Le Lézard
Classified in: Business
Subjects: ERN, ERP

Deere Reports Third-Quarter Net Income of $899 Million


MOLINE, Ill., Aug. 16, 2019 /PRNewswire/ -- Deere & Company (NYSE: DE) reported net income of $899 million for the third quarter ended July 28, 2019, or $2.81 per share, compared with net income of $910 million, or $2.78 per share, for the quarter ended July 29, 2018. For the first nine months of the year, net income attributable to Deere & Company was $2.532 billion, or $7.87 per share, compared with $1.584 billion, or $4.82 per share, for the same period last year.

Affecting 2019 and 2018 results were charges or benefits to the provision for income taxes due to U.S. tax reform legislation (tax reform). Without these changes, adjusted net income attributable to Deere & Company for the third quarter and first nine months of 2019 and 2018 would have been as presented in the following table:

Deere & Company

Third Quarter


Year to Date

$ in millions

2019


2018


% Change


2019


2018


% Change

Net income ? adjusted

$

867


$

849


2%


$

2,505


$

2,325


8%

Fully diluted EPS ? adjusted

$

2.71


$

2.59




$

7.79


$

7.08




(Information on non-GAAP financial measures is included in the appendix.)

Worldwide net sales and revenues decreased 3 percent, to $10.036 billion, for the third quarter of 2019 and increased 5 percent, to $29.362 billion, for nine months. Net sales of the equipment operations were $8.969 billion for the quarter and $26.182 billion for nine months, compared with $9.286 billion and $25.007 billion last year.

"John Deere's third-quarter results reflected the high degree of uncertainty that continues to overshadow the agricultural sector," said Samuel R. Allen, chairman and chief executive officer. "Concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases. At the same time, general economic conditions remain positive and are contributing to strong results for Deere's construction and forestry business."

Company Outlook & Summary

Company equipment sales are projected to increase by about 4 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 is a negative foreign-currency translation effect of about 2 percent for the year. Net sales and revenues are projected to increase about 5 percent for fiscal 2019. Net income attributable to Deere & Company is forecast to be about $3.2 billion.

"In spite of present challenges, the long-term outlook for our businesses remains healthy and points to a promising future," Allen said. "We continue to expand our global customer base and are encouraged by response to our lineup of advanced products and services. Furthermore, we are fully committed to the successful execution of our strategic plan focused on achieving sustainable profitable growth. In support of the strategy, we are conducting a thorough assessment of our cost structure and initiating a series of actions to make the organization more structurally efficient and profitable."

Deere & Company

Third Quarter


Year to Date

$ in millions

2019


2018


% Change


2019


2018


% Change

Net sales and revenues

$

10,036


$

10,308


-3%


$

29,362


$

27,942


5%

















Net income

$

899


$

910


-1%


$

2,532


$

1,584


60%

Fully diluted EPS

$

2.81


$

2.78




$

7.87


$

4.82



















Net income ? adjusted

$

867


$

849


2%


$

2,505


$

2,325


8%

Fully diluted EPS ? adjusted

$

2.71


$

2.59




$

7.79


$

7.08



Net income in the third quarter and first nine months of 2019 was favorably affected by discrete adjustments to the provision for income taxes related to tax reform of $32 million and $27 million for the respective periods. (Information on non-GAAP financial measures is included in the appendix.) Results were favorably affected by $61 million in the third quarter of 2018 and unfavorably affected by $741 million for the nine-month period due to discrete adjustments to the provision for income taxes related to tax reform.

Equipment Operations

Third Quarter


Year to Date

$ in millions

2019


2018


% Change


2019


2018


% Change

Net sales

$

8,969


$

9,286


-3%


$

26,182


$

25,007


5%

Operating profit

$

990


$

1,087


-9%


$

2,932


$

2,822


4%

















Net income

$

717


$

750


-4%


$

2,067


$

889


133%

Tax reform unfavorable

(favorable) adjustments


(24)



(58)


-59%



(24)



974


-102%

Net income without tax reform

$

693


$

692




$

2,043


$

1,863


10%

For a discussion of net sales and operating profit results, see the Agriculture & Turf and Construction & Forestry sections below. Wirtgen results are included for the full year-to-date period of 2019 while the prior year reflected seven months of the respective period. The two additional months added about 2 percent to the company's year-to-date net sales. Net income in the third quarter and first nine months of 2019 was favorably affected by discrete adjustments to the provision for income taxes.

