Deere Reports First-Quarter Income of $498 Million
- Net sales rise 16% to $6.94 billion.
- Construction & Forestry results move strongly higher.
- Forecast for 2019 calls for net income of approximately $3.6 billion on sales gain of about 7%.
MOLINE, Ill., Feb. 15, 2019 /PRNewswire/ -- Deere & Company reported net income of $498.5 million for the first quarter ended January 27, 2019, or $1.54 per share, compared with a net loss of $535.1 million, or $1.66 per share, for the quarter ended January 28, 2018. Affecting first-quarter 2018 results were charges to the provision for income taxes due to U.S. tax reform legislation (tax reform). Without these tax reform charges, first-quarter 2018 net income results would have been $442.1 million, or $1.35 per share. (Information on non-GAAP financial measures is included in the appendix.)
"Although Deere has continued to make solid progress on a number of fronts and reported higher earnings for the quarter, our results were hurt by higher costs for raw materials and logistics as well by customer concerns over tariffs and trade policies," said Samuel R. Allen, chairman and chief executive officer. "These latter issues have weighed on market sentiment and caused farmers to become more cautious about making major purchases. At the same time, sales of John Deere construction and forestry machinery have continued at a strong pace. We believe cost pressures should abate as the year progresses and are hopeful we will soon have more clarity around trade issues. As a result, we remain cautiously optimistic about our prospects for the year ahead."
Company Outlook & Summary
Company equipment sales are projected to increase by about 7 percent for fiscal 2019 compared with 2018. Included in the forecast are Wirtgen results for the full fiscal year of 2019 compared with 10 months of the prior year. This adds about 1 percent to the company's net sales forecast for the current year. Also included in the forecast is a negative foreign-currency translation effect of about 2 percent for the year. Net sales and revenues are projected to increase by about 7 percent for fiscal 2019. Net income attributable to Deere & Company is forecast to be about $3.6 billion.
"Despite unsettled conditions in some of our key markets, Deere expects to achieve strong financial results in 2019," commented Allen. "This is a testament to the success of our actions to create a more flexible cost structure, expand our global customer base, and develop leadership in the latest precision technologies. Customers are responding with great enthusiasm to the advanced features and technology in our new products. We are confident Deere is well-positioned to achieve its financial goals and firmly believe the company remains on track for delivering solid operating performance and significant value to customers and investors in the future."
Deere & Company
First Quarter
$ in millions (except EPS information) 2019 2018
% Chg
---
Net sales and revenues $7,984 $6,913 15%
Net income (loss) $498 $(535)
Fully diluted EPS $1.54 $(1.66)
Net income - adjusted $498 $442 13%
Fully diluted EPS - adjusted $1.54 $1.35 14%
Affecting 2018 net income were discrete charges to the provision for income taxes of $977 million due to tax reform legislation enacted on December 22, 2017. (Information on non-GAAP financial measures is included in the appendix.)
Equipment Operations
First Quarter
$ in millions 2019 2018
% Chg
---
Net Sales $6,941 $5,974 16%
Operating Profit $577 $419 38%
Net income (loss) $340 $(964)
Tax reform unfavorable adjustments (1,239)
Net income without tax reform $340 $275 23%
Currency translation - net sales -3%
For a discussion on net sales and operating profit results, see the Agriculture & Turf and Construction & Forestry sections below. Wirtgen results are included for the entire first-quarter period of 2019 while the prior period reflected one month. The two additional months increased the company's net sales results in the current quarter by about 7%.
Agriculture & Turf
First Quarter
$ in millions 2019 2018
% Chg
---
Net sales $4,681 $4,243 10%
Operating profit $348 $387 -10%
Operating margin 7.4% 9.1%
Agriculture & Turf sales for the quarter increased due to higher shipment volumes and price realization, partially offset by the unfavorable effects of currency translation and higher warranty-related expenses. Operating profit declined mainly as a result of higher production costs, higher warranty-related expenses, a less favorable product mix and higher research and development expenses, largely offset by price realization and higher shipment volumes.
