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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1997
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Commission file no: 1-4121
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DEERE & COMPANY
Delaware 36-2382580
(State of incorporation) (IRS employer identification no.)
John Deere Road
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
At January 31, 1997, 255,285,498 shares of common stock, $1 par
value, of the registrant were outstanding.
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Page 1 of 22 Pages.
Index to Exhibits: Page 19.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY CONSOLIDATED
STATEMENT OF CONSOLIDATED INCOME (Deere & Company and
Consolidated Subsidiaries)
Millions of dollars except Three Months Ended
per share amounts January 31
(Unaudited) 1997 1996
Net Sales and Revenues
Net sales of equipment $2,002.6 $1,936.6
Finance and interest income 192.5 180.2
Insurance and health care premiums 162.0 163.4
Investment income 15.0 16.5
Other income 23.9 20.8
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Total 2,396.0 2,317.5
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Costs and Expenses
Cost of goods sold 1,529.6 1,501.2
Research and development expenses 86.5 80.0
Selling, administrative and
general expenses 261.8 238.4
Interest expense 94.9 98.7
Insurance and health care claims
and benefits 123.8 127.3
Other operating expenses 14.1 13.6
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Total 2,110.7 2,059.2
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Income of Consolidated Group
Before Income Taxes 285.3 258.3
Provision for income taxes 106.1 93.5
Income of Consolidated Group 179.2 164.8
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit (.5)
Insurance
Health care
Other (2.0) 1.4
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Total (2.5) 1.4
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Net Income $ 176.7 $ 166.2
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Net income per share, primary and
fully diluted $ .69 $ .63
See Notes to Interim Financial Statements. Supplemental
consolidating data are shown for the "Equipment Operations"
and "Financial Services". Transactions between the "Equipment
Operations" and "Financial Services" have been eliminated
to arrive at the "Consolidated" data.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY EQUIPMENT OPERATIONS
STATEMENT OF CONSOLIDATED INCOME (Deere & Company with
Financial Services
on the Equity Basis)
Millions of dollars except Three Months Ended
per share amounts January 31
(Unaudited) 1997 1996
Net Sales and Revenues
Net sales of equipment $2,002.6 $1,936.6
Finance and interest income 29.4 30.5
Insurance and health care premiums
Investment income
Other income 11.9 5.8
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Total 2,043.9 1,972.9
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Costs and Expenses
Cost of goods sold 1,535.7 1,507.7
Research and development expenses 86.5 80.0
Selling, administrative and
general expenses 183.4 167.5
Interest expense 20.5 27.0
Insurance and health care claims
and benefits
Other operating expenses .5 6.9
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Total 1,826.6 1,789.1
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Income of Consolidated Group
Before Income Taxes 217.3 183.8
Provision for income taxes 81.9 67.7
Income of Consolidated Group 135.4 116.1
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit 32.9 34.5
Insurance 9.0 9.6
Health care 1.4 4.6
Other (2.0) 1.4
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Total 41.3 50.1
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Net Income $ 176.7 $ 166.2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY FINANCIAL SERVICES
STATEMENT OF CONSOLIDATED INCOME
Millions of dollars except
per share amounts Three Months Ended January 31
(Unaudited) 1997 1996
Net Sales and Revenues
Net sales of equipment
Finance and interest income $164.4 $151.4
Insurance and health care premiums 173.0 173.5
Investment income 15.0 16.5
Other income 13.2 16.2
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Total 365.6 357.6
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Costs and Expenses
Cost of goods sold
Research and development expenses
Selling, administrative and
general expenses 83.1 75.3
Interest expense 75.6 73.4
Insurance and health care claims
and benefits 125.3 127.9
Other operating expenses 13.6 6.5
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Total 297.6 283.1
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Income of Consolidated Group
Before Income Taxes 68.0 74.5
Provision for income taxes 24.2 25.8
Income of Consolidated Group 43.8 48.7
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit (.5)
Insurance
Health care
Other
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Total (.5)
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Net Income $ 43.3 $ 48.7
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DEERE & COMPANY CONSOLIDATED
CONDENSED CONSOLIDATED BALANCE SHEET (Deere & Company and
Consolidated Subsidiaries)
Millions of dollars (Unaudited) Jan 31 Oct 31 Jan 31
Assets 1997 1996 1996
Cash and short-term investments $ 366.1 $ 291.5 $ 364.2
Cash deposited with
unconsolidated subsidiaries
Cash and cash equivalents 366.1 291.5 364.2
Marketable securities 878.1 869.4 855.7
Receivables from unconsolidated
subsidiaries and affiliates 19.6 13.1 4.6
Trade accounts and notes
receivable - net 3,016.8 3,152.7 3,377.6
Financing receivables - net 6,132.9 5,912.2 5,502.3
Other receivables 467.2 549.6 488.5
Equipment on operating leases - net 481.1 429.8 271.6
Inventories 1,193.7 828.9 979.8
Property and equipment - net 1,331.8 1,351.7 1,294.0
Investments in unconsolidated
subsidiaries and affiliates 132.4 127.4 172.8
Intangible assets - net 282.5 285.9 315.9
Deferred income taxes 646.4 653.0 625.1
Other assets and deferred charges 192.4 187.5 194.8
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Total $15,141.0 $14,652.7 $14,446.9
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Liabilities and Stockholders' Equity
Short-term borrowings $ 3,834.1 $ 3,144.1 $ 3,774.4
Payables to unconsolidated
subsidiaries and affiliates 40.2 27.6 24.1
Accounts payable and accrued
expenses 2,295.6 2,676.2 2,234.8
Insurance and health care claims
and reserves 428.1 437.6 462.0
Accrued taxes 201.5 132.4 149.1
Deferred income taxes 9.9 9.4 16.9
Long-term borrowings 2,478.4 2,425.4 2,215.4
Retirement benefit accruals
and other liabilities 2,279.2 2,242.8 2,343.2
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Total liabilities 11,567.0 11,095.5 11,219.9
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Common stock, $1 par value
(issued shares at
January 31, 1997 - 263,846,284) 1,766.9 1,770.1 1,743.5
Retained earnings 2,425.2 2,299.5 1,804.2
Minimum pension liability
adjustment (235.4) (235.4) (300.4)
Cumulative translation adjustment (29.2) (14.0) (23.5)
Unrealized gain (loss) on
marketable securities 15.3 14.0 29.9
Unamortized restricted stock
compensation (20.7) (11.1) (11.6)
Common stock in treasury, at cost (348.1) (265.9) (15.1)
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Stockholders' equity 3,574.0 3,557.2 3,227.0
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Total $15,141.0 $14,652.7 $14,446.9
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See Notes to Interim Financial Statements. Supplemental
consolidating data are shown for the "Equipment Operations" and
"Financial Services". Transactions between the "Equipment
Operations" and "Financial Services" have been eliminated to
arrive at the "Consolidated" data.
