UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C.  20549

 

 

 

 

 

FORM 10-Q

 

 

 

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 30, 2013

 

 

Commission file no: 1-4121

 

 

 

 

 

 

 

 

DEERE  &  COMPANY

 

(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation)

 

36-2382580
(IRS employer identification no.)

 

One John Deere Place

 

 

Moline, Illinois 61265

 

(Address of principal executive offices)

Telephone Number:  (309) 765-8000

 

 

 

 

 

        Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes

X

No

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes

X

No

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

 

 

Large Accelerated Filer

X

 

Accelerated Filer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Accelerated Filer

 

 

Smaller Reporting Company

 

 

 

 

 

 

 

 

 

 

(Do not check if a smaller reporting company)

 

 

 

 

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

 

Yes

 

No

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        At April 30, 2013, 388,044,422 shares of common stock, $1 par value, of the registrant were outstanding.

 

 

 

 

 

 

Index to Exhibits:  Page 50

 



 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended April 30, 2013 and 2012
(In millions of dollars and shares except per share amounts) Unaudited

 

 

2013

 

2012

Net Sales and Revenues

 

 

 

 

 

 

Net sales

 

$

10,265.0

 

 

$

9,404.6

 

Finance and interest income

 

512.2

 

 

483.9

 

Other income

 

136.3

 

 

120.1

 

Total

 

10,913.5

 

 

10,008.6

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

Cost of sales

 

7,482.2

 

 

6,834.5

 

Research and development expenses

 

376.8

 

 

352.0

 

Selling, administrative and general expenses

 

956.3

 

 

881.4

 

Interest expense

 

191.0

 

 

195.7

 

Other operating expenses

 

163.4

 

 

148.0

 

Total

 

9,169.7

 

 

8,411.6

 

 

 

 

 

 

 

 

Income of Consolidated Group before Income Taxes

 

1,743.8

 

 

1,597.0

 

Provision for income taxes

 

666.4

 

 

541.3

 

Income of Consolidated Group

 

1,077.4

 

 

1,055.7

 

Equity in income of unconsolidated affiliates

 

6.9

 

 

2.4

 

Net Income

 

1,084.3

 

 

1,058.1

 

Less: Net income attributable to noncontrolling interests

 

.1

 

 

1.9

 

Net Income Attributable to Deere & Company

 

$

1,084.2

 

 

$

1,056.2

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

Basic

 

$

2.79

 

 

$

2.64

 

Diluted

 

$

2.76

 

 

$

2.61

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

Basic

 

389.2

 

 

400.2

 

Diluted

 

393.1

 

 

404.7

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

2



 

DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Three Months Ended April 30, 2013 and 2012
(In millions of dollars) Unaudited

 

 

2013

 

2012

 

 

 

 

 

 

 

Net Income

 

$

1,084.3

 

 

$

1,058.1

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

 

 

 

 

Retirement benefits adjustment

 

81.0

 

 

111.3

 

Cumulative translation adjustment

 

(59.8

)

 

(43.7

)

Unrealized gain on derivatives

 

2.0

 

 

1.8

 

Unrealized gain on investments

 

2.3

 

 

.2

 

Other Comprehensive Income, Net of Income Taxes

 

25.5

 

 

69.6

 

 

 

 

 

 

 

 

Comprehensive Income of Consolidated Group

 

1,109.8

 

 

1,127.7

 

Less: Comprehensive income attributable to noncontrolling interests

 

.1

 

 

1.9

 

Comprehensive Income Attributable to Deere & Company

 

$

1,109.7

 

 

$

1,125.8

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

3



 

DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Six Months Ended April 30, 2013 and 2012
(In millions of dollars and shares except per share amounts) Unaudited

 

 

2013

 

2012

Net Sales and Revenues

 

 

 

 

 

 

Net sales

 

$

17,057.9

 

 

$

15,523.6

 

Finance and interest income

 

1,013.2

 

 

959.0

 

Other income

 

263.9

 

 

292.5

 

Total

 

18,335.0

 

 

16,775.1

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

Cost of sales

 

12,497.0

 

 

11,410.4

 

Research and development expenses

 

733.3

 

 

664.5

 

Selling, administrative and general expenses

 

1,737.9

 

 

1,590.5

 

Interest expense

 

371.1

 

 

387.8

 

Other operating expenses

 

305.8

 

 

324.6

 

Total

 

15,645.1

 

 

14,377.8

 

 

 

 

 

 

 

 

Income of Consolidated Group before Income Taxes

 

2,689.9

 

 

2,397.3

 

Provision for income taxes

 

955.3

 

 

807.4

 

Income of Consolidated Group

 

1,734.6

 

 

1,589.9

 

