Edgar Filing: DEERE & CO

de_Current Folio_10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2015

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 July 31, 2015, 328,166,270 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 July 31, 2015 and 2014
(In millions of dollars and shares except per share amounts) Unaudited
	2015		2014
Net Sales and Revenues
Net sales	$	6,839.5	$	8,723.0
Finance and interest income		596.7		573.5
Other income		157.5		203.7
Total		7,593.7		9,500.2

Costs and Expenses
Cost of sales		5,358.0		6,611.3
Research and development expenses		346.8		362.1
Selling, administrative and general expenses		755.3		820.7
Interest expense		171.5		153.9
Other operating expenses		223.6		260.0
Total		6,855.2		8,208.0

Income of Consolidated Group before Income Taxes		738.5		1,292.2
Provision for income taxes		241.0		450.2
Income of Consolidated Group		497.5		842.0
Equity in income of unconsolidated affiliates		14.2		8.9
Net Income		511.7		850.9
Less: Net income attributable to noncontrolling interests		.1		.2
Net Income Attributable to Deere & Company	$	511.6	$	850.7

Per Share Data
Basic	$	1.54	$	2.35
Diluted	$	1.53	$	2.33

Average Shares Outstanding
Basic		331.4		361.9
Diluted		334.1		365.1

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Three Months Ended July 31, 2015 and 2014
(In millions of dollars) Unaudited
	2015		2014

Net Income	$	511.7	$	850.9

Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		41.3		37.3
Cumulative translation adjustment		(255.9)		(24.5)
Unrealized gain (loss) on derivatives		(.8)		1.8
Unrealized gain on investments		1.5		4.2
Other Comprehensive Income (Loss), Net of Income Taxes		(213.9)		18.8

Comprehensive Income of Consolidated Group		297.8		869.7
Less: Comprehensive income attributable to noncontrolling interests				.2
Comprehensive Income Attributable to Deere & Company	$	297.8	$	869.5

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Nine Months Ended July 31, 2015 and 2014
(In millions of dollars and shares except per share amounts) Unaudited
	2015		2014
Net Sales and Revenues
Net sales	$	19,843.1	$	24,917.8
Finance and interest income		1,766.7		1,649.0
Other income		537.7		535.3
Total		22,147.5		27,102.1

Costs and Expenses
Cost of sales		15,472.8		18,678.7
Research and development expenses		1,021.1		1,039.9
Selling, administrative and general expenses		2,154.2		2,433.0
Interest expense		517.1		491.5
Other operating expenses		659.1		738.1
Total		19,824.3		23,381.2

Income of Consolidated Group before Income Taxes		2,323.2		3,720.9
Provision for income taxes		735.6		1,209.6
Income of Consolidated Group		1,587.6		2,511.3
Equity in income of unconsolidated affiliates		1.8		2.2
Net Income		1,589.4		2,513.5
Less: Net income attributable to noncontrolling interests		.6		1.0
Net Income Attributable to Deere & Company	$	1,588.8	$	2,512.5

Per Share Data
Basic	$	4.71	$	6.85
Diluted	$	4.67	$	6.79

Average Shares Outstanding
Basic		337.3		366.8
Diluted		339.9		370.1

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Nine Months Ended July 31, 2015 and 2014
(In millions of dollars) Unaudited
	2015		2014

Net Income	$	1,589.4	$	2,513.5

Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		104.5		125.0
Cumulative translation adjustment		(832.9)		(86.0)
Unrealized gain (loss) on derivatives		(1.0)		4.1
Unrealized gain on investments		4.6		5.3
Other Comprehensive Income (Loss), Net of Income Taxes		(724.8)		48.4

Comprehensive Income of Consolidated Group		864.6		2,561.9
Less: Comprehensive income attributable to noncontrolling interests		.2		1.0
Comprehensive Income Attributable to Deere & Company	$	864.4	$	2,560.9

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited
	July 31		October 31		July 31
	2015		2014		2014

