DE
$172.50
Deere &
($1.32)
(.76%)
Earnings Details
Quarter October 2019
Wednesday, November 27, 2019 6:45:00 AM
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Summary

Deere & Misses

Deere & (DE) reported Quarter October 2019 earnings of $2.14 per share on revenue of $9.9 billion. The consensus earnings estimate was $2.13 per share on revenue of $8.5 billion. The Earnings Whisper number was $2.18 per share. Revenue grew 5.1% on a year-over-year basis.

The company said it expects fiscal 2020 Agriculture & Turf revenue to decline 5% to 10% and Construction & Forestry revenue to decline 10% to 15%, or total Equipment Operations revenue of $30.84 billion to $32.58 billion. The current consensus estimate is revenue of $35.99 billion for the year ending October 31, 2020.

Deere & Company operates in three business segments: agriculture/ turf, construction/forestry, & financial services. The Company helps customers to be more productive as they help to improve the quality of life for people around the world.

Results
Reported Earnings
$2.14
Earnings Whisper
$2.18
Consensus Estimate
$2.13
Reported Revenue
$9.90 Bil
Revenue Estimate
$8.46 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Deere Announces Net Income of $3.253 Billion for Year

MOLINE, Ill., Nov. 27, 2019 /CNW/ -- Deere & Company (NYSE: DE) reported net income of $722 million for the fourth quarter ended November 3, 2019, or $2.27 per share, compared with net income of $785 million, or $2.42 per share, for the quarter ended October 28, 2018. For fiscal 2019, net income attributable to Deere & Company was $3.253 billion, or $10.15 per share, compared with $2.368 billion, or $7.24 per share, in 2018.

Worldwide net sales and revenues increased 5 percent in both the fourth quarter and full year of 2019 to $9.896 billion and $39.258 billion, for the respective periods. Net sales of the equipment operations were $8.703 billion for the quarter and $34.886 billion for the year, compared with respective totals of $8.343 billion and $33.351 billion in 2018.

"John Deere's performance reflected continued uncertainties in the agricultural sector," said John C. May, chief executive officer. "Lingering trade tensions coupled with a year of difficult growing and harvesting conditions have caused many farmers to become cautious about making major investments in new equipment. Additionally, financial services results have come under pressure due to operating-lease losses. At the same time, general economic conditions have remained favorable. This has supported demand for smaller equipment and led to solid results for Deere's construction and forestry business, which had a record year for sales and operating profit."

Company Outlook & Summary

Net income attributable to Deere & Company for fiscal 2020 is forecast to be in a range of $2.7 billion to $3.1 billion.

"Despite present challenges, the longer-term outlook for our businesses remains healthy and points to a promising future for Deere," May said. "We are particularly encouraged by the adoption of precision technologies and believe we are well-positioned to be a leader in the delivery of smarter, more efficient and sustainable solutions to our customers. At the same time, we are committed to the successful execution of our strategic plan and have initiated a series of measures to create a leaner organizational structure that can operate with more speed and agility. We're confident these steps will lead to improved efficiencies and help the company focus its resources and investments on areas that have the greatest impact on performance."

Deere & Company

Fourth Quarter


Full Year

$ in millions

2019


2018


% Change


2019


2018


% Change

Net sales and revenues

$

9,896


$

9,416


5%


$

39,258


$

37,358


5%

















Net income

$

722


$

785


-8%


$

3,253


$

2,368


37%

Fully diluted EPS

$

2.27


$

2.42




$

10.15


$

7.24



















Net income – adjusted

$

681


$

748


-9%


$

3,185


$

3,073


4%

Fully diluted EPS – adjusted

$

2.14


$

2.30




$

9.94


$

9.39



Net income in the fourth quarter and full-year 2019 was favorably affected by discrete adjustments to the provision for income taxes, including those related to U.S. tax reform legislation (tax reform). The adjustments related to tax reform were $41 million and $68 million for the respective periods. (Information on non-GAAP financial measures is included in the appendix.) Prior-year results were favorably affected by $37 million in the fourth quarter and unfavorably affected by $705 million for the twelve-month period due to discrete adjustments to the provision for income taxes related to tax reform.

Equipment Operations

Fourth Quarter


Full Year

$ in millions

2019


2018


% Change


2019


2018


% Change

Net sales

$

8,703


$

8,343


4%


$

34,886


$

33,351


5%

Operating profit

$

788


$

862


-9%


$

3,721


$

3,684


1%

















Net income

$

631


$

514


23%


$

2,698


$

1,404


92%

Tax reform unfavorable (favorable) discrete adjustments


(41)



72





(65)



1,045



Net income – adjusted

$

590


$

586


1%


$

2,633


$

2,449


8%

For a discussion of net sales and operating profit results, see the Agriculture & Turf and Construction & Forestry sections below. Wirtgen results are included for the full year while 2018 contained ten months of Wirtgen activity. The two additional months added about 1 percent to the company's 2019 net sales. Net income in the fourth quarter and full year of 2019 was favorably affected by discrete adjustments to the provision for income taxes.