Equity in income (loss) of unconsolidated affiliates

 

(.6

)

 

2.6

 

Net Income

 

1,734.0

 

 

1,592.5

 

Less: Net income attributable to noncontrolling interests

 

.1

 

 

3.4

 

Net Income Attributable to Deere & Company

 

$

1,733.9

 

 

$

1,589.1

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

Basic

 

$

4.46

 

 

$

3.95

 

Diluted

 

$

4.41

 

 

$

3.91

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

Basic

 

388.7

 

 

402.1

 

Diluted

 

393.0

 

 

406.6

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

4



 

DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Six Months Ended April 30, 2013 and 2012
(In millions of dollars) Unaudited

 

 

2013

 

2012

 

 

 

 

 

 

 

Net Income

 

$

1,734.0

 

 

$

1,592.5

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

 

 

 

 

Retirement benefits adjustment

 

151.1

 

 

181.7

 

Cumulative translation adjustment

 

(39.6

)

 

(179.8

)

Unrealized gain (loss) on derivatives

 

5.8

 

 

(1.8

)

Unrealized gain on investments

 

.2

 

 

3.4

 

Other Comprehensive Income, Net of Income Taxes

 

117.5

 

 

3.5

 

 

 

 

 

 

 

 

Comprehensive Income of Consolidated Group

 

1,851.5

 

 

1,596.0

 

Less: Comprehensive income attributable to noncontrolling interests

 

.1

 

 

3.2

 

Comprehensive Income Attributable to Deere & Company

 

$

1,851.4

 

 

$

1,592.8

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

5



 

DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited

 

 

April 30

 

October 31

 

April 30

 

 

2013

 

2012

 

2012

Assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,651.4

 

 

$

4,652.2

 

 

$

3,019.8

 

Marketable securities

 

1,399.0

 

 

1,470.4

 

 

1,338.9

 

Receivables from unconsolidated affiliates

 

52.4

 

 

59.7

 

 

66.9

 

Trade accounts and notes receivable - net

 

5,398.9

 

 

3,799.1

 

 

5,039.2

 

Financing receivables - net

 

22,744.9

 

 

22,159.1

 

 

19,452.7

 

Financing receivables securitized - net

 

3,788.3

 

 

3,617.6

 

 

3,116.0

 

Other receivables

 

1,149.9

 

 

1,790.9

 

 

1,089.2

 

Equipment on operating leases - net

 

2,575.5

 

 

2,527.8

 

 

2,168.0

 

Inventories

 

6,173.0

 

 

5,170.0

 

 

6,112.4

 

Property and equipment - net

 

5,114.0

 

 

5,011.9

 

 

4,387.6

 

Investments in unconsolidated affiliates

 

230.0

 

 

215.0

 

 

233.7

 

Goodwill

 

922.9

 

 

921.2

 

 

965.3

 

Other intangible assets - net

 

93.8

 

 

105.0

 

 

114.2

 

Retirement benefits

 

35.8

 

 

20.2

 

 

30.3

 

Deferred income taxes

 

3,373.2

 

 

3,280.4

 

 

2,944.6

 

Other assets

 

1,452.1

 

 

1,465.3

 

 

1,326.5

 

Total Assets

 

$

58,155.1

 

 

$

56,265.8

 

 

$

51,405.3

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

8,414.0

 

 

$

6,392.5

 

 

$

7,910.0

 

Short-term securitization borrowings

 

3,788.4

 

 

3,574.8

 

 

3,033.3

 

Payables to unconsolidated affiliates

 

143.3

 

 

135.2

 

 

189.6

 

Accounts payable and accrued expenses

 

8,132.8

 

 

8,988.9

 

 

7,631.4

 

Deferred income taxes

 

158.6

 

 

164.4

 

 

164.8

 

Long-term borrowings

 

21,752.9

 

 

22,453.1

 

 

18,719.4

 

Retirement benefits and other liabilities

 

7,498.3

 

 

7,694.9

 

 

6,360.8

 

Total liabilities

 

49,888.3

 

 

49,403.8

 

 

44,009.3

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $1 par value (issued shares at April 30, 2013 – 536,431,204)

 

3,474.4

 

 

3,352.2

 

 

3,298.9

 

Common stock in treasury

 

(8,987.0

)

 

(8,813.8

)

 

(8,005.1

)

Retained earnings

 

18,231.5

 

 

16,875.2

 

 

15,759.4

 

Accumulated other comprehensive income (loss)

 

(4,454.0

)

 

(4,571.5

)

 

(3,674.3

)

Total Deere & Company stockholders’ equity

 

8,264.9

 

 

6,842.1

 

 

7,378.9

 