Agriculture & Turf

Third Quarter


Year to Date

$ in millions

2019


2018


% Change


2019


2018


% Change

Net sales

$

5,946


$

6,293


-6%


$

17,909


$

17,585


2%

Operating profit

$

612


$

806


-24%


$

1,978


$

2,249


-12%

Operating margin


10.3%



12.8%





11.0%



12.8%



Agriculture & Turf sales decreased for the quarter due to lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. Year-to-date sales increased mainly as a result of price realization and increased shipment volumes, partially offset by the unfavorable effects of currency translation. Operating profit declined for the quarter primarily due to lower shipment volumes, higher production costs, and the unfavorable effects of foreign-currency exchange, partially offset by price realization. Nine-month operating profit moved lower resulting from higher production costs, the unfavorable effects of currency translation, increased research and development costs, and a less-favorable sales mix. These factors were partially offset by price realization and higher shipment volumes. 

Construction & Forestry

Third Quarter


Year to Date

$ in millions

2019


2018


% Change


2019


2018


% Change

Net sales

$

3,023


$

2,993


1%


$

8,273


$

7,422


11%

Operating profit

$

378


$

281


35%


$

954


$

573


66%

Operating margin


12.5%



9.4%





11.5%



7.7%



Construction & Forestry sales were higher for the quarter and nine months primarily due to price realization, partially offset by the unfavorable effects of currency translation. Nine-month sales also benefited from higher shipment volumes. The inclusion of Wirtgen's sales for two additional months accounted for about 6 percent of the year-to-date net sales increase. Wirtgen's operating profit was $159 million for the quarter and $275 million for nine months, compared with $88 million and $37 million for the corresponding periods last year. Excluding Wirtgen, the improvement in Construction & Forestry results for the quarter was driven by price realization, partially offset by a less-favorable sales mix. Year-to-date operating profit, excluding Wirtgen, increased mainly due to price realization and higher shipment volumes, partially offset by higher production costs and the unfavorable effects of currency exchange.

Financial Services

Third Quarter


Year to Date

$ in millions

2019


2018


% Change


2019


2018


% Change

Net income

$

175


$

151


16%


$

450


$

681


-34%

Tax reform unfavorable (favorable) adjustments


(8)



(3)


167%



(3)



(233)


-99%

Net income without tax reform

$

167


$

148


13%


$

447


$

448



Excluding tax-reform adjustments, the increase in financial services net income for the quarter was due to income earned on a higher average portfolio and favorable discrete adjustments to the provision for income taxes, partially offset by higher losses on operating-lease residual values and unfavorable financing spreads. Nine-month net income, adjusted for the tax-reform items, declined due to unfavorable financing spreads and higher losses on operating-lease residual values, largely offset by income earned on a higher average portfolio and favorable discrete adjustments to the provision for income taxes.

Market Conditions and Outlook (annual)

$ in millions










Agriculture & Turf


Net Sales



2%


Currency Translation


-2%

Construction & Forestry


Net Sales



10%


Currency Translation


-2%











John Deere Financial


Net Income



$ 620





Agriculture & Turf. Industry sales of agricultural equipment are expected to be about the same as last year for the U.S. and Canada as well as for the EU28-member nations. 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 flat to up 5 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 and favorable adjustments to the provision for income taxes, largely offset by less-favorable financing spreads, higher losses on operating-lease residual values, and a higher provision for credit losses. Financial services net income for 2018 was $942 million, which included a tax benefit related to tax reform of $341 million. Without the tax benefit, net income 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.