Assets
Cash and cash equivalents	$	4,130.8	$	3,787.0	$	3,034.7
Marketable securities		421.1		1,215.1		1,489.4
Receivables from unconsolidated affiliates		43.2		30.2		33.3
Trade accounts and notes receivable - net		4,220.4		3,277.6		4,551.8
Financing receivables - net		24,973.4		27,422.2		27,079.9
Financing receivables securitized - net		4,737.8		4,602.3		4,264.2
Other receivables		823.1		1,500.3		1,193.1
Equipment on operating leases - net		4,426.0		4,015.5		3,580.0
Inventories		4,319.0		4,209.7		5,439.0
Property and equipment - net		5,126.4		5,577.8		5,385.5
Investments in unconsolidated affiliates		310.6		303.2		310.2
Goodwill		715.9		791.2		829.8
Other intangible assets - net		57.8		68.8		69.4
Retirement benefits		335.0		262.0		611.7
Deferred income taxes		2,705.0		2,776.6		2,564.0
Other assets		1,586.7		1,496.9		1,312.5
Total Assets	$	58,932.2	$	61,336.4	$	61,748.5

Liabilities and Stockholders’ Equity
Short-term borrowings	$	9,347.9	$	8,019.2	$	8,580.8
Short-term securitization borrowings		4,595.4		4,558.5		4,142.8
Payables to unconsolidated affiliates		73.7		101.0		90.4
Accounts payable and accrued expenses		7,235.8		8,554.1		8,432.9
Deferred income taxes		150.9		160.9		160.1
Long-term borrowings		23,200.9		24,380.7		24,035.5
Retirement benefits and other liabilities		6,602.6		6,496.5		5,473.5
Total liabilities		51,207.2		52,270.9		50,916.0

Commitments and contingencies (Note 14)

Common stock, $1 par value (issued shares at July 31, 2015 – 536,431,204)		3,806.5		3,675.4		3,652.8
Common stock in treasury		(14,562.5)		(12,834.2)		(11,742.7)
Retained earnings		22,986.5		22,004.4		21,564.6
Accumulated other comprehensive income (loss)		(4,507.4)		(3,783.0)		(2,644.7)
Total Deere & Company stockholders’ equity		7,723.1		9,062.6		10,830.0
Noncontrolling interests		1.9		2.9		2.5
Total stockholders’ equity		7,725.0		9,065.5		10,832.5
Total Liabilities and Stockholders’ Equity	$	58,932.2	$	61,336.4	$	61,748.5

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Nine Months Ended July 31, 2015 and 2014
(In millions of dollars) Unaudited
	2015		2014
Cash Flows from Operating Activities
Net income	$	1,589.4	$	2,513.5
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		35.4		29.6
Provision for depreciation and amortization		1,029.2		957.4
Impairment charges				62.3
Share-based compensation expense		47.7		60.6
Undistributed earnings of unconsolidated affiliates		(5.2)		(2.3)
Provision (credit) for deferred income taxes		73.0		(249.1)
Changes in assets and liabilities:
Trade, notes and financing receivables related to sales		(598.0)		(1,679.3)
Insurance receivables		333.4		35.5
Inventories		(941.5)		(1,102.9)
Accounts payable and accrued expenses		(594.6)		(313.6)
Accrued income taxes payable/receivable		(58.1)		207.3
Retirement benefits		293.4		215.0
Other		(12.3)		(51.9)
Net cash provided by operating activities		1,191.8		682.1

Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)		11,517.9		11,586.6
Proceeds from maturities and sales of marketable securities		833.0		718.7
Proceeds from sales of equipment on operating leases		773.7		803.3
Proceeds from sales of businesses, net of cash sold		149.2		339.8
Cost of receivables acquired (excluding receivables related to sales)		(11,162.9)		(12,664.2)
Purchases of marketable securities		(100.8)		(585.5)
Purchases of property and equipment		(461.4)		(640.9)
Cost of equipment on operating leases acquired		(1,355.7)		(1,049.5)
Other		(23.4)		(75.6)
Net cash provided by (used for) investing activities		169.6		(1,567.3)

Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings		1,805.2		(76.7)
Proceeds from long-term borrowings		3,639.8		6,672.2
Payments of long-term borrowings		(3,980.1)		(4,079.8)
Proceeds from issuance of common stock		170.4		138.8
Repurchases of common stock		(1,833.9)		(1,631.1)
Dividends paid		(617.9)		(568.6)
Excess tax benefits from share-based compensation		18.5		28.5
Other		(56.9)		(50.4)
Net cash provided by (used for) financing activities		(854.9)		432.9