Noncontrolling interests

 

1.9

 

 

19.9

 

 

17.1

 

Total stockholders’ equity

 

8,266.8

 

 

6,862.0

 

 

7,396.0

 

Total Liabilities and Stockholders’ Equity

 

$

58,155.1

 

 

$

56,265.8

 

 

$

51,405.3

 

 

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

6



 

DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Six Months Ended April 30, 2013 and 2012
(In millions of dollars) Unaudited

 

 

2013

 

2012

Cash Flows from Operating Activities

 

 

 

 

 

 

Net income

 

$

1,734.0

 

 

$

1,592.5

 

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

 

 

 

 

 

 

Provision for credit losses

 

8.5

 

 

11.6

 

Provision for depreciation and amortization

 

554.4

 

 

498.7

 

Share-based compensation expense

 

45.0

 

 

37.7

 

Undistributed earnings of unconsolidated affiliates

 

9.1

 

 

(4.8

)

Credit for deferred income taxes

 

(103.8

)

 

(124.1

)

Changes in assets and liabilities:

 

 

 

 

 

 

Trade, notes and financing receivables related to sales

 

(2,030.0

)

 

(1,554.1

)

Insurance receivables

 

462.0

 

 

81.4

 

Inventories

 

(1,235.1

)

 

(2,019.9

)

Accounts payable and accrued expenses

 

(665.0

)

 

(109.0

)

Accrued income taxes payable/receivable

 

97.4

 

 

250.7

 

Retirement benefits

 

16.8

 

 

(35.3

)

Other

 

(49.7

)

 

(152.7

)

Net cash used for operating activities

 

(1,156.4

)

 

(1,527.3

)

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

Collections of receivables (excluding receivables related to sales)

 

7,780.6

 

 

7,094.4

 

Proceeds from maturities and sales of marketable securities

 

528.0

 

 

15.8

 

Proceeds from sales of equipment on operating leases

 

506.4

 

 

418.8

 

Proceeds from sales of businesses, net of cash sold

 

 

 

 

20.2

 

Cost of receivables acquired (excluding receivables related to sales)

 

(8,224.1

)

 

(7,373.3

)

Purchases of marketable securities

 

(460.4

)

 

(570.3

)

Purchases of property and equipment

 

(503.6

)

 

(513.1

)

Cost of equipment on operating leases acquired

 

(518.7

)

 

(319.0

)

Other

 

(87.0

)

 

(102.1

)

Net cash used for investing activities

 

(978.8

)

 

(1,328.6

)

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

Increase in total short-term borrowings

 

1,341.6

 

 

1,297.6

 

Proceeds from long-term borrowings

 

2,470.5

 

 

4,056.8

 

Payments of long-term borrowings

 

(2,175.1

)

 

(2,035.6

)

Proceeds from issuance of common stock

 

149.7

 

 

28.9

 

Repurchases of common stock

 

(288.0

)

 

(746.3

)

Dividends paid

 

(357.6

)

 

(333.0

)

Excess tax benefits from share-based compensation

 

43.1

 

 

14.4

 

Other

 

(33.0

)

 

(28.3

)

Net cash provided by financing activities

 

1,151.2

 

 

2,254.5

 

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

(16.8

)

 

(26.0

)

 

 

 

 

 

 

 

Net Decrease in Cash and Cash Equivalents

 

(1,000.8

)

 

(627.4

)

Cash and Cash Equivalents at Beginning of Period

 

4,652.2

 

 

3,647.2

 

Cash and Cash Equivalents at End of Period

 

$

3,651.4

 

 

$

3,019.8

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

7



 

DEERE & COMPANY

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Six Months Ended April 30, 2012 and 2013

(In millions of dollars) Unaudited

 

 

 

 

 

Deere & Company Stockholders

 

 

 

 

 

 

Total
Stockholders’
Equity

 

 

Common
Stock

 

Treasury
Stock

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Non-
controlling
Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 31, 2011

 

 

$

6,814.9

 

 

$

3,251.7

 

$

(7,292.8

)

$

14,519.4

 

 

$

(3,678.0

)

 

$

14.6

 

Net income

 

 

1,592.5

 

 

 

 

 

 

1,589.1

 

 

 

 

 

3.4

 

Other comprehensive income (loss)

 

 

3.5

 

 

 

 

 

 

 

 

 

3.7

 

 

(.2

)

Repurchases of common stock

 

 

(746.3

)

 

 

 

(746.3

)

 

 

 

 

 

 

 

 

Treasury shares reissued

 

 

34.0

 

 

 

 

34.0

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

(349.9

)

 

 

 

 

 

(349.2

)

 

 

 

 

(.7

)

Stock options and other

 

 