Third Quarter


Year to Date

$ in millions

2019


2018


% Change


2019


2018


% Change

Revenue

$

742


$

661


12%


$

2,106


$

1,864


13%

Net income

$

145


$

120


21%


$

351


$

639


-45%

















Ending portfolio balance









$

38,625


$

35,633


8%

Prior-year results for the third quarter and year to date included a favorable provision for income taxes associated with tax reform. Results for the current quarter and first nine months included income from a higher average portfolio and favorable discrete adjustments to the provision for income taxes, partially offset by less-favorable financing spreads and higher losses on operating-lease residual values.

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 tax reform. Net income attributable to Deere & Company and diluted earnings per share measures that exclude this item are not in accordance with nor a substitute for GAAP measures. The company believes that discussion of results excluding this item provides a useful analysis of ongoing operating trends.

The tables below provide a reconciliation of the non-GAAP financial measure with the most directly comparable GAAP financial measure for the three months and nine months ended July 28, 2019, and July 29, 2018.



Three Months Ended


Nine Months Ended



July 28, 2019


July 28, 2019



Net Income





Net Income






Attributable to


Diluted


Attributable to


Diluted



Deere &


Earnings


Deere &


Earnings



Company


Per Share


Company


Per Share

GAAP measure


$

899


$

2.81


$

2,532


$

7.87

Discrete tax reform expense (benefit)



(32)



(.10)



(27)



(.08)

Non-GAAP measure


$

867


$

2.71


$

2,505


$

7.79

















Three Months Ended


Nine Months Ended




July 29, 2018


July 29, 2018




Net Income





Net Income







Attributable to


Diluted


Attributable to


Diluted




Deere &


Earnings


Deere &


Earnings




Company


Per Share


Company


Per Share


GAAP measure


$

910


$

2.78


$

1,584


$

4.82


Discrete tax reform expense (benefit)



(61)



(.19)



741



2.26


Non-GAAP measure


$

849


$

2.59


$

2,325


$

7.08


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 (e.g., African swine fever) and their effects on poultry, beef and pork consumption and prices and on livestock feed demand, 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).

Third Quarter 2019 Press Release

(in millions of dollars)

Unaudited



Three Months Ended


Nine Months Ended


July 28


July 29


%


July 28


July 29


%


2019


2018


Change


2019


2018


Change

Net sales and revenues:
















Agriculture and turf

$

5,946


$

6,293


-6


$

17,909


$

17,585


+2

Construction and forestry


3,023



2,993


+1



8,273



7,422


+11

Total net sales


8,969



9,286


-3



26,182



25,007


+5

Financial services


910



830


+10



2,650



2,402


+10

Other revenues


157



192


-18



530



533


-1

Total net sales and revenues

$

10,036


$

10,308


-3


$

29,362


$

27,942


+5

















Operating profit: *
















Agriculture and turf

$

612


$

806


-24


$

1,978


$

2,249


-12

Construction and forestry


378



281


+35



954



573


+66

Financial services


204



196


+4



566



591


-4

Total operating profit


1,194



1,283


-7



3,498



3,413


+2

Reconciling items **


(74)



(84)


-12



(218)



(305)


-29

Income taxes


(221)



(289)


-24



(748)



(1,524)


-51

Net income attributable to Deere & Company

$

899


$

910


-1


$

2,532


$

1,584


+60



*

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 July 28, 2019 and July 29, 2018

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


2019


2018

Net Sales and Revenues






Net sales

$

8,969


$

9,286

Finance and interest income


884



786

Other income


183



236

Total


10,036



10,308







Costs and Expenses






Cost of sales


6,870



7,152

Research and development expenses


431



416

Selling, administrative and general expenses


896



913

Interest expense


374



291

Other operating expenses


352



346

Total


8,923



9,118







Income of Consolidated Group before Income Taxes


1,113



1,190

Provision for income taxes


221



289

Income of Consolidated Group


892



901

Equity in income of unconsolidated affiliates


7



10

Net Income


899



911

Less: Net income attributable to noncontrolling interests





1

Net Income Attributable to Deere & Company

$

899


$

910







Per Share Data






Basic

$

2.84


$

2.81

Diluted

$

2.81


$

2.78







Average Shares Outstanding






Basic


315.9



323.5

Diluted


319.8



328.0



See Condensed Notes to Interim Consolidated Financial Statements.

