UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 30, 2017
Commission file no: 1-4121
DEERE & COMPANY
(Exact name of registrant as specified in its charter)
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Delaware |
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36-2382580 |
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):
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Large accelerated filer |
X |
Accelerated filer |
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Non-accelerated filer |
(Do not check if a smaller reporting company) |
Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
At July 30, 2017, 321,296,852 shares of common stock, $1 par value, of the registrant were outstanding.
Index to Exhibits: Page 51
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS |
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DEERE & COMPANY |
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STATEMENT OF CONSOLIDATED INCOME |
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For the Three Months Ended July 30, 2017 and July 31, 2016 |
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(In millions of dollars and shares except per share amounts) Unaudited |
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2017 |
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2016 |
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Net Sales and Revenues |
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Net sales |
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$ |
6,833.0 |
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$ |
5,861.4 |
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Finance and interest income |
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688.8 |
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638.5 |
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Other income |
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286.0 |
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224.5 |
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Total |
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7,807.8 |
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6,724.4 |
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Costs and Expenses |
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Cost of sales |
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5,265.1 |
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4,494.2 |
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Research and development expenses |
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335.4 |
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338.8 |
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Selling, administrative and general expenses |
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791.2 |
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709.0 |
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Interest expense |
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216.3 |
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200.7 |
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Other operating expenses |
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309.9 |
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276.6 |
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Total |
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6,917.9 |
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6,019.3 |
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Income of Consolidated Group before Income Taxes |
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889.9 |
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705.1 |
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Provision for income taxes |
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253.2 |
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226.5 |
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Income of Consolidated Group |
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636.7 |
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478.6 |
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Equity in income of unconsolidated affiliates |
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5.6 |
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10.0 |
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Net Income |
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642.3 |
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488.6 |
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Less: Net income (loss) attributable to noncontrolling interests |
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.5 |
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(.2) |
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Net Income Attributable to Deere & Company |
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$ |
641.8 |
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$ |
488.8 |
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Per Share Data |
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Basic |
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$ |
2.00 |
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$ |
1.55 |
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Diluted |
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$ |
1.97 |
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$ |
1.55 |
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Average Shares Outstanding |
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Basic |
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320.8 |
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314.3 |
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Diluted |
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325.1 |
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315.7 |
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See Condensed Notes to Interim Consolidated Financial Statements.
2
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DEERE & COMPANY |
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STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME |
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For the Three Months Ended July 30, 2017 and July 31, 2016 |
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(In millions of dollars) Unaudited |
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2017 |
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2016 |
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Net Income |
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$ |
642.3 |
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$ |
488.6 |
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Other Comprehensive Income (Loss), Net of Income Taxes |
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Retirement benefits adjustment |
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44.0 |
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30.3 |
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Cumulative translation adjustment |
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326.1 |
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(99.5) |
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Unrealized loss on derivatives |
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(.5) |
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(.2) |
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Unrealized gain (loss) on investments |
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(53.7) |
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6.0 |
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Other Comprehensive Income (Loss), Net of Income Taxes |
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315.9 |
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(63.4) |
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Comprehensive Income of Consolidated Group |
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958.2 |
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425.2 |
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Less: Comprehensive gain (loss) attributable to noncontrolling interests |
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.7 |
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(.2) |
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Comprehensive Income Attributable to Deere & Company |
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$ |
957.5 |
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$ |
425.4 |
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See Condensed Notes to Interim Consolidated Financial Statements.
