Deere Announces Third-Quarter Earnings of $642 Million
MOLINE, Ill., Aug. 18, 2017 /PRNewswire/ --
-- Improving farm- and construction-equipment markets contribute to higher
third-quarter results.
-- Performance benefits from advanced products, flexible cost structure.
-- Company maintains strong position to seize powerful long-term trends.
-- Full-year forecast calls for 10% sales increase, net income of $2.075
billion.
Net income attributable to Deere & Company (NYSE: DE) was $641.8 million, or $1.97 per share, for the third quarter ended July 30, 2017, compared with $488.8 million, or $1.55 per share, for the quarter ended July 31, 2016.
For the first nine months of fiscal 2017, net income attributable to Deere & Company was $1.649 billion, or $5.11 per share, compared with $1.239 billion, or $3.91 per share, for the same period last year.
Worldwide net sales and revenues increased 16 percent, to $7.808 billion, for the third quarter and increased 8 percent, to $21.720 billion, for the first nine months. Net sales of the equipment operations were $6.833 billion for the third quarter and $18.791 billion for nine months, compared with $5.861 billion and $17.737 billion for the periods last year.
"John Deere reported another quarter of strong performance as the company continued to benefit from improving market conditions throughout the world," said Samuel R. Allen, chairman and chief executive officer. "We are seeing higher overall demand for our products with farm machinery sales in South America experiencing strong gains and construction equipment sales rising sharply. Deere's performance also is being assisted by an advanced product portfolio and the continuing impact of a flexible cost structure and lean asset base."
Summary of Operations
Net sales of the worldwide equipment operations increased 17 percent for the quarter and 6 percent for the first nine months compared with the year-ago periods. Sales included price realization of 1 percent for the quarter and 2 percent year to date. Foreign-currency rates did not have a material translation effect on net sales for either period compared with last year. Equipment net sales in the United States and Canada increased 11 percent for the quarter and were down 1 percent for the first nine months. Outside the U.S. and Canada, net sales increased 25 percent for the quarter and 17 percent for nine months, with favorable currency-translation effects of 1 percent for both periods.
Deere's equipment operations reported operating profit of $795 million for the quarter and $2.152 billion for nine months, compared with $625 million and $1.526 billion, respectively, last year. The improvement for the quarter was primarily driven by higher shipment volumes and price realization, partially offset by increased production costs, higher selling, administrative and general expenses and warranty costs. On a year-to-date basis, results benefited from higher shipment volumes, price realization and a favorable product mix, partially offset by increased production costs, higher warranty costs and higher selling, administrative and general expenses. Results for both periods were aided by a gain on the sale of a partial interest in SiteOne Landscape Supply, Inc. (SiteOne).
Net income of the company's equipment operations was $506 million for the third quarter and $1.291 billion for nine months, compared with $353 million and $873 million for the corresponding periods of 2016. In addition to the operating factors mentioned above, a lower effective tax rate improved results for the third quarter of 2017.
Financial services reported net income attributable to Deere & Company of $131.2 million for the quarter and $349.1 million for nine months compared with $125.9 million and $357.9 million last year. Results for the quarter benefited from lower losses on lease residual values, partially offset by a higher provision for credit losses and higher selling, administrative and general expenses. Year-to-date results were affected by less-favorable financing spreads and higher selling, administrative and general expenses, partially offset by lower losses on lease residual values.
Company Outlook & Summary
Company equipment sales are projected to increase about 10 percent for fiscal 2017 and be up about 24 percent for the fourth quarter compared with the same periods of 2016. Included in the forecast is a positive foreign-currency translation effect of about 1 percent for the full year and about 2 percent in the fourth quarter. Net sales and revenues are projected to increase about 11 percent for fiscal 2017 with net income attributable to Deere & Company of about $2.075 billion.
"Deere's ability to deliver consistently strong financial results is proof of our success building a more durable business model," Allen said. "We are continuing to find ways to make our operations more efficient and profitable while providing even more value to our global customers. As a result, we're confident Deere is well-positioned to continue its strong performance and to fully capitalize on the world's increasing need for advanced machinery and services in the future."