Effect of Exchange Rate Changes on Cash and Cash Equivalents		(162.7)		(17.0)

Net Increase (Decrease) in Cash and Cash Equivalents		343.8		(469.3)
Cash and Cash Equivalents at Beginning of Period		3,787.0		3,504.0
Cash and Cash Equivalents at End of Period	$	4,130.8	$	3,034.7

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY
For the Nine Months Ended July 31, 2014 and 2015
(In millions of dollars) Unaudited
			Deere & Company Stockholders
									Accumulated
	Total								Other		Non-
	Stockholders’		Common		Treasury		Retained		Comprehensive		controlling
	Equity		Stock		Stock		Earnings		Income (Loss)		Interests

Balance October 31, 2013	$	10,267.7	$	3,524.2	$	(10,210.9)	$	19,645.6	$	(2,693.1)	$	1.9
Net income		2,513.5						2,512.5				1.0
Other comprehensive income		48.4								48.4
Repurchases of common stock		(1,631.1)				(1,631.1)
Treasury shares reissued		99.3				99.3
Dividends declared		(593.8)						(593.5)				(.3)
Stock options and other		128.5		128.6								(.1)
Balance July 31, 2014	$	10,832.5	$	3,652.8	$	(11,742.7)	$	21,564.6	$	(2,644.7)	$	2.5




Balance October 31, 2014	$	9,065.5	$	3,675.4	$	(12,834.2)	$	22,004.4	$	(3,783.0)	$	2.9
Net income		1,589.4						1,588.8				.6
Other comprehensive loss		(724.8)								(724.4)		(.4)
Repurchases of common stock		(1,833.9)				(1,833.9)
Treasury shares reissued		105.6				105.6
Dividends declared		(607.7)						(606.4)				(1.3)
Stock options and other		130.9		131.1				(.3)				.1
Balance July 31, 2015	$	7,725.0	$	3,806.5	$	(14,562.5)	$	22,986.5	$	(4,507.4)	$	1.9

See Condensed Notes to Interim Consolidated Financial Statements.

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.

(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 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 $468 million and $499 million in the first nine months of 2015 and 2014, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $42 million and $50 million at July 31, 2015 and 2014, respectively.

(3) New accounting standards to be adopted are as follows:

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, Deferral of the Effective Date, which amends ASU No. 2014-09. As a result, the effective date will be the first quarter of fiscal year 2019 with early adoption permitted in the first quarter of fiscal year 2018. The adoption will use one of two retrospective application methods. The Company has not determined the potential effects on the consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which amends ASC 718, Compensation - Stock Compensation. This ASU requires that a performance target

that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Therefore, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The total compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The effective date will be the first quarter of fiscal year 2017. The adoption will not have a material effect on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amends ASC 835-30, Interest - Imputation of Interest. This ASU requires that debt issuance costs related to borrowings be presented in the balance sheet as a direct deduction from the carrying amount of the borrowing. This treatment is consistent with debt discounts. The ASU does not affect the amount or timing of expenses for debt issuance costs. The effective date will be the first quarter of fiscal year 2017 and will be applied retrospectively. The adoption will not have a material effect on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which amends ASC 350-40, Intangibles-Goodwill and Other-Internal-Use Software. This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If an arrangement includes a software license, the accounting for the license will be consistent with licenses of other intangible assets. If the arrangement does not include a license, the arrangement will be accounted for as a service contract. The effective date will be the first quarter of fiscal year 2017 and will be adopted prospectively. The adoption will not have a material effect on the Company’s consolidated financial statements.

In May 2015, the FASB issued ASU No. 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which amends ASC 820, Fair Value Measurement. This ASU removes the requirement to categorize within the fair value hierarchy investments without readily determinable fair values in entities that elect to measure fair value using net asset value per share or its equivalent. The ASU requires that these investments continue to be shown in the investment disclosure amount to allow the disclosure to reconcile to the investment amount presented in the balance sheet. The ASU will be early adopted in the fourth quarter of fiscal year 2015 and will be applied retrospectively. The adoption will not have a material effect on the Company’s consolidated financial statements.