47.3

 

 

47.2

 

 

 

.1

 

 

 

 

 

 

 

Balance April 30, 2012

 

 

$

7,396.0

 

 

$

3,298.9

 

$

(8,005.1

)

$

15,759.4

 

 

$

(3,674.3

)

 

$

17.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 31, 2012

 

 

$

6,862.0

 

 

$

3,352.2

 

$

(8,813.8

)

$

16,875.2

 

 

$

(4,571.5

)

 

$

19.9

 

Net income

 

 

1,734.0

 

 

 

 

 

 

1,733.9

 

 

 

 

 

.1

 

Other comprehensive income

 

 

117.5

 

 

 

 

 

 

 

 

 

117.5

 

 

 

 

Repurchases of common stock

 

 

(288.0

)

 

 

 

(288.0

)

 

 

 

 

 

 

 

 

Treasury shares reissued

 

 

114.8

 

 

 

 

114.8

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

(385.0

)

 

 

 

 

 

(377.5

)

 

 

 

 

(7.5

)

Deconsolidation of variable interest entity

 

 

(10.6

)

 

 

 

 

 

 

 

 

 

 

 

(10.6

)

Stock options and other

 

 

122.1

 

 

122.2

 

 

 

(.1

)

 

 

 

 

 

 

Balance April 30, 2013

 

 

$

8,266.8

 

 

$

3,474.4

 

$

(8,987.0

)

$

18,231.5

 

 

$

(4,454.0

)

 

$

1.9

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

8



 

Condensed Notes to Interim Consolidated Financial Statements (Unaudited)

 

(1)                    The information in the notes and related commentary are presented in a format which includes data grouped as follows:

 

Equipment Operations - Includes the Company’s agriculture and turf operations and construction and forestry operations with financial services reflected on the equity basis.

 

Financial Services – Includes primarily the Company’s financing operations.

 

Consolidated - Represents the consolidation of the equipment operations and financial services.  References to “Deere & Company” or “the Company” refer to the entire enterprise.

 

Variable Interest Entities

 

The Company was the primary beneficiary of and consolidated a supplier that was a variable interest entity (VIE).  The Company had both the power to direct the activities of the VIE that most significantly impacted the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.  In the first quarter of 2013, the entity was deconsolidated since the previous conditions for consolidation no longer existed.  The Company no longer has a variable interest in the supplier and no related parties were involved in the deconsolidation.  The effect on the financial statements for the deconsolidation was a decrease in assets, liabilities and noncontrolling interests of approximately $26 million, $15 million and $11 million, respectively, with no gain or loss.  No additional support beyond what was previously contractually required was provided during any periods presented in the financial statements.  The VIE produced blended fertilizer and other lawn care products for the agriculture and turf segment.

 

The assets and liabilities of this supplier VIE in previous periods consisted of the following in millions of dollars:

 

 

 

October 31
2012

 

April 30
2012

Cash and cash equivalents

 

$

26

 

 

$

17

 

Intercompany receivables

 

7

 

 

18

 

Inventories

 

25

 

 

42

 

Property and equipment - net

 

2

 

 

3

 

Other assets

 

5

 

 

9

 

Total assets

 

$

65

 

 

$

89

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

5

 

 

$

3

 

Accounts payable and accrued expenses

 

48

 

 

78

 

Total liabilities

 

$

53

 

 

$

81

 

 

The VIE was financed through its own accounts payable and short-term borrowings.  The assets of the VIE could only be used to settle the obligations of the VIE.  The creditors of the VIE did not have recourse to the general credit of the Company.

 

See Note 11 for VIEs related to securitization of financing receivables.

 

(2)                    The consolidated financial statements of Deere & Company and consolidated subsidiaries have been prepared by the Company, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC).  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted as permitted by such rules and regulations.  All adjustments, consisting of normal recurring adjustments, have been included.  Management believes that the

 

9



 

disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented.  It is suggested that these interim financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K.  Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures.  Actual results could differ from those estimates.

 

Cash Flow Information

 

All cash flows from the changes in trade accounts and notes receivable are classified as operating activities in the Statement of Consolidated Cash Flows as these receivables arise from sales to the Company’s customers.  Cash flows from financing receivables that are related to sales to the Company’s customers are also included in operating activities.  The remaining financing receivables are related to the financing of equipment sold by independent dealers and are included in investing activities.

 

The Company had the following non-cash operating and investing activities that were not included in the Statement of Consolidated Cash Flows.  The Company transferred inventory to equipment on operating leases of approximately $219 million and $214 million in the first six months of 2013 and 2012, respectively.  The Company also had accounts payable related to purchases of property and equipment of approximately $128 million and $45 million at April 30, 2013 and 2012, respectively.