Equipment Division Performance
Agriculture & Turf. Sales increased 13 percent for the quarter and 5 percent for nine months primarily due to higher shipment volumes and price realization, partially offset by higher warranty costs.
Operating profit was $685 million for the quarter and $1.899 billion year to date, compared with respective totals of $571 million and $1.329 billion last year. Results for the quarter benefited from higher shipment volumes and price realization, partially offset by increases in production costs, warranty expenses and selling, administrative and general expenses. Year-to-date results received support from higher shipment volumes, price realization and a more-favorable sales mix, partially offset by increased production costs and higher warranty expenses. The gain on the sale of a partial interest in SiteOne contributed to the division's results for both periods.
Construction & Forestry. Construction and forestry sales increased 29 percent for the quarter and 10 percent for nine months mainly as a result of higher shipment volumes. Results were negatively affected by higher sales-incentive expenses for the quarter and by higher warranty costs year to date.
Operating profit was $110 million for the quarter and $253 million for nine months, compared with $54 million and $197 million last year. Results for the quarter were helped by increased shipment volumes, partially offset by higher selling, administrative and general expenses, higher sales-incentive expenses and increased production costs. Benefiting nine-month results were higher shipment volumes, partially offset by increases in warranty costs, selling, administrative and general expenses and production costs.
Market Conditions & Outlook
Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment are forecast to increase by about 9 percent for fiscal-year 2017, including a positive currency-translation effect of about 1 percent. Industry sales for agricultural equipment in the U.S. and Canada are forecast to be down about 5 percent for 2017, reflecting weakness in the livestock sector and the continuing impact of low crop prices. The decline is affecting both large and small equipment.
Full-year 2017 industry sales in the EU28 member nations are forecast to be flat to down 5 percent, with the decline attributable to low commodity prices and farm incomes. South American industry sales of tractors and combines are projected to be up about 20 percent as a result of improving economic and political conditions in Brazil and Argentina. Asian sales are projected to be flat to down slightly.
Industry sales of turf and utility equipment in the U.S. and Canada are expected to be about flat for 2017.
Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are forecast to be up about 15 percent for 2017, with no material currency-translation impact. The forecast reflects moderate economic growth worldwide. In forestry, global industry sales are expected to be down 5 to 10 percent due to soft conditions in North America.
Financial Services. Fiscal-year 2017 net income attributable to Deere & Company for the financial services operations is expected to be approximately $475 million. In comparison with performance in 2016, the outlook reflects lower losses on lease residual values, partially offset by higher selling, administrative and general expenses, less-favorable financing spreads and an increased provision for credit losses.
John Deere Capital Corporation
The following is disclosed on behalf of the company's financial services subsidiary, John Deere Capital Corporation (JDCC), in connection with the disclosure requirements applicable to its periodic issuance of debt securities in the public market.
Net income attributable to JDCC was $88.3 million for the third quarter and $227.0 million year to date, compared with $90.4 million and $259.9 million for the respective periods last year. The decline for both periods was primarily due to less-favorable financing spreads, higher selling, administrative and general expenses and a lower average portfolio, partially offset by lower losses on lease residual values.
Net receivables and leases financed by JDCC were $32.929 billion at July 30, 2017, compared with $32.928 billion at July 31, 2016.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under "Company Outlook & Summary," "Market Conditions & Outlook," and other forward-looking statements herein that relate to future events, expectations, and trends involve factors that are subject to change, and risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the company's businesses.
The company's agricultural equipment business is subject to a number of uncertainties including the factors that affect farmers' confidence and financial condition. These factors include demand for agricultural products, world grain stocks, weather conditions, soil conditions, harvest yields, prices for commodities and livestock, crop and livestock production expenses, availability of transport for crops, the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production), real estate values, available acreage for farming, the land ownership policies of governments, changes in government farm programs and policies, international reaction to such programs, changes in environmental regulations and their impact on farming practices; changes in and effects of crop insurance programs, global trade agreements, animal diseases and their effects on poultry, beef and pork consumption and prices, crop pests and diseases, and the level of farm product exports (including concerns about genetically modified organisms).