Construction & Forestry
First Quarter
$ in millions 2019 2018
% Chg
---
Net sales $2,260 $1,731 31%
Operating profit $229 $32 616%
Operating margin 10.1% 1.8%
Construction & Forestry sales were up for the quarter primarily due to the inclusion of Wirtgen for the full period versus one month in the first quarter of 2018. The two additional months accounted for about 24% of the increase for the current quarter. Additionally, Construction & Forestry net sales increased due to price realization and higher shipment volumes, partially offset by the unfavorable effects of currency translation. Wirtgen's operating profit was $14 million for the quarter, compared with an operating loss of $92 million last year. Excluding Wirtgen, the improvement in Construction & Forestry results for the quarter was primarily driven by price realization, partially offset by higher production costs and a less favorable product mix.
Financial Services
First Quarter
$ in millions 2019 2018
% Chg
---
Net income $154 $425 -64%
Tax reform favorable adjustments 262
Net income without tax reform $154 $163 -6%
Excluding last year's tax-reform adjustment, the decrease in financial services net income for the quarter was largely attributable to an unfavorable financing spread, partially offset by income earned on a higher average portfolio.
Market Conditions and Outlook (annual)
$ in millions
---
Agriculture & Turf
Net Sales +4%
Currency Translation -2%
Construction & Forestry
Net Sales +13%
Currency Translation -2%
John Deere Financial
Net Income $630
Agriculture & Turf. Industry sales of agricultural equipment in the U.S. and Canada are forecast to be flat to up 5 percent, helped by continued demand for both large and small equipment. Full-year industry sales in the EU28 member nations are forecast to be flat as a result of drought conditions in key markets. South American industry sales of tractors and combines are projected to be flat to up 5 percent benefiting from strength in Brazil. Asian sales are forecast to be flat to down slightly. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be flat to up 5 percent for 2019.
Construction & Forestry. The Construction & Forestry forecast includes a full year of Wirtgen sales, versus 10 months in fiscal 2018, with the two additional months adding about 4 percent to division sales for the year. The outlook reflects generally positive fundamentals and economic growth worldwide. In forestry, global industry sales are expected to be up 5 to 10 percent mainly as a result of improved demand in EU28 countries and Russia.
Financial Services. Results are expected to benefit from a higher average portfolio, partially offset by less-favorable financing spreads, a higher provision for credit losses and higher selling and administrative expenses. Financial services net income for 2018 of $942 million included a tax benefit related to tax reform of $341 million. Excluding the tax benefit, net income for 2018 would have been $601 million.
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.
First Quarter
$ in millions 2019 2018
% Chg
---
Revenue $661 $585 13%
Net Income $122 $399 -70%
Ending Portfolio Balance $34,975 $32,449 8%
Prior-year results included a favorable provision for income taxes associated with tax reform. Results for the current quarter included a less-favorable financing spread, partially offset by income from a higher average portfolio.
APPENDIX
DEERE & COMPANY
SUPPLEMENTAL STATEMENT OF CONSOLIDATED INCOME INFORMATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Millions, except per-share amounts)
(Unaudited)
In addition to reporting financial results in conformity with accounting principles generally accepted in the United States (GAAP), the company also discusses non-GAAP measures that exclude adjustments related to U.S. tax reform legislation. Net income (loss) attributable to Deere & Company and diluted earnings per share measures that exclude this item are not in accordance with, nor is it a substitute for, GAAP measures. The company believes that discussion of results excluding this item provides a useful analysis of ongoing operating trends.
The table below provides a reconciliation of the non-GAAP financial measure with the most directly comparable GAAP financial measure for the three months ended January 28, 2018.
Three Months Ended
January 28, 2018
Net Income Diluted
(Loss)
Attributable
to Earnings
Deere &
Company Per Share
GAAP measure $
(535.1) $
(1.66)
U.S. tax reform legislation 977.2 3.01
Non-GAAP measure $
442.1 $
1.35
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, trade restrictions and tariffs, global trade agreements (e.g, the North American Free Trade Agreement), the level of farm product exports (including concerns about genetically modified organisms), 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 and effects of crop insurance programs, changes in environmental regulations and their impact on farming practices, animal diseases and their effects on poultry, beef and pork consumption and prices, and crop pests and diseases.