3
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DEERE & COMPANY |
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STATEMENT OF CONSOLIDATED INCOME |
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For the Nine Months Ended July 30, 2017 and July 31, 2016 |
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(In millions of dollars and shares except per share amounts) Unaudited |
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2017 |
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2016 |
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Net Sales and Revenues |
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Net sales |
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$ |
18,790.7 |
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$ |
17,737.1 |
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Finance and interest income |
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2,009.3 |
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1,849.0 |
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Other income |
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920.0 |
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538.3 |
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Total |
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21,720.0 |
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20,124.4 |
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Costs and Expenses |
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Cost of sales |
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14,506.5 |
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13,865.3 |
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Research and development expenses |
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970.7 |
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1,003.1 |
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Selling, administrative and general expenses |
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2,225.8 |
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2,016.8 |
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Interest expense |
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651.3 |
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564.9 |
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Other operating expenses |
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978.5 |
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884.7 |
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Total |
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19,332.8 |
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18,334.8 |
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Income of Consolidated Group before Income Taxes |
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2,387.2 |
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1,789.6 |
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Provision for income taxes |
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748.7 |
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559.9 |
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Income of Consolidated Group |
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1,638.5 |
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1,229.7 |
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Equity in income of unconsolidated affiliates |
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10.0 |
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7.3 |
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Net Income |
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1,648.5 |
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1,237.0 |
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Less: Net loss attributable to noncontrolling interests |
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(.3) |
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(1.6) |
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Net Income Attributable to Deere & Company |
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$ |
1,648.8 |
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$ |
1,238.6 |
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Per Share Data |
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Basic |
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$ |
5.17 |
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$ |
3.93 |
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Diluted |
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$ |
5.11 |
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$ |
3.91 |
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Average Shares Outstanding |
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Basic |
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318.8 |
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315.4 |
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Diluted |
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322.5 |
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316.7 |
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See Condensed Notes to Interim Consolidated Financial Statements.
4
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DEERE & COMPANY |
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STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME |
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For the Nine Months Ended July 30, 2017 and July 31, 2016 |
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(In millions of dollars) Unaudited |
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2017 |
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2016 |
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Net Income |
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$ |
1,648.5 |
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$ |
1,237.0 |
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Other Comprehensive Income (Loss), Net of Income Taxes |
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Retirement benefits adjustment |
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120.6 |
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87.5 |
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Cumulative translation adjustment |
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325.1 |
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54.3 |
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Unrealized gain on derivatives |
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1.5 |
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.8 |
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Unrealized gain (loss) on investments |
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(.8) |
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4.7 |
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Other Comprehensive Income (Loss), Net of Income Taxes |
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446.4 |
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147.3 |
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Comprehensive Income of Consolidated Group |
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2,094.9 |
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1,384.3 |
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Less: Comprehensive loss attributable to noncontrolling interests |