In May 2015, the FASB issued ASU No. 2015-09, Disclosures about Short-Duration Contracts, which amends ASC 944, Financial Services - Insurance. This ASU requires disclosure of additional information about unpaid claims and claims adjustment expenses, including a rollforward of the liability of the claims adjustment liability. The effective date will be the fourth quarter of fiscal year 2017. The adoption will not have a material effect on the Company’s consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which amends ASC 330, Inventory. This ASU simplifies the subsequent measurement of inventory by using only the lower of cost or net realizable value. The ASU does not apply to inventory measured using last-in, first-out method. The effective date will be the first quarter of fiscal year 2018 with early adoption permitted. The adoption will not have a material effect on the Company’s consolidated financial statements.

In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which amends ASC 835-30, Interest - Imputation of Interest. This ASU clarifies the presentation and subsequent measurement of debt issuance costs associated with lines of credit. These costs may be presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are outstanding borrowings on the arrangement. The effective date will be the first quarter of fiscal year 2017 and will be applied retrospectively. The adoption will not have a material effect on the Company’s consolidated financial statements.

(4) The after-tax changes in accumulated other comprehensive income (loss) in millions of dollars follow:


										Total
						Unrealized		Unrealized		Accumulated
	Retirement		Cumulative			Gain (Loss)		Gain (Loss)		Other
	Benefits		Translation			on		on		Comprehensive
	Adjustment		Adjustment			Derivatives		Investments		Income (Loss)
Balance October 31, 2014	$	(3,493)	$	(303)				$	13	$	(3,783)
Other comprehensive income (loss) items before reclassification		(23)		(832)		$	(5)		9		(851)
Amounts reclassified from accumulated other comprehensive income		127					4		(4)		127
Net current period other comprehensive income (loss)		104		(832)			(1)		5		(724)
Balance July 31, 2015	$	(3,389)	$	(1,135)		$	(1)	$	18	$	(4,507)

Balance October 31, 2013	$	(2,809)	$	113		$	(3)	$	6	$	(2,693)
Other comprehensive income (loss) items before reclassification		12		(95)			(7)		5		(85)
Amounts reclassified from accumulated other comprehensive income		113		9	*		11				133
Net current period other comprehensive income (loss)		125		(86)			4		5		48
Balance July 31, 2014	$	(2,684)	$	27		$	1	$	11	$	(2,645)

* Represents the accumulated translation adjustments related to the foreign subsidiaries of the Water operations that were sold (see Note 18).

Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, in millions of dollars:


	Before		Tax		After
	Tax		(Expense)		Tax
Three Months Ended July 31, 2015	Amount		Credit		Amount
Cumulative translation adjustment:	$	(256)	$	1	$	(255)
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)		(4)		2		(2)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		3		(1)		2
Foreign exchange contracts – Other operating expense		(1)				(1)
Net unrealized gain (loss) on derivatives		(2)		1		(1)
Unrealized gain (loss) on investments:
Unrealized holding gain (loss)		6		(3)		3
Reclassification of realized (gain) loss – Other income		(3)		1		(2)
Net unrealized gain (loss) on investments		3		(2)		1
Retirement benefits adjustment:
Pensions
Net actuarial gain (loss)		(4)		1		(3)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		55		(20)		35
Prior service (credit) cost		7		(2)		5
Settlements/curtailments		4		(2)		2
Health care and life insurance
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		22		(8)		14
Prior service (credit) cost		(19)		7		(12)
Net unrealized gain (loss) on retirement benefits adjustments		65		(24)		41
Total other comprehensive income (loss)	$	(190)	$	(24)	$	(214)

* These accumulated other comprehensive income amounts are included in net periodic postretirement costs. See Note 7 for additional detail.


	Before		Tax		After
	Tax		(Expense)		Tax
Nine Months Ended July 31, 2015	Amount		Credit		Amount
Cumulative translation adjustment:	$	(831)	$	(1)	$	(832)
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)		(8)		3		(5)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		9		(3)		6
Foreign exchange contracts – Other operating expense		(3)		1		(2)
Net unrealized gain (loss) on derivatives		(2)		1		(1)
Unrealized gain (loss) on investments:
Unrealized holding gain (loss)		14		(5)		9
Reclassification of realized (gain) loss – Other income		(7)		3		(4)
Net unrealized gain (loss) on investments		7		(2)		5
Retirement benefits adjustment:
Pensions
Net actuarial gain (loss)		(21)		7		(14)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		165		(60)		105
Prior service (credit) cost		19		(7)		12