Factors affecting the outlook for the company's turf and utility equipment include consumer confidence, weather conditions, customer profitability, labor supply, consumer borrowing patterns, consumer purchasing preferences, housing starts and supply, 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 anticipated 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; retaliatory actions to such changes in trade, banking, monetary and fiscal policies; 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 and immigration regulations; changes to accounting standards; changes in tax rates, estimates, laws and regulations and company actions related thereto; changes to and compliance with privacy regulations; 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 closing or 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).
First Quarter 2019 Press Release
---
(in millions of dollars)
Unaudited
Three Months Ended
January 27 January 28
%
2019 2018
Change
Net sales and revenues:
Agriculture and turf $
4,681 $
4,243 +10
Construction and forestry 2,260 1,731 +31
Total net sales 6,941 5,974 +16
Financial services 855 776 +10
Other revenues 188 163 +15
Total net sales and revenues $
7,984 $
6,913 +15
Operating profit: *
Agriculture and turf $
348 $
387 -10
Construction and forestry 229 32 +616
Financial services 192 217 -12
Total operating profit 769 636 +21
Reconciling items ** (87) (113) -23
Income taxes (184) (1,058) -83
Net income (loss) attributable to Deere & Company $
498 $
(535)
* 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,
pension and postretirement benefit
costs excluding the service cost
component, and net income
attributable to noncontrolling
interests.
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended January 27, 2019 and January 28, 2018
(In millions of dollars and shares except per share amounts) Unaudited
---
2019 2018
Net Sales and Revenues
Net sales $
6,940.9 $
5,973.9
Finance and interest income 814.9 722.9
Other income 227.8 216.7
Total 7,983.6 6,913.5
Costs and Expenses
Cost of sales 5,431.6 4,704.5
Research and development expenses 406.8 356.8
Selling, administrative and general expenses 763.7 705.0
Interest expense 353.0 286.3
Other operating expenses 351.3 343.0
Total 7,306.4 6,395.6
Income of Consolidated Group before Income Taxes 677.2 517.9
Provision for income taxes 184.1 1,057.5
Income (Loss) of Consolidated Group 493.1 (539.6)
Equity in income of unconsolidated affiliates 6.5 4.9
Net Income (Loss) 499.6 (534.7)
Less: Net income attributable to noncontrolling interests 1.1 .4
Net Income (Loss) Attributable to Deere & Company $
498.5 $
(535.1)
Per Share Data
Basic $
1.56 $
(1.66)
Diluted $
1.54 $
(1.66)
Average Shares Outstanding
Basic 318.5 322.8
Diluted 322.7 322.8
See Condensed Notes to Interim
Consolidated Financial
Statements.
DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited
---
January 27 October 28 January 28
2019 2018 2018
Assets
Cash and cash equivalents $
3,625.7 $
3,904.0 $
3,915.1
Marketable securities 523.5 490.1 462.3
Receivables from unconsolidated affiliates 35.6 21.7 33.7
Trade accounts and notes receivable - net 5,497.4 5,004.3 4,684.6
Financing receivables - net 25,149.7 27,054.1 23,855.1
Financing receivables securitized - net 4,563.4 4,021.4 4,474.0
Other receivables 1,650.9 1,735.5 1,036.1
Equipment on operating leases - net 6,903.6 7,165.4 6,619.8
Inventories 7,401.9 6,148.9 6,614.2
Property and equipment - net 5,785.2 5,867.5 5,781.2
Investments in unconsolidated affiliates 211.7 207.3 194.0
Goodwill 3,047.6 3,100.7 3,111.8
Other intangible assets - net 1,507.5 1,562.4 1,659.5
Retirement benefits 1,348.2 1,298.3 580.3
Deferred income taxes 834.1 808.0 1,876.2
Other assets 1,832.2 1,718.4 1,679.6
Total Assets $
69,918.2 $
70,108.0 $
66,577.5
Liabilities and Stockholders' Equity
Liabilities
Short-term borrowings $
10,737.5 $
11,061.4 $
9,743.5
Short-term securitization borrowings 4,464.0 3,957.3 4,428.3
Payables to unconsolidated affiliates 144.5 128.9 118.0
Accounts payable and accrued expenses 9,086.0 10,111.0 8,489.7
Deferred income taxes 525.4 555.8 590.2
Long-term borrowings 27,855.2 27,237.4 26,421.8
Retirement benefits and other liabilities 5,758.9 5,751.0 7,507.1
Total liabilities 58,571.5 58,802.8 57,298.6
Redeemable noncontrolling interest 14.0 14.0 14.0
Stockholders' Equity
Total Deere & Company stockholders' equity 11,327.8 11,287.8 9,252.6
Noncontrolling interests 4.9 3.4 12.3
Total stockholders' equity 11,332.7 11,291.2 9,264.9
Total Liabilities and Stockholders' Equity $
69,918.2 $
70,108.0 $
66,577.5
See Condensed Notes to Interim
Consolidated Financial
Statements.
DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Three Months Ended January 27, 2019 and January 28, 2018
(In millions of dollars) Unaudited
---
2019 2018
Cash Flows from Operating Activities
Net income (loss) $
499.6 $
(534.7)
Adjustments to reconcile net income (loss) to net
cash used for operating activities:
Provision for credit losses 2.5 2.5
Provision for depreciation and amortization 503.3 463.2
Share-based compensation expense 20.3 16.7
Gain on sales of businesses (13.2)
Undistributed earnings of unconsolidated affiliates (7.3) (6.6)
Provision (credit) for deferred income taxes (55.7) 479.7
Changes in assets and liabilities:
Trade, notes and financing receivables related to
sales (507.3) (34.9)
Inventories (1,395.9) (1,238.8)
Accounts payable and accrued expenses (697.5) (915.1)
Accrued income taxes payable/receivable 97.9 425.1
Retirement benefits (4.3) 65.6
Other (106.3) (5.5)
Net cash used for operating activities (1,650.7) (1,296.0)
Cash Flows from Investing Activities
Collections of receivables (excluding receivables
related to sales) 5,496.4 5,226.1
Proceeds from maturities and sales of marketable
securities 7.9 13.1
Proceeds from sales of equipment on operating leases 370.8 339.6
Proceeds from sales of businesses, net of cash sold 49.7
Cost of receivables acquired (excluding receivables
related to sales) (4,212.8) (4,006.6)
Acquisitions of businesses, net of cash acquired (5,129.7)
Purchases of marketable securities (31.5) (24.3)
Purchases of property and equipment (297.4) (176.3)
Cost of equipment on operating leases acquired (361.4) (365.7)
Other (3.4) (22.2)
Net cash provided by (used for) investing activities 968.6 (4,096.3)
Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings 476.3 (535.5)
Proceeds from long-term borrowings 2,211.1 2,262.1
Payments of long-term borrowings (1,941.3) (1,871.2)
Proceeds from issuance of common stock 51.1 143.0
Repurchases of common stock (143.9) (9.7)
Dividends paid (220.3) (193.0)
Other (30.2) (26.7)
Net cash provided by (used for) financing activities 402.8 (231.0)
Effect of Exchange Rate Changes on Cash, Cash
Equivalents, and Restricted Cash (12.9) 198.6
Net Decrease in Cash, Cash Equivalents, and
Restricted Cash (292.2) (5,424.7)
Cash, Cash Equivalents, and Restricted Cash at
Beginning of Period 4,015.3 9,466.8
Cash, Cash Equivalents, and Restricted Cash at End
of Period $
3,723.1 $
4,042.1
See Condensed Notes to Interim
Consolidated Financial
Statements.
Condensed Notes to Interim Consolidated Financial Statements (Unaudited)
---
(1) Dividends declared and paid on a per share
basis were as follows:
Three Months Ended
January
27 January 28
2019 2018
Dividends declared $
.76 $
.60
Dividends paid $
.69 $
.60
(2) 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.
(3) In the first quarter of 2019, the Company
adopted Financial Accounting Standards
Board Accounting Standards Update (ASU) No.
