Deere Reports First-Quarter Income of $517 Million

|Feb 21|magazine77 min read

- Net income rises 4% on 6% decline in net sales.

- U.S. farm sector shows early signs of stabilization.

- Full-year earnings forecast unchanged.

MOLINE, Ill., Feb. 21, 2020 /PRNewswire/ -- Deere & Company (NYSE: DE) reported net income of $517 million for the first quarter ended February 2, 2020, or $1.63 per share, compared with net income of $498 million, or $1.54 per share, for the quarter ended January 27, 2019. Worldwide net sales and revenues decreased 4 percent in the first quarter of 2020 to $7.631 billion. Net sales of the equipment operations were $6.530 billion for the quarter, compared with $6.941 billion in 2019.

"John Deere's first-quarter performance reflected early signs of stabilization in the U.S. farm sector," said John C. May, chief executive officer. "Farmer confidence, though still subdued, has improved due in part to hopes for a relaxation of trade tensions and higher agricultural exports. At the same time, activity in the construction sector has slowed leading to lower sales and profit for our Construction & Forestry division. Also impacting results in Deere's construction equipment business were our actions to reduce factory production and lower inventories in response to current market conditions. Additionally, the quarter included costs of a voluntary employee-separation program, which is among the steps Deere is taking to improve flexibility and efficiency."

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.

"Looking ahead, we are particularly encouraged by the broad use of precision technologies and believe the company is well-positioned to strengthen its leadership in this vital area," May said. "In addition, we are proceeding with a series of measures to create a more focused organizational structure that can operate with greater speed and agility. These steps are leading to improved efficiencies and helping the company focus its resources and investments on areas that have the most impact on performance."

Deere & Company


First Quarter

$ in millions


2020


2019


% Change

Net sales and revenues


$

7,631


$

7,984


-4%

Net income


$

517


$

498


4%

Fully diluted EPS


$

1.63


$

1.54



The voluntary employee-separation program's total pretax expense recognized in the first quarter of 2020 was $127 million, with another $9 million to be recorded over the remainder of the year. Included in first-quarter expense was $22 million for items excluded from operating profit and $3 million recorded by financial services. Annual estimated savings from the separation program are approximately $85 million, with about $65 million expected in 2020. Discrete income tax benefits also affected the quarter's net income.

Equipment Operations


First Quarter

$ in millions


2020


2019


% Change

Net sales


$

6,530


$

6,941


-6%

Operating profit


$

466


$

577


-19%

Net income


$

383


$

340


13%

For a discussion of net sales and operating profit results, see the Agriculture & Turf and Construction & Forestry sections below.

Agriculture & Turf


First Quarter

$ in millions


2020


2019


% Change

Net sales


$

4,486


$

4,681


-4%

Operating profit


$

373


$

348


7%

Operating margin



8.3%



7.4%



Agriculture & Turf sales for the quarter declined due to lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. Operating profit increased primarily due to price realization, improved production costs, and lower warranty-related expenses, partially offset by lower shipment volumes / sales mix and voluntary employee-separation expenses.

 

Construction & Forestry


First Quarter

$ in millions


2020


2019


% Change

Net sales


$

2,044


$

2,260


-10%

Operating profit


$

93


$

229


-59%

Operating margin



4.5%



10.1%



Construction & Forestry sales declined for the quarter due to lower shipment volumes and the unfavorable effects of currency translation, partially offset by price realization. Operating profit moved lower as a result of lower shipment volumes / sales mix and voluntary employee-separation expenses. These items were partially offset by price realization.

 

Financial Services


First Quarter

$ in millions


2020


2019


% Change

Net income


$

137


$

154


-11%

Financial services net income for the quarter decreased from the prior-year period. The decline was due primarily to higher losses on lease residual values, an increased provision for credit losses, prior-year favorable discrete adjustments to the provision for income taxes and greater selling, administrative and general expenses. These factors were partially offset by income earned on a higher average portfolio.

Market Conditions and Outlook (Annual)


Currency


Price

$ in millions


Net Sales


Translation


Realization

Agriculture & Turf


-5% to -10%


-1%


2%

Construction & Forestry


-10% to -15%


-1%


1%


John Deere Financial


Net Income


$ 600



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 about 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 in Canada. Full-year industry sales in Europe 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 about 1 percent. The outlook reflects slowing construction activity as well as efforts to bring down field inventory levels. Industry construction-equipment sales in North America are expected to decline by 5 to 10 percent for the year. In forestry, global industry sales are expected to be down 5 to 10 percent due to weaker demand in North America and Russia.