Agriculture & Turf

Fourth Quarter


Full Year

$ in millions

2019


2018


% Change


2019


2018


% Change

Net sales

$

5,756


$

5,605


3%


$

23,666


$

23,191


2%

Operating profit

$

527


$

567


-7%


$

2,506


$

2,816


-11%

Operating margin


9.2%



10.1%





10.6%



12.1%



Agriculture & Turf sales increased for the quarter and full year of 2019 due to price realization and higher shipment volumes, partially offset by the unfavorable effects of currency translation. Operating profit decreased for the quarter and year. The quarter's decline was primarily due to higher production costs, higher selling, administrative, and general expenses, the unfavorable effects of currency exchange and increased research and development expenses. For the year, operating profit decreased largely due to higher productions costs, the unfavorable effects of currency exchange, increased research and development costs, higher selling, administrative, and general expenses, and a less-favorable sales mix, partially offset by higher shipment volumes. Both periods were positively affected by price realization.

Construction & Forestry

Fourth Quarter


Full Year

$ in millions

2019


2018


% Change


2019


2018


% Change

Net sales

$

2,947


$

2,738


8%


$

11,220


$

10,160


10%

Operating profit

$

261


$

295


-12%


$

1,215


$

868


40%

Operating margin


8.9%



10.8%





10.8%



8.5%



Construction & Forestry sales were higher for the quarter and year primarily due to higher shipment volumes and price realization, partially offset by the unfavorable effects of currency translation. The inclusion of Wirtgen's sales for two additional months in 2019 accounted for about 4 percent of the year's net sales increase. Wirtgen's operating profit was $67 million for the quarter and $343 million for the full year, compared with $79 million and $116 million for the corresponding periods of 2018. Excluding Wirtgen, the decline in Construction & Forestry results for the quarter was primarily due to higher production costs, increased selling, administrative, and general expenses, and a less-favorable sales mix, partially offset by higher shipment volumes and price realization. Full-year 2019 results, excluding Wirtgen, moved higher as a result of price realization and higher shipment volumes, partially offset by higher production costs and a less-favorable sales mix.

Financial Services

Fourth Quarter


Full Year

$ in millions

2019


2018


% Change


2019


2018


% Change

Net income

$

90


$

261


-66%


$

539


$

942


-43%

Tax reform unfavorable (favorable) discrete adjustments





(109)





(3)



(341)


-99%

Net income – adjusted

$

90


$

152


-41%


$

536


$

601


-11%

Excluding tax-reform adjustments, the decrease in financial services net income for the quarter and full year of 2019 was mainly due to impairments and higher losses on operating-lease residual values and unfavorable financing spreads, partially offset by income earned on a higher average portfolio. The quarter also benefited from a lower provision for credit losses.

Market Conditions and Outlook (annual)


Currency


Price

$ in millions


Net Sales


Translation


Realization

Agriculture & Turf


-5% to -1 0%


-1%


+2%

Construction & Forestry


-10% to -15%


-1%


+1%








John Deere Financial


Net Income


$600



Market Conditions & Outlook

Agriculture & Turf. Deere's worldwide sales of agriculture and turf equipment are forecast to decline 5 to 10 percent for fiscal-year 2020, including a negative currency-translation effect of 1 percent. Industry sales of agricultural equipment in the U.S. and Canada are forecast to be down about 5 percent, driven by lower demand for large equipment. Full-year industry sales in the EU28 member nations are forecast to be approximately flat as are South American industry sales of tractors and combines. Asian sales are forecast to be about the same as the prior year. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be about flat.

Construction & Forestry. Deere's worldwide sales of construction and forestry equipment are anticipated to be down 10 to 15 percent for 2020, with foreign-currency rates having an unfavorable translation effect of 1 percent. The outlook reflects slowing construction activity as well as the company's efforts to manage dealer inventory levels. In forestry, global industry sales are expected to be in line with the previous year.

Financial Services. Fiscal-year 2020 net income attributable to Deere & Company for the financial services operations is expected to benefit from lower losses on lease residual values as well as income earned on a higher average portfolio. These items are forecast to be partially offset by a higher provision for credit losses, less-favorable financing spreads, and higher selling and administrative expenses.

John Deere Capital Corporation

The following is disclosed on behalf of the company's financial services subsidiary, John Deere Capital Corporation (JDCC), in connection with the disclosure requirements applicable to its periodic issuance of debt securities in the public market.


Fourth Quarter


Full Year

$ in millions

2019


2018


% Change


2019


2018


% Change

Revenue

$

785


$

668


18%


$

2,890


$

2,532


14%

Net income

$

68


$

160


-57%


$

419


$

799


-48%

















Ending portfolio balance









$

38,251


$

35,643


7%

Net income for the current quarter and full year were lower than for the respective periods of 2018 due to impairments and higher losses on operating-lease residual values, prior-year favorable discrete adjustments to the provision for income taxes associated with tax reform, and unfavorable financing spreads. These factors were partially offset by income from a higher average portfolio.