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(.1) |
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(1.5) |
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Comprehensive Income Attributable to Deere & Company |
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$ |
2,095.0 |
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$ |
1,385.8 |
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See Condensed Notes to Interim Consolidated Financial Statements.
5
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DEERE & COMPANY |
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CONDENSED CONSOLIDATED BALANCE SHEET |
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(In millions of dollars) Unaudited |
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July 30 |
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October 30 |
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July 31 |
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2017 |
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2016 |
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2016 |
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Assets |
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Cash and cash equivalents |
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$ |
6,537.4 |
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$ |
4,335.8 |
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$ |
4,321.0 |
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Marketable securities |
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426.1 |
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453.5 |
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468.9 |
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Receivables from unconsolidated affiliates |
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28.5 |
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16.5 |
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18.7 |
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Trade accounts and notes receivable – net |
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4,389.8 |
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3,011.3 |
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3,924.6 |
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Financing receivables – net |
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23,722.1 |
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23,702.3 |
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22,594.8 |
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Financing receivables securitized – net |
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4,923.1 |
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5,126.5 |
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5,947.4 |
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Other receivables |
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829.2 |
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1,018.5 |
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811.9 |
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Equipment on operating leases – net |
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6,235.6 |
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5,901.5 |
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5,602.7 |
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Inventories |
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4,252.9 |
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3,340.5 |
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3,851.3 |
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Property and equipment – net |
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4,968.5 |
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5,170.6 |
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5,047.3 |
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Investments in unconsolidated affiliates |
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220.8 |
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232.6 |
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246.2 |
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Goodwill |
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845.8 |
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815.7 |
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823.6 |
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Other intangible assets – net |
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92.0 |
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104.1 |
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109.5 |
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Retirement benefits |
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219.1 |
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93.6 |
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323.1 |
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Deferred income taxes |
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3,067.7 |
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2,964.4 |
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2,612.6 |
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Other assets |
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1,591.3 |
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1,631.1 |
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1,835.5 |
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Total Assets |
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$ |
62,349.9 |
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$ |
57,918.5 |
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$ |
58,539.1 |
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Liabilities and Stockholders’ Equity |
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Liabilities |
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Short-term borrowings |
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$ |
9,019.4 |
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$ |
6,910.7 |
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$ |
7,360.6 |
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Short-term securitization borrowings |
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4,780.9 |
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4,997.8 |
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5,722.6 |
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Payables to unconsolidated affiliates |
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77.8 |
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81.6 |
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74.2 |
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Accounts payable and accrued expenses |
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7,599.0 |
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7,240.1 |
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6,799.5 |
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Deferred income taxes |
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190.0 |
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166.0 |
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172.3 |
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Long-term borrowings |
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23,674.3 |
