UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 29, 2018
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file no: 1-6458
JOHN DEERE CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware |
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36-2386361 |
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10587 Double R Boulevard, Suite 100 |
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Telephone Number: (775) 786-5527 |
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 ☒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 ☒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.
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
Smaller reporting company |
☐ |
(Do not check if a smaller reporting company) |
|
Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐No ☒
At April 29, 2018, 2,500 shares of common stock, without par value, of the registrant were outstanding, all of which were owned by John Deere Financial Services, Inc., a wholly-owned subsidiary of Deere & Company.
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with certain reduced disclosures as permitted by those instructions.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
John Deere Capital Corporation and Subsidiaries
Statement of Consolidated Income
(Unaudited)
(in millions)
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Three Months Ended |
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Six Months Ended |
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April 29 |
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April 30 |
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April 29 |
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April 30 |
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2018 |
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2017 |
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2018 |
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2017 |
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Revenues |
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Finance income earned on retail notes |
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$ |
185.3 |
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$ |
169.7 |
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$ |
368.9 |
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$ |
341.0 |
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Revolving charge account income |
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74.8 |
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69.2 |
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143.9 |
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130.4 |
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Finance income earned on wholesale receivables |
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114.6 |
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91.8 |
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209.2 |
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172.3 |
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Lease revenues |
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223.3 |
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199.4 |
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439.7 |
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|
395.4 |
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Other income – net |
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19.5 |
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13.8 |
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41.0 |
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27.2 |
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Total revenues |
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617.5 |
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543.9 |
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1,202.7 |
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1,066.3 |
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Expenses |
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Interest expense |
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180.3 |
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127.1 |
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334.4 |
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242.2 |
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Operating expenses: |
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Administrative and operating expenses |
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111.2 |
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115.3 |
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214.3 |
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237.9 |
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Fees paid to John Deere |
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16.8 |
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15.4 |
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33.0 |
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32.8 |
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Provision for credit losses |
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13.3 |
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24.6 |
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16.1 |
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28.3 |
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Depreciation of equipment on operating leases |
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170.5 |
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160.7 |
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337.8 |
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316.9 |
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Total operating expenses |
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311.8 |
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316.0 |
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601.2 |
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|
615.9 |
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Total expenses |
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492.1 |
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443.1 |
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935.6 |
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|
858.1 |
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Income of consolidated group before income taxes |
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125.4 |
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100.8 |
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267.1 |
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208.2 |
|
Provision (credit) for income taxes |
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6.6 |
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36.6 |
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(250.3) |
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70.2 |
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Income of consolidated group |
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118.8 |
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64.2 |
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517.4 |
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138.0 |
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Equity in income of unconsolidated affiliate |
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.4 |
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.3 |
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1.2 |
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|
.8 |
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Net income |
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119.2 |
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64.5 |
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518.6 |
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138.8 |
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Less: Net income attributable to noncontrolling interests |
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|
.1 |
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Net income attributable to the Company |
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$ |
119.2 |
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$ |
64.5 |
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$ |
518.6 |
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$ |
138.7 |
|
See Condensed Notes to Interim Consolidated Financial Statements.
2
John Deere Capital Corporation and Subsidiaries
Statement of Consolidated Comprehensive Income
(Unaudited)
(in millions)
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Three Months Ended |
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Six Months Ended |
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April 29 |
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April 30 |
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April 29 |
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April 30 |
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2018 |
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2017 |
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2018 |
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2017 |
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||||
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Net income |
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$ |
119.2 |
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$ |
64.5 |
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$ |
518.6 |
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$ |
138.8 |
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Other comprehensive income (loss), net of income taxes |
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Cumulative translation adjustment |
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(17.2) |
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7.4 |
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13.8 |
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1.6 |
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Unrealized gain (loss) on derivatives |
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4.9 |
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(.2) |
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10.2 |
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2.0 |
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Other comprehensive income (loss), net of income taxes |
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(12.3) |
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7.2 |
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24.0 |
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3.6 |
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Comprehensive income of consolidated group |
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106.9 |
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71.7 |
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542.6 |
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142.4 |
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Less: Comprehensive income attributable to noncontrolling interests |
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|
.1 |
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Comprehensive income attributable to the Company |
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$ |
106.9 |
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$ |
71.7 |
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$ |
542.6 |
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$ |
142.3 |
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See Condensed Notes to Interim Consolidated Financial Statements.
3
John Deere Capital Corporation and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(in millions)
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April 29 |
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October 29 |
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April 30 |
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2018 |
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2017 |
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2017 |
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|||
Assets |
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Cash and cash equivalents |
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$ |
1,060.9 |
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$ |
1,055.5 |
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$ |
1,073.9 |
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Receivables: |
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Retail notes |
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12,570.0 |
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13,042.3 |
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12,314.1 |
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Retail notes securitized |
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4,337.0 |
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4,172.3 |
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4,295.3 |
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Revolving charge accounts |
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3,152.5 |
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3,572.6 |
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2,990.7 |
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Wholesale receivables |
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9,129.7 |
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6,894.3 |
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7,548.1 |
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Financing leases |
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666.8 |
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714.2 |
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596.3 |
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Total receivables |
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29,856.0 |
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28,395.7 |
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27,744.5 |
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Allowance for credit losses |
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(114.8) |
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|
(113.8) |
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|
(113.0) |
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Total receivables – net |
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|
29,741.2 |
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28,281.9 |
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27,631.5 |
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Other receivables |
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|
94.6 |
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89.1 |
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|
78.3 |
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Receivables from John Deere |
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73.2 |
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91.0 |
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|
122.7 |
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Equipment on operating leases – net |
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4,793.5 |
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4,718.3 |
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4,383.7 |
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Notes receivable from John Deere |
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|
151.3 |
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156.7 |
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Investment in unconsolidated affiliate |
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|
15.3 |
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13.8 |
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12.5 |
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Deferred income taxes |
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|
40.8 |
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41.0 |
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|
28.2 |
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Other assets |
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|
522.2 |
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|
555.5 |
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|
545.4 |
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Total Assets |
|
$ |
36,493.0 |
|
$ |
35,002.8 |
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$ |
33,876.2 |
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Liabilities and Stockholder’s Equity |
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Short-term borrowings: |
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|
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|
|
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Commercial paper and other notes payable |
|
$ |
1,908.9 |
|
$ |
2,051.2 |
|
$ |
1,250.7 |
|
Securitization borrowings |
|
|
4,287.9 |
|
|
4,118.7 |
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|
4,224.6 |
|
John Deere |
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|
1,382.8 |
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553.2 |
|
|
2,679.2 |
|
Current maturities of long-term borrowings |
|
|
5,664.8 |
|
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5,056.9 |
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4,519.9 |
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Total short-term borrowings |
|
|
13,244.4 |
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11,780.0 |
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|
12,674.4 |
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Other payables to John Deere |
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|
342.6 |
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|
126.5 |
|
|
85.3 |
|
Accounts payable and accrued expenses |
|
|
827.8 |
|
|
902.1 |
|
|
748.3 |
|
Deposits withheld from dealers and merchants |
|
|
170.8 |
|
|
181.0 |
|
|
184.2 |
|
Deferred income taxes |
|
|
475.7 |
|
|
821.6 |
|
|
733.6 |
|
Long-term borrowings |
|
|
17,596.9 |
|
|
17,534.4 |
|
|
15,962.3 |
|
Total liabilities |
|
|
32,658.2 |
|
|
31,345.6 |
|
|
30,388.1 |
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
|
|
|
|
Stockholder’s equity: |
|
|
|
|
|
|
|
|
|
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Common stock, without par value (issued and outstanding – 2,500 shares owned by John Deere Financial Services, Inc.) |
|
|
1,482.8 |
|
|
1,482.8 |
|
|
1,482.8 |
|
Retained earnings |
|
|
2,383.3 |
|
|
2,229.7 |
|
|
2,085.0 |
|
Accumulated other comprehensive income (loss) |
|
|
(31.8) |
|
|
(55.8) |
|
|
(80.2) |
|
Total Company stockholder’s equity |
|
|
3,834.3 |
|
|
3,656.7 |
|
|
3,487.6 |
|
Noncontrolling interests |
|
|
.5 |
|
|
.5 |
|
|
.5 |
|
Total stockholder’s equity |
|
|
3,834.8 |
|
|
3,657.2 |
|
|
3,488.1 |
|
Total Liabilities and Stockholder’s Equity |
$ |
36,493.0 |
$ |
35,002.8 |
$ |
33,876.2 |
See Condensed Notes to Interim Consolidated Financial Statements.