 

(3)                    New accounting standards adopted in the first six months of 2013 were as follows:

 

In the first quarter of 2013, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2011-05, Presentation of Comprehensive Income, which amends Accounting Standards Codification (ASC) 220, Comprehensive Income.  This ASU requires the presentation of total comprehensive income, total net income and the components of net income and comprehensive income either in a single continuous statement or in two separate but consecutive statements.  The Company has presented two separate but consecutive statements with the tax effects for other comprehensive income items disclosed in the notes.  The requirements do not change how earnings per share is calculated or presented.  The adoption did not have a material effect on the Company’s consolidated financial statements.

 

In the first quarter of 2013, the Company adopted FASB ASU No. 2011-08, Testing Goodwill for Impairment, which amends ASC 350, Intangibles – Goodwill and Other.  This ASU gives an entity the option to first assess qualitative factors to determine if goodwill is impaired.  The entity may first determine based on qualitative factors if it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.  If that assessment indicates no impairment, the first and second steps of the quantitative goodwill impairment test are not required.  The adoption did not have a material effect on the Company’s consolidated financial statements.

 

In the first quarter of 2013, the Company adopted FASB ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which amends ASC 350, Intangibles – Goodwill and Other.  This ASU gives an entity the option to first assess qualitative factors to determine if indefinite-lived intangible assets are impaired.  The entity may first determine based on qualitative factors if it is more likely than not that the fair value of indefinite-lived intangible assets are less than their carrying amount.  If that assessment indicates no impairment, the quantitative impairment test is not required.  The adoption did not have a material effect on the Company’s consolidated financial statements.

 

10



 

New accounting standards to be adopted are as follows:

 

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which amends ASC 210, Balance Sheet.  This ASU requires entities to disclose gross and net information about both instruments and transactions eligible for offset in the statement of financial position and those subject to an agreement similar to a master netting arrangement.  This would include derivatives and other financial securities arrangements.  The effective date will be the first quarter of fiscal year 2014 and must be applied retrospectively.  The adoption will not have a material effect on the Company’s consolidated financial statements.

 

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which amends ASC 220, Comprehensive Income.  This ASU requires the disclosure of amounts reclassified out of accumulated other comprehensive income by component and by net income line item.  The disclosure may be provided either parenthetically on the face of the financial statements or in the notes.  The effective date will be the first quarter of fiscal year 2014 and must be applied prospectively.  The adoption will not have a material effect on the Company’s consolidated financial statements.

 

(4)                    Other comprehensive income items are transactions recorded in stockholders’ equity during the year, excluding net income and transactions with stockholders.  The items included in other comprehensive income (loss) and the related tax effects in millions of dollars follow:

 

Three Months Ended April 30, 2013

 

Before
Tax
Amount

 

Tax
(Expense)
Credit

 

After
Tax
Amount

Net unrealized gain on retirement benefits adjustment

 

$

126.8

 

 

$

(45.8

)

 

$

81.0

 

Cumulative translation adjustment

 

(58.3

)

 

(1.5

)

 

(59.8

)

Net unrealized gain on derivatives

 

2.9

 

 

(.9

)

 

2.0

 

Net unrealized gain on investments

 

3.6

 

 

(1.3

)

 

2.3

 

Total other comprehensive income

 

$

75.0

 

 

$

(49.5

)

 

$

25.5

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended April 30, 2012

 

 

 

 

 

 

 

 

 

Net unrealized gain on retirement benefits adjustment

 

$

178.1

 

 

$

(66.8

)

 

$

111.3

 

Cumulative translation adjustment

 

(43.3

)

 

(.4

)

 

(43.7

)

Net unrealized gain on derivatives

 

2.9

 

 

(1.1

)

 

1.8

 

Net unrealized gain on investments

 

.3

 

 

(.1

)

 

.2

 

Total other comprehensive income

 

$

138.0

 

 

$

(68.4

)

 

$

69.6

 

 

In the second quarter of 2013 and 2012, the noncontrolling interests’ comprehensive income was $.1 million and $1.9 million, respectively, which consisted of net income of $.1 million in 2013 and $1.9 million in 2012.