DEERE & COMPANY EQUIPMENT OPERATIONS
CONDENSED CONSOLIDATED BALANCE SHEET (Deere & Company with
Financial Services
on the Equity Basis
Jan 31 Oct 31 Jan 31
Millions of dollars (Unaudited) 1997 1996 1996
Assets
Cash and short-term investments $ 135.4 $ 80.0 $ 97.3
Cash deposited with
unconsolidated subsidiaries 168.5 544.8 118.9
Cash and cash equivalents 303.9 624.8 216.2
Marketable securities
Receivables from unconsolidated
subsidiaries and affiliates 44.1 105.3 49.7
Trade accounts and notes
receivable - net 3,016.8 3,152.7 3,377.6
Financing receivables - net 82.4 103.4 105.0
Other receivables 56.6 4.3
Equipment on operating leases - net 156.0 152.9 120.3
Inventories 1,193.7 828.9 979.8
Property and equipment - net 1,281.5 1,301.3 1,249.0
Investments in unconsolidated
subsidiaries and affiliates 1,475.2 1,445.3 1,467.4
Intangible assets - net 273.2 276.3 306.6
Deferred income taxes 595.8 603.2 576.8
Other assets and deferred charges 125.0 117.4 122.9
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Total $8,547.6 $8,768.1 $8,575.6
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Liabilities and Stockholders' Equity
Short-term borrowings $ 272.1 $ 223.6 $ 615.2
Payables to unconsolidated
subsidiaries and affiliates 41.5 27.6 24.1
Accounts payable and accrued
expenses 1,573.1 1,975.1 1,531.6
Insurance and health care claims
and reserves
Accrued taxes 197.2 130.3 149.2
Deferred income taxes 9.5 9.4 15.7
Long-term borrowings 625.4 625.9 692.4
Retirement benefit accruals
and other liabilities 2,254.8 2,219.0 2,320.4
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Total liabilities 4,973.6 5,210.9 5,348.6
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Common stock, $1 par value
(issued shares at
January 31, 1997 - 263,846,284) 1,766.9 1,770.1 1,743.5
Retained earnings 2,425.2 2,299.5 1,804.2
Minimum pension liability
adjustment (235.4) (235.4) (300.4)
Cumulative translation adjustment (29.2) (14.0) (23.5)
Unrealized gain (loss) on
marketable securities 15.3 14.0 29.9
Unamortized restricted stock
compensation (20.7) (11.1) (11.6)
Common stock in treasury, at cost (348.1) (265.9) (15.1)
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Stockholders' equity 3,574.0 3,557.2 3,227.0
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Total $8,547.6 $8,768.1 $8,575.6
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DEERE & COMPANY
CONDENSED CONSOLIDATED FINANCIAL SERVICES
BALANCE SHEET
Jan 31 Oct 31 Jan 31
Millions of dollars (Unaudited) 1997 1996 1996
Assets
Cash and short-term investments $ 230.8 $ 211.6 $ 267.0
Cash deposited with
unconsolidated subsidiaries
Cash and cash equivalents 230.8 211.6 267.0
Marketable securities 878.1 869.4 855.7
Receivables from unconsolidated
subsidiaries and affiliates 1.7
Trade accounts and notes
receivable - net
Financing receivables - net 6,050.5 5,808.8 5,397.3
Other receivables 467.2 492.9 485.2
Equipment on operating leases - net 325.1 276.8 151.3
Inventories
Property and equipment - net 50.3 50.4 45.1
Investments in unconsolidated
subsidiaries and affiliates 5.7 6.3
Intangible assets - net 9.3 9.7 9.3
Deferred income taxes 50.5 49.7 48.3
Other assets and deferred charges 67.4 70.2 71.8
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Total $8,136.6 $7,845.8 $7,331.0
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Liabilities and Stockholders' Equity
Short-term borrowings $3,562.0 $2,920.6 $3,159.3
Payables to unconsolidated
subsidiaries and affiliates 193.4 637.0 164.0
Accounts payable and accrued
expenses 722.6 701.1 704.2
Insurance and health care
claims and reserves 428.1 437.6 462.0
Accrued taxes 4.4 2.1
Deferred income taxes .3 1.2
Long-term borrowings 1,853.0 1,799.5 1,523.0
Retirement benefit accruals
and other liabilities 24.3 23.7 22.7
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Total liabilities 6,788.1 6,521.6 6,036.4
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Common stock, $1 par value
(issued shares at
January 31, 1997 - 263,846,284) 209.4 209.4 209.4
Retained earnings 1,126.5 1,103.2 1,060.2
Minimum pension liability
adjustment
Cumulative translation adjustment (2.7) (2.4) (4.9)
Unrealized gain (loss) on
marketable securities 15.3 14.0 29.9
Unamortized restricted stock
compensation
Common stock in treasury, at cost
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Stockholders' equity 1,348.5 1,324.2 1,294.6
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Total $8,136.6 $7,845.8 $7,331.0
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DEERE & COMPANY CONSOLIDATED
CONDENSED STATEMENT OF (Deere & Company and
CONSOLIDATED CASH FLOWS Consolidated Subsidiaries)
Three Months Ended January 31
Millions of dollars (Unaudited) 1997 1996
Cash Flows from Operating Activities
Net income $ 176.7 $ 166.2
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities (374.7) (551.3)
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Net cash provided by (used for)
operating activities (198.0) (385.1)
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Cash Flows from Investing Activities
Collections and sales of
financing receivables 1,459.5 1,154.1
Proceeds from maturities and
sales of marketable securities 25.1 26.1
Cost of financing receivables acquired (1,686.5) (1,318.9)
Purchases of marketable securities (32.3) (12.2)
Purchases of property and equipment (68.1) (39.4)
Cost of operating leases acquired (89.4) (48.5)
Acquisitions of businesses (6.8) (32.4)
Other 72.5 19.0
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Net cash used for investing