APPENDIX

DEERE & COMPANY
SUPPLEMENTAL STATEMENT OF CONSOLIDATED INCOME INFORMATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Millions, except per-share amounts)
(Unaudited)

In addition to reporting financial results in conformity with accounting principles generally accepted in the United States (GAAP), the company also discusses non-GAAP measures that exclude adjustments related to tax reform. Net income attributable to Deere & Company and diluted earnings per share measures that exclude this item are not in accordance with nor a substitute for GAAP measures. The company believes that discussion of results excluding this item provides a useful analysis of ongoing operating trends.

The table below provides a reconciliation of the non-GAAP financial measure with the most directly comparable GAAP financial measure for the three months and twelve months ended November 3, 2019 and October 28, 2018.


Three Months Ended


Twelve Months Ended


November 3, 2019


November 3, 2019


Net Income





Net Income





Attributable to


Diluted


Attributable to


Diluted


Deere &


Earnings


Deere &


Earnings


Company


Per Share


Company


Per Share

GAAP measure

$

722


$

2.27


$

3,253


$

10.15

Tax reform unfavorable (favorable) discrete adjustments


(41)



(.13)



(68)



(.21)

Non-GAAP measure

$

681


$

2.14


$

3,185


$

9.94










Three Months Ended


Twelve Months Ended


October 28, 2018


October 28, 2018


Net Income





Net Income





Attributable to


Diluted


Attributable to


Diluted


Deere &


Earnings


Deere &


Earnings


Company


Per Share


Company


Per Share

GAAP measure

$

785


$

2.42


$

2,368


$

7.24

Tax reform unfavorable (favorable) discrete adjustments


(37)



(.12)



705



2.15

Non-GAAP measure

$

748


$

2.30


$

3,073


$

9.39

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:  Statements under "Company Outlook & Summary," "Market Conditions & Outlook," and other forward-looking statements herein that relate to future events, expectations, and trends involve factors that are subject to change, and risks and uncertainties that could cause actual results to differ materially.  Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the company's businesses.

The company's agricultural equipment business is subject to a number of uncertainties including the factors that affect farmers' confidence and financial condition.  These factors include demand for agricultural products, world grain stocks, weather conditions, soil conditions, harvest yields, prices for commodities and livestock, crop and livestock production expenses, availability of transport for crops, trade restrictions and tariffs (e.g., China), global trade agreements (e.g., the United States-Mexico-Canada Agreement), the level of farm product exports (including concerns about genetically modified organisms), the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production), real estate values, available acreage for farming, the land ownership policies of governments, changes in government farm programs and policies, international reaction to such programs, changes in and effects of crop insurance programs, changes in environmental regulations and their impact on farming practices, animal diseases (e.g., African swine fever) and their effects on poultry, beef and pork consumption and prices and on livestock feed demand, and crop pests and diseases.

Factors affecting the outlook for the company's turf and utility equipment include consumer confidence, weather conditions, customer profitability, labor supply, consumer borrowing patterns, consumer purchasing preferences, housing starts and supply, infrastructure investment, spending by municipalities and golf courses, and consumable input costs.

Consumer spending patterns, real estate and housing prices, the number of housing starts, interest rates and the levels of public and non-residential construction are important to sales and results of the company's construction and forestry equipment.  Prices for pulp, paper, lumber and structural panels are important to sales of forestry equipment.

All of the company's businesses and its results are affected by general economic conditions in the global markets and industries in which the company operates; customer confidence in general economic conditions; government spending and taxing; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates (including the availability of IBOR reference rates); inflation and deflation rates; changes in weather patterns; the political and social stability of the global markets in which the company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts; natural disasters; and the spread of major epidemics.

Significant changes in market liquidity conditions, changes in the company's credit ratings and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the company's earnings and cash flows.  Financial market conditions could also negatively impact customer access to capital for purchases of the company's products and customer confidence and purchase decisions, borrowing and repayment practices, and the number and size of customer loan delinquencies and defaults.  A debt crisis, in Europe or elsewhere, could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, demand for equipment, and company operations and results.  The company's investment management activities could be impaired by changes in the equity, bond and other financial markets, which would negatively affect earnings.

The anticipated withdrawal of the United Kingdom from the European Union and the perceptions as to the impact of the withdrawal may adversely affect business activity, political stability and economic conditions in the United Kingdom, the European Union and elsewhere.  The economic conditions and outlook could be further adversely affected by (i) the uncertainty concerning the timing and terms of the exit, (ii) new or modified trading arrangements between the United Kingdom and other countries, (iii) the risk that one or more other European Union countries could come under increasing pressure to leave the European Union, or (iv) the risk that the euro as the single currency of the Eurozone could cease to exist.  Any of these developments, or the perception that any of these developments are likely to occur, could affect economic growth or business activity in the United Kingdom or the European Union, and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, currency exchange rates, interest rates, financial institutions, and political, financial and monetary systems.  Any of these developments could affect our businesses, liquidity, results of operations and financial position.