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23,703.0 |
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24,068.9 |
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Retirement benefits and other liabilities |
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8,419.6 |
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8,274.5 |
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6,886.9 |
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Total liabilities |
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53,761.0 |
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51,373.7 |
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51,085.0 |
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Commitments and contingencies (Note 14) |
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Redeemable noncontrolling interest |
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14.0 |
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14.0 |
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14.4 |
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Stockholders’ Equity |
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Common stock, $1 par value (issued shares at |
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4,245.1 |
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3,911.8 |
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3,883.9 |
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Common stock in treasury |
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(15,477.3) |
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(15,677.1) |
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(15,688.3) |
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Retained earnings |
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|
24,984.2 |
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|
23,911.3 |
|
|
23,815.0 |
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Accumulated other comprehensive income (loss) |
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|
(5,179.8) |
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|
(5,626.0) |
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|
(4,582.2) |
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Total Deere & Company stockholders’ equity |
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8,572.2 |
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6,520.0 |
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|
7,428.4 |
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Noncontrolling interests |
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|
2.7 |
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|
10.8 |
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|
11.3 |
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Total stockholders’ equity |
|
|
8,574.9 |
|
|
6,530.8 |
|
|
7,439.7 |
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Total Liabilities and Stockholders’ Equity |
|
$ |
62,349.9 |
|
$ |
57,918.5 |
|
$ |
58,539.1 |
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|
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See Condensed Notes to Interim Consolidated Financial Statements.
6
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DEERE & COMPANY |
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STATEMENT OF CONSOLIDATED CASH FLOWS |
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For the Nine Months Ended July 30, 2017 and July 31, 2016 |
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|
|
|
|
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|
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(In millions of dollars) Unaudited |
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2017 |
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2016 |
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Cash Flows from Operating Activities |
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Net income |
|
$ |
1,648.5 |
|
$ |
1,237.0 |
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|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
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Provision for credit losses |
|
|
76.8 |
|
|
70.3 |
|
|
Provision for depreciation and amortization |
|
|
1,279.0 |
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|
1,158.4 |
|
|
Impairment charges |
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|
|
|
49.7 |
|
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Share-based compensation expense |
|
|
50.7 |
|
|
51.8 |
|
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Gain on sale of unconsolidated affiliates and investments |
|
|
(375.1) |
|
|
(74.5) |
|
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Undistributed earnings of unconsolidated affiliates |
|
|
(9.3) |
|
|
.7 |
|
|
Provision (credit) for deferred income taxes |
|
|
(77.5) |
|
|
155.5 |
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Trade, notes and financing receivables related to sales |
|
|
(1,091.1) |
|
|
(588.1) |
|
|
Inventories |
|
|
(1,348.0) |
|
|
(380.1) |
|
|
Accounts payable and accrued expenses |
|
|
316.2 |
|
|
(461.9) |
|
|
Accrued income taxes payable/receivable |
|
|
167.8 |
|
|
82.1 |
|
|
Retirement benefits |
|
|
173.1 |
|
|
145.8 |
|
|
Other |
|
|
(81.8) |
|
|
(123.0) |
|
|
Net cash provided by operating activities |
|
|
729.3 |
|
|
1,323.7 |
|
|
|
|
|
|
|
|
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Cash Flows from Investing Activities |
|
|
|
|
|
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|
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Collections of receivables (excluding receivables related to sales) |
|
|
11,334.4 |
|
|
11,312.7 |
|
|
Proceeds from maturities and sales of marketable securities |
|
|
388.8 |
|
|
139.2 |
|
|
Proceeds from sales of equipment on operating leases |
|
|
1,086.6 |
|
|
916.6 |
|
|
Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold |
|
|
113.9 |
|
|
81.1 |
|
|
Cost of receivables acquired (excluding receivables related to sales) |
|
|
(11,325.6) |
|
|
(10,423.4) |
|
|
Purchases of marketable securities |
|
|
(77.0) |
|
|
(149.9) |
|
|
Purchases of property and equipment |
|
|
(373.7) |
|
|
(387.0) |
|
|
Cost of equipment on operating leases acquired |
|
|
(1,395.3) |
|
|
(1,730.6) |
|
|
Acquisitions of businesses, net of cash acquired |
|
|
|
|
|
(198.9) |
|
|
Other |
|
|
(53.3) |
|
|
77.8 |
|
|
Net cash used for investing activities |
|
|
(301.2) |
|
|
(362.4) |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Increase (decrease) in total short-term borrowings |
|
|
1,648.9 |
|
|
(133.7) |
|
|
Proceeds from long-term borrowings |
|
|
4,364.5 |
|
|
4,115.2 |
|
|
Payments of long-term borrowings |
|
|
(4,205.6) |
|
|
(3,977.3) |
|
|
Proceeds from issuance of common stock |
|
|
488.6 |
|
|
17.5 |
|
|
Repurchases of common stock |
|
|
(6.2) |
|
|
(205.4) |
|
|
Dividends paid |
|
|
(571.3) |
|
|
(572.6) |
|
|
Other |
|
|
(62.9) |
|
|
(53.6) |
|
|
Net cash provided by (used for) financing activities |
|
|
1,656.0 |
|
|
(809.9) |
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
117.5 |
|
|
7.4 |
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents |
|
|
2,201.6 |
|
|
158.8 |
|
|
Cash and Cash Equivalents at Beginning of Period |
|
|
4,335.8 |
|
|
4,162.2 |
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
6,537.4 |
|
$ |
4,321.0 |
|
|
|
|
|
|
|
|
|
|
See Condensed Notes to Interim Consolidated Financial Statements.