4
John Deere Capital Corporation and Subsidiaries
Statement of Consolidated Cash Flows
For the Six Months Ended April 29, 2018 and April 30, 2017
(Unaudited)
(in millions)
|
|
2018 |
|
2017 |
|
||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
518.6 |
|
$ |
138.8 |
|
Adjustments to reconcile net income to net cash |
|
|
|
|
|
|
|
provided by operating activities: |
|
|
|
|
|
|
|
Provision for credit losses |
|
|
16.1 |
|
|
28.3 |
|
Provision for depreciation and amortization |
|
|
348.8 |
|
|
327.8 |
|
Provision (credit) for deferred income taxes |
|
|
(347.6) |
|
|
18.6 |
|
Undistributed earnings of unconsolidated affiliate |
|
|
(1.0) |
|
|
(.6) |
|
Change in accounts payable and accrued expenses |
|
|
40.3 |
|
|
4.5 |
|
Change in accrued income taxes payable/receivable |
|
|
(28.9) |
|
|
(5.8) |
|
Other |
|
|
97.2 |
|
|
151.3 |
|
Net cash provided by operating activities |
|
|
643.5 |
|
|
662.9 |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
Cost of receivables acquired (excluding wholesale) |
|
|
(7,938.4) |
|
|
(7,282.5) |
|
Collections of receivables (excluding wholesale) |
|
|
8,610.6 |
|
|
8,089.6 |
|
Increase in wholesale receivables – net |
|
|
(2,195.5) |
|
|
(982.5) |
|
Cost of equipment on operating leases acquired |
|
|
(1,024.4) |
|
|
(1,002.7) |
|
Proceeds from sales of equipment on operating leases |
|
|
560.3 |
|
|
599.2 |
|
Cost of notes receivable with John Deere |
|
|
(4.9) |
|
|
|
|
Collections of notes receivable with John Deere |
|
|
2.5 |
|
|
|
|
Change in restricted cash |
|
|
5.7 |
|
|
36.2 |
|
Other |
|
|
(18.2) |
|
|
(29.4) |
|
Net cash used for investing activities |
|
|
(2,002.3) |
|
|
(572.1) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
Increase (decrease) in commercial paper and other notes payable – net |
|
|
(142.2) |
|
|
866.5 |
|
Increase (decrease) in securitization borrowings – net |
|
|
169.2 |
|
|
(773.4) |
|
Increase in payable to John Deere – net |
|
|
823.9 |
|
|
403.9 |
|
Proceeds from issuance of long-term borrowings |
|
|
3,307.0 |
|
|
2,053.1 |
|
Payments of long-term borrowings |
|
|
(2,412.5) |
|
|
(2,402.9) |
|
Dividends paid |
|
|
(365.0) |
|
|
(240.0) |
|
Debt issuance costs |
|
|
(16.5) |
|
|
(12.7) |
|
Net cash provided by (used for) financing activities |
|
|
1,363.9 |
|
|
(105.5) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
.3 |
|
|
(1.0) |
|
Net increase (decrease) in cash and cash equivalents |
|
|
5.4 |
|
|
(15.7) |
|
Cash and cash equivalents at beginning of period |
|
|
1,055.5 |
|
|
1,089.6 |
|
Cash and cash equivalents at end of period |
|
$ |
1,060.9 |
|
$ |
1,073.9 |
|
See Condensed Notes to Interim Consolidated Financial Statements.
5
John Deere Capital Corporation and Subsidiaries
Statement of Changes in Consolidated Stockholder’s Equity
For the Six Months Ended April 30, 2017 and April 29, 2018
(Unaudited)
(in millions)
|
|
|
|
|
Company Stockholder |
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Other |
|
Non- |
|
|||
|
|
Stockholder’s |
|
Common |
|
Retained |
|
Comprehensive |
|
Controlling |
|
|||||
|
|
Equity |
|
Stock |
|
Earnings |
|
Income (Loss) |
|
Interests |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 30, 2016 |
|
$ |
3,585.7 |
|
$ |
1,482.8 |
|
$ |
2,186.3 |
|
$ |
(83.8) |
|
$ |
.4 |
|
Net income |
|
|
138.8 |
|
|
|
|
|
138.7 |
|
|
|
|
|
.1 |
|
Other comprehensive income |
|
|
3.6 |
|
|
|
|
|
|
|
|
3.6 |
|
|
|
|
Dividends declared |
|
|
(240.0) |
|
|
|
|
|
(240.0) |
|
|
|
|
|
|
|
Balance April 30, 2017 |
|
$ |
3,488.1 |
|
$ |
1,482.8 |
|
$ |
2,085.0 |
|
$ |
(80.2) |
|
$ |
.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 29, 2017 |
|
$ |
3,657.2 |
|
$ |
1,482.8 |
|
$ |
2,229.7 |
|
$ |
(55.8) |
|
$ |
.5 |
|
Net income |
|
|
518.6 |
|
|
|
|
|
518.6 |
|
|
|
|
|
|
|
Other comprehensive income |
|
|
24.0 |
|
|
|
|
|
|
|
|
24.0 |
|
|
|
|
Dividends declared |
|
|
(365.0) |
|
|
|
|
|
(365.0) |
|
|
|
|
|
|
|
Balance April 29, 2018 |
|
$ |
3,834.8 |
|
$ |
1,482.8 |
|
$ |
2,383.3 |
|
$ |
(31.8) |
|
$ |
.5 |
|
See Condensed Notes to Interim Consolidated Financial Statements.
6
John Deere Capital Corporation and Subsidiaries
Condensed Notes to Interim Consolidated Financial Statements
(Unaudited)
(1) The interim consolidated financial statements of John Deere Capital Corporation (Capital Corporation) and its subsidiaries (collectively called the 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.
The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The second quarter ends for fiscal year 2018 and 2017 were April 29, 2018 and April 30, 2017, respectively. Both periods contained 13 weeks.
The Company provides and administers financing for retail purchases of new equipment manufactured by Deere & Company’s agriculture and turf and construction and forestry operations and used equipment taken in trade for this equipment. The Company generally purchases retail installment sales and loan contracts (retail notes) from Deere & Company and its wholly-owned subsidiaries (collectively called John Deere). John Deere generally acquires these retail notes through John Deere retail dealers. The Company also purchases and finances a limited amount of non-Deere retail notes. The Company also finances and services revolving charge accounts, in most cases acquired from and offered through merchants in the agriculture and turf and construction and forestry markets (revolving charge accounts). The Company also provides wholesale financing for inventories of John Deere agriculture and turf and construction and forestry equipment owned by dealers of those products (wholesale receivables). In addition, the Company leases John Deere equipment and a limited amount of non‑Deere equipment to retail customers (financing and operating leases). The Company also offers credit enhanced international export financing to select customers and dealers, which generally involves John Deere products. Retail notes, revolving charge accounts, wholesale receivables, and financing leases are collectively called “Receivables.” Receivables and equipment on operating leases are collectively called “Receivables and Leases.”