Additional factors that could materially affect the company's operations, access to capital, expenses and results include changes in, uncertainty surrounding and the impact of governmental trade, banking, monetary and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs and other areas, and governmental programs, policies, tariffs and sanctions in particular jurisdictions or for the benefit of certain industries or sectors; retaliatory actions to such changes in trade, banking, monetary and fiscal policies; actions by central banks; actions by financial and securities regulators; actions by environmental, health and safety regulatory agencies, including those related to engine emissions, carbon and other greenhouse gas emissions, noise and the effects of climate change; changes to GPS radio frequency bands or their permitted uses; changes in labor and immigration regulations; changes to accounting standards; changes in tax rates, estimates, laws and regulations and company actions related thereto; changes to and compliance with privacy regulations; compliance with U.S. and foreign laws when expanding to new markets and otherwise; and actions by other regulatory bodies.

Other factors that could materially affect results include production, design and technological innovations and difficulties, including capacity and supply constraints and prices; the loss of or challenges to intellectual property rights whether through theft, infringement, counterfeiting or otherwise; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the company's supply chain or the loss of liquidity by suppliers; disruptions of infrastructures that support communications, operations or distribution; the failure of suppliers or the company to comply with laws, regulations and company policy pertaining to employment, human rights, health, safety, the environment, anti-corruption, privacy and data protection and other ethical business practices; events that damage the company's reputation or brand; significant investigations, claims, lawsuits or other legal proceedings; start-up of new plants and products; the success of new product initiatives; changes in customer product preferences and sales mix; gaps or limitations in rural broadband coverage, capacity and speed needed to support technology solutions; oil and energy prices, supplies and volatility; the availability and cost of freight; actions of competitors in the various industries in which the company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; changes in demand and pricing for used equipment and resulting impacts on lease residual values; labor relations and contracts; changes in the ability to attract, train and retain qualified personnel; acquisitions and divestitures of businesses; greater than anticipated transaction costs; the integration of new businesses; the failure or delay in closing or realizing anticipated benefits of acquisitions, joint ventures or divestitures; the implementation of organizational changes; the failure to realize anticipated savings or benefits of cost reduction, productivity, or efficiency efforts; difficulties related to the conversion and implementation of enterprise resource planning systems; security breaches, cybersecurity attacks, technology failures and other disruptions to the company's and suppliers' information technology infrastructure; changes in company declared dividends and common stock issuances and repurchases; changes in the level and funding of employee retirement benefits; changes in market values of investment assets, compensation, retirement, discount and mortality rates which impact retirement benefit costs; and significant changes in health care costs.

The liquidity and ongoing profitability of John Deere Capital Corporation and other credit subsidiaries depend largely on timely access to capital in order to meet future cash flow requirements, and to fund operations, costs, and purchases of the company's products.  If general economic conditions deteriorate or capital markets become more volatile, funding could be unavailable or insufficient.  Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses.

The company's outlook is based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies.  Such estimates and data are often revised.  The company, except as required by law, undertakes no obligation to update or revise its outlook, whether as a result of new developments or otherwise.  Further information concerning the company and its businesses, including factors that could materially affect the company's financial results, is included in the company's other filings with the SEC (including, but not limited to, the factors discussed in Item 1A.  Risk Factors of the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q).

Fourth Quarter 2019 Press Release

(in millions of dollars)

Unaudited



Three Months Ended


Twelve Months Ended


November 3


October 28


%


November 3


October 28


%


2019


2018


Change


2019


2018


Change

Net sales and revenues:
















Agriculture and turf

$

5,756


$

5,605


+3


$

23,666


$

23,191


+2

Construction and forestry


2,947



2,738


+8



11,220



10,160


+10

Total net sales


8,703



8,343


+4



34,886



33,351


+5

Financial services


971



851


+14



3,621



3,252


+11

Other revenues


222



222





751



755


-1

Total net sales and revenues

$

9,896


$

9,416


+5


$

39,258


$

37,358


+5

















Operating profit: *
















Agriculture and turf

$

527


$

567


-7


$

2,506


$

2,816


-11

Construction and forestry


261



295


-12



1,215



868


+40

Financial services


128



201


-36



694



792


-12

Total operating profit


916



1,063


-14



4,415



4,476


-1

Reconciling items **


(90)



(75)


+20



(310)



(381)


-19

Income taxes


(104)



(203)


-49



(852)



(1,727)


-51

Net income attributable to Deere & Company

$

722


$

785


-8


$

3,253


$

2,368


+37



*

Operating profit is income from continuing operations before corporate expenses, certain external interest expense, certain foreign exchange gains and losses, and income taxes. Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains or losses.



**

Reconciling items are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, pension and postretirement benefit costs excluding the service cost component, and net income attributable to noncontrolling interests.