Financial Services. Full-year 2020 results are expected to benefit from lower losses on lease residual values and income earned from a higher average portfolio, partially offset by a higher provision for credit losses and prior-year favorable discrete adjustments to the provision for income taxes.

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.



First Quarter

$ in millions


2020


2019


% Change

Revenue


$

719


$

661


9%

Net income


$

99


$

122


-19%

Ending portfolio balance


$

37,146


$

34,975


6%

Results for the quarter were lower than the same period in 2019 related to an increased provision for credit losses, higher losses on lease residual values, prior-year favorable discrete adjustments to the provision for income taxes, and greater selling, administrative and general expenses, partially offset by income earned on a higher average portfolio.

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 (including Coronavirus) and responses to epidemics such as government-imposed travel restrictions and extended shut down of businesses.

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 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) uncertainty regarding any new or modified trade arrangements between the United Kingdom and the European Union and/or other countries, (ii) the risk that one or more other

European Union countries could come under increasing pressure to leave the European Union, or (iii) 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).

First Quarter 2020 Press Release

(in millions of dollars)

Unaudited













Three Months Ended




February 2


January 27


%




2020


2019


Change


Net sales and revenues:










Agriculture and turf


$

4,486


$

4,681


-4


Construction and forestry



2,044



2,260


-10


Total net sales



6,530



6,941


-6


Financial services



931



855


+9


Other revenues



170



188


-10


Total net sales and revenues


$

7,631


$

7,984


-4












Operating profit: *










Agriculture and turf


$

373


$

348


+7


Construction and forestry



93



229


-59


Financial services



179



192


-7


Total operating profit



645



769


-16


Reconciling items **



(78)



(87)


-10


Income taxes



(50)



(184)


-73


Net income attributable to Deere & Company


$

517


$

498


+4




*

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 February 2, 2020 and January 27, 2019

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



2020


2019

Net Sales and Revenues







Net sales


$

6,530


$

6,941

Finance and interest income



896



815

Other income



205



228

Total



7,631



7,984








Costs and Expenses







Cost of sales



5,077



5,432

Research and development expenses



425



407

Selling, administrative and general expenses



809



764

Interest expense



336



353

Other operating expenses



415



351

Total



7,062



7,307








Income of Consolidated Group before Income Taxes



569



677

Provision for income taxes



50



184

Income of Consolidated Group



519



493

Equity in income (loss) of unconsolidated affiliates



(1)



7

Net Income



518



500

Less: Net income attributable to noncontrolling interests



1



2

Net Income Attributable to Deere & Company


$

517


$

498








Per Share Data







Basic


$

1.65


$

1.56

Diluted


$

1.63


$

1.54








Average Shares Outstanding







Basic



313.5



318.5

Diluted



317.2



322.7








See Condensed Notes to Interim Consolidated Financial Statements.

 

