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EX-32 - EX-32 - DEERE & COde-20180128xex32.htm
EX-31.2 - EX-31.2 - DEERE & COde-20180128ex3129c2497.htm
EX-31.1 - EX-31.1 - DEERE & COde-20180128ex311178d36.htm
EX-12 - EX-12 - DEERE & COde-20180128ex12a1155e0.htm

 

 

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 January 28, 2018

 

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, 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 January 28, 2018, 323,787,852 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 January 28, 2018 and January 29, 2017

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

2018

 

2017

 

Net Sales and Revenues

 

 

 

 

 

 

 

Net sales

 

$

5,973.9

 

$

4,697.8

 

Finance and interest income

 

 

722.9

 

 

655.5

 

Other income

 

 

216.7

 

 

271.9

 

Total

 

 

6,913.5

 

 

5,625.2

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

Cost of sales

 

 

4,704.5

 

 

3,781.5

 

Research and development expenses

 

 

356.8

 

 

312.1

 

Selling, administrative and general expenses

 

 

705.0

 

 

667.3

 

Interest expense

 

 

286.3

 

 

208.1

 

Other operating expenses

 

 

343.0

 

 

328.2

 

Total

 

 

6,395.6

 

 

5,297.2

 

 

 

 

 

 

 

 

 

Income of Consolidated Group before Income Taxes

 

 

517.9

 

 

328.0

 

Provision for income taxes

 

 

1,057.5

 

 

129.2

 

Income (Loss) of Consolidated Group

 

 

(539.6)

 

 

198.8

 

Equity in income (loss) of unconsolidated affiliates

 

 

4.9

 

 

(.4)

 

Net Income (Loss)

 

 

(534.7)

 

 

198.4

 

Less: Net income (loss) attributable to noncontrolling interests

 

 

.4

 

 

(.6)

 

Net Income (Loss) Attributable to Deere & Company

 

$

(535.1)

 

$

199.0

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

Basic

 

$

(1.66)

 

$

.63

 

Diluted

 

$

(1.66)

 

$

.62

 

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

 

Basic

 

 

322.8

 

 

316.7

 

Diluted

 

 

322.8

 

 

319.7

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

2


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

 

 

 

 

 

 

 

For the Three Months Ended January 28, 2018 and January 29, 2017

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

    

2018

    

2017

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

(534.7)

 

$

198.4

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

 

 

 

 

 

Retirement benefits adjustment

 

 

46.3

 

 

43.0

 

Cumulative translation adjustment

 

 

223.3

 

 

(17.7)

 

Unrealized gain on derivatives 

 

 

5.4

 

 

2.0

 

Unrealized loss on investments

 

 

(.2)

 

 

(5.8)

 

Other Comprehensive Income (Loss), Net of Income Taxes

 

 

274.8

 

 

21.5

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss) of Consolidated Group

 

 

(259.9)

 

 

219.9

 

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

.5

 

 

(.6)

 

Comprehensive Income (Loss) Attributable to Deere & Company

 

$

(260.4)

 

$

220.5

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

3


 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

 

 

 

    

January 28 

    

October 29

    

January 29

 

 

 

2018

 

2017

 

2017

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,915.1

 

$

9,334.9

 

$

3,890.0

 

Marketable securities

 

 

462.3

 

 

451.6

 

 

445.5

 

Receivables from unconsolidated affiliates

 

 

33.7

 

 

35.9

 

 

28.9

 

Trade accounts and notes receivable – net

 

 

4,684.6

 

 

3,924.9

 

 

3,236.3

 

Financing receivables – net

 

 

23,855.1

 

 

25,104.1

 

 

23,030.9

 

Financing receivables securitized – net

 

 

4,474.0

 

 

4,158.8

 

 

4,250.4

 

Other receivables

 

 

1,036.1

 

 

1,200.0

 

 

882.3

 

Equipment on operating leases – net

 

 

6,619.8

 

 

6,593.7

 

 

5,825.3

 

Inventories

 

 

6,614.2

 

 

3,904.1

 

 

3,959.6

 

Property and equipment – net

 

 

5,781.2

 

 

5,067.7

 

 

5,030.4

 

Investments in unconsolidated affiliates

 

 

194.0

 

 

182.5

 

 

220.9

 

Goodwill

 

 

3,111.8

 

 

1,033.3

 

 

809.2

 

Other intangible assets – net

 

 

1,659.5

 

 

218.0

 

