Edgar Filing: DEERE & CO

de_Current_Folio_10Q_YTD

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 29, 2018

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

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 every Interactive Data File required to be submitted 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 such files).

Yes X No

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


Large accelerated filer	X	Accelerated filer
Non-accelerated filer	(Do not check if a smaller reporting company)	Smaller reporting company
		Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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 29, 2018, 321,673,523 shares of common stock, $1 par value, of the registrant were outstanding.

PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended July 29, 2018 and July 30, 2017
(In millions of dollars and shares except per share amounts) Unaudited
	2018		2017
Net Sales and Revenues
Net sales	$	9,286.4	$	6,833.0
Finance and interest income		786.4		688.8
Other income		235.5		286.0
Total		10,308.3		7,807.8

Costs and Expenses
Cost of sales		7,152.7		5,248.6
Research and development expenses		415.7		336.8
Selling, administrative and general expenses		912.7		799.1
Interest expense		291.1		216.3
Other operating expenses		346.0		317.1
Total		9,118.2		6,917.9

Income of Consolidated Group before Income Taxes		1,190.1		889.9
Provision for income taxes		288.7		253.2
Income of Consolidated Group		901.4		636.7
Equity in income of unconsolidated affiliates		9.9		5.6
Net Income		911.3		642.3
Less: Net income attributable to noncontrolling interests		1.0		.5
Net Income Attributable to Deere & Company	$	910.3	$	641.8

Per Share Data
Basic	$	2.81	$	2.00
Diluted	$	2.78	$	1.97

Average Shares Outstanding
Basic		323.5		320.8
Diluted		328.0		325.1

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Three Months Ended July 29, 2018 and July 30, 2017
(In millions of dollars) Unaudited
	2018		2017

Net Income	$	911.3	$	642.3

Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		40.2		44.0
Cumulative translation adjustment		(421.3)		326.1
Unrealized loss on derivatives		(.9)		(.5)
Unrealized gain (loss) on investments		1.3		(53.7)
Other Comprehensive Income (Loss), Net of Income Taxes		(380.7)		315.9

Comprehensive Income of Consolidated Group		530.6		958.2
Less: Comprehensive income attributable to noncontrolling interests		.4		.7
Comprehensive Income Attributable to Deere & Company	$	530.2	$	957.5

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Nine Months Ended July 29, 2018 and July 30, 2017
(In millions of dollars and shares except per share amounts) Unaudited
	2018		2017
Net Sales and Revenues
Net sales	$	25,007.4	$	18,790.7
Finance and interest income		2,263.2		2,009.3
Other income		671.2		920.0
Total		27,941.8		21,720.0

Costs and Expenses
Cost of sales		19,190.5		14,457.8
Research and development expenses		1,187.7		974.2
Selling, administrative and general expenses		2,557.0		2,250.0
Interest expense		881.0		651.3
Other operating expenses		1,033.8		999.5
Total		24,850.0		19,332.8

Income of Consolidated Group before Income Taxes		3,091.8		2,387.2
Provision for income taxes		1,523.4		748.7
Income of Consolidated Group		1,568.4		1,638.5
Equity in income of unconsolidated affiliates		17.8		10.0
Net Income		1,586.2		1,648.5
Less: Net income (loss) attributable to noncontrolling interests		2.6		(.3)
Net Income Attributable to Deere & Company	$	1,583.6	$	1,648.8

Per Share Data
Basic	$	4.90	$	5.17
Diluted	$	4.82	$	5.11

Average Shares Outstanding
Basic		323.4		318.8
Diluted		328.2		322.5

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Nine Months Ended July 29, 2018 and July 30, 2017
(In millions of dollars) Unaudited
	2018		2017

Net Income	$	1,586.2	$	1,648.5

Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		205.4		120.6
Cumulative translation adjustment		(196.4)		325.1
Unrealized gain on derivatives		9.4		1.5
Unrealized loss on investments		(8.2)		(.8)
Other Comprehensive Income (Loss), Net of Income Taxes		10.2		446.4