 

DEERE & COMPANY

STATEMENT OF CONSOLIDATED INCOME

For the Nine Months Ended July 28, 2019 and July 29, 2018

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


2019


2018

Net Sales and Revenues






Net sales

$

26,182


$

25,007

Finance and interest income


2,537



2,263

Other income


643



672

Total


29,362



27,942







Costs and Expenses






Cost of sales


20,056



19,190

Research and development expenses


1,295



1,188

Selling, administrative and general expenses


2,607



2,557

Interest expense


1,078



881

Other operating expenses


1,063



1,034

Total


26,099



24,850







Income of Consolidated Group before Income Taxes


3,263



3,092

Provision for income taxes


748



1,524

Income of Consolidated Group


2,515



1,568

Equity in income of unconsolidated affiliates


20



18

Net Income


2,535



1,586

Less: Net income attributable to noncontrolling interests


3



2

Net Income Attributable to Deere & Company

$

2,532


$

1,584







Per Share Data






Basic

$

7.98


$

4.90

Diluted

$

7.87


$

4.82







Average Shares Outstanding






Basic


317.3



323.4

Diluted


321.5



328.2








See Condensed Notes to Interim Consolidated Financial Statements.

 

DEERE & COMPANY

CONDENSED CONSOLIDATED BALANCE SHEET

(In millions of dollars) Unaudited


July 28


October 28


July 29


2019


2018


2018

Assets









Cash and cash equivalents

$

3,383


$

3,904


$

3,923

Marketable securities


565



490



488

Receivables from unconsolidated affiliates


54



22



28

Trade accounts and notes receivable - net


6,758



5,004



6,208

Financing receivables - net


27,049



27,054



25,213

Financing receivables securitized - net


5,200



4,022



4,662

Other receivables


1,535



1,736



1,300

Equipment on operating leases - net


7,269



7,165



6,805

Inventories


6,747



6,149



6,239

Property and equipment - net


5,798



5,868



5,638

Investments in unconsolidated affiliates


219



207



199

Goodwill


3,013



3,101



3,047

Other intangible assets - net


1,444



1,562



1,581

Retirement benefits


1,431



1,298



737

Deferred income taxes


1,088



808



1,645

Other assets


1,977



1,718



1,677

Total Assets

$

73,530


$

70,108


$

69,390










Liabilities and Stockholders' Equity


















Liabilities









Short-term borrowings

$

11,142


$

11,062


$

11,004

Short-term securitization borrowings


5,048



3,957



4,528

Payables to unconsolidated affiliates


136



129



111

Accounts payable and accrued expenses


9,390



10,111



9,483

Deferred income taxes


507



556



524

Long-term borrowings


29,242



27,237



26,838

Retirement benefits and other liabilities


5,781



5,751



6,522

Total liabilities


61,246



58,803



59,010










Redeemable noncontrolling interest


14



14



14










Stockholders' Equity









Total Deere & Company stockholders' equity


12,266



11,288



10,356

Noncontrolling interests


4



3



10

Total stockholders' equity


12,270



11,291



10,366

Total Liabilities and Stockholders' Equity

$

73,530


$

70,108


$

69,390



See Condensed Notes to Interim Consolidated Financial Statements.

 

DEERE & COMPANY

STATEMENT OF CONSOLIDATED CASH FLOWS

For the Nine Months Ended July 28, 2019 and July 29, 2018

(In millions of dollars) Unaudited


2019


2018

Cash Flows from Operating Activities






Net income

$

2,535


$

1,586

Adjustments to reconcile net income to net cash provided by (used for) operating activities:






Provision for credit losses


58



66

Provision for depreciation and amortization


1,522



1,445

Share-based compensation expense


63



63

Gain on sales of businesses





(25)

Undistributed earnings of unconsolidated affiliates


10



(10)

Provision (credit) for deferred income taxes


(332)



641

Changes in assets and liabilities:






Trade, notes, and financing receivables related to sales


(2,206)



(2,365)

Inventories


(1,168)



(1,539)

Accounts payable and accrued expenses


(306)



213

Accrued income taxes payable/receivable


253



176

Retirement benefits


40



(814)