activities (326.0) (252.2)
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Cash Flows from Financing Activities
Increase in short-term borrowings 616.7 681.1
Change in intercompany receivables/payables
Proceeds from long-term borrowings 145.0 50.0
Principal payments on long-term borrowings (10.3) (49.3)
Proceeds from issuance of common stock 3.2 11.9
Repurchases of common stock (100.2) (2.0)
Dividends paid (51.6) (52.4)
Other (.1) (.1)
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Net cash provided by (used for)
financing activities 602.7 639.2
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Effect of Exchange Rate Changes on Cash (4.1) (1.4)
Net Increase (Decrease) in Cash and
Cash Equivalents 74.6 .5
Cash and Cash Equivalents at
Beginning of Period 291.5 363.7
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Cash and Cash Equivalents at
End of Period $ 366.1 $ 364.2
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See Notes to Interim Financial Statements. Supplemental
consolidating data are shown for the "Equipment Operations" and
"Financial Services". Transactions between the "Equipment
Operations" and "Financial Services" have been eliminated to
arrive at the "Consolidated" data.
DEERE & COMPANY EQUIPMENT OPERATIONS
CONDENSED STATEMENT OF (Deere & Company with
CONSOLIDATED CASH FLOWS Financial Services
on the Equity Basis)
Three Months Ended
Millions of dollars (Unaudited) January 31
Cash Flows from Operating Activities 1997 1996
Net income $ 176.7 $ 166.2
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities (420.5) (560.6)
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Net cash provided by (used for)
operating activities (243.8) (394.4)
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Cash Flows from Investing Activities
Collections and sales of financing
receivables 28.1 18.8
Proceeds from maturities and sales of
marketable securities
Cost of financing receivables acquired (7.4) (4.5)
Purchases of marketable securities
Purchases of property and equipment (65.8) (33.2)
Cost of operating leases acquired (18.4) (16.0)
Acquisitions of businesses (6.8) (32.4)
Other 21.7 (29.8)
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Net cash used for investing
activities (48.6) (97.1)
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Cash Flows from Financing Activities
Increase in short-term borrowings 65.6 213.8
Change in intercompany receivables/payables 69.0 8.1
Proceeds from long-term borrowings
Principal payments on long-term borrowings (10.3) (1.3)
Proceeds from issuance of common stock 3.2 11.9
Repurchases of common stock (100.2) (2.0)
Dividends paid (51.6) (52.4)
Other (.1) (.1)
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Net cash provided by (used for)
financing activities (24.4) 178.0
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Effect of Exchange Rate Changes on Cash (4.1) (1.4)
Net Increase (Decrease) in Cash and
Cash Equivalents (320.9) (314.9)
Cash and Cash Equivalents at
Beginning of Period 624.8 531.1
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Cash and Cash Equivalents at
End of Period $ 303.9 $ 216.2
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DEERE & COMPANY
CONDENSED STATEMENT OF FINANCIAL SERVICES
CONSOLIDATED CASH FLOWS
Three Months Ended January 31
Millions of dollars (Unaudited) 1997 1996
Cash Flows from Operating Activities
Net income $ 43.3 $ 48.7
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities 22.5 3.4
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Net cash provided by (used for)
operating activities 65.8 52.1
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Cash Flows from Investing Activities
Collections and sales of financing
receivables 1,431.4 1,135.4
Proceeds from maturities and sales
of marketable securities 25.1 26.1
Cost of financing receivables acquired (1,679.1) (1,314.4)
Purchases of marketable securities (32.3) (12.2)
Purchases of property and equipment (2.3) (6.1)
Cost of operating leases acquired (71.0) (32.5)
Acquisitions of businesses
Other 50.8 48.7
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Net cash used for investing
activities (277.4) (155.0)
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Cash Flows from Financing Activities
Increase in short-term borrowings 551.1 467.3
Change in intercompany
receivables/payables (445.3) (349.3)
Proceeds from long-term borrowings 145.0 50.0
Principal payments on long-term
borrowings (48.0)
Proceeds from issuance of common stock
Repurchases of common stock
Dividends paid (20.0) (42.8)
Other
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Net cash provided by (used for)
financing activities 230.8 77.2
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Effect of Exchange Rate Changes on Cash
Net Increase (Decrease) in Cash and
Cash Equivalents 19.2 (25.7)
Cash and Cash Equivalents at Beginning
of Period 211.6 292.7
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Cash and Cash Equivalents at End of
Period $ 230.8 $ 267.0
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Notes to Interim Financial Statements
(1) The consolidated financial statements of Deere & Company and
consolidated subsidiaries have been prepared by the Company,
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted
accounting principles 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 financial statements be read in conjunction with the
financial statements and the notes thereto included 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.