Comprehensive Income of Consolidated Group		1,596.4		2,094.9
Less: Comprehensive income (loss) attributable to noncontrolling interests		2.4		(.1)
Comprehensive Income Attributable to Deere & Company	$	1,594.0	$	2,095.0

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited
	July 29		October 29		July 30
	2018		2017		2017
Assets
Cash and cash equivalents	$	3,923.3	$	9,334.9	$	6,537.4
Marketable securities		488.2		451.6		426.1
Receivables from unconsolidated affiliates		27.9		35.9		28.5
Trade accounts and notes receivable – net		6,207.9		3,924.9		4,389.8
Financing receivables – net		25,213.0		25,104.1		23,722.1
Financing receivables securitized – net		4,661.7		4,158.8		4,923.1
Other receivables		1,300.0		1,200.0		829.2
Equipment on operating leases – net		6,804.9		6,593.7		6,235.6
Inventories		6,239.3		3,904.1		4,252.9
Property and equipment – net		5,638.5		5,067.7		4,968.5
Investments in unconsolidated affiliates		198.7		182.5		220.8
Goodwill		3,046.5		1,033.3		845.8
Other intangible assets – net		1,580.8		218.0		92.0
Retirement benefits		737.2		538.2		219.1
Deferred income taxes		1,645.0		2,415.0		3,067.7
Other assets		1,677.2		1,623.6		1,591.3
Total Assets	$	69,390.1	$	65,786.3	$	62,349.9

Liabilities and Stockholders’ Equity

Liabilities
Short-term borrowings	$	11,004.5	$	10,035.3	$	9,019.4
Short-term securitization borrowings		4,527.7		4,118.7		4,780.9
Payables to unconsolidated affiliates		110.8		121.9		77.8
Accounts payable and accrued expenses		9,482.7		8,417.0		7,599.0
Deferred income taxes		524.6		209.7		190.0
Long-term borrowings		26,838.0		25,891.3		23,674.3
Retirement benefits and other liabilities		6,521.9		7,417.9		8,419.6
Total liabilities		59,010.2		56,211.8		53,761.0

Commitments and contingencies (Note 14)
Redeemable noncontrolling interest		14.0		14.0		14.0

Stockholders’ Equity
Common stock, $1 par value (issued shares at July 29, 2018 – 536,431,204)		4,450.8		4,280.5		4,245.1
Common stock in treasury		(15,813.5)		(15,460.8)		(15,477.3)
Retained earnings		26,272.3		25,301.3		24,984.2
Accumulated other comprehensive income (loss)		(4,553.3)		(4,563.7)		(5,179.8)
Total Deere & Company stockholders’ equity		10,356.3		9,557.3		8,572.2
Noncontrolling interests		9.6		3.2		2.7
Total stockholders’ equity		10,365.9		9,560.5		8,574.9
Total Liabilities and Stockholders’ Equity	$	69,390.1	$	65,786.3	$	62,349.9

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Nine Months Ended July 29, 2018 and July 30, 2017
(In millions of dollars) Unaudited
	2018		2017
Cash Flows from Operating Activities
Net income	$	1,586.2	$	1,648.5
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision for credit losses		66.1		76.8
Provision for depreciation and amortization		1,444.8		1,279.0
Share-based compensation expense		62.8		50.7
Gain on sale of affiliates and investments		(25.1)		(375.1)
Undistributed earnings of unconsolidated affiliates		(9.8)		(9.3)
Provision (credit) for deferred income taxes		640.8		(77.5)
Changes in assets and liabilities:
Trade, notes and financing receivables related to sales		(2,365.0)		(1,091.1)
Inventories		(1,538.8)		(1,348.0)
Accounts payable and accrued expenses		213.0		316.2
Accrued income taxes payable/receivable		175.7		167.8
Retirement benefits		(814.7)		173.1
Other		(110.7)		(81.8)
Net cash provided by (used for) operating activities		(674.7)		729.3

Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)		12,161.9		11,334.4
Proceeds from maturities and sales of marketable securities		55.8		388.8
Proceeds from sales of equipment on operating leases		1,115.6		1,086.6
Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold		133.0		113.9
Cost of receivables acquired (excluding receivables related to sales)		(12,585.6)		(11,325.6)
Acquisitions of businesses, net of cash acquired		(5,170.9)
Purchases of marketable securities		(101.4)		(77.0)
Purchases of property and equipment		(570.6)		(373.7)
Cost of equipment on operating leases acquired		(1,427.7)		(1,395.3)
Other		(75.1)		(53.3)
Net cash used for investing activities		(6,465.0)		(301.2)

Cash Flows from Financing Activities
Increase in total short-term borrowings		1,183.4		1,648.9
Proceeds from long-term borrowings		5,739.1		4,364.5
Payments of long-term borrowings		(4,371.8)		(4,205.6)
Proceeds from issuance of common stock		208.7		488.6
Repurchases of common stock		(454.0)		(6.2)
Dividends paid		(582.6)		(571.3)
Other		(66.8)		(62.9)
Net cash provided by financing activities		1,656.0		1,656.0

Effect of Exchange Rate Changes on Cash and Cash Equivalents		72.1		117.5

Net Increase (Decrease) in Cash and Cash Equivalents		(5,411.6)		2,201.6
Cash and Cash Equivalents at Beginning of Period		9,334.9		4,335.8
Cash and Cash Equivalents at End of Period	$	3,923.3	$	6,537.4

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY
For the Nine Months Ended July 29, 2018 and July 30, 2017
(In millions of dollars) Unaudited
			Total Stockholders’ Equity
			Deere & Company Stockholders
									Accumulated
	Total								Other				Redeemable
	Stockholders’		Common		Treasury		Retained		Comprehensive		Noncontrolling		Noncontrolling
	Equity		Stock		Stock		Earnings		Income (Loss)		Interests		Interest

Balance October 30, 2016	$	6,530.8	$	3,911.8	$	(15,677.1)	$	23,911.3	$	(5,626.0)	$	10.8	$	14.0
Net income (loss)		1,648.5						1,648.8				(.3)
Other comprehensive income		446.4								446.2		.2
Repurchases of common stock		(6.2)				(6.2)
Treasury shares reissued		206.0				206.0
Dividends declared		(577.1)						(575.9)				(1.2)
Stock options and other		326.5		333.3								(6.8)
Balance July 30, 2017	$	8,574.9	$	4,245.1	$	(15,477.3)	$	24,984.2	$	(5,179.8)	$	2.7	$	14.0


Balance October 29, 2017	$	9,560.5	$	4,280.5	$	(15,460.8)	$	25,301.3	$	(4,563.7)	$	3.2	$	14.0
Net income		1,585.1						1,583.6				1.5		1.1
Other comprehensive income (loss)		10.2								10.4		(.2)
Repurchases of common stock		(454.0)				(454.0)
Treasury shares reissued		101.3				101.3
Dividends declared		(615.7)						(613.0)				(2.7)		(1.1)
Acquisitions (Note 18)		7.5										7.5
Stock options and other		171.0		170.3				.4				.3
Balance July 29, 2018	$	10,365.9	$	4,450.8	$	(15,813.5)	$	26,272.3	$	(4,553.3)	$	9.6	$	14.0

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. On December 1, 2017, the Company acquired the stock and certain assets of substantially all of the business of Wirtgen Group Holding GmbH (Wirtgen). Wirtgen results are included in the construction and forestry operations (see Note 18).

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.

The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The third quarter ends for fiscal year 2018 and 2017 were July 29, 2018 and July 30, 2017, respectively. Both periods contained 13 weeks.

(2) The interim consolidated financial statements of Deere & Company 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 consolidated 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 $564 million and $519 million in the first nine months of 2018 and 2017, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $57 million and $37 million at July 29, 2018 and July 30, 2017, respectively.