Factors affecting the outlook for the company's turf and utility equipment include consumer confidence, weather conditions, customer profitability, consumer borrowing patterns, consumer purchasing preferences, housing starts, infrastructure investment, spending by municipalities and golf courses, and consumable input costs.
Consumer spending patterns, real estate and housing prices, the number of housing starts, interest rates and the levels of public and non-residential construction are important to sales and results of the company's construction and forestry equipment. Prices for pulp, paper, lumber and structural panels are important to sales of forestry equipment.
All of the company's businesses and its results are affected by general economic conditions in the global markets and industries in which the company operates; customer confidence in general economic conditions; government spending and taxing; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates; inflation and deflation rates; changes in weather patterns; the political and social stability of the global markets in which the company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts; natural disasters; and the spread of major epidemics.
Significant changes in market liquidity conditions, changes in the company's credit ratings and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the company's earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of the company's products and customer confidence and purchase decisions, borrowing and repayment practices, and the number and size of customer loan delinquencies and defaults. A debt crisis, in Europe or elsewhere, could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, demand for equipment, and company operations and results. The company's investment management activities could be impaired by changes in the equity, bond and other financial markets, which would negatively affect earnings.
The potential withdrawal of the United Kingdom from the European Union and the perceptions as to the impact of the withdrawal may adversely affect business activity, political stability and economic conditions in the United Kingdom, the European Union and elsewhere. The economic conditions and outlook could be further adversely affected by (i) the uncertainty concerning the timing and terms of the exit, (ii) new or modified trading arrangements between the United Kingdom and other countries, (iii) the risk that one or more other European Union countries could come under increasing pressure to leave the European Union, or (iv) the risk that the euro as the single currency of the Eurozone could cease to exist. Any of these developments, or the perception that any of these developments are likely to occur, could affect economic growth or business activity in the United Kingdom or the European Union, and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, currency exchange rates, interest rates, financial institutions, and political, financial and monetary systems. Any of these developments could affect our businesses, liquidity, results of operations and financial position.
Additional factors that could materially affect the company's operations, access to capital, expenses and results include changes in, uncertainty surrounding and the impact of governmental trade, banking, monetary and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs and other areas, and governmental programs, policies, tariffs and sanctions in particular jurisdictions or for the benefit of certain industries or sectors; actions by central banks; actions by financial and securities regulators; actions by environmental, health and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, noise and the effects of climate change; changes to GPS radio frequency bands or their permitted uses; changes in labor regulations; changes to accounting standards; changes in tax rates, estimates, and regulations and company actions related thereto; compliance with U.S. and foreign laws when expanding to new markets and otherwise; and actions by other regulatory bodies.
Other factors that could materially affect results include production, design and technological innovations and difficulties, including capacity and supply constraints and prices; the loss of or challenges to intellectual property rights whether through theft, infringement, counterfeiting or otherwise; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the company's supply chain or the loss of liquidity by suppliers; disruptions of infrastructures that support communications, operations or distribution; the failure of suppliers or the company to comply with laws, regulations and company policy pertaining to employment, human rights, health, safety, the environment, anti-corruption, privacy and data protection and other ethical business practices; events that damage the company's reputation or brand; significant investigations, claims, lawsuits or other legal proceedings; start-up of new plants and products; the success of new product initiatives; changes in customer product preferences and sales mix; gaps or limitations in rural broadband coverage, capacity and speed needed to support technology solutions; oil and energy prices, supplies and volatility; the availability and cost of freight; actions of competitors in the various industries in which the company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; changes in demand and pricing for used equipment and resulting impacts on lease residual values; labor relations and contracts; changes in the ability to attract, train and retain qualified personnel; acquisitions and divestitures of businesses; greater than anticipated transaction costs; the integration of new businesses; the failure or delay in realizing anticipated benefits of acquisitions, joint ventures or divestitures; the implementation of organizational changes; the failure to realize anticipated savings or benefits of cost reduction, productivity, or efficiency efforts; difficulties related to the conversion and implementation of enterprise resource planning systems; security breaches, cybersecurity attacks, technology failures and other disruptions to the company's and suppliers' information technology infrastructure; changes in company declared dividends and common stock issuances and repurchases; changes in the level and funding of employee retirement benefits; changes in market values of investment assets, compensation, retirement, discount and mortality rates which impact retirement benefit costs; and significant changes in health care costs.