2016-18, which amends ASC 230, Statement of
Cash Flows. The ASU requires that
restricted cash be included with cash and
cash equivalents in the statement of cash
flows. The ASU was adopted on a
retrospective basis. As a result, the 2018
consolidated statement of cash flows was
updated to add $132 million and $127
million of restricted cash in the beginning
period and ending period balances,
respectively. The 2018 supplemental
consolidating statement of cash flows was
updated to add $6 million and $7 million of
restricted cash in the equipment
operations' beginning and ending period
balances, respectively, and $126 million
and $120 million in the financial services'
beginning and ending period balances,
respectively. The equipment operations'
restricted cash at October 28, 2018 and
January 27, 2019 was $7 million and $10
million, respectively. The financial
services' restricted cash for the same
periods was $104 million and $87 million,
respectively.
(4) The consolidated financial statements
represent the consolidation of all Deere &
Company's subsidiaries. In the supplemental
consolidating data in Note 5 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.
(5) SUPPLEMENTAL CONSOLIDATING DATA
STATEMENT OF INCOME
For the Three Months Ended January 27, 2019 and January 28, 2018
(In millions of dollars) Unaudited EQUIPMENT OPERATIONS* FINANCIAL SERVICES
---
2019 2018 2019 2018
Net Sales and Revenues
Net sales $
6,940.9 $
5,973.9
Finance and interest income 23.4 11.5 $
866.2 $
777.0
Other income 214.9 196.5 60.4 62.7
Total 7,179.2 6,181.9 926.6 839.7
Costs and Expenses
Cost of sales 5,432.1 4,705.0
Research and development expenses 406.8 356.8
Selling, administrative and general expenses 644.5 590.5 121.3 116.2
Interest expense 71.5 96.0 287.1 194.1
Interest compensation to Financial Services 69.0 61.7
Other operating expenses 71.4 72.2 324.9 311.2
Total 6,695.3 5,882.2 733.3 621.5
Income of Consolidated Group before Income Taxes 483.9 299.7 193.3 218.2
Provision (credit) for income taxes 144.1 1,263.8 40.0 (206.3)
Income (Loss) of Consolidated Group 339.8 (964.1) 153.3 424.5
Equity in Income of Unconsolidated Subsidiaries and Affiliates
Financial Services 153.9 425.3 .6 .8
Other 5.9 4.1
Total 159.8 429.4 .6 .8
Net Income (Loss) 499.6 (534.7) 153.9 425.3
Less: Net income attributable to noncontrolling interests 1.1 .4
Net Income (Loss) Attributable to Deere & Company $
498.5 $
(535.1) $
153.9 $
425.3
* 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
---
January 27 October 28 January 28 January 27 October 28 January 28
2019 2018 2018 2019 2018 2018
Assets
Cash and cash equivalents $
2,670.4 $
3,194.8 $
2,617.1 $
955.3 $
709.2 $
1,298.0
Marketable securities 8.7 8.2 17.6 514.8 481.9 444.7
Receivables from unconsolidated subsidiaries and affiliates 273.7 1,700.4 667.7
Trade accounts and notes receivable - net 1,177.4 1,373.7 1,051.3 5,746.4 4,906.4 4,907.1
Financing receivables - net 101.5 93.1 51.6 25,048.2 26,961.0 23,803.5
Financing receivables securitized - net 67.6 76.1 124.9 4,495.8 3,945.3 4,349.1
Other receivables 1,485.0 1,009.7 885.7 183.7 775.7 156.4
Equipment on operating leases - net 6,903.6 7,165.4 6,619.8
Inventories 7,401.9 6,148.9 6,614.2
Property and equipment - net 5,739.4 5,820.6 5,733.0 45.8 46.9 48.2
Investments in unconsolidated subsidiaries and affiliates 5,175.1 5,231.2 5,285.8 15.7 15.2 15.5
Goodwill 3,047.6 3,100.7 3,111.8
Other intangible assets - net 1,507.5 1,562.4 1,659.5
Retirement benefits 1,291.0 1,241.5 580.2 57.2 56.8 16.2
Deferred income taxes 1,507.1 1,502.6 2,248.7 70.3 69.4 80.1
Other assets 1,240.5 1,132.8 1,118.2 593.0 587.1 563.1
Total Assets $
32,694.4 $
33,196.7 $
31,767.3 $
44,629.8 $
45,720.3 $
42,301.7
Liabilities and Stockholders' Equity
Liabilities
Short-term borrowings $
1,494.0 $
1,434.0 $
858.2 $
9,243.5 $