 

11



 

Six Months Ended April 30, 2013

 

Before
Tax
Amount

 

Tax
(Expense)
Credit

 

After
Tax
Amount

Net unrealized gain on retirement benefits adjustment

 

$

239.0

 

 

$

(87.9

)

 

$

151.1

 

Cumulative translation adjustment

 

(45.2

)

 

5.6

 

 

(39.6

)

Net unrealized gain on derivatives

 

8.7

 

 

(2.9

)

 

5.8

 

Net unrealized gain on investments

 

.2

 

 

 

 

 

.2

 

Total other comprehensive income

 

$

202.7

 

 

$

(85.2

)

 

$

117.5

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended April 30, 2012

 

 

 

 

 

 

 

 

 

Net unrealized gain on retirement benefits adjustment

 

$

292.4

 

 

$

(110.7

)

 

$

181.7

 

Cumulative translation adjustment

 

(184.6

)

 

4.8

 

 

(179.8

)

Net unrealized loss on derivatives

 

(2.6

)

 

.8

 

 

(1.8

)

Net unrealized gain on investments

 

5.2

 

 

(1.8

)

 

3.4

 

Total other comprehensive income

 

$

110.4

 

 

$

(106.9

)

 

$

3.5

 

 

In the first six months of 2013 and 2012, the noncontrolling interests’ comprehensive income was $.1 million and $3.2 million, respectively, which consisted of net income of $.1 million in 2013 and $3.4 million in 2012 and cumulative translation adjustments of none in 2013 and $(.2) million in 2012.

 

(5)                    Dividends declared and paid on a per share basis were as follows:

 

 

 

Three Months Ended
April 30

 

Six Months Ended
April 30

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

$    .51

 

 

$    .46

 

 

$    .97

 

 

$    .87

 

Dividends paid

 

$    .46

 

 

$    .41

 

 

$    .92

 

 

$    .82

 

 

12



 

(6)                    A reconciliation of basic and diluted net income attributable to Deere & Company per share in millions, except per share amounts, follows:

 

 

 

Three Months Ended
April 30

 

Six Months Ended
April 30

 

 

2013

 

2012

 

2013

 

2012

Net income attributable to Deere & Company

 

$

1,084.2

 

 

$

1,056.2

 

 

 $

1,733.9

 

 

 $

1,589.1

 

Less income allocable to participating securities

 

.3

 

 

.3

 

 

.4

 

 

.5

 

Income allocable to common stock

 

$

1,083.9

 

 

$

1,055.9

 

 

 $

1,733.5

 

 

 $

1,588.6

 

Average shares outstanding

 

389.2

 

 

400.2

 

 

388.7

 

 

402.1

 

Basic per share

 

$

2.79

 

 

$

2.64

 

 

 $

4.46

 

 

 $

3.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

389.2

 

 

400.2

 

 

388.7

 

 

402.1

 

Effect of dilutive share-based compensation

 

3.9

 

 

4.5

 

 

4.3

 

 

4.5

 

Total potential shares outstanding

 

393.1

 

 

404.7

 

 

393.0

 

 

406.6

 

Diluted per share

 

$

2.76

 

 

$

2.61

 

 

 $

4.41

 

 

 $

3.91

 

 

During the second quarter and first six months of 2013, 2.5 million shares in both periods were excluded from the above diluted per share computation because the incremental shares under the treasury stock method would have been antidilutive.  During the second quarter and first six months of 2012, 4.3 million shares in both periods were excluded from the diluted per share computation.

 

(7)                    The Company has several defined benefit pension plans and postretirement health care and life insurance plans covering its U.S. employees and employees in certain foreign countries.

 

The worldwide components of net periodic pension cost consisted of the following in millions of dollars:

 

 

 

Three Months Ended
April 30

 

Six Months Ended
April 30

 

 

2013

 

2012

 

2013

 

2012

Service cost

 

 $

69

 

 

 $

56

 

 

 $

136

 

 

 $

109

 

Interest cost

 

112

 

 

117

 

 

222

 

 

233

 

Expected return on plan assets

 

(196

)

 

(197

)

 

(390

)

 

(393

)

Amortization of actuarial loss

 

63

 

 

48

 

 

128

 

 

100

 

Amortization of prior service cost

 

8

 

 

11

 

 

16

 

 

21

 

Settlements/curtailments

 

1

 

 

1

 

 

1

 

 

2

 

Net cost

 

 $

57

 

 

 $

36

 

 

 $

113

 

 

 $

72

 

 

The worldwide components of net periodic postretirement benefits cost (health care and life insurance) consisted of the following in millions of dollars:

 

 

 

 

 

 

 

Three Months Ended
April 30

 

Six Months Ended
April 30

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

Service cost

 

 $

15

 

 

 $

11

 

 

 $

29

 

 

 $

23

 

Interest cost

 

63

 

 

69

 

 

127

 

 

140

 

Expected return on plan assets

 

(21

)

 

(25

)

 

(42

)

 

(50

)

Amortization of actuarial loss

 

34

 

 

 

 

 

70

 

 

60

 

Amortization of prior service credit

 

(1

)

 

(5

)

 

(2

)

 

(8

)

Net cost

 

 $

90

 

 

 $

50

 

 

 $

182

 

 

 $

165

 

 

13



 

For fiscal year 2012, the participants in one of the Company’s postretirement health care plans became “almost all” inactive as described by the applicable accounting standards due to additional retirements.  As a result, beginning in 2012, the net actuarial loss for this plan in the table above was amortized over the longer period for the average remaining life expectancy of the inactive participants rather than the average remaining service period of the active participants.