DEERE & COMPANY

CONDENSED CONSOLIDATED BALANCE SHEET

(In millions of dollars) Unaudited



February 2


November 3


January 27



2020


2019


2019

Assets










Cash and cash equivalents


$

3,602


$

3,857


$

3,626

Marketable securities



609



581



523

Receivables from unconsolidated affiliates



38



46



36

Trade accounts and notes receivable - net



5,360



5,230



5,497

Financing receivables - net



27,294



29,195



25,150

Financing receivables securitized - net



4,478



4,383



4,563

Other receivables



1,367



1,487



1,651

Equipment on operating leases - net



7,504



7,567



6,904

Inventories



6,482



5,975



7,402

Property and equipment - net



5,900



5,973



5,785

Investments in unconsolidated affiliates



217



215



212

Goodwill



2,945



2,917



3,048

Other intangible assets - net



1,349



1,380



1,507

Retirement benefits



900



840



1,348

Deferred income taxes



1,414



1,466



834

Other assets



2,362



1,899



1,832

Total Assets


$

71,821


$

73,011


$

69,918











Liabilities and Stockholders' Equity




















Liabilities










Short-term borrowings


$

10,008


$

10,784


$

10,738

Short-term securitization borrowings



4,416



4,321



4,464

Payables to unconsolidated affiliates



147



142



144

Accounts payable and accrued expenses



8,630



9,656



9,086

Deferred income taxes



491



495



525

Long-term borrowings



30,475



30,229



27,855

Retirement benefits and other liabilities



5,710



5,953



5,759

Total liabilities



59,877



61,580



58,571











Redeemable noncontrolling interest



14



14



14











Stockholders' Equity










Total Deere & Company stockholders' equity



11,926



11,413



11,328

Noncontrolling interests



4



4



5

Total stockholders' equity



11,930



11,417



11,333

Total Liabilities and Stockholders' Equity


$

71,821


$

73,011


$

69,918


See Condensed Notes to Interim Consolidated Financial Statements.

 

DEERE & COMPANY

STATEMENT OF CONSOLIDATED CASH FLOWS

For the Three Months Ended February 2, 2020 and January 27, 2019

(In millions of dollars) Unaudited



2020


2019

Cash Flows from Operating Activities







Net income


$

518


$

500

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







Provision for credit losses



15



2

Provision for depreciation and amortization



538



503

Share-based compensation expense



19



20

Undistributed earnings of unconsolidated affiliates






(7)

Credit for deferred income taxes



(29)



(56)

Changes in assets and liabilities:







Trade, notes and financing receivables related to sales



70



(507)

Inventories



(642)



(1,396)

Accounts payable and accrued expenses



(1,134)



(698)

Accrued income taxes payable/receivable



(53)



98

Retirement benefits



36



(4)

Other



154



(106)

Net cash used for operating activities



(508)



(1,651)








Cash Flows from Investing Activities







Collections of receivables (excluding receivables related to sales)



5,664



5,496

Proceeds from maturities and sales of marketable securities



18



8

Proceeds from sales of equipment on operating leases



426



371

Cost of receivables acquired (excluding receivables related to sales)



(4,303)



(4,213)

Purchases of marketable securities



(34)



(32)

Purchases of property and equipment



(271)



(297)

Cost of equipment on operating leases acquired



(517)



(361)

Other



43



(3)

Net cash provided by investing activities



1,026



969








Cash Flows from Financing Activities







Increase (decrease) in total short-term borrowings



(473)



476

Proceeds from long-term borrowings



1,702



2,211

Payments of long-term borrowings



(1,651)



(1,941)

Proceeds from issuance of common stock



53



51

Repurchases of common stock



(114)



(144)

Dividends paid



(242)



(220)

Other



(38)



(30)

Net cash provided by (used for) financing activities



(763)



403








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



(1)



(13)








Net Decrease in Cash, Cash Equivalents, and Restricted Cash



(246)



(292)

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



3,956



4,015

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


$

3,710


$

3,723


See Condensed Notes to Interim Consolidated Financial Statements.

 

Condensed Notes to Interim Consolidated Financial Statements (Unaudited)



(1)

During the first quarter of 2020, the Company announced a broad voluntary employee-separation program for the U.S. salaried workforce that continues the efforts to create a more efficient organization structure and reduce operating costs. The program provided for cash payments based on years of service. The expense was recorded primarily in the period in which the employees irrevocably accepted the separation offer. The program's total estimated pretax expenses are approximately $136 million, of which $127 million was recorded in the first quarter. The payments for the program were substantially made in the first quarter of 2020. Included in the total pretax expense is a non-cash charge of $21 million resulting from a curtailment in certain OPEB plans, which will be recorded outside of operating profit in "Other operating expense." The first quarter 2020 expenses that are included in operating profit of $105 million are allocated 37 percent "Cost of sales," 15 percent "Research and development," and 48 percent "Selling, administrative and general." In addition, the expenses are allocated 75 percent to the agriculture and turf operations, 23 percent to the construction and forestry operations, and 2 percent to the financial services operations. Annual savings from this program are estimated to be approximately $85 million with about $65 million in 2020.



(2)

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



Three Months Ended


February 2


January 27


2020


2019

Dividends declared

$

.76


$

.76

Dividends paid

$

.76


$

.69


(3)

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.