(2) New accounting standards adopted are as follows:
In the first quarter of 2018, the Company early adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends Accounting Standards Codification (ASC) 715, Compensation – Retirement Benefits. This ASU required that employers report only the service cost component of the total defined benefit pension and postretirement benefit cost in the same income statement lines as compensation for the participating employees. The other components of these benefit costs are reported outside of operating profit. The ASU was adopted on a retrospective basis that decreased operating profit in the second quarter and first six months of 2018 by $2.1 million and $4.1 million, respectively, and second quarter and first six months of 2017 by $1.9 million and $3.6 million, respectively. The adoption did not impact the presentation of defined benefit pension and postretirement benefit costs on the income statement, as the Company reports both the service cost component and other components of these benefit costs in the income statement line administrative and operating expenses. In addition, only the service cost component of the benefit costs is eligible for capitalization, which was adopted beginning the first quarter of 2018.
7
In the first quarter of 2018, the Company adopted ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which amends ASC 323, Investments – Equity Method and Joint Ventures, which did not have a material effect on the Company’s consolidated financial statements.
In March 2018, the FASB issued ASU No. 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which amends ASC 740, Income Taxes. In December 2017, the U.S. government enacted new tax legislation (tax reform). This ASU incorporates SEC Staff Accounting Bulletin No. 118, which was also issued in December 2017, into the ASC. The ASU provides guidance on when to record and disclose provisional amounts related to tax reform. In addition, the ASU allows for a measurement period up to one year after the enactment date of tax reform to complete the related accounting requirements and was effective when issued. The Company will complete the adjustments related to tax reform within the allowed period. The effects of tax reform on the Company’s consolidated financial statements are outlined in Note 8.
New accounting standards to be adopted are as follows:
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue. The FASB issued several amendments clarifying various aspects of the ASU, including revenue transactions that involve a third party, goods or services that are immaterial in the context of the contract, and licensing arrangements. The Company will adopt the ASU effective the first quarter of fiscal year 2019 using a modified retrospective method. The Company’s evaluation of the ASU is largely complete. At this point of the evaluation, the Company has not identified an item that will have a material effect on the Company’s consolidated financial statements. The Company continues to evaluate the ASU’s potential effects on the consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends ASC 825-10, Financial Instruments – Overall. This ASU changes the treatment for available-for-sale equity investments by recognizing unrealized fair value changes directly in net income and no longer in Other Comprehensive Income (OCI). The effective date will be the first quarter of fiscal year 2019. Early adoption of the provisions affecting the Company is not permitted. The ASU will be adopted with a cumulative-effect adjustment to the balance sheet in the year of adoption. The Company is evaluating the potential effects on the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. The ASU’s primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset during the term of operating lease arrangements. The ASU does not significantly change the lessee’s recognition, measurement, and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. The ASU currently requires that lessees and lessors use a modified retrospective transition approach. In January 2018, the FASB issued an exposure draft to provide for an adoption option that would not require earlier periods to be restated at the adoption date. The effective date will be the first quarter of fiscal year 2020 with early adoption permitted. The Company is evaluating the potential adoption options and the effects on the consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASC 326, Financial Instruments – Credit Losses. The ASU revises the measurement of 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.
8
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted. The ASU will be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which amends ASC 740, Income Taxes. This ASU requires that the income tax consequences of an intra-entity asset transfer other than inventory are recognized at the time of the transfer. The effective date will be the first quarter of fiscal year 2019. The ASU will be adopted using a modified-retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amends ASC 230, Statement of Cash Flows. This ASU requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted, and will be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which amends ASC 805, Business Combinations. This ASU provides further guidance on the definition of a business to determine whether transactions should be accounted for as acquisitions of assets or businesses. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted in certain cases. The ASU will be adopted on a prospective basis and will not have a material effect on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, which amends ASC 718, Compensation – Stock Compensation. This ASU provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. The ASU will be adopted on a prospective basis. The effective date is the first quarter of fiscal year 2019, with early adoption permitted. The adoption will not have a material effect on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815, Derivatives and Hedging. The purpose of this ASU is to better align a company’s risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements. The effective date is fiscal year 2020, with early adoption permitted. The Company is evaluating the potential effects on the consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends ASC 220, Income Statement – Reporting Comprehensive Income. Included in the provisions of tax reform is a reduction of the corporate income tax rate from 35 percent to 21 percent. Accounting principles generally accepted in the U.S. require that deferred taxes are remeasured to the new corporate tax rate in the period legislation is enacted. The deferred tax adjustment is recorded in the provision for income taxes, including items for which the tax effects were originally recorded in OCI. This treatment results in the items in OCI not reflecting the appropriate tax rate, which are referred to as stranded tax effects. This ASU allows a reclassification from accumulated OCI to retained earnings for stranded tax effects resulting from tax reform. The effective date is fiscal year 2020, with early adoption permitted, including in interim periods. The ASU can be adopted at the beginning of an interim or annual period or retrospectively to each period affected by tax reform. The Company is evaluating the potential effects of the ASU on the consolidated financial statements.