9,627.4 $
8,885.3
Short-term securitization borrowings 66.9 75.6 125.8 4,397.1 3,881.7 4,302.5
Payables to unconsolidated subsidiaries and affiliates 227.8 128.9 118.0 154.8 1,678.7 634.0
Accounts payable and accrued expenses 8,710.9 9,382.5 7,894.3 1,820.6 2,055.7 1,876.9
Deferred income taxes 470.2 496.8 491.2 798.5 823.0 551.6
Long-term borrowings 4,712.4 4,713.9 5,572.5 23,142.8 22,523.5 20,849.3
Retirement benefits and other liabilities 5,665.5 5,659.8 7,428.4 93.4 91.2 94.8
Total liabilities 21,347.7 21,891.5 22,488.4 39,650.7 40,681.2 37,194.4
Redeemable noncontrolling interest 14.0 14.0 14.0
Stockholders' Equity
Total Deere & Company stockholders' equity 11,327.8 11,287.8 9,252.6 4,979.1 5,039.1 5,107.3
Noncontrolling interests 4.9 3.4 12.3
Total stockholders' equity 11,332.7 11,291.2 9,264.9 4,979.1 5,039.1 5,107.3
Total Liabilities and Stockholders' Equity $
32,694.4 $
33,196.7 $
31,767.3 $
44,629.8 $
45,720.3 $
42,301.7
* 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 Three Months Ended January 27, 2019 and January 28, 2018
(In millions of dollars) Unaudited
EQUIPMENT OPERATIONS*
FINANCIAL SERVICES
---
2019 2018 2019 2018
Cash Flows from Operating Activities
Net income (loss) $
499.6 $
(534.7) $
153.9 $
425.3
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Provision (credit) for credit losses (.7) .8 3.2 1.7
Provision for depreciation and amortization 259.8 232.4 276.3 261.6
Gain on sales of businesses (13.2)
Undistributed earnings of unconsolidated subsidiaries and
affiliates 39.4 (392.9) (.6) (.8)
Provision (credit) for deferred income taxes (30.7) 786.4 (25.0) (306.7)
Changes in assets and liabilities:
Trade receivables and Equipment Operations' financing receivables 185.5 295.1
Inventories (1,289.7) (1,099.7)
Accounts payable and accrued expenses (535.0) (735.7) (12.0) 8.9
Accrued income taxes payable/receivable (428.6) 453.1 526.5 (28.0)
Retirement benefits (6.4) 63.2 2.1 2.4
Other (127.0) (36.6) 47.3 65.9
Net cash provided by (used for) operating activities (1,433.8) (981.8) 971.7 430.3
Cash Flows from Investing Activities
Collections of receivables (excluding trade and wholesale) 5,885.4 5,601.4
Proceeds from maturities and sales of marketable securities 3.1 2.7 4.8 10.4
Proceeds from sales of equipment on operating leases 370.8 339.6
Proceeds from sales of businesses, net of cash sold 49.7
Cost of receivables acquired (excluding trade and wholesale) (4,447.7) (4,368.5)
Acquisitions of businesses, net of cash acquired (5,129.7)
Purchases of marketable securities (2.1) (29.4) (24.3)
Purchases of property and equipment (297.2) (176.0) (.2) (.3)
Cost of equipment on operating leases acquired (505.0) (553.8)
Increase in trade and wholesale receivables (1,021.1) (601.9)
Other (6.6) 57.6 25.3 (9.5)
Net cash provided by (used for) investing activities (302.8) (5,195.7) 282.9 393.1
Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings 88.4 132.9 387.9 (668.4)
Change in intercompany receivables/payables 1,526.1 388.1 (1,526.1) (388.1)
Proceeds from long-term borrowings 91.5 77.8 2,119.6 2,184.3
Payments of long-term borrowings (142.1) (68.0) (1,799.2) (1,803.2)
Proceeds from issuance of common stock 51.1 143.0
Repurchases of common stock (143.9) (9.7)
Dividends paid (220.3) (193.0) (200.0) (38.2)
Other (23.4) (17.5) (6.9) (9.2)
Net cash provided by (used for) financing activities 1,227.4 453.6 (1,024.7) (722.8)
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and
Restricted Cash (11.8) 173.7 (1.1) 24.9
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted
Cash (521.0) (5,550.2) 228.8 125.5
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period 3,201.8 8,174.4 813.5 1,292.4
Cash, Cash Equivalents, and Restricted Cash at End of Period $
2,680.8 $
2,624.2 $
1,042.3 $
1,417.9
* 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.