(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 February 2, 2020 and January 27, 2019

(In millions of dollars) Unaudited


EQUIPMENT OPERATIONS*


FINANCIAL SERVICES



2020


2019


2020


2019

Net Sales and Revenues













Net sales


$

6,530


$

6,941







Finance and interest income



27



23


$

936


$

866

Other income



209



215



62



60

Total



6,766



7,179



998



926














Costs and Expenses













Cost of sales



5,078



5,432







Research and development expenses



425



407







Selling, administrative and general expenses



672



645



138



121

Interest expense



63



71



275



287

Interest compensation to Financial Services



64



69







Other operating expenses



72



71



408



325

Total



6,374



6,695



821



733














Income of Consolidated Group before Income Taxes



392



484



177



193

Provision for income taxes



9



144



41



40

Income of Consolidated Group



383



340



136



153














Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates













Financial Services



137



154



1



1

Other



(2)



6







Total



135



160



1



1

Net Income



518



500



137



154

Less: Net income attributable to noncontrolling interests



1



2







Net Income Attributable to Deere & Company


$

517


$

498


$

137


$

154


* 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

(In millions of dollars) Unaudited


EQUIPMENT OPERATIONS*


FINANCIAL SERVICES



February 2


November 3


January 27


February 2


November 3


January 27



2020


2019


2019


2020


2019


2019

Assets



















Cash and cash equivalents


$

2,862


$

3,175


$

2,671


$

740


$

682


$

955

Marketable securities



4



1



8



605



580



515

Receivables from unconsolidated subsidiaries and affiliates



1,425



2,017



274










Trade accounts and notes receivable - net



1,115



1,482



1,177



5,707



5,153



5,746

Financing receivables - net



130



65



102



27,164



29,130



25,048

Financing receivables securitized - net



42



44



67



4,436



4,339



4,496

Other receivables



1,252



1,376



1,485



131



116



184

Equipment on operating leases - net












7,504



7,567



6,904

Inventories



6,482



5,975



7,402










Property and equipment - net



5,857



5,929



5,739



43



44



46

Investments in unconsolidated subsidiaries and affiliates



5,317



5,326



5,175



17



16



16

Goodwill



2,945



2,917



3,048










Other intangible assets - net



1,349



1,380



1,507










Retirement benefits



871



836



1,291



58



58



57

Deferred income taxes



1,821



1,896



1,507



56



57



70

Other assets



1,546



1,158



1,241



818



741



593

Total Assets


$

33,018


$

33,577


$

32,694


$

47,279


$

48,483


$

44,630




















Liabilities and Stockholders' Equity






































Liabilities



















Short-term borrowings


$

947


$

987


$

1,494


$

9,061


$

9,797


$

9,244

Short-term securitization borrowings



42



44



67



4,374



4,277



4,397

Payables to unconsolidated subsidiaries and affiliates



146



142



227



1,387



1,970



155

Accounts payable and accrued expenses



8,325



9,232



8,711



1,786



1,836



1,821

Deferred income taxes



408



414



470



546



568



798

Long-term borrowings



5,567



5,415



4,712



24,908



24,814



23,143

Retirement benefits and other liabilities



5,639



5,912



5,666



100



94



93

Total liabilities



21,074



22,146



21,347



42,162



43,356



39,651




















Redeemable noncontrolling interest



14



14



14





























Stockholders' Equity



















Total Deere & Company stockholders' equity



11,926



11,413



11,328



5,117



5,127



4,979

Noncontrolling interests



4



4



5










Total stockholders' equity



11,930



11,417



11,333



5,117



5,127



4,979

Total Liabilities and Stockholders' Equity


$

33,018


$

33,577


$

32,694


$

47,279


$

48,483


$

44,630


* 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 Three Months Ended February 2, 2020 and January 27, 2019















(In millions of dollars) Unaudited


EQUIPMENT OPERATIONS*


FINANCIAL SERVICES



2020


2019


2020


2019

Cash Flows from Operating Activities













Net income


$

518


$

500


$

137


$

154

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













Provision (credit) for credit losses



1



(1)



14



3

Provision for depreciation and amortization



261



260



311



276

Undistributed earnings of unconsolidated subsidiaries and affiliates



(11)



39



(1)




Credit for deferred income taxes



(7)



(31)



(22)



(25)

Changes in assets and liabilities:













Trade receivables and Equipment Operations' financing receivables



312



186







Inventories



(530)



(1,290)