7
|
DEERE & COMPANY |
|
||||||||||||||||||||||
|
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY |
|
||||||||||||||||||||||
|
For the Nine Months Ended July 30, 2017 and July 31, 2016 |
|
||||||||||||||||||||||
|
(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 November 1, 2015 |
|
$ |
6,757.6 |
|
$ |
3,825.6 |
|
$ |
(15,497.6) |
|
$ |
23,144.8 |
|
$ |
(4,729.4) |
|
$ |
14.2 |
|
|
|
|
|
|
Net income (loss) |
|
|
1,236.6 |
|
|
|
|
|
|
|
|
1,238.6 |
|
|
|
|
|
(2.0) |
|
|
$ |
.4 |
|
|
Other comprehensive income |
|
|
147.3 |
|
|
|
|
|
|
|
|
|
|
|
147.2 |
|
|
.1 |
|
|
|
|
|
|
Repurchases of common stock |
|
|
(205.4) |
|
|
|
|
|
(205.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury shares reissued |
|
|
14.7 |
|
|
|
|
|
14.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
|
|
(569.2) |
|
|
|
|
|
|
|
|
(568.3) |
|
|
|
|
|
(.9) |
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.0 |
|
|
Stock options and other |
|
|
58.1 |
|
|
58.3 |
|
|
|
|
|
(.1) |
|
|
|
|
|
(.1) |
|
|
|
|
|
|
Balance July 31, 2016 |
|
$ |
7,439.7 |
|
$ |
3,883.9 |
|
$ |
(15,688.3) |
|
$ |
23,815.0 |
|
$ |
(4,582.2) |
|
$ |
11.3 |
|
|
$ |
14.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 30, 2016 |
|
$ |
6,530.8 |
|
$ |
3,911.8 |
|
$ |
(15,677.1) |
|
$ |
23,911.3 |
|
$ |
(5,626.0) |
|
$ |
10.8 |
|
|
$ |
14.0 |
|
|
Net income (loss) |
|
|
1,648.5 |
|
|
|
|
|
|
|
|
1,648.8 |
|
|
|
|
|
(.3) |
|
|
|
|
|
|
Other comprehensive income |
|
|
446.4 |
|
|
|
|
|
|
|
|
|
|
|
446.2 |
|
|
.2 |
|
|
|
|
|
|
Repurchases of common stock |
|
|
(6.2) |
|
|
|
|
|
(6.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury shares reissued |
|
|
206.0 |
|
|
|
|
|
206.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
|
|
(577.1) |
|
|
|
|
|
|
|
|
(575.9) |
|
|
|
|
|
(1.2) |
|
|
|
|
|
|
Stock options and other |
|
|
326.5 |
|
|
333.3 |
|
|
|
|
|
|
|
|
|
|
|
(6.8) |
|
|
|
|
|
|
Balance July 30, 2017 |
|
$ |
8,574.9 |
|
$ |
4,245.1 |
|
$ |
(15,477.3) |
|
$ |
24,984.2 |
|
$ |
(5,179.8) |
|
$ |
2.7 |
|
|
$ |
14.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Condensed Notes to Interim Consolidated Financial Statements.
8
Condensed Notes to Interim Consolidated Financial Statements (Unaudited)
(1) The information in the notes and related commentary are presented in a format which includes data grouped as follows:
Equipment Operations – Includes the Company’s agriculture and turf operations and construction and forestry operations with financial services reflected on the equity basis.
Financial Services – Includes primarily the Company’s financing operations.
Consolidated – Represents the consolidation of the equipment operations and financial services. References to "Deere & Company" or "the Company" refer to the entire enterprise.
The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The third quarter ends for fiscal year 2017 and 2016 were July 30, 2017 and July 31, 2016, 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 $519 million and $440 million in the first nine months of 2017 and 2016, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $37 million and $40 million at July 30, 2017 and July 31, 2016, respectively.
(3) New accounting standards adopted are as follows:
In the first quarter of 2017, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amends Accounting Standards Codification (ASC) 835-30, Interest – Imputation of Interest. This ASU requires that debt issuance costs related to borrowings be presented in the balance sheet as a direct deduction from the carrying amount of the borrowing. As required, the presentation and disclosure requirements were adopted through retrospective application with the consolidated balance sheet and related notes in prior periods adjusted for a consistent presentation. Debt issuance costs of $63 million and $67 million at October 30, 2016 and July 31, 2016, respectively, were reclassified from other assets to borrowings in the consolidated balance sheet.
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
9
or vesting, instead of common stock. As required, this change was reflected for all periods in fiscal year 2017. Net income increased in the third quarter and first nine months of fiscal year 2017 by approximately $14 million and $25 million, respectively. 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 $25 million and $4 million for the first nine months of fiscal years 2017 and 2016, respectively. 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 forefeitures as the forfeitures occur.