 

95.5

 

Retirement benefits

 

 

580.3

 

 

538.2

 

 

133.7

 

Deferred income taxes

 

 

1,876.2

 

 

2,415.0

 

 

2,957.5

 

Other assets

 

 

1,679.6

 

 

1,623.6

 

 

1,499.8

 

Total Assets

 

$

66,577.5

 

$

65,786.3

 

$

56,296.2

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

9,743.5

 

$

10,035.3

 

$

7,441.6

 

Short-term securitization borrowings

 

 

4,428.3

 

 

4,118.7

 

 

4,220.2

 

Payables to unconsolidated affiliates

 

 

118.0

 

 

121.9

 

 

94.7

 

Accounts payable and accrued expenses

 

 

8,489.7

 

 

8,417.0

 

 

6,334.5

 

Deferred income taxes

 

 

590.2

 

 

209.7

 

 

168.9

 

Long-term borrowings

 

 

26,421.8

 

 

25,891.3

 

 

22,916.6

 

Retirement benefits and other liabilities

 

 

7,507.1

 

 

7,417.9

 

 

8,270.4

 

Total liabilities

 

 

57,298.6

 

 

56,211.8

 

 

49,446.9

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

14.0

 

 

14.0

 

 

14.0

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

Common stock, $1 par value (issued shares at
January 28, 2018 – 536,431,204)

 

 

4,374.0

 

 

4,280.5

 

 

4,079.1

 

Common stock in treasury

 

 

(15,404.3)

 

 

(15,460.8)

 

 

(15,569.1)

 

Retained earnings

 

 

24,571.9

 

 

25,301.3

 

 

23,919.6

 

Accumulated other comprehensive income (loss)

 

 

(4,289.0)

 

 

(4,563.7)

 

 

(5,604.5)

 

Total Deere & Company stockholders’ equity

 

 

9,252.6

 

 

9,557.3

 

 

6,825.1

 

Noncontrolling interests

 

 

12.3

 

 

3.2

 

 

10.2

 

Total stockholders’ equity

 

 

9,264.9

 

 

9,560.5

 

 

6,835.3

 

Total Liabilities and Stockholders’ Equity

 

$

66,577.5

 

$

65,786.3

 

$

56,296.2

 

 

 

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

4


 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

 

 

 

 

 

 

STATEMENT OF CONSOLIDATED CASH FLOWS

 

 

 

 

 

 

 

For the Three Months Ended January 28, 2018 and January 29, 2017

 

 

 

 

 

 

 

(In millions of dollars) Unaudited

 

 

 

 

 

 

 

 

    

2018

    

2017

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net income (loss)

 

$

(534.7)

 

$

198.4

 

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

 

 

 

 

 

 

 

Provision for credit losses

 

 

2.5

 

 

6.5

 

Provision for depreciation and amortization

 

 

463.2

 

 

415.7

 

Share-based compensation expense

 

 

16.7

 

 

18.2

 

Undistributed earnings of unconsolidated affiliates

 

 

(6.6)

 

 

(1.0)

 

Provision for deferred income taxes

 

 

479.7

 

 

11.9

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Trade, notes and financing receivables related to sales

 

 

(34.9)

 

 

61.9

 

Inventories

 

 

(1,238.8)

 

 

(743.1)

 

Accounts payable and accrued expenses

 

 

(915.1)

 

 

(717.7)

 

Accrued income taxes payable/receivable

 

 

425.1

 

 

10.1

 

Retirement benefits

 

 

65.6

 

 

46.5

 

Other

 

 

(19.5)

 

 

(44.1)

 

Net cash used for operating activities

 

 

(1,296.8)

 

 

(736.7)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Collections of receivables (excluding receivables related to sales)

 

 

5,226.1

 

 

4,814.8

 

Proceeds from maturities and sales of marketable securities

 

 

13.1

 

 

23.7

 

Proceeds from sales of equipment on operating leases

 

 

339.6

 

 

368.2

 

Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold

 

 

49.7

 

 

113.9

 

Cost of receivables acquired (excluding receivables related to sales)

 

 

(4,006.6)

 

 

(3,644.6)

 

Acquisitions of businesses, net of cash acquired

 

 

(5,129.7)

 

 

 

 

Purchases of marketable securities

 

 

(24.3)

 

 

(21.7)

 

Purchases of property and equipment

 

 

(176.3)

 

 

(155.2)

 

Cost of equipment on operating leases acquired

 