 

During the first six months of 2013, the Company contributed approximately $249 million to its pension plans and $17 million to its other postretirement benefit plans.  The Company presently anticipates contributing an additional $292 million to its pension plans and $11 million to its other postretirement benefit plans in the remainder of fiscal year 2013.  These contributions include payments from Company funds to either increase plan assets or make direct payments to plan participants.

 

(8)                    The Company’s unrecognized tax benefits at April 30, 2013 were $247 million, compared to $265 million at October 31, 2012.  The liability at April 30, 2013 consisted of approximately $60 million, which would affect the effective tax rate if it was recognized.  The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing.  The changes in the unrecognized tax benefits in the first six months of 2013 were not significant.  The Company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next twelve months would not be significant.

 

In March 2013, the Company changed the corporate structure of most of its German operations from a branch to a subsidiary of Deere & Company.  The change provides the Company increased flexibility and efficiency in funding growth in international operations.  As a result, the tax status of these operations has changed.  Formerly, as a branch these earnings were taxable in the U.S. as earned.  As a subsidiary, these earnings will now be taxable in the U.S. if they are distributed to Deere & Company as dividends, which is the same as the Company’s other foreign subsidiaries.  The earnings of the new German subsidiary remain taxable in Germany.  Due to the change in tax status and the expectation that the German subsidiary’s earnings are indefinitely reinvested, the deferred tax assets and liabilities related to U.S. taxable temporary differences for the previous German branch were written off.  The effect of this write-off was a decrease in net deferred tax assets and a charge to the income tax provision of $56 million during the second fiscal quarter of 2013.

 

14



 

(9)         Worldwide net sales and revenues, operating profit and identifiable assets by segment in millions of dollars follow:

 

 

 

Three Months Ended April 30

 

Six Months Ended April 30

 

 

2013

 

2012

 

 

%
Change

 

2013

 

2012

 

 

%
Change

Net sales and revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

$

8,691

 

 

$

7,735

 

 

+12

 

$

14,182

 

 

$

12,459

 

 

+14

Construction and forestry

 

1,574

 

 

1,670

 

 

-6

 

2,876

 

 

3,065

 

 

-6

Total net sales

 

10,265

 

 

9,405

 

 

+9

 

17,058

 

 

15,524

 

 

+10

Financial services

 

536

 

 

488

 

 

+10

 

1,063

 

 

1,036

 

 

+3

Other revenues

 

113

 

 

116

 

 

-3

 

214

 

 

215

 

 

 

Total net sales and revenues

 

$

10,914

 

 

$

10,009

 

 

+9

 

$

18,335

 

 

$

16,775

 

 

+9

Operating profit: *

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

$

1,582

 

 

$

1,403

 

 

+13

 

$

2,347

 

 

$

1,977

 

 

+19

Construction and forestry

 

81

 

 

119

 

 

-32

 

153

 

 

243

 

 

-37

Financial services

 

198

 

 

175

 

 

+13

 

395

 

 

350

 

 

+13

Total operating profit

 

1,861

 

 

1,697

 

 

+10

 

2,895

 

 

2,570

 

 

+13

Reconciling items **

 

(111

)

 

(100

)

 

+11

 

(206

)

 

(174

)

 

+18

Income taxes

 

(666

)

 

(541

)

 

+23

 

(955

)

 

(807

)

 

+18

Net income attributable to Deere & Company

 

$

1,084

 

 

$

1,056

 

 

+3

 

$

1,734

 

 

$

1,589

 

 

+9

Intersegment sales and revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf net sales

 

$

17

 

 

$

23

 

 

-26

 

$

36

 

 

$

46

 

 

-22

Construction and forestry net sales

 

 

 

 

 

 

 

 

 

1

 

 

1

 

 

 

Financial services

 

58

 

 

66

 

 

-12

 

104

 

 

119

 

 

-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment operations outside the U.S. and Canada:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

3,920

 

 

$

3,606

 

 

+9

 

$

6,491

 

 

$

6,134

 

 

+6

Operating profit

 

367

 

 

233

 

 

+58

 

508

 

 

402

 

 

+26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30
2013

 

October 31 2012

 

 

Identifiable assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

 

 

 

 

 

 

 

 

$

11,540

 

 

$

10,429

 

 

+11

Construction and forestry

 

 

 

 

 

 

 

 

 

3,534

 

 

3,365

 

 

+5

Financial services

 

 

 

 

 

 

 

 

 

36,326

 

 

34,495

 

 

+5

Corporate

 

 

 

 

 

 

 

 

 

6,755

 

 

7,977

 

 

-15

Total assets

 

 

 

 

 

 

 

 

 

$

58,155

 

 

$

56,266

 

 

+3

 

*

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 and losses.