(2) The Company's consolidated financial statements and some
information in the notes and related commentary are presented in
a format which includes data grouped as follows:
Equipment Operations - These data include the Company's
agricultural equipment, industrial equipment and commercial and
consumer equipment operations with Financial Services reflected
on the equity basis. Data relating to the above equipment
operations, including the consolidated group data in the income
statement, are also referred to as "Equipment Operations" in this
report.
Financial Services - These data include the Company's credit,
insurance and health care operations.
Consolidated - These data represent the consolidation of the
Equipment Operations and Financial Services in conformity with
Financial Accounting Standards Board (FASB) Statement No. 94.
References to "Deere & Company" or "the Company" refer to the
entire enterprise.
(3) An analysis of the Company's retained earnings follows in
millions of dollars:
Three Months Ended
January 31
1997 1996
Balance, beginning of period........... $2,299.5 $1,690.3
Net income............................. 176.7 166.2
Dividends declared..................... (51.0) (52.3)
Balance, end of period................. $2,425.2 $1,804.2
(4) An analysis of the cumulative translation adjustment follows
in millions of dollars:
Three Months Ended
January 31
1997 1996
Balance, beginning of period............ $(14.0) $(11.6)
Translation adjustment.................. (12.4) (11.4)
Income taxes applicable to
translation adjustments (2.8) (.5)
Balance, end of period.................. $(29.2) $(23.5)
(5) Substantially all inventories owned by Deere & Company and
its United States equipment subsidiaries are valued at cost on
the last-in, first-out (LIFO) basis. If all of the Company's
inventories had been valued on an approximate first-in, first-out
(FIFO) basis, estimated inventories by major classification in
millions of dollars would have been as follows:
January 31 October 31 January 31
1997 1996 1996
Raw materials and
supplies.............. $ 238 $ 228 $ 234
Work-in-process......... 459 397 412
Finished machines and
parts................. 1,527 1,232 1,342
Total FIFO value........ 2,224 1,857 1,988
Adjustment to LIFO
basis................. 1,030 1,028 1,008
Inventories............. $1,194 $ 829 $ 980
(6) During the first three months of 1997, the Financial
Services subsidiaries and the Equipment Operations received
proceeds from the sale of retail notes of $4 million. At January
31, 1997, the net unpaid balance of all retail notes previously
sold by the Financial Services subsidiaries and the Equipment
Operations was $1,137 million. At January 31, 1997, the
Company's maximum exposure under all credit receivable recourse
provisions was $194 million for all retail notes sold.
Certain foreign subsidiaries have pledged assets with a balance
sheet value of $31 million as collateral for borrowings as of
January 31, 1997.
At January 31, 1997, the Company had commitments of approximately
$95 million for construction and acquisition of property and
equipment.
(7) Dividends declared and paid on a per share basis were as
follows:
Three Months Ended
January 31
1997 1996
Dividends declared.......... $.20 $.20
Dividends paid.............. $.20 $.20
(8) Worldwide net sales and revenues and operating profit in
millions of dollars follow:
Three Months Ended
January 31 %
1997 1996 Change
Net sales:
Agricultural equipment..... $1,273 $1,186 + 7
Industrial equipment......... 461 443 + 4
Commercial and consumer
equipment.................. 269 308 -13
Total net sales.......... 2,003 1,937 + 3
Financial Services revenues.. 354 347 + 2
Other revenues............... 39 34 +15
Total net sales and
revenues............. $2,396 $2,318 + 3
United States and Canada:
Equipment net sales......... $1,415 $1,397 + 1
Financial Services
revenues................. 354 347 + 2
Total.................. 1,769 1,744 + 1
Overseas net sales............ 588 540 + 9
Other revenues................ 39 34 +15
Total net sales and
revenues.............. $2,396 $2,318 + 3
Operating profit:
Agricultural equipment...... $ 195 $ 148 +32
Industrial equipment........ 38 52 -27
Commercial and consumer
equipment................. 4 21 -81
Equipment Operations........ 237 221 + 7
Financial Services*......... 68 75 - 9
Total operating profit.. 305 296 + 3
Interest and corporate
expenses-net................ (22) (37) -41
Income taxes.................. (106) (93) +14
Net income.............. $ 177 $ 166 + 6
* Operating profit is defined as income before interest
expense, foreign exchange gains and losses, income taxes and
certain Corporate expenses, except for the operating profit of
Financial Services which includes the effect of interest expense.
(9) The calculation of primary net income per share is based on
the average number of shares outstanding during the three months
ended January 31, 1997 and 1996 of 256,129,000 and 262,229,000,
respectively. The calculation of fully diluted net income per
share recognizes the dilutive effect of the assumed exercise of
stock options, stock appreciation rights, contingent shares and
conversion of convertible debentures. The effect of the fully
diluted calculation was immaterial.
(10) In December 1996, the Company granted options to employees
for the purchase of 1,471,575 shares of common stock at an
exercise price of $42.69 per share. At January 31, 1997, options
for 7,633,762 shares were outstanding at option prices in a range
of $12.25 to $47.36 per share and a weighted- average exercise
price of $29.80 per share. A total of 14,767,056 shares remained
available for the granting of future options.
(11) In December 1996, the Company granted 271,455 shares of
restricted stock under the Company's restricted stock plans for
key employees. The market value of the restricted stock at the
time of grant totaled $11.6 million and was recorded as
unamortized restricted stock compensation in a separate component
of stockholders' equity. At January 31, 1997, 962,885 restricted
shares were outstanding and 3,478,817 shares remained available
for award under all restricted stock plans.