 

DEERE & COMPANY

STATEMENT OF CONSOLIDATED INCOME

For the Three Months Ended November 3, 2019 and October 28, 2018

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


2019


2018

Net Sales and Revenues






Net sales

$

8,703


$

8,343

Finance and interest income


956



844

Other income


237



229

Total


9,896



9,416







Costs and Expenses






Cost of sales


6,735



6,381

Research and development expenses


488



470

Selling, administrative and general expenses


945



899

Interest expense


388



322

Other operating expenses


515



365

Total


9,071



8,437







Income of Consolidated Group before Income Taxes


825



979

Provision for income taxes


104



204

Income of Consolidated Group


721



775

Equity in income of unconsolidated affiliates


1



9

Net Income


722



784

Less: Net loss attributable to noncontrolling interests





(1)

Net Income Attributable to Deere & Company

$

722


$

785







Per Share Data






Basic

$

2.30


$

2.45

Diluted

$

2.27


$

2.42







Average Shares Outstanding






Basic


313.9



320.3

Diluted


317.9



324.7








See Condensed Notes to Consolidated Financial Statements.

 

DEERE & COMPANY

STATEMENT OF CONSOLIDATED INCOME

For the Years Ended November 3, 2019 and October 28, 2018

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


2019


2018

Net Sales and Revenues






Net sales

$

34,886


$

33,351

Finance and interest income


3,493



3,107

Other income


879



900

Total


39,258



37,358







Costs and Expenses






Cost of sales


26,792



25,571

Research and development expenses


1,783



1,658

Selling, administrative and general expenses


3,551



3,455

Interest expense


1,466



1,204

Other operating expenses


1,578



1,399

Total


35,170



33,287







Income of Consolidated Group before Income Taxes


4,088



4,071

Provision for income taxes


852



1,727

Income of Consolidated Group


3,236



2,344

Equity in income of unconsolidated affiliates


21



27

Net Income


3,257



2,371

Less: Net income attributable to noncontrolling interests


4



3

Net Income Attributable to Deere & Company

$

3,253


$

2,368







Per Share Data






Basic

$

10.28


$

7.34

Diluted

$

10.15


$

7.24







Average Shares Outstanding






Basic


316.5



322.6

Diluted


320.6



327.3








See Condensed Notes to Consolidated Financial Statements.

 

DEERE & COMPANY

CONDENSED CONSOLIDATED BALANCE SHEET

As of November 3, 2019 and October 28, 2018

(In millions of dollars) Unaudited


2019


2018

Assets






Cash and cash equivalents

$

3,857


$

3,904

Marketable securities


581



490

Receivables from unconsolidated affiliates


46



22

Trade accounts and notes receivable - net


5,230



5,004

Financing receivables - net


29,195



27,054

Financing receivables securitized - net


4,383



4,022

Other receivables


1,487



1,736

Equipment on operating leases - net


7,567



7,165

Inventories


5,975



6,149

Property and equipment - net


5,973



5,868

Investments in unconsolidated affiliates


215



207

Goodwill


2,917



3,101

Other intangible assets - net


1,380



1,562

Retirement benefits


840



1,298

Deferred income taxes


1,466



808

Other assets


1,899



1,718

Total Assets

$

73,011


$

70,108







Liabilities and Stockholders' Equity












Liabilities






Short-term borrowings

$

10,784


$

11,062

Short-term securitization borrowings


4,321



3,957

Payables to unconsolidated affiliates


142



129

Accounts payable and accrued expenses


9,656



10,111

Deferred income taxes


495



556

Long-term borrowings


30,229



27,237

Retirement benefits and other liabilities


5,953



5,751

Total liabilities


61,580



58,803







Redeemable noncontrolling interest


14



14







Stockholders' Equity






Total Deere & Company stockholders' equity


11,413



11,288

Noncontrolling interests


4



3

Total stockholders' equity


11,417



11,291

Total Liabilities and Stockholders' Equity

$

73,011


$

70,108








See Condensed Notes to Consolidated Financial Statements.

 

DEERE & COMPANY

STATEMENT OF CONSOLIDATED CASH FLOWS

For the Years Ended November 3, 2019 and October 28, 2018

(In millions of dollars) Unaudited


2019


2018

Cash Flows from Operating Activities






Net income

$

3,257


$

2,371

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






Provision for credit losses


43



90

Provision for depreciation and amortization


2,019



1,927

Impairment charges


77




Share-based compensation expense


82



84

(Gain) loss on sales of businesses and unconsolidated affiliates


5



(25)

Undistributed earnings of unconsolidated affiliates


9



(26)

Provision (credit) for deferred income taxes


(465)



1,480

Changes in assets and liabilities:






Trade, notes, and financing receivables related to sales


(869)



(1,531)

Inventories


(780)



(1,772)

Accounts payable and accrued expenses


46



722

Accrued income taxes payable/receivable


173



(466)

Retirement benefits


(233)



(1,026)

Other


48



(6)

Net cash provided by operating activities


3,412



1,822







Cash Flows from Investing Activities






Collections of receivables (excluding receivables related to sales)