 

(365.7)

 

 

(382.6)

 

Other

 

 

(16.2)

 

 

(12.1)

 

Net cash provided by (used for) investing activities

 

 

(4,090.3)

 

 

1,104.4

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Decrease in total short-term borrowings

 

 

(535.5)

 

 

(1,064.9)

 

Proceeds from long-term borrowings

 

 

2,262.1

 

 

1,295.8

 

Payments of long-term borrowings

 

 

(1,871.2)

 

 

(1,048.9)

 

Proceeds from issuance of common stock

 

 

143.0

 

 

263.3

 

Repurchases of common stock

 

 

(9.7)

 

 

(6.2)

 

Dividends paid

 

 

(193.0)

 

 

(188.9)

 

Other

 

 

(26.7)

 

 

(24.4)

 

Net cash used for financing activities

 

 

(231.0)

 

 

(774.2)

 

 

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

198.3

 

 

(39.3)

 

 

 

 

 

 

 

 

 

Net Decrease in Cash and Cash Equivalents

 

 

(5,419.8)

 

 

(445.8)

 

Cash and Cash Equivalents at Beginning of Period

 

 

9,334.9

 

 

4,335.8

 

Cash and Cash Equivalents at End of Period

 

$

3,915.1

 

$

3,890.0

 

 

 

 

 

 

 

 

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

 

 

 

5


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEERE & COMPANY

 

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

 

For the Three Months Ended January 28, 2018 and January 29, 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)

 

 

198.4

 

 

 

 

 

 

 

 

199.0

 

 

 

 

 

(.6)

 

 

 

 

 

Other comprehensive income

 

 

21.5

 

 

 

 

 

 

 

 

 

 

 

21.5

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

(6.2)

 

 

 

 

 

(6.2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares reissued

 

 

114.2

 

 

 

 

 

114.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

(190.9)

 

 

 

 

 

 

 

 

(190.9)

 

 

 

 

 

 

 

 

 

 

 

Stock options and other

 

 

167.5

 

 

167.3

 

 

 

 

 

.2

 

 

 

 

 

 

 

 

 

 

 

Balance January 29, 2017

 

$

6,835.3

 

$

4,079.1

 

$

(15,569.1)

 

$

23,919.6

 

$

(5,604.5)

 

$

10.2

 

 

 

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 (loss)

 

 

(534.7)

 

 

 

 

 

 

 

 

(535.1)

 

 

 

 

 

.4

 

 

 

 

 

Other comprehensive income

 

 

274.8

 

 

 

 

 

 

 

 

 

 

 

274.7

 

 

.1

 

 

 

 

 

Repurchases of common stock

 

 

(9.7)

 

 

 

 

 

(9.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares reissued

 

 

66.2

 

 

 

 

 

66.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

(194.3)

 

 

 

 

 

 

 

 

(194.3)

 

 

 

 

 

 

 

 

 

 

 

Acquisitions (Note 18)

 

 

8.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8.7

 

 

 

 

 

Stock options and other

 

 

93.4

 

 

93.5

 

 

 

 

 

 

 

 

 

 

 

(.1)

 

 

 

 

 

Balance January 28, 2018

 

$

9,264.9

 

$

4,374.0

 

$

(15,404.3)

 

$

24,571.9

 

$

(4,289.0)

 

$

12.3

 

 

$

14.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 See Condensed Notes to Interim Consolidated Financial Statements.

 

6


 

 

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 OperationsIncludes 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 Wirtgen Group Holding GmbH (Wirtgen). Wirtgen results are included in the construction and forestry operations (see Note 18).

Financial ServicesIncludes primarily the Company’s financing operations.

ConsolidatedRepresents 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 first quarter ends for fiscal year 2018 and 2017 were January 28, 2018 and January 29, 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 $139 million and $119 million in the first three months of 2018 and 2017, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $27 million and $29 million at January 28, 2018 and January 29, 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 first quarter of 2018 and 2017 operating profit by $8 million and $7 million, respectively. The income statement line changes for the first quarter of 2017 were cost of sales decreased $16 million, research and development expenses increased $1 million, selling, administrative and general expenses increased $8 million, and other operating expenses increased $7 million. In addition,

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only the service cost component of the benefit costs is eligible for capitalization, which was adopted beginning the first quarter of 2018.