(12) The Company is subject to various unresolved legal actions
which arise in the normal course of its business, the most
prevalent of which relate to product liability, retail credit
matters and patent and trademark matters. Although it is not
possible to predict with certainty the outcome of these
unresolved legal actions or the range of possible loss, the
Company believes these unresolved legal actions will not have a
material effect on its financial position or results of
operations.
(13) In the first quarter of 1997, the Company adopted FASB
Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. This
Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. If
the expected future cash flows from the use of the asset are less
than the carrying amount, the asset must be written down to fair
value. The adoption of this Statement had no effect on the
Company's financial position or results of operations.
(14) In the first quarter of 1997, the Company adopted FASB
Statement No. 123, Accounting for Stock-Based Compensation. This
Statement defines a new "fair value" method of accounting for
stock-based compensation expense, and requires certain additional
disclosures at year end for these plans. The Statement also
allows the retention of the previous "intrinsic value" method of
accounting for expense recognition under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees.
The Company retained the intrinsic value method and, therefore,
the new standard had no effect on the Company's financial
position or results of operations.
(15) In the first quarter of 1997, the Company adopted FASB
Statement No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This
Statement provides the conditions for distinguishing sales of
financial assets from secured borrowings and gives the criteria
for recognizing extinguishments of liabilities. The adoption of
this Statement had no effect on the Company's financial position
or results of operations.
(16) In February 1996, the Company announced its intention to
repurchase up to $500 million of Deere & Company common stock.
At the Company's discretion, repurchases of common stock are
being made from time to time in the open market and through
privately negotiated transactions. During the first quarter of
1997, the Company repurchased $67 million of common stock related
to this program and $33 million for ongoing stock option and
restricted stock plans. At January 31, 1997, the Company had
repurchased a total of $267 million of common stock related to
the stock repurchase program.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Deere & Company achieved record first quarter worldwide net
income of $176.7 million or $.69 per share compared with $166.2
million or $.63 per share in the first quarter of 1996. First
quarter net income increased six percent, while net income per
share increased 10 percent due to the Company's previously
announced share repurchase program. The higher profits resulted
from strong worldwide retail demand for the Company's products,
especially new tractors and combines. Operating margins also
improved, reflecting the results of the Company's continuous
improvement and quality initiatives.
Worldwide net sales and revenues for the first quarter increased
three percent to $2,396 million compared with $2,318 million for
the first quarter of 1996. Net sales of agricultural, industrial
and commercial and consumer equipment were $2,003 million for the
quarter compared with $1,937 million last year, a gain of three
percent. Export sales from the United States benefited from
increased sales to the former Soviet Union and totaled $392
million for the quarter compared to $308 million for the same
period last year. Overseas net sales and comparable physical
volume of sales both increased approximately nine percent from
last year's strong first quarter levels. Overall, the Company's
comparable physical volume of sales to dealers (excluding the
sales by the newly consolidated Mexican subsidiaries) was up
slightly compared to last year.
The Company's worldwide Equipment Operations, which exclude the
Financial Services subsidiaries and unconsolidated affiliates,
had income of $135.4 million for the first quarter compared with
$116.1 million for the same period last year. Worldwide
equipment operating profit increased to $237 million or 12
percent of net sales in the first quarter compared with $221
million or 11 percent of net sales last year. Worldwide
agricultural equipment operating profit increased 32 percent to
$195 million for the quarter compared with $148 million last
year, reflecting higher sales volumes as well as improved
operating margins, in both the Company's North American and
overseas operations. Worldwide industrial equipment operating
profit totaled $38 million, lower than last year's levels due to
costs associated with growth initiatives. These costs included
the continued development of new, more fuel-efficient engines,
start-up expenses associated with the major engine facility in
Torreon, Mexico and costs from the introduction of new industrial
products. However, sales related to construction equipment
products continued at strong levels in the first quarter.
Worldwide commercial and consumer equipment operating profit
totaled $4 million, down from last year's first quarter levels,
reflecting a 13 percent decline in net sales primarily as a
result of lower shipping activity associated with the Company's
asset control efforts. These efforts include a program started
during the fourth quarter of 1996, that focuses on providing
products closer to the required customer delivery dates, thereby
enabling the Company to reduce its level of asset investment.
Overseas operating profit totaled $69 million, up 17 percent from
last year, reflecting strong sales demand and improved operating
efficiencies. Additional information on business segments is
presented in Note 8 to the interim financial statements.
The Company's asset management initiatives continued to show
excellent results with Equipment Operations' asset levels as a
percent of the last 12 months net sales totaling 72 percent at
the end of the first quarter of 1997 compared with 79 percent a
year ago. Trade receivables and Company inventories totaled
$4,211 million at January 31 compared with $4,357 million at the
end of the same period last year.
Net income of the Company's credit operations was $32.9 million
for the first quarter of 1997 compared to $34.5 million last
year. The higher income from a larger average receivable and
lease portfolio financed was more than offset by lower financing
spreads and higher expenditures associated with several growth
initiatives. Total revenues of the credit operations increased
seven percent from $166 million in the first quarter of 1996 to
$178 million in the first quarter of 1997. The average balance
of receivables and leases financed was 14 percent higher than in
the first three months of last year. Interest expense increased
three percent compared with the first quarter of 1996 primarily
as a result of an increase in average borrowings. The credit
subsidiaries' consolidated ratio of earnings to fixed charges was
1.69 to 1 during the first three months this year compared with
1.73 to 1 in the comparable period of 1996.