 

 

**

Reconciling items are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses and net income attributable to noncontrolling interests.

 

15



 

(10)            Past due balances of financing receivables represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date.  Non-performing financing receivables represent loans for which the Company has ceased accruing finance income.  These receivables are generally 120 days delinquent and the estimated uncollectible amount, after charging the dealer’s withholding account, has been written off to the allowance for credit losses.  Finance income for non-performing receivables is recognized on a cash basis.  Accrual of finance income is resumed when the receivable becomes contractually current and collections are reasonably assured.

 

An age analysis of past due financing receivables that are still accruing interest and non-performing financing receivables in millions of dollars follows:

 

 

 

April 30, 2013

 

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

90 Days
or Greater
Past Due

 

Total
Past Due

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Notes:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

  $

60

 

 

  $

25

 

 

  $

19

 

 

  $

104

 

Construction and forestry

 

44

 

 

17

 

 

5

 

 

66

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

22

 

 

10

 

 

7

 

 

39

 

Construction and forestry

 

8

 

 

4

 

 

4

 

 

16

 

Total

 

  $

134

 

 

  $

56

 

 

  $

35

 

 

  $

225

 

 

 

 

 

 

 

 

 

 

 

 

Total
Past Due

 

Total
Non-Performing

 

Current

 

Total
Financing
Receivables

Retail Notes:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

  $

 104

 

 

  $

 106

 

 

  $

 16,973

 

 

  $

 17,183

 

Construction and forestry

 

66

 

 

11

 

 

1,666

 

 

1,743

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

39

 

 

10

 

 

6,543

 

 

6,592

 

Construction and forestry

 

16

 

 

4

 

 

1,171

 

 

1,191

 

Total

 

  $

 225

 

 

  $

 131

 

 

  $

 26,353

 

 

26,709

 

Less allowance for credit losses

 

 

 

 

 

 

 

 

 

 

176

 

Total financing receivables - net

 

 

 

 

 

 

 

 

 

 

  $

 26,533

 

 

16



 

 

 

October 31, 2012

 

 

30-59 Days
Past Due

 

60-89 Days
 Past Due

 

90 Days
or Greater
Past Due

 

Total
Past Due

Retail Notes:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

  $

60

 

 

  $

25

 

 

  $

17

 

 

  $

102

 

Construction and forestry

 

39

 

 

18

 

 

9

 

 

66

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

21

 

 

6

 

 

3

 

 

30

 

Construction and forestry

 

8

 

 

2

 

 

2

 

 

12

 

Total

 

  $

128

 

 

  $

51

 

 

  $

31

 

 

  $

210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total
Past Due

 

Total
Non-
Performing

 

Current

 

Total
Financing
Receivables

Retail Notes:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

  $

102

 

 

  $

117

 

 

  $

16,432

 

 

  $

16,651

 

Construction and forestry

 

66

 

 

13

 

 

1,521

 

 

1,600

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

30

 

 

11

 

 

6,464

 

 

6,505

 

Construction and forestry

 

12

 

 

3

 

 

1,183

 

 

1,198

 

Total

 

  $

210

 

 

  $

144

 

 

  $

25,600

 

 

25,954

 

Less allowance for credit losses

 

 

 

 

 

 

 

 

 

 

177

 

Total financing receivables - net

 

 

 

 

 

 

 

 

 

 

  $

25,777

 

 

17



 

 

 

April 30, 2012

 

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

90 Days
or Greater
Past Due

 

Total
Past Due

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Notes:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

 $

63

 

 

 $

34

 

 

 $

22

 

 

 $

119

 

Construction and forestry

 

35

 

 

19

 

 

9

 

 

63

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

20

 

 

14

 

 

9

 

 

43

 

Construction and forestry

 

9

 

 

4

 

 

1

 

 

14

 

Total

 

 $

127

 

 

 $

71

 

 

 $

41

 

 

 $

239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total 
Past Due

 

Total 
Non-
Performing

 

Current

 

Total
Financing
Receivables

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Notes:

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture and turf

 

 $

119

 

 

 $

113

 

 

 $

14,837

 

 

 $

15,069

 

Construction and forestry

 

63

 

 

14

 

 

1,360