9
(3) The after-tax changes in accumulated other comprehensive income (loss) were as follows (in millions of dollars):
|
|
|
|
|
Unrealized |
|
Accumulated |
|
||
|
|
Cumulative |
|
Gain (Loss) |
|
Other |
|
|||
|
|
Translation |
|
on |
|
Comprehensive |
|
|||
|
|
Adjustment |
|
Derivatives |
|
Income (Loss) |
|
|||
Balance October 30, 2016 |
|
$ |
(84.1) |
|
$ |
.3 |
|
$ |
(83.8) |
|
Other comprehensive income (loss) items before reclassification |
|
|
1.6 |
|
|
1.6 |
|
|
3.2 |
|
Amounts reclassified from accumulated other comprehensive income |
|
|
|
|
|
.4 |
|
|
.4 |
|
Net current period other comprehensive income (loss) |
|
|
1.6 |
|
|
2.0 |
|
|
3.6 |
|
Balance April 30, 2017 |
|
$ |
(82.5) |
|
$ |
2.3 |
|
$ |
(80.2) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 29, 2017 |
|
$ |
(60.0) |
|
$ |
4.2 |
|
$ |
(55.8) |
|
Other comprehensive income (loss) items before reclassification |
|
|
13.8 |
|
|
10.9 |
|
|
24.7 |
|
Amounts reclassified from accumulated other comprehensive income |
|
|
|
|
|
(.7) |
|
|
(.7) |
|
Net current period other comprehensive income (loss) |
|
|
13.8 |
|
|
10.2 |
|
|
24.0 |
|
Balance April 29, 2018 |
|
$ |
(46.2) |
|
$ |
14.4 |
|
$ |
(31.8) |
|
10
Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, (in millions of dollars):
|
|
Before |
|
Tax |
|
After |
|
|||
|
|
Tax |
|
(Expense) |
|
Tax |
|
|||
Three Months Ended April 29, 2018 |
|
Amount |
|
Credit |
|
Amount |
|
|||
Cumulative translation adjustment |
|
$ |
(17.2) |
|
|
|
|
$ |
(17.2) |
|
Unrealized gain (loss) on derivatives: |
|
|
|
|
|
|
|
|
|
|
Unrealized hedging gain (loss) |
|
|
7.1 |
|
$ |
(1.5) |
|
|
5.6 |
|
Reclassification of realized (gain) loss |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts – Interest expense |
|
|
(.9) |
|
|
.2 |
|
|
(.7) |
|
Net unrealized gain (loss) on derivatives |
|
|
6.2 |
|
|
(1.3) |
|
|
4.9 |
|
Total other comprehensive income (loss) |
|
$ |
(11.0) |
|
$ |
(1.3) |
|
$ |
(12.3) |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 29, 2018 |
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
$ |
13.8 |
|
|
|
|
$ |
13.8 |
|
Unrealized gain (loss) on derivatives: |
|
|
|
|
|
|
|
|
|
|
Unrealized hedging gain (loss) |
|
|
14.7 |
|
$ |
(3.8) |
|
|
10.9 |
|
Reclassification of realized (gain) loss |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts – Interest expense |
|
|
(.9) |
|
|
.2 |
|
|
(.7) |
|
Net unrealized gain (loss) on derivatives |
|
|
13.8 |
|
|
(3.6) |
|
|
10.2 |
|
Total other comprehensive income (loss) |
|
$ |
27.6 |
|
$ |
(3.6) |
|
$ |
24.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2017 |
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
$ |
7.4 |
|
|
|
|
$ |
7.4 |
|
Unrealized gain (loss) on derivatives: |
|
|
|
|
|
|
|
|
|
|
Unrealized hedging gain (loss) |
|
|
(.6) |
|
$ |
.2 |
|
|
(.4) |
|
Reclassification of realized (gain) loss to: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts – Interest expense |
|
|
.4 |
|
|
(.2) |
|
|
.2 |
|
Net unrealized gain (loss) on derivatives |
|
|
(.2) |
|
|
|
|
|
(.2) |
|
Total other comprehensive income (loss) |
|
$ |
7.2 |
|
|
|
|
$ |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended April 30, 2017 |
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
$ |
1.6 |
|
|
|
|
$ |
1.6 |
|
Unrealized gain (loss) on derivatives: |
|
|
|
|
|
|
|
|
|
|
Unrealized hedging gain (loss) |
|
|
2.5 |
|
$ |
(.9) |
|
|
1.6 |
|
Reclassification of realized (gain) loss to: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts – Interest expense |
|
|
.6 |
|
|
(.2) |
|
|
.4 |
|
Net unrealized gain (loss) on derivatives |
|
|
3.1 |
|
|
(1.1) |
|
|
2.0 |
|
Total other comprehensive income (loss) |
|
$ |
4.7 |
|
$ |
(1.1) |
|
$ |
3.6 |
|
11
(4) Past due balances of Receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date.
The Company monitors the credit quality of Receivables as either performing or non-performing monthly. Non-performing Receivables represent loans for which the Company has ceased accruing finance income. Generally, when retail notes are approximately 120 days delinquent, accrual of finance income is suspended, the collateral is repossessed or the account is designated for litigation, and the estimated uncollectible amount, after charging the dealer's withholding account, if any, is written off to the allowance for credit losses. Revolving charge accounts are generally deemed to be uncollectible and written off to the allowance for credit losses when delinquency reaches 120 days. Generally, when a wholesale receivable becomes 60 days delinquent, the Company determines whether the accrual of finance income on interest-bearing wholesale receivables should be suspended, the collateral should be repossessed or the account should be designated for litigation, and the estimated uncollectible amount written off to the allowance for credit losses. Generally, when a financing lease account becomes 120 days delinquent, the accrual of lease revenue is suspended, the equipment is repossessed or the account is designated for litigation, and the estimated uncollectible amount, after charging the dealer's withholding account, if any, is written off to the allowance for credit losses. Finance income for non-performing Receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.
12
An age analysis of past due Receivables that are still accruing interest and non-performing Receivables was as follows (in millions of dollars):
|
|
April 29, 2018 |
|
||||||||||
|
|
|
|
|
|
|
|
90 Days |
|
|
|
|
|
|
|
30-59 Days |
|
60-89 Days |
|
or Greater |
|
Total |
|
||||
|
|
Past Due |
|
Past Due |
|
Past Due |
|
Past Due |
|
||||
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
104.1 |
|
$ |
51.1 |
|
$ |
40.1 |
|
$ |
195.3 |
|
Construction and forestry |
|
|
89.7 |
|
|
43.2 |
|
|
34.3 |
|
|
167.2 |
|
Revolving charge accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
16.4 |
|
|
9.7 |
|
|
25.4 |
|
|
51.5 |
|
Construction and forestry |
|
|
2.9 |
|
|
1.6 |
|
|
.7 |
|
|
5.2 |
|
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
3.0 |
|
|
1.8 |
|
|
2.1 |
|
|
6.9 |
|
Construction and forestry |
|
|
.6 |
|
|
|
|
|
|
|
|
.6 |
|
Financing leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
12.7 |
|
|
3.2 |
|
|
.9 |
|
|
16.8 |
|
Construction and forestry |
|
|
2.2 |
|
|
1.2 |
|
|
.7 |
|
|
4.1 |
|
Total Receivables |
|
$ |
231.6 |
|
$ |
111.8 |
|
$ |
104.2 |
|
$ |
447.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Total Non- |
|
|
|
Total |
|
||||
|
|
Past Due |
|
Performing |
|
Current |
|
Receivables |
|
||||
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
195.3 |
|
$ |
70.6 |
|
$ |
13,917.1 |
|
$ |