Deere & Company
Other Financial Information
For the Three Months Ended
Equipment Operations*
Agriculture and Turf Construction and Forestry*
--- --- --- ---
January 27 January 28 January 27 January 28 January 27 January 28
Dollars in millions 2019 2018 2019 2018 2019 2018
---
Net Sales $
6,941 $
5,974 $
4,681 $
4,243 $
2,260 $
1,731
Net Sales -excluding Wirtgen $
6,343 $
5,719 $
4,681 $
4,243 $
1,662 $
1,476
Average Identifiable Assets
With Inventories at LIFO $
20,774 $
17,558 $
10,892 $
9,937 $
9,882 $
7,621
With Inventories at LIFO -excluding
Wirtgen $
14,427 $
13,112 $
10,892 $
9,937 $
3,535 $
3,175
With Inventories at Standard Cost $
22,140 $
18,837 $
11,993 $
10,970 $
10,147 $
7,867
With Inventories at Standard Cost -
excluding Wirtgen $
15,793 $
14,391 $
11,993 $
10,970 $
3,800 $
3,421
Operating Profit $
577 $
419 $
348 $
387 $
229 $
32
Operating Profit -excluding Wirtgen $
563 $
511 $
348 $
387 $
215 $
124
Percent of Net Sales -excluding 8.9 8.9 7.4 9.1 12.9 8.4
Wirtgen % % % % % %
Operating Return on Assets -
excluding Wirtgen
With Inventories at LIFO -excluding 3.9 3.9 3.2 3.9 6.1 3.9
Wirtgen % % % % % %
With Inventories at Standard Cost - 3.6 3.6 2.9 3.5 5.7 3.6
excluding Wirtgen % % % % % %
SVA Cost of Assets -excluding
Wirtgen $
(474) $
(432) $
(360) $
(329) $
(114) $
(103)
SVA -excluding Wirtgen $
89 $
79 $
(12) $
58 $
101 $
21
---
For the Three Months Ended
Financial Services
---
January 27 January 28
Dollars in millions 2019
2018**
---
Net Income Attributable to Deere &
Company $
154 $
425
Net Income Attributable to Deere &
Company -Tax Adjusted $
147
Average Equity $
4,997 $
4,791
Average Equity -Tax Adjusted $
4,721
Return on Equity -Tax Adjusted 3.1 3.1
% %
Operating Profit $
192 $
217
Average Equity $
4,997 $
4,721
Cost of Equity $
(156) $
(174)
SVA $
36 $
43
---
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 13 percent of the segment's average equity (15 percent in 2018). 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.
* On December 1, 2017, the Company acquired the stock and certain assets of substantially all of Wirtgen Group Holding GmbH's operations (Wirtgen), the leading manufacturer worldwide of road building equipment. Wirtgen is included in the construction and forestry segment. Wirtgen is excluded
from the metrics above.
** The 2018 SVA calculation was adjusted for certain effects of U.S. Tax Reform legislation enacted on December 22, 2017 due to the significant discrete income tax benefit in 2018. The 2019 SVA is calculated with unadjusted US GAAP information.
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SOURCE Deere & Company