Other


(65)



(109)

Net cash provided by (used for) operating activities


404



(672)







Cash Flows from Investing Activities






Collections of receivables (excluding receivables related to sales)


12,685



12,162

Proceeds from maturities and sales of marketable securities


72



56

Proceeds from sales of equipment on operating leases


1,171



1,116

Proceeds from sales of businesses, net of cash sold





133

Cost of receivables acquired (excluding receivables related to sales)


(13,662)



(12,586)

Acquisitions of businesses, net of cash acquired





(5,171)

Purchases of marketable securities


(110)



(101)

Purchases of property and equipment


(756)



(571)

Cost of equipment on operating leases acquired


(1,462)



(1,428)

Other


(67)



(103)

Net cash used for investing activities


(2,129)



(6,493)







Cash Flows from Financing Activities






Increase (decrease) in total short-term borrowings


(336)



1,183

Proceeds from long-term borrowings


7,440



5,739

Payments of long-term borrowings


(4,356)



(4,372)

Proceeds from issuance of common stock


133



209

Repurchases of common stock


(880)



(454)

Dividends paid


(703)



(583)

Other


(82)



(66)

Net cash provided by financing activities


1,216



1,656







Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash


(24)



71







Net Decrease in Cash, Cash Equivalents, and Restricted Cash


(533)



(5,438)

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period


4,015



9,467

Cash, Cash Equivalents, and Restricted Cash at End of Period

$

3,482


$

4,029



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


Nine Months Ended



July 28


July 29


July 28


July 29



2019


2018


2019


2018















Dividends declared







$

.76


$

.69


$

2.28


$

1.89


Dividends paid

$

.76


$

.60


$

2.21


$

1.80



(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 $106 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 $99 million in the financial services' beginning and ending period balances, respectively. The equipment operations' restricted cash at October 28, 2018 and July 28, 2019 was $7 million and $9 million, respectively. The financial services' restricted cash for the same periods was $104 million and $90 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 July 28, 2019 and July 29, 2018

(In millions of dollars) Unaudited

EQUIPMENT OPERATIONS*


FINANCIAL SERVICES


2019


2018


2019


2018

Net Sales and Revenues












Net sales

$

8,969


$

9,286







Finance and interest income


30



31


$

952


$

852

Other income


185



231



51



67

Total


9,184



9,548



1,003



919













Costs and Expenses












Cost of sales


6,871



7,153







Research and development expenses


431



416







Selling, administrative and general expenses


751



769



147



145

Interest expense


67



52



311



250

Interest compensation to Financial Services


93



86







Other operating expenses


64



80



339



326

Total


8,277



8,556



797



721













Income of Consolidated Group before Income Taxes


907



992



206



198

Provision for income taxes


190



242



31



47

Income of Consolidated Group


717



750



175



151













Equity in Income of Unconsolidated Subsidiaries and Affiliates












Financial Services


175



151







Other


7



10







Total


182



161







Net Income


899



911



175



151

Less: Net income attributable to noncontrolling interests





1







Net Income Attributable to Deere & Company

$

899


$

910


$

175


$

151



* 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 28, 2019 and July 29, 2018

(In millions of dollars) Unaudited

EQUIPMENT OPERATIONS*


FINANCIAL SERVICES


2019


2018


2019


2018

Net Sales and Revenues












Net sales

$

26,182


$

25,007







Finance and interest income


79



70


$

2,727


$

2,441

Other income


614



631



184



195

Total


26,875



25,708



2,911



2,636













Costs and Expenses












Cost of sales


20,058



19,192







Research and development expenses


1,295



1,188







Selling, administrative and general expenses


2,191



2,159



422



403

Interest expense


182



226



910



675

Interest compensation to Financial Services


254



228







Other operating expenses


203



219



1,008



962

Total


24,183



23,212



2,340



2,040













Income of Consolidated Group before Income Taxes


2,692



2,496



571



596

Provision (credit) for income taxes


625



1,607



123



(83)