14,183.0 |
|
Construction and forestry |
|
|
167.2 |
|
|
28.8 |
|
|
2,528.0 |
|
|
2,724.0 |
|
Revolving charge accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
51.5 |
|
|
1.5 |
|
|
3,015.3 |
|
|
3,068.3 |
|
Construction and forestry |
|
|
5.2 |
|
|
.1 |
|
|
78.9 |
|
|
84.2 |
|
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
6.9 |
|
|
5.9 |
|
|
7,552.2 |
|
|
7,565.0 |
|
Construction and forestry |
|
|
.6 |
|
|
|
|
|
1,564.1 |
|
|
1,564.7 |
|
Financing leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
16.8 |
|
|
9.3 |
|
|
494.8 |
|
|
520.9 |
|
Construction and forestry |
|
|
4.1 |
|
|
1.0 |
|
|
140.8 |
|
|
145.9 |
|
Total Receivables |
|
$ |
447.6 |
|
$ |
117.2 |
|
$ |
29,291.2 |
|
$ |
29,856.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
October 29, 2017 |
|
||||||||||
|
|
|
|
|
|
|
|
90 Days |
|
|
|
|
|
|
|
30-59 Days |
|
60-89 Days |
|
or Greater |
|
Total |
|
||||
|
|
Past Due |
|
Past Due |
|
Past Due |
|
Past Due |
|
||||
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
106.2 |
|
$ |
48.3 |
|
$ |
45.3 |
|
$ |
199.8 |
|
Construction and forestry |
|
|
73.0 |
|
|
31.9 |
|
|
39.2 |
|
|
144.1 |
|
Revolving charge accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
15.4 |
|
|
5.6 |
|
|
2.3 |
|
|
23.3 |
|
Construction and forestry |
|
|
2.9 |
|
|
1.1 |
|
|
.3 |
|
|
4.3 |
|
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
4.5 |
|
|
1.6 |
|
|
2.4 |
|
|
8.5 |
|
Construction and forestry |
|
|
.1 |
|
|
.1 |
|
|
.1 |
|
|
.3 |
|
Financing leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
8.9 |
|
|
7.5 |
|
|
3.6 |
|
|
20.0 |
|
Construction and forestry |
|
|
.5 |
|
|
1.1 |
|
|
.1 |
|
|
1.7 |
|
Total Receivables |
|
$ |
211.5 |
|
$ |
97.2 |
|
$ |
93.3 |
|
$ |
402.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Total Non- |
|
|
|
|
Total |
|
|||
|
|
Past Due |
|
Performing |
|
Current |
|
Receivables |
|
||||
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
199.8 |
|
$ |
63.1 |
|
$ |
14,379.9 |
|
$ |
14,642.8 |
|
Construction and forestry |
|
|
144.1 |
|
|
24.2 |
|
|
2,403.5 |
|
|
2,571.8 |
|
Revolving charge accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
23.3 |
|
|
1.8 |
|
|
3,458.7 |
|
|
3,483.8 |
|
Construction and forestry |
|
|
4.3 |
|
|
|
|
|
84.5 |
|
|
88.8 |
|
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
8.5 |
|
|
10.8 |
|
|
5,469.6 |
|
|
5,488.9 |
|
Construction and forestry |
|
|
.3 |
|
|
|
|
|
1,405.1 |
|
|
1,405.4 |
|
Financing leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
20.0 |
|
|
6.2 |
|
|
541.3 |
|
|
567.5 |
|
Construction and forestry |
|
|
1.7 |
|
|
1.7 |
|
|
143.3 |
|
|
146.7 |
|
Total Receivables |
|
$ |
402.0 |
|
$ |
107.8 |
|
$ |
27,885.9 |
|
$ |
28,395.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
April 30, 2017 |
|
||||||||||
|
|
|
|
|
|
|
|
90 Days |
|
|
|
|
|
|
|
30-59 Days |
|
60-89 Days |
|
or Greater |
|
Total |
|
||||
|
|
Past Due |
|
Past Due |
|
Past Due |
|
Past Due |
|
||||
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
104.8 |
|
$ |
65.9 |
|
$ |
59.2 |
|
$ |
229.9 |
|
Construction and forestry |
|
|
77.5 |
|
|
43.7 |
|
|
32.9 |
|
|
154.1 |
|
Revolving charge accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
19.9 |
|
|
7.5 |
|
|
24.4 |
|
|
51.8 |
|
Construction and forestry |
|
|
2.4 |
|
|
.8 |
|
|
.6 |
|
|
3.8 |
|
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
2.2 |
|
|
1.9 |
|
|
1.1 |
|
|
5.2 |
|
Construction and forestry |
|
|
|
|
|
|
|
|
1.5 |
|
|
1.5 |
|
Financing leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
13.6 |
|
|
2.9 |
|
|
2.2 |
|
|
18.7 |
|
Construction and forestry |
|
|
3.0 |
|
|
.9 |
|
|
.9 |
|
|
4.8 |
|
Total Receivables |
|
$ |
223.4 |
|
$ |
123.6 |
|
$ |
122.8 |
|
$ |
469.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Total Non- |
|
|
|
|
Total |
|
|||
|
|
Past Due |
|
Performing |
|
Current |
|
Receivables |
|
||||
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
229.9 |
|
$ |
80.9 |
|
$ |
13,768.3 |
|
$ |
14,079.1 |
|
Construction and forestry |
|
|
154.1 |
|
|
24.0 |
|
|
2,352.2 |
|
|
2,530.3 |
|
Revolving charge accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
51.8 |
|
|
2.3 |
|
|
2,854.6 |
|
|
2,908.7 |
|
Construction and forestry |
|
|
3.8 |
|
|
|
|
|
78.2 |
|
|
82.0 |
|
Wholesale receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
5.2 |
|
|
.2 |
|
|
6,385.5 |
|
|
6,390.9 |
|
Construction and forestry |
|
|
1.5 |
|
|
|
|
|
1,155.7 |
|
|
1,157.2 |
|
Financing leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
18.7 |
|
|
6.1 |
|
|
419.0 |
|
|
443.8 |
|
Construction and forestry |
|
|
4.8 |
|
|
2.0 |
|
|
145.7 |
|
|
152.5 |
|
Total Receivables |
|
$ |
469.8 |
|
$ |
115.5 |
|
$ |
27,159.2 |
|
$ |
27,744.5 |
|
15
Allowances for credit losses on Receivables are maintained in amounts considered to be appropriate in relation to the Receivables outstanding based on historical loss experience by product category, portfolio duration, delinquency trends, economic conditions, and credit risk quality.
An analysis of the allowance for credit losses and investment in Receivables was as follows (in millions of dollars):
|
|
Three Months Ended |
|
|||||||||||||
|
|
April 29, 2018 |
|
|||||||||||||
|
|
|
|
|
Revolving |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
Charge |
|
Wholesale |
|
Financing |
|
Total |
|
|||||
|
|
Notes |
|
Accounts |
|
Receivables |
|
Leases |
|
Receivables |
|
|||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period balance |
|
$ |
55.8 |
|
$ |
39.7 |
|
$ |
10.2 |
|
$ |
8.4 |
|
$ |
114.1 |
|
Provision for credit losses |
|
|
3.7 |
|
|
8.8 |
|
|
.3 |
|
|
.5 |
|
|
13.3 |
|
Write-offs |
|
|
(4.7) |
|
|
(14.3) |
|
|
(.4) |
|
|
(.6) |
|
|
(20.0) |
|
Recoveries |
|
|
2.0 |
|
|
5.5 |
|
|
|
|
|
.2 |
|
|
7.7 |
|
Translation adjustments |
|
|
(.2) |
|
|
|
|
|
(.2) |
|
|
.1 |
|
|
(.3) |
|
End of period balance |
|
$ |
56.6 |
|
$ |
39.7 |
|
$ |
9.9 |
|
$ |
8.6 |
|
$ |
114.8 |
|
|
|
Six Months Ended |
|
|||||||||||||
|
|
April 29, 2018 |
|
|||||||||||||
|
|
|
|
|
Revolving |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
Charge |
|
Wholesale |
|
Financing |
|
Total |
|
|||||
|
|
Notes |
|
Accounts |
|
Receivables |
|
Leases |
|
Receivables |
|
|||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period balance |
|
$ |
55.7 |
|
$ |
39.7 |
|
$ |
9.9 |
|
$ |
8.5 |
|
$ |
113.8 |
|
Provision for credit losses |
|
|
6.0 |
|
|
8.4 |
|
|
.4 |
|
|
1.3 |
|
|
16.1 |
|
Write-offs |
|
|
(9.9) |
|
|
(18.9) |
|
|
(.5) |
|
|
(1.5) |
|
|
(30.8) |
|
Recoveries |
|
|
4.6 |
|
|
10.6 |
|
|
|
|
|
.3 |
|
|
15.5 |
|
Translation adjustments |
|
|
.2 |
|
|
(.1) |
|
|
.1 |
|
|
|
|
|
.2 |
|
End of period balance |
|
$ |
56.6 |
|
$ |
39.7 |
|
$ |
9.9 |
|
$ |
8.6 |
|
$ |
114.8 |
|
Balance individually evaluated * |
|
$ |
.1 |
|
|
|
|
$ |
2.5 |
|
$ |
.1 |
|
$ |
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period balance |
|
$ |
16,907.0 |
|
$ |
3,152.5 |
|
$ |
9,129.7 |
|
$ |
666.8 |
|
$ |
29,856.0 |
|
Balance individually evaluated * |
|
$ |
45.8 |
|
$ |
1.1 |
|
$ |
10.3 |
|
$ |
.2 |
|
$ |
57.4 |
|
* Remainder is collectively evaluated.