The liquidity and ongoing profitability of John Deere Capital Corporation and other credit subsidiaries depend largely on timely access to capital in order to meet future cash flow requirements, and to fund operations, costs, and purchases of the company's products. If general economic conditions deteriorate or capital markets become more volatile, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses.
The company's outlook is based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The company, except as required by law, undertakes no obligation to update or revise its outlook, whether as a result of new developments or otherwise. Further information concerning the company and its businesses, including factors that could materially affect the company's financial results, is included in the company's other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. Risk Factors of the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q).
Third Quarter 2017 Press Release
(in millions of dollars)
Unaudited
---------
Three Months Ended Nine Months Ended
------------------ -----------------
July 30 July 31 % July 30 July 31 %
2017 2016 Change 2017 2016 Change
---- ---- ------ ---- ---- ------
Net sales and revenues:
Agriculture and turf $5,338 $4,704 +13 $14,730 $14,046 +5
Construction and forestry 1,495 1,157 +29 4,061 3,691 +10
----- ----- ----- -----
Total net sales 6,833 5,861 +17 18,791 17,737 +6
Financial services 741 667 +11 2,153 1,954 +10
Other revenues 234 196 +19 776 433 +79
--- --- --- ---
Total net sales and revenues $7,808 $6,724 +16 $21,720 $20,124 +8
====== ====== ======= =======
Operating profit: *
Agriculture and turf $685 $571 +20 $1,899 $1,329 +43
Construction and forestry 110 54 +104 253 197 +28
Financial services 200 191 +5 529 545 -3
--- --- --- ---
Total operating profit 995 816 +22 2,681 2,071 +29
Reconciling items ** (100) (100) (283) (272) +4
Income taxes (253) (227) +11 (749) (560) +34
---- ---- ---- ----
Net income attributable to
Deere & Company $642 $489 +31 $1,649 $1,239 +33
==== ==== ====== ======
* Operating profit is income from
continuing operations before
corporate expenses, certain
external interest expense,
certain foreign exchange gains
and losses, and income taxes.
Operating profit of the
financial services segment
includes the effect of interest
expense and foreign exchange
gains or losses.
** Reconciling items are primarily
corporate expenses, certain
external interest expense,
certain foreign exchange gains
and losses, and net income
attributable to noncontrolling
interests.
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.
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.
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
-------- -------- --------
Redeemable
noncontrolling
interest 14.0 14.0 14.4
Stockholders'
Equity
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.
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.
Condensed Notes to Interim Consolidated
Financial Statements (Unaudited)
---------------------------------------
(1) In December 2016, the Company sold
approximately 38 percent of its
interest in SiteOne Landscape
Supply, Inc. (SiteOne) resulting
in gross proceeds of $114 million
and a gain of $105 million pretax
or $66 million after-tax. In
April 2017, the Company sold an
additional 68 percent of its then
remaining interest in SiteOne
resulting in gross proceeds of
$184 million and a gain of $176
million pretax or $111 million
after-tax. In July 2017, the
Company sold its remaining
interest in SiteOne resulting in
gross proceeds of $98 million and
a gain of $94 million pretax or
$59 million after-tax. The gains
were recorded in other income in
the agriculture and turf operating
segment.
(2) 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 or vesting,
instead of common stock. As
required, this change was
reflected for all periods in
fiscal year 2017. This change
increased net income in the third
quarter and first nine months of
fiscal year 2017 by $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.