16,706



15,589

Proceeds from maturities and sales of marketable securities


89



76

Proceeds from sales of equipment on operating leases


1,648



1,483

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


93



156

Cost of receivables acquired (excluding receivables related to sales)


(18,873)



(17,013)

Acquisitions of businesses, net of cash acquired





(5,245)

Purchases of marketable securities


(140)



(133)

Purchases of property and equipment


(1,120)



(896)

Cost of equipment on operating leases acquired


(2,329)



(2,054)

Other


2



(139)

Net cash used for investing activities


(3,924)



(8,176)







Cash Flows from Financing Activities






Increase (decrease) in total short-term borrowings


(917)



473

Proceeds from long-term borrowings


9,986



8,288

Payments of long-term borrowings


(6,426)



(6,245)

Proceeds from issuance of common stock


178



217

Repurchases of common stock


(1,253)



(958)

Dividends paid


(943)



(806)

Other


(116)



(93)

Net cash provided by financing activities


509



876







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


(56)



26







Net Decrease in Cash, Cash Equivalents, and Restricted Cash


(59)



(5,452)

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


4,015



9,467

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

$

3,956


$

4,015








See Condensed Notes to Consolidated Financial Statements.

 

Condensed Notes to Consolidated Financial Statements (Unaudited)


(1)

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


























Three Months Ended


Twelve Months Ended








November 3


October 28


November 3


October 28








2019


2018


2019


2018




















Dividends declared






$

.76


$

.69


$

3.04


$

2.58


Dividends paid






$

.76


$

.69


$

2.97


$

2.49



(2)

The calculation of basic net income per share is based on the average number of shares outstanding. The calculation of diluted net income per share recognizes any dilutive effect of share-based compensation.



(3)

In the first quarter of 2019, the Company adopted Financial Accounting Standards Board Accounting Standards Update (ASU) No. 2016-18, which amends ASC 230, Statement of Cash Flows. The ASU requires that restricted cash be included with cash and cash equivalents in the statement of cash flows. The ASU was adopted on a retrospective basis. The Company's restricted cash held was as follows in millions of dollars:





























November 3


October 28


October 29











2019


2018


2017


Equipment operations









$

21


$

7


$

6


Financial services










78



104



126


Total









$

99


$

111


$

132




The equipment operations' restricted cash relates to miscellaneous operations activities. The financial services' restricted cash relates to securitization of financing receivables. The restricted cash is recorded in other assets in the consolidated balance sheet.



(4)

The consolidated financial statements represent the consolidation of all Deere & Company's subsidiaries. In the supplemental consolidating data in Note 5 to the financial statements, "Equipment Operations" include the Company's agriculture and turf operations and construction and forestry operations with "Financial Services" reflected on the equity basis.

 

(5) SUPPLEMENTAL CONSOLIDATING DATA

STATEMENT OF INCOME

For the Three Months Ended November 3, 2019 and October 28, 2018 

(In millions of dollars) Unaudited

EQUIPMENT OPERATIONS*


FINANCIAL SERVICES


2019


2018


2019


2018

Net Sales and Revenues












Net sales

$

8,703


$

8,343







Finance and interest income


40



56


$

1,007


$

870

Other income


267



244



50



54

Total


9,010



8,643



1,057



924













Costs and Expenses












Cost of sales


6,735



6,381







Research and development expenses


488



470







Selling, administrative and general expenses


840



776



106



125

Interest expense


75



72



323



261

Interest compensation to Financial Services


81



71







Other operating expenses


96



96



498



336

Total


8,315



7,866



927



722













Income of Consolidated Group before Income Taxes


695



777



130



202

Provision (credit) for income taxes


64



263



40



(59)

Income of Consolidated Group


631



514



90



261













Equity in Income of Unconsolidated Subsidiaries and Affiliates












Financial Services


90



261







Other


1



9







Total


91



270







Net Income


722



784



90



261

Less: Net loss attributable to noncontrolling interests





(1)







Net Income Attributable to Deere & Company

$

722


$

785


$

90


$

261














* Deere & Company with Financial Services on the equity basis.


The supplemental consolidating data is presented for informational purposes. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.

 

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

STATEMENT OF INCOME

For the Years Ended November 3, 2019 and October 28, 2018

(In millions of dollars) Unaudited

EQUIPMENT OPERATIONS*


FINANCIAL SERVICES


2019


2018


2019


2018

Net Sales and Revenues












Net sales

$

34,886


$

33,351







Finance and interest income


118



126


$

3,735


$

3,311

Other income


881



875



234



249

Total


35,885



34,352



3,969



3,560













Costs and Expenses












Cost of sales


26,793



25,573







Research and development expenses


1,783



1,658







Selling, administrative and general expenses


3,031



2,935



528



528

Interest expense


256



298



1,234



936

Interest compensation to Financial Services


336



300







Other operating expenses


299



315



1,506



1,298

Total


32,498



31,079



3,268



2,762













Income of Consolidated Group before Income Taxes


3,387



3,273



701



798

Provision (credit) for income taxes


689



1,869



163



(142)

Income of Consolidated Group


2,698



1,404



538



940













Equity in Income of Unconsolidated Subsidiaries and Affiliates












Financial Services


539



942



1



2

Other


20



25







Total


559



967



1



2

Net Income


3,257



2,371



539



942

Less: Net income attributable to noncontrolling interests


4



3







Net Income Attributable to Deere & Company

$

3,253


$

2,368


$

539


$

942














* Deere & Company with Financial Services on the equity basis.


