.5

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Trade, notes and financing receivables related to sales

 

 

(1,091.1)

 

 

(588.1)

 

Inventories

 

 

(1,348.0)

 

 

(380.1)

 

Accounts payable and accrued expenses

 

 

316.2

 

 

(461.9)

 

Accrued income taxes payable/receivable

 

 

167.8

 

 

82.1

 

Retirement benefits

 

 

173.1

 

 

145.8

 

Other

 

 

(81.8)

 

 

(123.0)

 

Net cash provided by operating activities

 

 

729.3

 

 

1,323.7

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Collections of receivables (excluding receivables related to sales)

 

 

11,334.4

 

 

11,312.7

 

Proceeds from maturities and sales of marketable securities

 

 

388.8

 

 

139.2

 

Proceeds from sales of equipment on operating leases

 

 

1,086.6

 

 

916.6

 

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

 

 

113.9

 

 

81.1

 

Cost of receivables acquired (excluding receivables related to sales)

 

 

(11,325.6)

 

 

(10,423.4)

 

Purchases of marketable securities

 

 

(77.0)

 

 

(149.9)

 

Purchases of property and equipment

 

 

(373.7)

 

 

(387.0)

 

Cost of equipment on operating leases acquired

 

 

(1,395.3)

 

 

(1,730.6)

 

Acquisitions of businesses, net of cash acquired

 

 

 

 

 

(198.9)

 

Other

 

 

(53.3)

 

 

77.8

 

Net cash used for investing activities

 

 

(301.2)

 

 

(362.4)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Increase (decrease) in total short-term borrowings

 

 

1,648.9

 

 

(133.7)

 

Proceeds from long-term borrowings

 

 

4,364.5

 

 

4,115.2

 

Payments of long-term borrowings

 

 

(4,205.6)

 

 

(3,977.3)

 

Proceeds from issuance of common stock

 

 

488.6

 

 

17.5

 

Repurchases of common stock

 

 

(6.2)

 

 

(205.4)

 

Dividends paid

 

 

(571.3)

 

 

(572.6)

 

Other

 

 

(62.9)

 

 

(53.6)

 

Net cash provided by (used for) financing activities

 

 

1,656.0

 

 

(809.9)

 

 

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

117.5

 

 

7.4

 

 

 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

 

2,201.6

 

 

158.8

 

Cash and Cash Equivalents at Beginning of Period

 

 

4,335.8

 

 

4,162.2

 

Cash and Cash Equivalents at End of Period

 

$

6,537.4

 

$

4,321.0

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

7


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

 

For the Nine Months Ended July 30, 2017 and July 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)

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

1,648.5

 

 

 

 

 

 

 

 

1,648.8

 

 

 

 

 

(.3)

 

 

 

 

 

Other comprehensive income

 

 

446.4

 

 

 

 

 

 

 

 

 

 

 

446.2

 

 

.2

 

 

 

 

 

Repurchases of common stock

 

 

(6.2)

 

 

 

 

 

(6.2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares reissued

 

 

206.0

 

 

 

 

 

206.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

(577.1)

 

 

 

 

 

 

 

 

(575.9)

 

 

 

 

 

(1.2)

 

 

 

 

 

Stock options and other

 

 

326.5

 

 

333.3

 

 

 

 

 

 

 

 

 

 

 

(6.8)

 

 

 

 

 

Balance July 30, 2017

 

$

8,574.9

 

$

4,245.1

 

$

(15,477.3)

 

$

24,984.2

 

$

(5,179.8)

 

$

2.7

 

 

$

14.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2017 and 2016 were July 30, 2017 and July 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 $519 million and $440 million in the first nine months of 2017 and 2016, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $37 million and $40 million at July 30, 2017 and July 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 Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amends Accounting Standards Codification (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. 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 $67 million at October 30, 2016 and July 31, 2016, respectively, were reclassified from other assets to borrowings in the consolidated balance sheet.

In the third quarter of 2017, the Company early adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC 718, Compensation – Stock Compensation. This ASU changes 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

9


 

 

or vesting, instead of common stock. As required, this change was reflected for all periods in fiscal year 2017. Net income increased in the third quarter and first nine months of fiscal year 2017 by approximately $14 million and $25 million, respectively. The ASU also modified the presentation of excess tax benefits in the statement of consolidated cash flows by including that amount with other income tax cash flows as an operating activity and no longer presented separately as a financing activity. This change was recognized through a retrospective application that increased net cash flow provided by operating activities by approximately $25 million and $4 million for the first nine months of fiscal years 2017 and 2016, respectively. The ASU also requires 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, which is the Company’s existing presentation. The Company will continue to recognize the impact of share-based payment award forefeitures as the forfeitures occur.

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

The Company also adopted the following standards during 2017, none of which had a material effect on the Company’s consolidated financial statements:

 

 

 

 

 

 

Accounting Standard Update

 

 

  

Effective Date

 

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

 

 

October 31, 2016

 

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

 

 

October 31, 2016

 

2015-11

Simplifying the Measurement of Inventory, which amends ASC 330, Inventory

 

 

October 31, 2016

 

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

 

 

October 31, 2016

 

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 Company plans to adopt the ASU effective the first quarter of fiscal year 2019 using a modified retrospective method and continues to evaluate the ASU’s 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

10


 

 

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 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 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.

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends ASC 715, Compensation – Retirement Benefits. This ASU requires that employers report only the service cost component of the total defined benefit pension and postretirement benefit cost in the same income statement lines as compensation for the participating employees. The other components of these benefit costs are reported outside of income from operations. In addition, only the service cost component of the benefit costs is eligible for capitalization. The ASU will be adopted on a retrospective basis for the presentation of the benefit costs and on a prospective basis for the capitalization of only the service cost. The effective date is fiscal year 2019, with early adoption permitted. The Company plans to adopt the ASU in the first quarter of fiscal year 2018 and is evaluating the potential effects on the consolidated financial statements.

11


 

 

In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amends ASC 310-20, Receivables—Nonrefundable Fees and Other Costs. This ASU reduces the amortization period for certain callable debt securities held at a premium to the earliest call date. The treatment of securities held at a discount is unchanged. The effective date is the first quarter of fiscal year 2020, with early adoption permitted. The adoption will not have a material effect on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, which amends ASC 718, Compensation – Stock Compensation. This ASU provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. The ASU will be adopted on a prospective basis. The effective date is the first quarter of fiscal year 2019, with early adoption permitted. The adoption will not have a material effect on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815, Derivatives and Hedging. The purpose of this ASU is to better align a company’s risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements. The effective date is fiscal year 2020, with early adoption permitted. The Company is evaluating the potential effects on the 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

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