(3) New accounting standards adopted are as follows:

In the first quarter of 2018, the Company early adopted Financial Accounting Standards Board (FASB) Accounting Standard Update (ASU) No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends Accounting Standards Codification (ASC) 715, Compensation – Retirement Benefits. This ASU required that employers report only the service cost component of the total defined benefit pension and postretirement benefit cost in the same income statement lines as compensation for the participating employees. The other components of these benefit costs are reported outside of operating profit in the income statement line other operating expenses. The ASU was adopted on a retrospective basis that increased operating profit in the third quarter and first nine months of 2018 by none and $12 million, respectively, and third quarter and first nine months of 2017 by $7 million and $21 million, respectively. The income statement line changes for the third quarter and first nine months of 2017 were cost of sales decreased $17 million and $49 million, research and development expenses increased $2 million and $4 million, selling, administrative and general expenses increased $8 million and

$24 million, and other operating expenses increased $7 million and $21 million, respectively. In addition, only the service cost component of the benefit costs is eligible for capitalization, which was adopted beginning the first quarter of 2018.

In the first quarter of 2018, the Company adopted ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which amends ASC 323, Investments – Equity Method and Joint Ventures, which did not have a material effect on the Company’s consolidated financial statements.

In March 2018, the FASB issued ASU No. 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which amends ASC 740, Income Taxes. In December 2017, the U.S. government enacted new tax legislation (tax reform). This ASU incorporates SEC Staff Accounting Bulletin No. 118, which was also issued in December 2017, into the ASC. The ASU provides guidance on when to record and disclose provisional amounts related to tax reform. In addition, the ASU allows for a measurement period up to one year after the enactment date of tax reform to complete the related accounting requirements and was effective when issued. The Company will complete the adjustments related to tax reform within the allowed period. The effects of tax reform on the Company’s consolidated financial statements are outlined in Note 8.

New accounting standards to be adopted are as follows:

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in 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. The FASB issued several amendments clarifying various aspects of the ASU, including revenue transactions that involve a third party, goods or services that are immaterial in the context of the contract, and licensing arrangements. The Company will adopt the ASU effective the first quarter of fiscal year 2019 using a modified retrospective method. The Company’s evaluation of the ASU is largely complete, with the exception of the Wirtgen acquisition (see Note 18). The ASU requires that a gross asset and liability rather than a net liability be recorded for the value of estimated service parts returns and the related refund liability. The gross asset will be recorded in other assets and the gross liability will be recorded in accounts payable and accrued expenses. In addition, certain revenue disclosures will be expanded. At this point of the evaluation, the Company has not identified an item that will have a material effect on the Company’s consolidated financial statements. The Company continues to evaluate the ASU’s potential effects on the consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends ASC 825-10, Financial Instruments - Overall. This ASU changes the treatment for available-for-sale equity investments by recognizing unrealized fair value changes directly in net income and no longer in Other Comprehensive Income (OCI). The effective date will be the first quarter of fiscal year 2019. Early adoption of the provisions affecting the Company is not permitted. The ASU will be adopted with a cumulative-effect adjustment to the balance sheet in the year of adoption. The Company continues to evaluate the ASU’s potential effects on the consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. The ASU’s primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset during the term of operating lease arrangements. The ASU does not significantly change the lessee’s recognition, measurement, and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. The amendments in the ASU affect specific aspects of the guidance under ASU No. 2016-02 and are not expected to have a material impact on the Company’s adoption. The ASU requires that lessees and lessors use a modified retrospective transition approach. In July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements, which amends ASC 842, Leases. This ASU provides for an adoption option that will not require earlier periods to be restated at the adoption date. In addition, this ASU provides an option for lessors, if certain criteria are met, to avoid separating the lease and nonlease components (such as preventative maintenance services) in an agreement. The income is recognized based on the predominant component under either the revenue standard or the leasing standard. The effective date for the ASUs will be the first quarter of fiscal year 2020 with early adoption permitted. The Company is evaluating the potential adoption options and the effects on the consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASC 326, Financial Instruments - Credit Losses. The ASU revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss methodology to an expected loss methodology. The ASU affects trade receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. The effective date will be the first quarter of fiscal year 2021, with early adoption permitted beginning in fiscal year 2020. The ASU will be adopted using a modified-retrospective approach. The Company is evaluating the potential effects on the consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted. The ASU will be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which amends ASC 740, Income Taxes. This ASU requires that the income tax consequences of an intra-entity asset transfer other than inventory are recognized at the time of the transfer. The effective date will be the first quarter of fiscal year 2019. The ASU will be adopted using a modified-retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amends ASC 230, Statement of Cash Flows. This ASU requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted, and will be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which amends ASC 805, Business Combinations. This ASU provides further guidance on the definition of a business to determine whether transactions should be accounted for as acquisitions of assets or businesses. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted in certain cases. The ASU will be adopted on a prospective basis and will not have a material effect on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amends ASC 310-20, Receivables – Nonrefundable Fees and Other Costs. This ASU reduces the amortization period for certain callable debt securities held at a premium to the earliest call date. The treatment of securities held at a discount is unchanged. The effective date is the first quarter of fiscal year 2020, with early adoption permitted. The adoption will not have a material effect on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, which amends ASC 718, Compensation – Stock Compensation. This ASU provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. The ASU will be adopted on a prospective basis. The effective date is the first quarter of fiscal year 2019, with early adoption permitted. The adoption will not have a material effect on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815, Derivatives and Hedging. The purpose of this ASU is to better align a company’s risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements. The effective date is fiscal year 2020, with early adoption permitted. The Company is evaluating the potential effects on the consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends ASC 220, Income Statement – Reporting