16
|
|
Three Months Ended |
|
|||||||||||||
|
|
April 30, 2017 |
|
|||||||||||||
|
|
|
|
|
Revolving |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
Charge |
|
Wholesale |
|
Financing |
|
Total |
|
|||||
|
|
Notes |
|
Accounts |
|
Receivables |
|
Leases |
|
Receivables |
|
|||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period balance |
|
$ |
54.7 |
|
$ |
39.7 |
|
$ |
7.0 |
|
$ |
8.5 |
|
$ |
109.9 |
|
Provision for credit losses |
|
|
8.2 |
|
|
15.0 |
|
|
|
|
|
1.4 |
|
|
24.6 |
|
Write-offs |
|
|
(10.7) |
|
|
(17.1) |
|
|
|
|
|
(1.5) |
|
|
(29.3) |
|
Recoveries |
|
|
2.8 |
|
|
4.8 |
|
|
|
|
|
.1 |
|
|
7.7 |
|
Translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
.1 |
|
|
.1 |
|
End of period balance |
|
$ |
55.0 |
|
$ |
42.4 |
|
$ |
7.0 |
|
$ |
8.6 |
|
$ |
113.0 |
|
|
|
Six Months Ended |
|
|||||||||||||
|
|
April 30, 2017 |
|
|||||||||||||
|
|
|
|
|
Revolving |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
Charge |
|
Wholesale |
|
Financing |
|
Total |
|
|||||
|
|
Notes |
|
Accounts |
|
Receivables |
|
Leases |
|
Receivables |
|
|||||
Allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period balance |
|
$ |
56.3 |
|
$ |
39.7 |
|
$ |
7.2 |
|
$ |
8.5 |
|
$ |
111.7 |
|
Provision for credit losses |
|
|
13.1 |
|
|
12.8 |
|
|
|
|
|
2.4 |
|
|
28.3 |
|
Write-offs |
|
|
(18.1) |
|
|
(20.2) |
|
|
(.1) |
|
|
(2.6) |
|
|
(41.0) |
|
Recoveries |
|
|
3.7 |
|
|
10.1 |
|
|
|
|
|
.2 |
|
|
14.0 |
|
Translation adjustments |
|
|
|
|
|
|
|
|
(.1) |
|
|
.1 |
|
|
|
|
End of period balance |
|
$ |
55.0 |
|
$ |
42.4 |
|
$ |
7.0 |
|
$ |
8.6 |
|
$ |
113.0 |
|
Balance individually evaluated * |
|
$ |
.6 |
|
$ |
2.6 |
|
|
|
|
$ |
.2 |
|
$ |
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period balance |
|
$ |
16,609.4 |
|
$ |
2,990.7 |
|
$ |
7,548.1 |
|
$ |
596.3 |
|
$ |
27,744.5 |
|
Balance individually evaluated * |
|
$ |
83.0 |
|
$ |
4.2 |
|
$ |
1.7 |
|
$ |
.6 |
|
$ |
89.5 |
|
* Remainder is collectively evaluated.
Receivables are considered impaired when it is probable the Company will be unable to collect all amounts due according to the contractual terms. Receivables reviewed for impairment generally include those that are either past due, or have provided bankruptcy notification, or require significant collection efforts. Receivables that are impaired are generally classified as non‑performing.
17
An analysis of impaired Receivables was as follows (in millions of dollars):
|
|
|
|
|
Unpaid |
|
|
|
|
Average |
|
||
|
|
Recorded |
|
Principal |
|
Specific |
|
Recorded |
|
||||
|
|
Investment |
|
Balance |
|
Allowance |
|
Investment |
|
||||
April 29, 2018 * |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables with specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail notes |
|
$ |
.8 |
|
$ |
.8 |
|
$ |
.1 |
|
$ |
.9 |
|
Wholesale receivables |
|
|
6.7 |
|
|
6.7 |
|
|
2.5 |
|
|
8.1 |
|
Financing leases |
|
|
.2 |
|
|
.2 |
|
|
.1 |
|
|
.2 |
|
Total with specific allowance |
|
|
7.7 |
|
|
7.7 |
|
|
2.7 |
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables without specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail notes |
|
|
25.7 |
|
|
25.6 |
|
|
|
|
|
26.6 |
|
Wholesale receivables |
|
|
1.9 |
|
|
1.8 |
|
|
|
|
|
4.2 |
|
Total without specific allowance |
|
|
27.6 |
|
|
27.4 |
|
|
|
|
|
30.8 |
|
Total |
|
$ |
35.3 |
|
$ |
35.1 |
|
$ |
2.7 |
|
$ |
40.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
29.4 |
|
$ |
29.2 |
|
$ |
2.6 |
|
$ |
33.8 |
|
Construction and forestry |
|
|
5.9 |
|
|
5.9 |
|
|
.1 |
|
|
6.2 |
|
Total |
|
$ |
35.3 |
|
$ |
35.1 |
|
$ |
2.7 |
|
$ |
40.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2017 * |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables with specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail notes |
|
$ |
2.2 |
|
$ |
2.1 |
|
$ |
.6 |
|
$ |
2.2 |
|
Wholesale receivables |
|
|
11.7 |
|
|
11.7 |
|
|
2.6 |
|
|
11.0 |
|
Total with specific allowance |
|
|
13.9 |
|
|
13.8 |
|
|
3.2 |
|
|
13.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables without specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail notes |
|
|
18.3 |
|
|
18.0 |
|
|
|
|
|
14.0 |
|
Wholesale receivables |
|
|
9.0 |
|
|
9.0 |
|
|
|
|
|
2.3 |
|
Total without specific allowance |
|
|
27.3 |
|
|
27.0 |
|
|
|
|
|
16.3 |
|
Total |
|
$ |
41.2 |
|
$ |
40.8 |
|
$ |
3.2 |
|
$ |
29.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
36.0 |
|
$ |
35.6 |
|
$ |
3.2 |
|
$ |
23.9 |
|
Construction and forestry |
|
|
5.2 |
|
|
5.2 |
|
|
|
|
|
5.6 |
|
Total |
|
$ |
41.2 |
|
$ |
40.8 |
|
$ |
3.2 |
|
$ |
29.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2017 * |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables with specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail notes |
|
$ |
4.8 |
|
$ |
4.6 |
|
$ |
.6 |
|
$ |
5.0 |
|
Revolving charge accounts |
|
|
2.6 |
|
|
2.6 |
|
|
2.6 |
|
|
2.6 |
|
Financing leases |
|
|
.5 |
|
|
.5 |
|
|
.2 |
|
|
.5 |
|
Total with specific allowance |
|
|
7.9 |
|
|
7.7 |
|
|
3.4 |
|
|
8.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables without specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail notes |
|
|
9.8 |
|
|
9.7 |
|
|
|
|
|
11.2 |
|
Wholesale receivables |
|
|
.2 |
|
|
.2 |
|
|
|
|
|
.2 |
|
Total without specific allowance |
|
|
10.0 |
|
|
9.9 |
|
|
|
|
|
11.4 |
|
Total |
|
$ |
17.9 |
|
$ |
17.6 |
|
$ |
3.4 |
|
$ |
19.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
12.0 |
|
$ |
11.9 |
|
$ |
2.9 |
|
$ |
13.1 |
|
Construction and forestry |
|
|
5.9 |
|
|
5.7 |
|
|
.5 |
|
|
6.4 |
|
Total |
|
$ |
17.9 |
|
$ |
17.6 |
|
$ |
3.4 |
|
$ |
19.5 |
|
* Finance income recognized was not material.
18
A troubled debt restructuring is generally the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During the first six months of 2018, the Company identified 212 Receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $11.2 million pre‑modification and $10.6 million post‑modification. During the first six months of 2017, there were 222 Receivable contracts, primarily retail notes, with aggregate balances of $4.8 million pre‑modification and $3.8 million post‑modification. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At April 29, 2018, the Company had no commitments to lend additional funds to borrowers whose accounts were modified in troubled debt restructurings.