Accounts payable and accrued expenses



(1,058)



(535)



(19)



(12)

Accrued income taxes payable/receivable



(43)



(429)



(10)



527

Retirement benefits



30



(6)



6



2

Other



147



(127)



30



47

Net cash provided by (used for) operating activities



(380)



(1,434)



446



972














Cash Flows from Investing Activities













Collections of receivables (excluding trade and wholesale)









6,056



5,885

Proceeds from maturities and sales of marketable securities






3



18



5

Proceeds from sales of equipment on operating leases









426



371

Cost of receivables acquired (excluding trade and wholesale)









(4,569)



(4,448)

Purchases of marketable securities






(2)



(34)



(30)

Purchases of property and equipment



(271)



(297)







Cost of equipment on operating leases acquired









(669)



(505)

Increase in trade and wholesale receivables









(382)



(1,021)

Other



(9)



(6)



11



26

Net cash provided by (used for) investing activities



(280)



(302)



857



283














Cash Flows from Financing Activities













Increase (decrease) in total short-term borrowings



20



88



(493)



388

Change in intercompany receivables/payables



572



1,526



(572)



(1,526)

Proceeds from long-term borrowings



167



91



1,535



2,120

Payments of long-term borrowings



(83)



(142)



(1,568)



(1,799)

Proceeds from issuance of common stock



53



51







Repurchases of common stock



(114)



(144)







Dividends paid



(242)



(220)



(125)



(200)

Other



(29)



(23)



(9)



(8)

Net cash provided by (used for) financing activities



344



1,227



(1,232)



(1,025)














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



3



(12)



(4)



(1)














Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash



(313)



(521)



67



229

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



3,196



3,202



760



813

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


$

2,883


$

2,681


$

827


$

1,042


* 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 Three Months Ended


Equipment Operations*

Agriculture and Turf

Construction and Forestry*



February 2


January 27


February 2


January 27


February 2


January 27


Dollars in millions


2020


2019


2020


2019


2020


2019


Net Sales


$

6,530


$

6,941


$

4,486


$

4,681


$

2,044


$

2,260


Net Sales - excluding Roadbuilding


$

5,925


$

6,343


$

4,486


$

4,681


$

1,439


$

1,662


Average Identifiable Assets




















With Inventories at LIFO


$

20,197


$

20,774


$

10,782


$

10,892


$

9,415


$

9,882


With Inventories at LIFO - excluding Roadbuilding


$

14,237


$

14,427


$

10,782


$

10,892


$

3,455


$

3,535


With Inventories at Standard Cost


$

21,615


$

22,140


$

11,932


$

11,993


$

9,683


$

10,147


With Inventories at Standard Cost -
excluding Roadbuilding


$

15,655


$

15,793


$

11,932


$

11,993


$

3,723


$

3,800


Operating Profit


$

466


$

577


$

373


$

348


$

93


$

229


Operating Profit - excluding Roadbuilding


$

449


$

563


$

373


$

348


$

76


$

215


Percent of Net Sales - excluding Roadbuilding



7.6

%


8.9

%


8.3

%


7.4

%


5.3

%


12.9

%

Operating Return on Assets - excluding Roadbuilding




















With Inventories at LIFO - excluding Roadbuilding



3.2

%


3.9

%


3.5

%


3.2

%


2.2

%


6.1

%

With Inventories at Standard Cost -
excluding Roadbuilding



2.9

%


3.6

%


3.1

%


2.9

%


2.0

%


5.7

%

SVA Cost of Assets


$

(470)


$

(474)


$

(358)


$

(360)


$

(112)


$

(114)


SVA


$

(21)


$

89


$

15


$

(12)


$

(36)


$

101






















For the Three Months Ended


Financial Services















February 2


January 27














Dollars in millions


2020


2019














Net Income Attributable to Deere & Company


$

137


$

154














Average Equity


$

5,119


$

4,997














Return on Equity



2.7

%


3.1

%













Operating Profit


$

179


$

192














Cost of Equity


$

(166)


$

(156)














SVA


$

13


$

36















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. 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.


* The results and assets related to the Company's Roadbuilding product line are excluded from the calculation of SVA to allow time for integration and assimilation of the 2017 acquisition of Wirtgen Group Holding GmbH's operations.


 

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SOURCE Deere & Company