(3) During the fourth quarter of 2016,
the Company announced voluntary
employee separation programs as
part of its effort to reduce
operating costs. The programs
provided for cash payments based
on previous years of service. The
expense is recorded in the period
the employees accept the
separation offer. The programs'
total pretax expenses are
approximately $113 million, of
which $11 million was recorded in
the fourth quarter of 2016, $94
million was recorded in the first
quarter of 2017, $5 million was
recorded in the second quarter,
and $2 million was recorded in the
third quarter with $1 million to
be recognized in the fourth
quarter. The payments for all
programs were substantially made
in the first quarter of 2017. The
total 2017 expenses are allocated
approximately 30 percent cost of
sales, 16 percent research and
development, and 54 percent
selling, administrative and
general. In addition, the expenses
are allocated 74 percent to
agriculture and turf operations,
18 percent to the construction and
forestry operations, and 8 percent
to the financial services
operations. Savings from these
programs are estimated to be
approximately $70 million in 2017.
(4) Dividends declared and paid on a
per share basis were as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
July 30 July 31 July 30 July 31
2017 2016 2017 2016
---- ---- ---- ----
Dividends
declared $.60 $.60 $1.80 $1.80
Dividends
paid $.60 $.60 $1.80 $1.80
(5) The calculation of basic net
income per share is based on the
average number of shares
outstanding. The calculation of
diluted net income per share
recognizes any dilutive effect of
share-based compensation.
(6) The consolidated financial
statements represent the
consolidation of all Deere &
Company's subsidiaries. In the
supplemental consolidating data
in Note 7 to the financial
statements, "Equipment
Operations" include the Company's
agriculture and turf operations
and construction and forestry
operations with "Financial
Services" reflected on the equity
basis.
(7) SUPPLEMENTAL CONSOLIDATING DATA
STATEMENT OF INCOME
For the Three Months Ended July 30, 2017 and July 31, 2016
(In millions of dollars) Unaudited EQUIPMENT OPERATIONS* FINANCIAL SERVICES
---------------------------------- -------------------- ------------------
2017 2016 2017 2016
---- ---- ---- ----
Net Sales and Revenues
Net sales $6,833.0 $5,861.4
Finance and interest income 20.3 15.1 $744.8 $691.0
Other income 266.6 216.9 63.4 27.6
----- ----- ---- ----
Total 7,119.9 6,093.4 808.2 718.6
------- ------- ----- -----
Costs and Expenses
Cost of sales 5,265.5 4,494.6
Research and development expenses 335.4 338.8
Selling, administrative and general expenses 639.7 573.1 152.7 137.6
Interest expense 65.8 65.9 161.3 140.8
Interest compensation to Financial Services 65.4 61.6
Other operating expenses 58.1 45.6 294.3 248.9
---- ---- ----- -----
Total 6,429.9 5,579.6 608.3 527.3
------- ------- ----- -----
Income of Consolidated Group before Income Taxes 690.0 513.8 199.9 191.3
Provision for income taxes 184.2 160.9 69.0 65.6
----- ----- ---- ----
Income of Consolidated Group 505.8 352.9 130.9 125.7
----- ----- ----- -----
Equity in Income of Unconsolidated Subsidiaries and
Affiliates
Financial Services 131.2 125.9 .3 .2
Other 5.3 9.8
--- ---
Total 136.5 135.7 .3 .2
----- ----- --- ---
Net Income 642.3 488.6 131.2 125.9
Less: Net income (loss) attributable to noncontrolling
interests .5 (.2)
--- ---
Net Income Attributable to Deere & Company $641.8 $488.8 $131.2 $125.9
====== ====== ====== ======
* Deere & Company with
Financial Services on the
equity basis.
The supplemental consolidating
data is presented for
informational purposes.
Transactions between the
"Equipment Operations" and
"Financial Services" have been
eliminated to arrive at the
consolidated financial
statements.