Income of Consolidated Group


2,067



889



448



679













Equity in Income of Unconsolidated Subsidiaries and Affiliates












Financial Services


450



681



2



2

Other


18



16







Total


468



697



2



2

Net Income


2,535



1,586



450



681

Less: Net income attributable to noncontrolling interests


3



2







Net Income Attributable to Deere & Company

$

2,532


$

1,584


$

450


$

681



* 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 28


October 28


July 29


July 28


October 28


July 29


2019


2018


2018


2019


2018


2018

Assets


















Cash and cash equivalents

$

2,694


$

3,195


$

2,803


$

689


$

709


$

1,120

Marketable securities


5



8



11



560



482



477

Receivables from unconsolidated subsidiaries and affiliates


2,395



1,700



1,795










Trade accounts and notes receivable - net


1,606



1,374



1,586



6,807



4,906



6,080

Financing receivables - net


100



93



78



26,949



26,961



25,135

Financing receivables securitized - net


54



76



90



5,146



3,946



4,572

Other receivables


1,428



1,010



1,131



126



776



176

Equipment on operating leases - net











7,269



7,165



6,805

Inventories


6,747



6,149



6,239










Property and equipment - net


5,753



5,821



5,592



45



47



46

Investments in unconsolidated subsidiaries and affiliates


5,309



5,231



4,992



16



15



15

Goodwill


3,013



3,101



3,047










Other intangible assets - net


1,444



1,562



1,581










Retirement benefits


1,374



1,241



727



57



57



14

Deferred income taxes


1,579



1,503



1,984



72



69



68

Other assets


1,269



1,133



1,148



708



587



530

Total Assets

$

34,770


$

33,197


$

32,804


$

48,444


$

45,720


$

45,038



















Liabilities and Stockholders' Equity




































Liabilities


















Short-term borrowings

$

1,372


$

1,434


$

789


$

9,770


$

9,628


$

10,215

Short-term securitization borrowings


53



75



90



4,995



3,882



4,438

Payables to unconsolidated subsidiaries and affiliates


136



129



111



2,341



1,678



1,766

Accounts payable and accrued expenses


9,422



9,383



9,047



1,641



2,056



1,902

Deferred income taxes


454



497



431



616



823



500

Long-term borrowings


5,364



4,714



5,526



23,878



22,523



21,312

Retirement benefits and other liabilities


5,685



5,660



6,430



97



91



96

Total liabilities


22,486



21,892



22,424



43,338



40,681



40,229



















Redeemable noncontrolling interest


14



14



14




























Stockholders' Equity


















Total Deere & Company stockholders' equity


12,266



11,288



10,356



5,106



5,039



4,809

Noncontrolling interests


4



3



10










Total stockholders' equity


12,270



11,291



10,366



5,106



5,039



4,809

Total Liabilities and Stockholders' Equity

$

34,770


$

33,197


$

32,804


$

48,444


$

45,720


$

45,038



* 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 28, 2019 and July 29, 2018

(In millions of dollars) Unaudited

EQUIPMENT OPERATIONS*


FINANCIAL SERVICES


2019


2018


2019


2018

Cash Flows from Operating Activities












Net income

$

2,535


$

1,586


$

450


$

681

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












Provision for credit losses


1



19



57



47

Provision for depreciation and amortization


782



741



836



800

Gain on sales of businesses





(25)







Undistributed earnings of unconsolidated subsidiaries and affiliates


(62)



(235)



(1)



(1)

Provision (credit) for deferred income taxes


(123)



986



(209)



(345)

Changes in assets and liabilities:












Trade receivables and Equipment Operations' financing receivables


(248)



(331)







Inventories


(670)



(975)







Accounts payable and accrued expenses


50



519



23



66

Accrued income taxes payable/receivable


(282)



231



535



(55)

Retirement benefits


35



(821)



5



7

Other


(59)



(86)



140



141

Net cash provided by operating activities


1,959



1,609



1,836



1,341













Cash Flows from Investing Activities












Collections of receivables (excluding trade and wholesale)








13,807



13,246

Proceeds from maturities and sales of marketable securities


9



9



63



47

Proceeds from sales of equipment on operating leases








1,171



1,116

Proceeds from sales of businesses, net of cash sold





133







Cost of receivables acquired (excluding trade and wholesale)