The supplemental consolidating data is presented for informational purposes. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.

 

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

CONDENSED BALANCE SHEET

As of November 3, 2019 and October 28, 2018

(In millions of dollars) Unaudited

EQUIPMENT OPERATIONS*


FINANCIAL SERVICES


2019


2018


2019


2018

Assets












Cash and cash equivalents

$

3,175


$

3,195


$

682


$

709

Marketable securities


1



8



580



482

Receivables from unconsolidated subsidiaries and affiliates


2,017



1,700







Trade accounts and notes receivable - net


1,482



1,374



5,153



4,906

Financing receivables - net


65



93



29,130



26,961

Financing receivables securitized - net


44



76



4,339



3,946

Other receivables


1,376



1,010



116



776

Equipment on operating leases - net








7,567



7,165

Inventories


5,975



6,149







Property and equipment - net


5,929



5,821



44



47

Investments in unconsolidated subsidiaries and affiliates


5,326



5,231



16



15

Goodwill


2,917



3,101







Other intangible assets - net


1,380



1,562







Retirement benefits


836



1,241



58



57

Deferred income taxes


1,896



1,503



57



69

Other assets


1,158



1,133



741



587

Total Assets

$

33,577


$

33,197


$

48,483


$

45,720













Liabilities and Stockholders' Equity
























Liabilities












Short-term borrowings

$

987


$

1,434


$

9,797


$

9,628

Short-term securitization borrowings


44



75



4,277



3,882

Payables to unconsolidated subsidiaries and affiliates


142



129



1,970



1,678

Accounts payable and accrued expenses


9,232



9,383



1,836



2,056

Deferred income taxes


414



497



568



823

Long-term borrowings


5,415



4,714



24,814



22,523

Retirement benefits and other liabilities


5,912



5,660



94



91

Total liabilities


22,146



21,892



43,356



40,681













Redeemable noncontrolling interest


14



14



















Stockholders' Equity












Total Deere & Company stockholders' equity


11,413



11,288



5,127



5,039

Noncontrolling interests


4



3







Total stockholders' equity


11,417



11,291



5,127



5,039

Total Liabilities and Stockholders' Equity

$

33,577


$

33,197


$

48,483


$

45,720














* Deere & Company with Financial Services on the equity basis.


The supplemental consolidating data is presented for informational purposes. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.

 

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

STATEMENT OF CASH FLOWS

For the Years Ended November 3, 2019 and October 28, 2018 

(In millions of dollars) Unaudited

EQUIPMENT OPERATIONS*


FINANCIAL SERVICES


2019


2018


2019


2018

Cash Flows from Operating Activities












Net income

$

3,257


$

2,371


$

539


$

942

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












Provision for credit losses


14



39



29



51

Provision for depreciation and amortization


1,015



974



1,135



1,077

Impairment charges








77




(Gain) loss on sales of businesses and unconsolidated affiliates


5



(25)







Undistributed earnings of unconsolidated subsidiaries and affiliates


(102)



(503)



(2)



(2)

Provision (credit) for deferred income taxes


(222)



1,504



(243)



(24)

Changes in assets and liabilities:












Trade receivables and Equipment Operations' financing receivables


(142)



(239)







Inventories


(102)



(917)







Accounts payable and accrued expenses


13



793



163



120

Accrued income taxes payable/receivable


(355)



103



528



(569)

Retirement benefits


(235)



(985)



2



(41)

Other


54



166



190



88

Net cash provided by operating activities


3,200



3,281



2,418



1,642













Cash Flows from Investing Activities












Collections of receivables (excluding trade and wholesale)








18,190



17,032

Proceeds from maturities and sales of marketable securities


12



11



77



65

Proceeds from sales of equipment on operating leases








1,648



1,483

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


93



156







Cost of receivables acquired (excluding trade and wholesale)








(20,321)



(18,778)

Acquisitions of businesses, net of cash acquired





(5,245)







Purchases of marketable securities


(3)






(137)



(133)

Purchases of property and equipment


(1,118)



(893)



(2)



(3)

Cost of equipment on operating leases acquired








(3,246)



(3,209)

Increase in investment in Financial Services


(8)










Increase in trade and wholesale receivables








(935)



(1,222)

Other


35



17



5



(95)

Net cash used for investing activities


(989)



(5,954)



(4,721)



(4,860)













Cash Flows from Financing Activities












Increase (decrease) in total short-term borrowings


(149)



16



(768)



457

Change in intercompany receivables/payables


(305)



(748)



305



748

Proceeds from long-term borrowings


1,348



149



8,638



8,139

Payments of long-term borrowings


(972)



(163)



(5,454)



(6,082)

Proceeds from issuance of common stock


178



217







Repurchases of common stock


(1,253)



(958)







Capital investment from Equipment Operations








8




Dividends paid


(943)



(806)



(427)



(464)

Other


(79)



(60)



(38)



(32)

Net cash provided by (used for) financing activities


(2,175)



(2,353)



2,264



2,766













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


(42)



54



(14)



(28)













Net Decrease in Cash, Cash Equivalents, and Restricted Cash


(6)



(4,972)



(53)



(480)

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


3,202



8,174



813



1,293

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

$

3,196


$

3,202


$

760


$

813














* Deere & Company with Financial Services on the equity basis.