Comprehensive Income. Included in the provisions of tax reform is a reduction of the corporate income tax rate from 35 percent to 21 percent. Accounting principles generally accepted in the U.S. require that deferred taxes are remeasured to the new corporate tax rate in the period legislation is enacted. The deferred tax adjustment is recorded in the provision for income taxes, including items for which the tax effects were originally recorded in OCI. This treatment results in the items in OCI not reflecting the appropriate tax rate, which are referred to as stranded tax effects. This ASU allows a reclassification from accumulated OCI to retained earnings for stranded tax effects resulting from tax reform. The effective date is fiscal year 2020, with early adoption permitted, including in interim periods. The ASU can be adopted at the beginning of an interim or annual period or retrospectively to each period affected by tax reform. The Company is evaluating the potential effects of the ASU on the consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which amends ASC 718, Compensation – Stock Compensation. This ASU requires that most of the guidance related to stock compensation granted to employees be followed for non-employees, including the measurement date, valuation approach, and performance conditions. The expense is recognized in the same period as though cash were paid for the good or service. The effective date is the first quarter of fiscal year 2020, with early adoption permitted, including in interim periods. The ASU will be adopted using a modified-retrospective transition approach. The adoption will not have a material effect on the consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The effective date is the first quarter of fiscal year 2021, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2021 permitted for the new disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The adoption will not have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715-20, Compensation – Retirement Benefits – Defined Benefit Plans – General. This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated OCI expected to be recognized in net periodic benefit costs over the next fiscal year and (b) the effects of a one-percentage-point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for postretirement health care benefits. The new disclosures include the interest crediting rates for cash balance plans, and an explanation of significant gains and losses related to changes in benefit obligations. The effective date is fiscal year 2021, with early adoption permitted. 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 30, 2016	$	(4,409)	$	(1,229)	$	1	$	11	$	(5,626)
Other comprehensive income (loss) items before reclassification		(13)		325		(1)		172		483
Amounts reclassified from accumulated other comprehensive income		134				2		(173)		(37)
Net current period other comprehensive income (loss)		121		325		1		(1)		446
Balance July 30, 2017	$	(4,288)	$	(904)	$	2	$	10	$	(5,180)