(14,597)



(13,830)

Acquisitions of businesses, net of cash acquired





(5,171)







Purchases of marketable securities


(3)






(107)



(101)

Purchases of property and equipment


(754)



(569)



(2)



(2)

Cost of equipment on operating leases acquired








(2,135)



(2,190)

Increase in trade and wholesale receivables








(2,551)



(2,330)

Other


(64)



42



12



(61)

Net cash used for investing activities


(812)



(5,556)



(4,339)



(4,105)













Cash Flows from Financing Activities












Increase (decrease) in total short-term borrowings


(119)



119



(217)



1,064

Change in intercompany receivables/payables


(683)



(797)



683



797

Proceeds from long-term borrowings


868



159



6,572



5,580

Payments of long-term borrowings


(194)



(118)



(4,162)



(4,254)

Proceeds from issuance of common stock


133



209







Repurchases of common stock


(880)



(454)







Dividends paid


(703)



(583)



(377)



(454)

Other


(52)



(41)



(22)



(25)

Net cash provided by (used for) financing activities


(1,630)



(1,506)



2,477



2,708













Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash


(16)



89



(8)



(18)













Net Decrease in Cash, Cash Equivalents, and Restricted Cash


(499)



(5,364)



(34)



(74)

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period


3,202



8,174



813



1,293

Cash, Cash Equivalents, and Restricted Cash at End of Period

$

2,703


$

2,810


$

779


$

1,219



* 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 28

July 29

July 28

July 29

July 28

July 29

Dollars in millions

2019

2018

2019

2018

2019

2018

Net Sales

$

26,182


$

25,007


$

17,909


$

17,585


$

8,273


$

7,422


Net Sales - excluding Wirtgen

$

23,762


$

22,725


$

17,909


$

17,585


$

5,853


$

5,140


Average Identifiable Assets



















With Inventories at LIFO

$

20,984


$

19,632


$

10,880


$

10,272


$

10,104


$

9,360


With Inventories at LIFO - excluding Wirtgen

$

14,603


$

13,605


$

10,880


$

10,272


$

3,723


$

3,333


With Inventories at Standard Cost

$

22,359


$

20,900


$

11,989


$

11,294


$

10,370


$

9,606


With Inventories at Standard Cost - excluding Wirtgen

$

15,977


$

14,872


$

11,989


$

11,294


$

3,988


$

3,578


Operating Profit

$

2,932


$

2,822


$

1,978


$

2,249


$

954


$

573


Operating Profit - excluding Wirtgen

$

2,657


$

2,785


$

1,978


$

2,249


$

679


$

536


Percent of Net Sales - excluding Wirtgen


11.2

%


12.3

%


11.0

%


12.8

%


11.6

%


10.4

%

Operating Return on Assets - excluding Wirtgen



















With Inventories at LIFO - excluding Wirtgen


18.2

%


20.5

%


18.2

%


21.9

%


18.2

%


16.1

%

With Inventories at Standard Cost - excluding Wirtgen


16.6

%


18.7

%


16.5

%


19.9

%


17.0

%


15.0

%

SVA Cost of Assets - excluding Wirtgen

$

(1,437)


$

(1,339)


$

(1,078)


$

(1,016)


$

(359)


$

(323)


SVA - excluding Wirtgen

$

1,220


$

1,446


$

900


$

1,233


$

320


$

213





















For the Nine Months Ended

Financial Services














July 28

July 29













Dollars in millions

2019

2018**













Net Income Attributable to Deere & Company

$

450


$

681














Net Income Attributable to Deere & Company - Tax Adjusted




$

402














Average Equity

$

5,018


$

4,808














Average Equity - Tax Adjusted




$

4,758














Return on Equity


9.0

%


14.2

%













Return on Equity - Tax Adjusted





8.4

%













Operating Profit

$

566


$

591














Average Equity

$

5,018


$

4,758














Cost of Equity

$

(478)


$

(527)














SVA

$

88


$

64















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 U.S. GAAP information.

 

SOURCE Deere & Company


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