In the third quarter of 2017, the Company early adopted ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, which amends ASC 350, Intangibles – Goodwill and Other. This ASU simplifies the goodwill impairment test by removing the requirement to perform a hypothetical purchase price allocation when the carrying value of a reporting unit exceeds its fair value. This ASU states the impairment is measured as the excess of the reporting unit’s carrying value over the fair value, with a limit of the goodwill allocated to that reporting unit. The adoption did not have a material effect on the Company’s consolidated financial statements.
The Company also adopted the following standards during 2017, none of which had a material effect on the Company’s consolidated financial statements:
|
Accounting Standard Update |
|
|
|
Effective Date |
|
|
|
2014-12 |
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which amends ASC 718, Compensation–Stock Compensation |
October 31, 2016 |
||||
|
2015-05 |
Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which amends ASC 350-40, Intangibles–Goodwill and Other–Internal-Use Software |
October 31, 2016 |
||||
|
2015-11 |
Simplifying the Measurement of Inventory, which amends ASC 330, Inventory |
October 31, 2016 |
||||
|
2015-15 |
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which amends ASC 835-30, Interest–Imputation of Interest |
October 31, 2016 |
||||
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. In August 2015, the FASB amended the effective date to be the first quarter of fiscal year 2019 with early adoption permitted in the first quarter of fiscal year 2018. 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 plans to adopt the ASU effective the first quarter of fiscal year 2019 using a modified retrospective method and 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. 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
10
previous accounting standard. Lessees and lessors will use a modified retrospective transition approach. The effective date will be the first quarter of fiscal year 2020 with early adoption permitted. The Company is evaluating the potential effects on the consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which amends ASC 323, Investments – Equity Method and Joint Ventures. This ASU eliminates the requirement to retroactively restate the investment, results of operations, and retained earnings on a step by step basis when an investment qualifies for use of the equity method as a result of an increase in ownership or degree of influence. The effective date will be the first quarter of fiscal year 2018, with early adoption permitted, and will be adopted prospectively. The adoption will not have a material effect on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASC 326, Financial Instruments – Credit Losses. The ASU revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss methodology to an expected loss methodology. The ASU affects trade receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. The effective date will be the first quarter of fiscal year 2021, with early adoption permitted beginning in fiscal year 2020. The ASU will be adopted using a modified-retrospective approach. The Company is evaluating the potential effects on the consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted. The ASU will be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which amends ASC 740, Income Taxes. This ASU requires that the income tax consequences of an intra-entity asset transfer other than inventory are recognized at the time of the transfer. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted. 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. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends ASC 715, Compensation – Retirement Benefits. This ASU requires 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 income from operations. In addition, only the service cost component of the benefit costs is eligible for capitalization. The ASU will be adopted on a retrospective basis for the presentation of the benefit costs and on a prospective basis for the capitalization of only the service cost. The effective date is fiscal year 2019, with early adoption permitted. The Company plans to adopt the ASU in the first quarter of fiscal year 2018 and is evaluating the potential effects on the consolidated financial statements.
11
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.
(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 November 1, 2015 |
|
$ |
(3,501) |
|
$ |
(1,238) |
|
$ |
(2) |
|
$ |
12 |
|
$ |
(4,729) |
|
|
Other comprehensive income (loss) items before reclassification |
|
|
(23) |
|
|
54 |
|
|
(2) |
|
|
7 |
|
|
36 |
|
|
Amounts reclassified from accumulated other comprehensive income |
|
|
110 |
|
|
|
|
|
3 |
|
|
(2) |
|
|
111 |
|
|
Net current period other comprehensive income (loss) |
|
|
87 |
|
|
54 |
|
|
1 |
|
|
5 |
|
|
147 |
|
|
Balance July 31, 2016 |
|
$ |
(3,414) |
|
$ |
(1,184) |
|
$ |
(1) |
|
$ |
17 |
|
$ |
(4,582) |
|
|
|
|
|
|
|
|
|
|
|||||||||