Net income from insurance operations was $9.0 million in the
first quarter of 1997 compared with $9.6 million last year,
reflecting a small gain from the sale of the personal lines book
of business last year. However, underwriting results improved in
the first quarter of this year compared to last year. For the
three-month period, insurance premiums decreased 13 percent in
1997 compared with the same period last year, while total claims,
benefits, and selling, administrative and general expenses
decreased 15 percent this year.
Net income from health care operations was $1.4 million in the
first quarter of 1997 compared with $4.6 million last year.
Although managed care membership grew by 19 percent from a year
ago, earnings decreased this year primarily due to higher
selling, administrative and general expenses associated with
several new business initiatives and a higher medical cost ratio.
Health care premiums and administrative services revenues
increased 15 percent in the first three months of 1997 compared
with the same period last year, while total claims, benefits, and
selling, administrative and general expenses increased 22 percent
this year.
Outlook
The Company's first quarter sales and revenues were in line with
the Company's expectations and provide a solid base for strong
full-year activity. The remainder of 1997 should benefit from a
moderately growing domestic economy, healthy agricultural markets
and generally high levels of farmer confidence. Additionally,
improving dietary trends and rapid income growth in many
developing nations continue to stimulate strong demand for farm
commodities, resulting in the need for high levels of future
plantings. Although grain and oilseed prices have declined from
the historical highs experienced in early 1996, they remain at
relatively good levels. Additionally, most domestic livestock
producers have benefited from lower grain prices. In 1996, many
United States farmers received substantial direct government
payments provided by the new farm bill. These payments were
unrelated to farm income and are expected to continue during
1997. Based on these factors, as well as continued strong
overseas demand and excellent customer response to the many new
and innovative products introduced last year, the Company expects
1997 to be another strong year for its agricultural equipment
division.
Retail demand for industrial equipment should remain strong
during 1997 as moderate economic growth and projected low
inflation rates should result in relatively favorable mortgage
rates and continued good housing demand this year. Additionally,
commercial and consumer equipment industry volumes are projected
to increase assuming sales recover from the weather related
problems in 1996. Financial Services operations are also
expected to remain at favorable levels, reflecting both the
healthy demand for the Company's products and good economic
conditions.
Based on this outlook, the 1997 planned comparable physical
volume of sales has been increased and is now expected to be six
percent higher than last year. Second quarter physical volume is
also forecasted to increase, and is expected to be 12 percent
higher than a year ago.
Overall, the outlook for the Company's businesses remains very
positive. Although the Company is investing in numerous
strategic growth opportunities throughout the world, its overall
net sales and revenues and operating margins should continue at
strong levels in response to its continuous improvement
initiatives. Additionally, the Company's excellent worldwide
dealer organization provides strong and critically important
linkage to assist the Company in exceeding customers'
expectations, while reinforcing its commitment to high levels of
customer satisfaction. Based on these factors, the Company
expects continued excellent operating performance during the
remainder of 1997.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995: Statements under the "Outlook" heading that
relate to future operating periods are subject to important risks
and uncertainties that could cause actual results to differ
materially. The Company's businesses include Equipment
Operations (agricultural, industrial and commercial and consumer)
and Financial Services (credit, insurance and health care).
Forward-looking statements relating to these businesses involve
certain factors that are subject to change, including: the many
interrelated factors that affect farmers' confidence, including
worldwide demand for agricultural products, world grain stocks,
commodities prices, weather, animal diseases, crop pests, harvest
yields, real estate values and government farm programs; general
economic conditions and housing starts; legislation, primarily
legislation relating to agriculture, the environment, commerce
and government spending on infrastructure; actions of competitors
in the various industries in which the Company competes;
production difficulties, including capacity and supply
constraints; dealer practices; labor relations; interest and
currency exchange rates; accounting standards; and other risks
and uncertainties. The Company's outlook is based upon
assumptions relating to the factors described in the preceding
sentence. During the spring, weather is especially important to
equipment sales. Further information concerning the Company and
its businesses, including factors that potentially could
materially affect the company's financial results, is included in
the Company's most recent annual report on Form 10-K as filed
with the Securities and Exchange Commission.
CAPITAL RESOURCES AND LIQUIDITY
The discussion of capital resources and liquidity has been
organized to review separately, where appropriate, the Company's
Equipment Operations, Financial Services operations and the
consolidated totals.
Equipment Operations
The Company's equipment businesses are capital intensive and are
subject to large seasonal variations in financing requirements
for trade receivables from dealers and inventories. Accordingly,
to the extent necessary, funds provided from operations are
supplemented from external borrowing sources.
In the first quarter of 1997, negative cash flows from operating
activities of $244 million resulted primarily from an increase in
Company-owned inventories and a decrease in accounts payable and
accrued expenses. Partially offsetting these operating cash
outflows were positive cash flows from net income and the
reduction in trade and other receivables. The resulting net cash
requirement for operating activities, along with repurchases of
common stock, purchases of property and equipment and payment of
dividends, were provided primarily from a decrease in cash and
cash equivalents and an increase in borrowings.
Negative cash flows from operating activities of $394 million in
the first quarter of 1996 resulted from the normal seasonal
increases in Company-owned inventories and trade receivables, and
annual volume discount program payments made to dealers.
Partially offsetting these operating cash outflows were positive
cash flows from net income and dividends received from the
Financial Services operations. The resulting net cash
requirement for operating activities, along with payment of
dividends, purchases of property and equipment, and acquisitions
of businesses were provided primarily from an increase in
borrowings and a decrease in cash and cash equivalents.
Net trade accounts and notes receivable, which largely represent
dealers' inventories financed by the Company, decreased $136
million during the first quarter and $361 million compared to one
year ago. North American agricultural, industrial and commercial
and consumer equipment trade receivables decreased approximately
$30 million, $190 million and $105 million, respectively,
compared with the levels 12 months earlier. Total overseas trade
receivables were approximately $35 million lower than a year ago.