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
STATEMENT OF INCOME
For the Nine Months Ended July 30, 2017 and July 31, 2016
(In millions of dollars) Unaudited EQUIPMENT OPERATIONS* FINANCIAL SERVICES
---------------------------------- -------------------- ------------------
2017 2016 2017 2016
---- ---- ---- ----
Net Sales and Revenues
Net sales $18,790.7 $17,737.1
Finance and interest income 60.3 45.8 $2,148.6 $1,988.9
Other income 864.2 497.1 182.5 143.9
----- ----- ----- -----
Total 19,715.2 18,280.0 2,331.1 2,132.8
-------- -------- ------- -------
Costs and Expenses
Cost of sales 14,507.8 13,866.7
Research and development expenses 970.7 1,003.1
Selling, administrative and general expenses 1,816.2 1,642.6 414.0 379.6
Interest expense 199.6 195.7 479.4 386.7
Interest compensation to Financial Services 171.5 168.2
Other operating expenses 189.7 158.2 910.2 822.4
----- ----- ----- -----
Total 17,855.5 17,034.5 1,803.6 1,588.7
-------- -------- ------- -------
Income of Consolidated Group before Income Taxes 1,859.7 1,245.5 527.5 544.1
Provision for income taxes 569.2 372.5 179.5 187.4
----- ----- ----- -----
Income of Consolidated Group 1,290.5 873.0 348.0 356.7
------- ----- ----- -----
Equity in Income of Unconsolidated Subsidiaries and
Affiliates
Financial Services 349.1 357.9 1.1 1.2
Other 8.9 6.1
--- ---
Total 358.0 364.0 1.1 1.2
----- ----- --- ---
Net Income 1,648.5 1,237.0 349.1 357.9
Less: Net loss attributable to noncontrolling interests (.3) (1.6)
--- ----
Net Income Attributable to Deere & Company $1,648.8 $1,238.6 $349.1 $357.9
======== ======== ====== ======
* Deere & Company with
Financial Services on the
equity basis.
The supplemental consolidating
data is presented for
informational purposes.
Transactions between the
"Equipment Operations" and
"Financial Services" have been
eliminated to arrive at the
consolidated financial
statements.
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
CONDENSED BALANCE SHEET
(In millions of dollars) Unaudited EQUIPMENT OPERATIONS* FINANCIAL SERVICES
---------------------------------- -------------------- ------------------
July 30 October 30 July 31 July 30 October 30 July 31
2017 2016 2016 2017 2016 2016
---- ---- ---- ---- ---- ----
Assets
Cash and cash equivalents $5,338.4 $3,140.5 $3,134.9 $1,199.0 $1,195.3 $1,186.1
Marketable securities 21.4 34.2 40.2 404.7 419.3 428.7
Receivables from unconsolidated subsidiaries and affiliates 2,570.9 3,150.1 2,429.5
Trade accounts and notes receivable - net 758.8 654.2 535.4 4,828.8 3,370.5 4,560.6
Financing receivables - net .4 .4 23,722.1 23,701.9 22,594.4
Financing receivables securitized - net 4,923.1 5,126.5 5,947.4
Other receivables 708.0 855.4 726.6 147.1 164.0 103.0
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 4,919.1 5,118.5 4,994.7 49.4 52.1 52.6
Investments in unconsolidated subsidiaries 4,800.4 4,697.0 4,752.9 13.8 11.9 11.6
and affiliates
Goodwill 845.8 815.7 823.6
Other intangible assets - net 92.0 104.1 109.5
Retirement benefits 219.1 93.6 319.0 17.9 20.5 21.8
Deferred income taxes 3,720.6 3,556.0 3,173.2 68.8 75.5 71.9
Other assets 948.5 834.9 838.7 644.7 798.1 999.9
----- ----- ----- ----- ----- -----
Total Assets $29,195.9 $26,395.1 $25,729.9 $42,255.0 $40,837.1 $41,580.7
========= ========= ========= ========= ========= =========
Liabilities and Stockholders' Equity
Liabilities
Short-term borrowings $342.8 $249.0 $261.7 $8,676.6 $6,661.7 $7,098.9
Short-term securitization borrowings 4,780.9 4,997.8 5,722.6
Payables to unconsolidated subsidiaries and affiliates 77.8 81.5 74.2 2,542.4 3,133.6 2,410.7
Accounts payable and accrued expenses 7,213.5 6,661.2 6,470.8 1,611.2 1,595.2 1,521.0
Deferred income taxes 105.2 87.3 97.3 806.5 745.9 707.5
Long-term borrowings 4,523.6 4,565.3 4,557.2 19,150.7 19,137.7 19,511.7
Retirement benefits and other liabilities 8,344.1 8,206.0 6,814.6 93.4 89.0 90.0
------- ------- ------- ---- ---- ----
Total liabilities 20,607.0 19,850.3 18,275.8 37,661.7 36,360.9 37,062.4