The supplemental consolidating data is presented for informational purposes. Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the consolidated financial statements.

 

Deere & Company

Other Financial Information





















For the Twelve Months Ended

Equipment Operations*

Agriculture and Turf

Construction and Forestry*


November 3

October 28

November 3

October 28

November 3

October 28

Dollars in millions

2019

2018

2019

2018

2019

2018

Net Sales

$

34,886


$

33,351


$

23,666


$

23,191


$

11,220


$

10,160


Net Sales - excluding Wirtgen

$

31,693


$

30,324


$

23,666


$

23,191


$

8,027


$

7,133


Average Identifiable Assets



















With Inventories at LIFO

$

20,761


$

19,701


$

10,748


$

10,219


$

10,013


$

9,482


With Inventories at LIFO - excluding Wirtgen

$

14,460


$

13,566


$

10,748


$

10,219


$

3,712


$

3,347


With Inventories at Standard Cost

$

22,139


$

20,959


$

11,860


$

11,233


$

10,279


$

9,726


With Inventories at Standard Cost - excluding Wirtgen

$

15,838


$

14,825


$

11,860


$

11,233


$

3,978


$

3,592


Operating Profit

$

3,721


$

3,684


$

2,506


$

2,816


$

1,215


$

868


Operating Profit - excluding Wirtgen

$

3,378


$

3,568


$

2,506


$

2,816


$

872


$

752


Percent of Net Sales - excluding Wirtgen


10.7

%


11.8

%


10.6

%


12.1

%


10.9

%


10.5

%

Operating Return on Assets - excluding Wirtgen



















With Inventories at LIFO - excluding Wirtgen


23.4

%


26.3

%


23.3

%


27.6

%


23.5

%


22.5

%

With Inventories at Standard Cost - excluding Wirtgen


21.3

%


24.1

%


21.1

%


25.1

%


21.9

%


20.9

%

SVA Cost of Assets - excluding Wirtgen

$

(1,900)


$

(1,778)


$

(1,423)


$

(1,347)


$

(477)


$

(431)


SVA - excluding Wirtgen

$

1,478


$

1,790


$

1,083


$

1,469


$

395


$

321





















For the Twelve Months Ended

Financial Services














November 3

October 28













Dollars in millions

2019

2018**













Net Income Attributable to Deere & Company

$

539


$

942














Net Income Attributable to Deere & Company - Tax Adjusted




$

530














Average Equity

$

5,040


$

4,832














Average Equity - Tax Adjusted




$

4,793














Return on Equity


10.7

%


19.5

%













Return on Equity - Tax Adjusted





11.1

%













Operating Profit

$

694


$

792














Average Equity

$

5,040


$

4,793














Cost of Equity

$

(657)


$

(722)














SVA

$

37


$

70















The Company evaluates its business results on the basis of accounting principles generally accepted in the United States. In addition, it uses a metric referred to as Shareholder Value Added (SVA), which management believes is an appropriate measure for the performance of its businesses. SVA is, in effect, the pretax profit left over after subtracting the cost of enterprise capital. The Company is aiming for a sustained creation of SVA and is using this metric for various performance goals. Certain compensation is also determined on the basis of performance using this measure. For purposes of determining SVA, each of the equipment segments is assessed a pretax cost of assets, which on an annual basis is approximately 12 percent of the segment's average identifiable operating assets during the applicable period with inventory at standard cost. Management believes that valuing inventories at standard cost more closely approximates the current cost of inventory and the Company's investment in the asset. The Financial Services segment is assessed an annual pretax cost of approximately 13 percent of the segment's average equity (15 percent in 2018). The cost of assets or equity, as applicable, is deducted from the operating profit or added to the operating loss of each segment to determine the amount of SVA.


* On December 1, 2017, the Company acquired the stock and certain assets of substantially all of Wirtgen Group Holding GmbH's operations (Wirtgen), the leading manufacturer worldwide of road building equipment. Wirtgen is included in the construction and forestry segment. Wirtgen is excluded from the metrics above.


** The 2018 SVA calculation was adjusted for certain effects of U.S. Tax Reform legislation enacted on December 22, 2017 due to the significant discrete income tax benefit in 2018. The 2019 SVA is calculated with unadjusted U.S. GAAP information.

 

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SOURCE Deere & Company