The ratios of worldwide net trade accounts and note receivables
to the last 12 months' net sales were 31 percent at January 31,
1997, 31 percent at October 31, 1996 and 37 percent at January
31, 1996. The percentage of total worldwide trade receivables
outstanding for periods exceeding 12 months was eight percent at
January 31, 1997, eight percent at October 31, 1996 and nine
percent at January 31, 1996.
Company-owned inventories at January 31, 1997 have increased by
$365 million compared with the end of the previous fiscal year
and $214 million compared to one year ago, reflecting a seasonal
increase in the first quarter, increased production and sales
volumes from a year ago, the commercial and consumer equipment
division's program to provide products closer to required
customer delivery dates (see page 10), consolidation of the
Mexican subsidiaries in October 1996 and increased inventory in-
transit due to equipment being shipped overseas.
Total interest-bearing debt of the Equipment Operations was $898
million at January 31, 1997 compared with $849 million at the end
of fiscal year 1996 and $1,308 million at January 31, 1996. The
ratio of total debt to total capital (total interest-bearing debt
and stockholders' equity) was 20 percent, 19 percent and 29
percent at January 31, 1997, October 31, 1996 and January 31,
1996, respectively.
Deere & Company retired $10 million of medium-term notes during
the first quarter of 1997.
Financial Services
The Financial Services' credit subsidiaries rely on their ability
to raise substantial amounts of funds to finance their receivable
and lease portfolios. Their primary sources of funds for this
purpose are a combination of borrowings and equity capital.
Additionally, the credit subsidiaries periodically sell
substantial amounts of retail notes. The insurance and health
care operations generate their funds through internal operations
and have no external borrowings.
During the first quarter of 1997, the aggregate cash provided
from operating and financing activities was used primarily to
increase financing receivables. Cash provided from Financial
Services operating activities was $66 million in the current
quarter. Cash provided by financing activities totaled $231
million in 1997, resulting from a $251 million increase in total
borrowings, which was partially offset by payment of a $20
million dividend to the Equipment Operations. Cash used for
investing activities totaled $277 million in the current quarter,
primarily due to the cost of financing receivables and leases
acquired exceeding collections. Cash and cash equivalents
increased $19 million during the first quarter.
In the first quarter of 1996, the aggregate cash provided from
operating and financing activities was used primarily to increase
financing receivables. Cash provided from Financial Services
operating activities was $52 million in the first quarter of
1996. Cash provided by financing activities totaled $77 million
in 1996, resulting from a $120 million increase in total
borrowings, which was partially offset by payment of a $43
million dividend to the Equipment Operations. Cash used for
investing activities totaled $155 million in 1996, primarily due
to the cost of financing receivables acquired exceeding
collections. Cash and cash equivalents decreased $26 million
during the first quarter of last year.
Marketable securities consist primarily of debt securities held
by the insurance and health care operations in support of their
obligations to policyholders. During the first quarter and last
12 months, marketable securities have increased $9 million and
$22 million, respectively, from the investment of the insurance
operation's positive cash flows.
Financing receivables and leases increased by $290 million in the
first quarter of 1997 and $827 million during the past 12 months.
These receivables and leases consist of retail notes originating
in connection with retail sales of new and used equipment by
dealers of John Deere products, retail notes from non-Deere-
related customers, revolving charge accounts, wholesale notes
receivable, and financing and operating leases.
The credit subsidiaries' receivables and leases increased during
the last 12 months due to the cost of financing receivables and
leases acquired exceeding collections, which was partially offset
by the sale of retail notes during the same period. Total
acquisitions of financing receivables and leases were 30 percent
higher in the first quarter of 1997 compared with the same period
last year. This significant increase resulted from increased
acquisitions of retail notes, wholesale receivables, leases and
revolving charge accounts. At January 31, 1997, the levels of
retail notes, wholesale receivables, leases and revolving charge
accounts were all higher than one year ago. Financing
receivables and leases administered by the credit subsidiaries,
which include receivables previously sold, amounted to $7,512
million at January 31, 1997 compared with $7,487 million at
October 31, 1996 and $6,618 million at January 31, 1996. At
January 31, 1997, the unpaid balance of all retail notes
previously sold was $1,137 million compared with $1,390 million
at October 31, 1996 and $1,051 million at January 31, 1996.
Additional sales of retail notes are expected to be made in the
future.
Total outside interest-bearing debt of the credit subsidiaries
was $5,415 million at January 31, 1997 compared with $4,720
million at the end of fiscal year 1996 and $4,682 million at
January 31, 1996. Total outside borrowings increased during the
first quarter of 1997 and the past 12 months, generally
corresponding with the level of the financing receivable and
lease portfolio, the level of cash and cash equivalents and the
change in payables owed to the Equipment Operations. The credit
subsidiaries' ratio of total interest-bearing debt to
stockholder's equity was 6.5 to 1 at January 31, 1997 compared
with 6.3 to 1 at October 31, 1996 and 6.2 to 1 at January 31,
1996.
The Capital Corporation issued $145 million of medium-term notes
during the first quarter of 1997.
Consolidated
The Company maintains unsecured lines of credit with various
banks in North America and overseas. Some of the lines are
available to both the Equipment Operations and certain credit
subsidiaries. Worldwide lines of credit totaled $4,434 million
at January 31, 1997, $1,624 million of which were unused. For
the purpose of computing unused credit lines, total short-term
borrowings, excluding the current portion of long-term
borrowings, were considered to constitute utilization. Included
in the total credit lines is a long-term credit agreement
commitment totaling $3,675 million.