-------- -------- -------- -------- -------- --------
Redeemable noncontrolling interest 14.0 14.0 14.4
Stockholders' Equity
Total Deere & Company stockholders' equity 8,572.2 6,520.0 7,428.4 4,593.3 4,476.2 4,518.3
Noncontrolling interests 2.7 10.8 11.3
--- ---- ----
Total stockholders' equity 8,574.9 6,530.8 7,439.7 4,593.3 4,476.2 4,518.3
------- ------- ------- ------- ------- -------
Total Liabilities and Stockholders' Equity $29,195.9 $26,395.1 $25,729.9 $42,255.0 $40,837.1 $41,580.7
========= ========= ========= ========= ========= =========
* Deere & Company with
Financial Services on the
equity basis.
The supplemental consolidating
data is presented for
informational purposes.
Transactions between the
"Equipment Operations" and
"Financial Services" have been
eliminated to arrive at the
consolidated financial
statements.
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
STATEMENT OF CASH FLOWS
For the Nine Months Ended July 30, 2017 and July 31, 2016
(In millions of dollars) Unaudited EQUIPMENT OPERATIONS* FINANCIAL SERVICES
---------------------------------- -------------------- ------------------
2017 2016 2017 2016
---- ---- ---- ----
Cash Flows from Operating Activities
Net income $1,648.5 $1,237.0 $349.1 $357.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses 1.5 5.3 75.3 65.0
Provision for depreciation and amortization 640.1 613.7 725.1 615.5
Impairment charges 49.7
Gain on sale of unconsolidated affiliates and investments (375.1) (74.5)
Undistributed earnings of unconsolidated subsidiaries (37.3) 55.9 (1.0) (1.0)
and affiliates
Provision (credit) for deferred income taxes (145.1) (77.0) 67.6 232.5
Changes in assets and liabilities:
Trade receivables (104.2) (57.5)
Inventories (829.4) 59.5
Accounts payable and accrued expenses 471.8 (285.6) 28.9 7.8
Accrued income taxes payable/receivable 150.9 76.2 16.9 5.9
Retirement benefits 166.6 139.6 6.5 6.2
Other (50.9) (44.3) 116.0 56.8
----- ----- ----- ----
Net cash provided by operating activities 1,537.4 1,648.3 1,384.4 1,396.3
------- ------- ------- -------
Cash Flows from Investing Activities
Collections of receivables (excluding trade and wholesale) 12,275.9 12,208.1
Proceeds from maturities and sales of marketable securities 296.3 75.6 92.5 63.6
Proceeds from sales of equipment on operating leases 1,086.6 916.6
Proceeds from sales of businesses and unconsolidated 113.9 81.1
affiliates, net of cash sold
Cost of receivables acquired (excluding trade and wholesale) (12,366.5) (11,236.7)
Purchases of marketable securities (61.0) (77.0) (88.9)
Purchases of property and equipment (372.5) (385.4) (1.2) (1.6)
Cost of equipment on operating leases acquired (2,096.2) (2,324.8)
Increase in trade and wholesale receivables (1,070.9) (786.5)
Acquisitions of businesses, net of cash acquired (198.9)
Other (55.7) (24.2) (18.7) 70.7
----- ----- ----- ----
Net cash used for investing activities (18.0) (512.8) (2,175.5) (1,179.5)
----- ------ -------- --------
Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings 42.3 (170.0) 1,606.6 36.3
Change in intercompany receivables/payables 634.9 (12.1) (634.9) 12.1
Proceeds from long-term borrowings 64.8 139.4 4,299.7 3,975.8
Payments of long-term borrowings (44.5) (70.3) (4,161.1) (3,907.0)
Proceeds from issuance of common stock 488.6 17.5
Repurchases of common stock (6.2) (205.4)
Dividends paid (571.3) (572.6) (320.2) (412.1)
Other (43.2) (28.7) .3 (3.8)
----- ----- --- ----
Net cash provided by (used for) financing activities 565.4 (902.2) 790.4 (298.7)
----- ------ ----- ------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 113.1 1.6 4.4 5.8
----- --- --- ---
Net Increase (Decrease) in Cash and Cash Equivalents 2,197.9 234.9 3.7 (76.1)
Cash and Cash Equivalents at Beginning of Period 3,140.5 2,900.0 1,195.3 1,262.2
------- ------- ------- -------
Cash and Cash Equivalents at End of Period $5,338.4 $3,134.9 $1,199.0 $1,186.1
======== ======== ======== ========
* Deere & Company with
Financial Services on the
equity basis.