(5) Securitization of receivables:
The Company, as a part of its overall funding strategy, periodically transfers certain Receivables (retail notes) into variable interest entities (VIEs) that are special purpose entities (SPEs), or non‑VIE banking operations, as part of its asset-backed securities programs (securitizations). The structure of these transactions is such that the transfer of the retail notes did not meet the accounting criteria for sales of receivables, and is, therefore, accounted for as a secured borrowing. SPEs utilized in securitizations of retail notes differ from other entities included in the Company’s consolidated statements because the assets they hold are legally isolated. Use of the assets held by the SPEs or the non‑VIEs is restricted by terms of the documents governing the securitization transactions.
In these securitizations, the retail notes are transferred to certain SPEs or to non-VIE banking operations, which in turn issue debt to investors. The debt securities issued to the third party investors result in secured borrowings, which are recorded as “Securitization borrowings” on the balance sheet. The securitized retail notes are recorded as “Retail notes securitized” on the balance sheet. The total restricted assets on the balance sheet related to these securitizations include the retail notes securitized less an allowance for credit losses, and other assets primarily representing restricted cash. For those securitizations in which retail notes are transferred into SPEs, the SPEs supporting the secured borrowings are consolidated unless the Company does not have both the power to direct the activities that most significantly impact the SPEs’ economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the SPEs. No additional support to these SPEs beyond what was previously contractually required has been provided during the reporting periods.
In certain securitizations, the Company consolidates the SPEs since it has both the power to direct the activities that most significantly impact the SPEs’ economic performance through its role as servicer of all the Receivables held by the SPEs and the obligation through variable interests in the SPEs to absorb losses or receive benefits that could potentially be significant to the SPEs. The restricted assets (retail notes securitized, allowance for credit losses, and other assets) of the consolidated SPEs totaled $2,488.9 million, $2,630.5 million, and $2,588.8 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. The liabilities (securitization borrowings and accrued interest) of these SPEs totaled $2,438.4 million, $2,571.1 million, and $2,522.4 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. The credit holders of these SPEs do not have legal recourse to the Company’s general credit.
In certain securitizations, the Company transfers retail notes to non-VIE banking operations, which are not consolidated since the Company does not have a controlling interest in the entities. The Company’s carrying values and interests related to the securitizations with the unconsolidated non-VIEs were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of $572.8 million, $478.4 million, and $413.2 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. The liabilities (securitization borrowings and accrued interest) were $542.6 million, $454.1 million, and $389.7 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively.
19
In certain securitizations, the Company transfers retail notes into bank-sponsored, multi-seller, commercial paper conduits, which are SPEs that are not consolidated. The Company does not service a significant portion of the conduits’ receivables, and therefore, does not have the power to direct the activities that most significantly impact the conduits’ economic performance. These conduits provide a funding source to the Company (as well as other transferors into the conduit) as they fund the retail notes through the issuance of commercial paper. The Company’s carrying values and variable interest related to these conduits were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of $1,383.1 million, $1,155.1 million, and $1,394.7 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. The liabilities (securitization borrowings and accrued interest) related to these conduits were $1,310.3 million, $1,096.3 million, and $1,315.2 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively.
The Company’s carrying amount of the liabilities to the unconsolidated conduits, compared to the maximum exposure to loss related to these conduits, which would only be incurred in the event of a complete loss on the restricted assets was as follows (in millions of dollars):
|
|
April 29 |
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
Carrying value of liabilities |
|
$ |
1,310.3 |
|
|
|
|
|
|
|
Maximum exposure to loss |
|
|
1,383.1 |
|
|
|
|
|
|
|
The total assets of unconsolidated VIEs related to securitizations were approximately $35.9 billion at April 29, 2018.
The components of consolidated restricted assets related to secured borrowings in securitization transactions were as follows (in millions of dollars):
|
|
April 29 |
|
October 29 |
|
April 30 |
|
|||
|
|
2018 |
|
2017 |
|
2017 |
|
|||
Retail notes securitized |
|
$ |
4,337.0 |
|
$ |
4,172.3 |
|
$ |
4,295.3 |
|
Allowance for credit losses |
|
|
(13.8) |
|
|
(13.5) |
|
|
(13.5) |
|
Other assets |
|
|
121.6 |
|
|
105.2 |
|
|
114.9 |
|
Total restricted securitized assets |
|
$ |
4,444.8 |
|
$ |
4,264.0 |
|
$ |
4,396.7 |
|
The components of consolidated secured borrowings and other liabilities related to securitizations were as follows (in millions of dollars):
|
|
April 29 |
|
October 29 |
|
April 30 |
|
|||
|
|
2018 |
|
2017 |
|
2017 |
|
|||
Securitization borrowings |
|
$ |
4,287.9 |
|
$ |
4,118.7 |
|
$ |
4,224.6 |
|
Accrued interest on borrowings |
|
|
3.4 |
|
|
2.8 |
|
|
2.7 |
|
Total liabilities related to restricted securitized assets |
|
$ |
4,291.3 |
|
$ |
4,121.5 |
|
$ |
4,227.3 |
|
The secured borrowings related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash flows generated by the restricted assets. Due to the Company's short-term credit rating, cash collections from these restricted assets are not required to be placed into a segregated collection account until immediately prior to the time payment is required to the secured creditors. At April 29, 2018, the maximum remaining term of all restricted securitized retail notes was approximately seven years.
20
(6) Notes receivable from John Deere:
The Company makes loans to affiliated companies. The Company receives interest from John Deere at competitive market interest rates. The lending agreements range in maturity up to five years. Interest earned from John Deere was $2.3 million in the second quarter of 2018 and $5.1 million for the first six months of 2018, compared with none for the same periods in 2017.
The Company had notes receivable from John Deere with the following affiliated companies as follows (in millions of dollars):
|
|
April 29 |
|
October 29 |
|
April 30 |
|
|||
|
|
2018 |
|
2017 |
|
2017 |
|
|||
Limited Liability Company John Deere Financial |
|
$ |
98.6 |
|
$ |
102.2 |
|
|
|
|
Banco John Deere S.A. |
|
|
52.7 |
|
|
54.5 |
|
|
|
|
Total Notes Receivable from John Deere |
|
$ |
151.3 |
|
$ |
156.7 |
|
|
|
|
(7) Commitments and contingencies:
At April 29, 2018, John Deere Financial Inc., the John Deere finance subsidiary in Canada, had $320.8 million of commercial paper and a fair value liability of $30.4 million for derivatives outstanding, prior to considering applicable netting provisions, with a notional amount of $1,716.9 million that were guaranteed by Capital Corporation.
Capital Corporation has a variable interest in John Deere Canada Funding Inc. (JDCFI), a wholly-owned subsidiary of John Deere Financial Inc., which was created as a VIE to issue debt in public markets to fund the operations of affiliated companies in Canada. Capital Corporation has a variable interest in JDCFI because it provides guarantees for all debt issued by JDCFI, however it does not consolidate JDCFI because it does not have the power to direct the activities that most significantly impact JDCFI’s economic performance. Capital Corporation has no carrying value of assets or liabilities related to JDCFI. Its maximum exposure to loss is the amount of the debt issued by JDCFI and guaranteed by Capital Corporation, which was $2,176.4 million at April 29, 2018. The weighted average interest rate on the debt at April 29, 2018 was 2.2 percent with a maximum remaining maturity of approximately five years. No additional support beyond what was previously contractually required has been provided to JDCFI during the reporting periods.