Stockholders' equity was $3,574 million at January 31, 1997
compared with $3,557 million at October 31, 1996 and $3,227
million at January 31, 1996. The increase of $17 million in the
first three months of 1997 resulted primarily from net income of
$177 million, partially offset by an increase in common stock in
treasury of $82 million related to the Company's stock repurchase
and employee benefit programs, dividends declared of $51 million,
a $15 million change in the cumulative translation adjustment and
a $10 million increase in unamortized restricted stock
compensation.
The Board of Directors at its meeting on February 26, 1997
declared a quarterly dividend of 20 cents per share payable
May 1, 1997 to stockholders of record on March 31, 1997.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note (12) to the Interim Financial Statements.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the index to exhibits immediately preceding the
exhibits filed with this report.
Certain instruments relating to long-term debt
constituting less than 10% of the registrant's total
assets are not filed as exhibits herewith pursuant
to Item 601(b)(4)(iii)(A)of Regulation S-K. The
registrant will file copies of such instruments upon
request of the Commission.
(b) Reports on Form 8-K
Current Report on Form 8-K dated November 26, 1996
(Item 7).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
DEERE & COMPANY
Date: March 7, 1997 By s/ Robert W. Lane
Robert W. Lane
Senior Vice President,
Principal Financial Officer
and Principal Accounting Officer
INDEX TO EXHIBITS
Number Page
2 Not applicable -
3 Not applicable -
4 Not applicable -
10 Not applicable -
11 Computation of net income per share 20
12 Computation of ratio of earnings to
fixed charges 21
15 Not applicable -
18 Not applicable -
19 Not applicable -
22 Not applicable -
23 Not applicable -
24 Not applicable -
27 Financial data schedule 22
99 Not applicable -
Exhibit 11
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(Shares and dollars in thousands except per share amounts)
For the Three Months Ended
January 31
1997 1996
1. Net income................................$176,707 $166,244
2. Adjustment - Interest expense, after tax
benefit, applicable to convertible
debentures outstanding.................. 1 5
3. Net income applicable to common stock -
before interest applicable to
convertible debentures..................$176,708 $166,249
PRIMARY NET INCOME PER COMMON SHARE:
Shares:
4. Weighted-average number of common
shares outstanding.................... 256,129 262,229
5. Incremental shares:
Dilutive common stock options......... 2,357 2,184
Dilutive stock appreciation rights.... 19 57
Dilutive contingent shares............ 122
Total incremental shares............ 2,498 2,241
6. Primary net income per common share
(1 divided by 4)........................$ .69* $ .63*
FULLY DILUTED NET INCOME PER COMMON SHARE:
Shares:
7. Weighted-average number of common
shares outstanding.................... 256,129 262,229
8. Incremental shares:
Dilutive common stock options......... 2,361 2,485
Dilutive stock appreciation rights.... 20 61
Dilutive contingent shares............ 122
9. Common equivalent shares from assumed
conversion of convertible debentures:
5-1/2% debentures due 2001............ 37 52
10. Total................................. 258,669 264,827
11. Fully diluted net income per common
share (3 divided by 10).................$ .69* $ .63*
____________
* Net income per common share outstanding was used in the
designated calculations since the dilutive effects of common
stock options, stock appreciation rights, contingent shares
and assumed conversion of convertible debentures were
immaterial.
EXHIBIT 12
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended Year Ended
January 31 October 31
1997 1996 1996
(In thousands of dollars)
Earnings:
Income of consolidated group
before income taxes and
changes in accounting $285,254 $258,288 $1,286,634
Dividends received from
less-than-fifty-percent
owned affiliates 1,228 5,454 7,937
Fixed charges net of
capitalized interest 97,004 100,403 410,764
Total earnings $383,486 $364,145 $1,705,335
Fixed charges:
Interest expense of con-
solidated group (includes
capitalized interest) $ 94,855 $ 98,738 $ 402,168
Portion of rental charges
deemed to be interest 2,149 1,665 8,596
Total fixed charges $ 97,004 $100,403 $ 410,764
Ratio of earnings to
fixed charges* 3.95 3.63 4.15
The computation of the ratio of earnings to fixed charges is
based on applicable amounts of the Company and its consolidated
subsidiaries plus dividends received from less-than fifty percent
owned affiliates. "Earnings" consist of income before income
taxes, the cumulative effect of changes in accounting and fixed
charges excluding capitalized interest. "Fixed charges" consist
of interest on indebtedness, amortization of debt discount and
expense, an estimated amount of rental expense which is deemed to
be representative of the interest factor, and capitalized
interest.
* The Company has not issued preferred stock. Therefore, the
ratios of earnings to combined fixed charges and preferred stock
dividends are the same as the ratios presented above.
EXHIBIT 12
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended October 31
1995 1994 1993 1992
(In thousands of dollars)
Earnings:
Income of consolidated
group before income
taxes and changes
in accounting $1,092,751 $ 920,920 $ 272,345 $ 43,488
Dividends received
from less-than-
fifty-percent
owned affiliates 2,023 2,329 1,706 2,325
Fixed charges net of
capitalized interest 399,056 310,047 375,238 420,133
Total earnings $1,493,830 $1,233,296 $ 649,289 $ 465,946
Fixed charges:
Interest expense of
consolidated group
(includes capitalized
interest) $ 392,408 $ 303,080 $ 369,325 $ 415,205
Portion of rental
charges deemed to
be interest 6,661 7,008 6,127 6,720
Total fixed charges $ 399,069 $ 310,088 $ 375,452 $ 421,925
Ratio of earnings to
fixed charges* 3.74 3.98 1.73 1.10
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This schedule contains summary financial information
extracted from Form 10-Q and is qualified in its entirety
by reference to such financial statements.
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