In the third quarter of 2017, the Company early adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC 718, Compensation – Stock Compensation. This ASU changes the treatment of share based payment transactions by recognizing the impact of excess tax benefits or deficiencies related to exercised or vested awards in income tax expense in the period of exercise or vesting, instead of common stock. As required, this change was reflected for all periods in fiscal year 2017. Net income increased in the first quarter fiscal year 2017 by approximately $5 million. The ASU also modified the presentation of excess tax benefits in the statement of consolidated cash flows by including that amount with other income tax cash flows as an operating activity and no longer presented separately as a financing activity. This change was recognized through a retrospective application that increased net cash flow provided by operating activities by approximately $5 million in the first quarter fiscal year 2017. The ASU also requires that cash paid by an employer when directly withholding shares for tax withholding purposes should be presented as a financing activity in the statement of consolidated cash flows, which is the Company’s existing presentation. The Company will continue to recognize the impact of share-based payment award forfeitures as the forfeitures occur.

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.

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 is evaluating the 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. The ASU currently requires that lessees and lessors use a modified retrospective transition approach. In January 2018, the FASB issued an exposure draft to provide for an adoption option that would not require earlier periods to be restated at the adoption date. The effective date 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

8


 

 

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. In December 2017, the U.S. government enacted new tax legislation (tax reform). Included in the provisions of tax reform is a reduction of the corporate income tax rate from 35 percent to 21

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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. The effects of tax reform on the Company’s consolidated financial statements are outlined in Note 8.

 

(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

 

 

(1)

 

 

(18)

 

 

2

 

 

(5)

 

 

(22)

 

Amounts reclassified from accumulated other comprehensive income

 

 

44

 

 

 

 

 

 

 

 

(1)

 

 

43

 

Net current period other comprehensive income (loss)

 

 

43

 

 

(18)

 

 

2

 

 

(6)

 

 

21

 

Balance January 29, 2017

 

$

(4,366)

 

$

(1,247)

 

$

3

 

$

5

 

$

(5,605)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance October 29, 2017

 

$

(3,580)

 

$

(999)

 

$

5

 

$

10

 

$

(4,564)

 

Other comprehensive income (loss) items before reclassification

 

 

5

 

 

224

 

 

5

 

 

 

 

 

234

 

Amounts reclassified from accumulated other comprehensive income

 

 

41

 

 

 

 

 

 

 

 

 

 

 

41

 

Net current period other comprehensive income (loss)

 

 

46

 

 

224

 

 

5

 

 

 

 

 

275

 

Balance January 28, 2018

 

$

(3,534)

 

$

(775)

 

$

10

 

$

10

 

$

(4,289)

 

 

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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 January 28, 2018

 

Amount

 

Credit

 

Amount

 

Cumulative translation adjustment

 

$

225

 

$

(1)

 

$

224

 

Unrealized gain (loss) on derivatives:

 

 

 

 

 

 

 

 

 

 

Unrealized hedging gain (loss)

 

 

8

 

 

(3)

 

 

5

 

Reclassification of realized (gain) loss

 

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on derivatives

 

 

8

 

 

(3)

 

 

5

 

Net unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

Retirement benefits adjustment:

 

 

 

 

 

 

 

 

 

 

Pensions

 

 

 

 

 

 

 

 

 

 

Net actuarial gain (loss)

 

 

7

 

 

(2)

 

 

5

 

Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: *

 

 

 

 

 

 

 

 

 

 

Actuarial (gain) loss

 

 

61

 

 

(20)

 

 

41

 

Prior service (credit) cost

 

 

3

 

 

(1)

 

 

2

 

Health care and life insurance

 

 

 

 

 

 

 

 

 

 

Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to other operating expenses: *

 

 

 

 

 

 

 

 

 

 

Actuarial (gain) loss

 

 

16

 

 

(5)

 

 

11

 

Prior service (credit) cost

 

 

(19)

 

 

6

 

 

(13)

 

Net unrealized gain (loss) on retirement benefits adjustments

 

 

68

 

 

(22)

 

 

46

 

Total other comprehensive income (loss)

 

$

301

 

$

(26)

 

$

275

 

 

*These accumulated other comprehensive income amounts are components of net periodic pension and postretirement costs. See Note 7 for additional detail.

 

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Before

    

Tax

    

After

 

 

 

Tax

 

(Expense)

 

Tax

 

Three Months Ended January 29, 2017

 

Amount

 

Credit

 

Amount

 

Cumulative translation adjustment

 

$

(19)

 

$

1

 

$

(18)