The supplemental consolidating
data is presented for
informational purposes.
Transactions between the
"Equipment Operations" and
"Financial Services" have been
eliminated to arrive at the
consolidated financial
statements.
Deere & Company
Other Financial Information
For the Nine Months Ended Equipment Operations Agriculture and Turf Construction and Forestry
------------------------- -------------------- -------------------- -------------------------
July 30 July 31 July 30 July 31 July 30 July 31
Dollars in millions 2017 2016 2017 2016 2017 2016
------------------- ---- ---- ---- ---- ---- ----
Net Sales $18,791 $17,737 $14,730 $14,046 $4,061 $3,691
Average Identifiable Assets
With Inventories at LIFO $12,020 $11,918 $8,897 $8,750 $3,123 $3,168
With Inventories at Standard Cost $13,293 $13,188 $9,933 $9,794 $3,360 $3,394
Operating Profit $2,152 $1,526 $1,899 $1,329 $253 $197
Percent of Net Sales 11.5% 8.6% 12.9% 9.5% 6.2% 5.3%
Operating Return on Assets
With Inventories at LIFO 17.9% 12.8% 21.3% 15.2% 8.1% 6.2%
With Inventories at Standard Cost 16.2% 11.6% 19.1% 13.6% 7.5% 5.8%
SVA Cost of Assets $(1,196) $(1,187) $(893) $(881) $(303) $(306)
SVA $956 $339 $1,006 $448 $(50) $(109)
--- ---- ---- ------ ---- ---- -----
For the Nine Months Ended Financial Services
------------------------- ------------------
July 30 July 31
Dollars in millions 2017 2016
------------------- ---- ----
Net Income Attributable to Deere &
Company $349 $358
Average Equity $4,452 $4,481
Return on Equity 7.8% 8.0%
Operating Profit $529 $545
Average Equity $4,452 $4,481
Cost of Equity $(505) $(511)
SVA $24 $34
--- --- ---
The Company evaluates its business results on the basis of accounting principles generally accepted in the United States. In addition, it uses a metric referred to as Shareholder Value Added (SVA), which management believes is an appropriate measure for the performance of its businesses.
SVA is, in effect, the pretax profit left over after subtracting the cost of enterprise capital. The Company is aiming for a sustained creation of SVA and is using this metric for various performance goals. Certain compensation is also determined on the basis of performance using this
measure. For purposes of determining SVA, each of the equipment segments is assessed a pretax cost of assets, which on an annual basis is approximately 12 percent of the segment's average identifiable operating assets during the applicable period with inventory at standard cost.
Management believes that valuing inventories at standard cost more closely approximates the current cost of inventory and the Company's investment in the asset. The Financial Services segment is assessed an annual pretax cost of approximately 15 percent of the segment's average equity.
The cost of assets or equity, as applicable, is deducted from the operating profit or added to the operating loss of each segment to determine the amount of SVA.
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SOURCE Deere & Company