The Company has commitments to extend credit to customers and John Deere dealers through lines of credit and other pre-approved credit arrangements. The Company applies the same credit policies and approval process for these commitments to extend credit as it does for its Receivables. Collateral is not required for these commitments, but if credit is extended, collateral may be required upon funding. The amount of unused commitments to extend credit to John Deere dealers was $7.0 billion at April 29, 2018. The amount of unused commitments to extend credit to customers was $27.9 billion at April 29, 2018. A significant portion of these commitments is not expected to be fully drawn upon; therefore, the total commitment amounts likely do not represent a future cash requirement. The Company generally has the right to unconditionally cancel, alter, or amend the terms of these commitments at any time. Over 95 percent of the unused commitments to extend credit to customers relate to revolving charge accounts. At April 29, 2018, Capital Corporation had $31.0 million in unused loan commitments denominated in rubles to Limited Liability Company John Deere Financial, the John Deere finance subsidiary in Russia.
At April 29, 2018, the Company had restricted other assets of approximately $32.0 million. See Note 5 for additional restricted assets associated with borrowings related to securitizations.
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 retail credit. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements.
21
(8) On December 22, 2017, the U.S. government enacted tax reform. The primary provisions of tax reform expected to impact the Company in fiscal year 2018 are a reduction to the corporate income tax rate from 35 percent to 21 percent and a transition from a worldwide corporate tax system to a territorial tax system. The reduction in the corporate income tax rate requires the Company to remeasure its net deferred tax liabilities to the new corporate tax rate and the transition to a territorial tax system requires payment of a one‑time tax on deemed repatriation of undistributed and previously untaxed non-U.S. earnings. The Company currently plans to pay the deemed repatriation tax over an eight year period, as allowed by tax reform.
In December 2017, the SEC issued a staff accounting bulletin that allows for a measurement period up to one year after the enactment date of tax reform to complete the related accounting requirements. The tax reform measurement period adjustments and the effects on the results of the second quarter and first six months of 2018 were as follows (in millions of dollars):
|
|
April 29, 2018 |
|
|
||||
|
|
Three Months Ended |
|
Six Months Ended |
|
|
||
Net deferred tax liability remeasurement |
|
$ |
18.5 |
|
$ |
322.4 |
|
|
Deemed earnings repatriation tax |
|
|
(.1) |
|
|
(15.7) |
|
|
Total discrete tax benefit (expense) |
|
$ |
18.4 |
|
$ |
306.7 |
|
|
The second quarter measurement period benefit on the net deferred tax liabilities primarily results from expanded bonus depreciation on lease transactions and a planned, voluntary contribution to U.S. pension and other postretirement benefit plans, which result in tax deductions applicable to the 2017 tax year. Further disclosure related to this contribution is included in Deere & Company’s Form 10-Q for the quarter ended April 29, 2018. The provision for income taxes was also affected by other tax reform items, primarily the lower corporate income tax rate on current year income.
The 21 percent corporate income tax rate is effective January 1, 2018. Based on the Company’s October fiscal year end, the U.S. statutory income tax rate for fiscal year 2018 will be approximately 23.3 percent.
The tax benefit for the first six months of 2018 is provisional as outlined below and may change during the remaining measurement period. The Company completed a preliminary assessment of earnings that could be repatriated based on reinvestment needs of non-U.S. operations and earnings available for repatriation. The estimated withholding tax that would be incurred from the repatriation of those earnings is included in the first six months of 2018 provisional income tax benefit. The Company continues to analyze the provisions of tax reform addressing the net deferred tax liability remeasurement and the calculations, and the deemed earnings repatriation tax, including the determination of undistributed non-U.S. earnings. In addition, the Company is evaluating actions, including repatriating additional non-U.S. earnings and other actions that could affect the Company’s 2017 U.S. taxable income. The Company also continues to prepare its 2017 U.S. income tax returns, undergo income tax audits, and monitor potential legislative action and regulatory interpretations of tax reform.
Based on the effective date of certain provisions, the Company will be subject to additional requirements of tax reform beginning in fiscal year 2019. Those provisions include a tax on global intangible low-taxed income (GILTI), a tax determined by base erosion and anti-abuse tax benefits (BEAT) from certain payments between a U.S. corporation and foreign subsidiaries, a limitation of certain executive compensation, a deduction for foreign derived intangible income (FDII), and interest expense limitations. The Company has not completed its analysis of those provisions and the estimated effects. The Company also has not determined its accounting policy to treat the taxes due on GILTI as a period cost or include them in the determination of deferred taxes.
The Company’s unrecognized tax benefits at April 29, 2018 were $41.1 million, compared to $35.5 million at October 29, 2017. The liability at April 29, 2018 consisted of approximately $19.8 million, which would affect the effective tax rate if it was recognized. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The changes in the unrecognized tax benefits for the first six months of 2018 were not significant. The Company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next 12 months would not be significant.
22
(9) Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine fair value, the Company uses various methods including market and income approaches. The Company utilizes valuation models and techniques that maximize the use of observable inputs. The models are industry-standard models that consider various assumptions including time values and yield curves as well as other economic measures. These valuation techniques are consistently applied.
Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs. Level 3 measurements include significant unobservable inputs.
The fair values of financial instruments that do not approximate the carrying values were as follows (in millions of dollars):
|
|
April 29, 2018 |
|
October 29, 2017 |
|
April 30, 2017 |
|
||||||||||||
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
||||||
|
|
Value |
|
Value * |
|
Value |
|
Value * |
|
Value |
|
Value * |
|
||||||
Receivables financed – net |
|
$ |
25,418.0 |
|
$ |
25,259.1 |
|
$ |
24,123.1 |
|
$ |
24,016.0 |
|
$ |
23,349.7 |
|
$ |
23,264.6 |
|
Retail notes securitized – net |
|
|
4,323.2 |
|
|
4,272.5 |
|
|
4,158.8 |
|
|
4,129.6 |
|
|
4,281.8 |
|
|
4,253.0 |
|
Securitization borrowings |
|
|
4,287.9 |
|
|
4,273.9 |
|
|
4,118.7 |
|
|
4,118.4 |
|
|
4,224.6 |
|
|
4,225.4 |
|
Current maturities of long-term borrowings |
|
|
5,664.8 |
|
|
5,665.7 |
|
|
5,056.9 |
|
|
5,080.6 |
|
|
4,519.9 |
|
|
4,545.6 |
|
Long-term borrowings |
|
|
17,596.9 |
|
|
17,661.7 |
|
|
17,534.4 |
|
|
17,763.6 |
|
|
15,962.3 |
|
|
16,150.7 |
|
* Fair value measurements above were Level 3 for all Receivables and Level 2 for all borrowings.
Fair values of Receivables that were issued long-term were based on the discounted values of their related cash flows at interest rates currently being offered by the Company for similar Receivables. The fair values of the remaining Receivables approximated the carrying amounts.
Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or on the discounted values of their related cash flows at current market interest rates. Certain long-term borrowings have been swapped to current variable interest rates. The carrying values of these long-term borrowings include adjustments related to fair value hedges.
23
Assets and liabilities measured at fair value as Level 2 measurements on a recurring basis were as follows (in millions of dollars):
|
|
April 29 |
|
October 29 |
|
April 30 |
|
|||
|
|
2018 |
|
2017 |
|
2017 |
|
|||
Receivables from John Deere |
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
$ |
70.2 |
|
$ |
85.4 |
|
$ |
115.4 |
|
Cross-currency interest rate contracts |
|
|
3.0 |
|
|
5.6 |
|
|
7.3 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
|
.9 |
|
|
8.1 |
|
|
21.1 |
|
Foreign exchange contracts |
|
|
30.1 |
|
|
24.6 |
|
|
10.1 |
|
Total derivative assets * |
|
$ |
104.2 |
|
$ |
123.7 |
|
$ |
153.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Other payables to John Deere |
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
$ |
341.0 |
|
$ |
125.6 |
|
$ |
83.5 |
|
Cross-currency interest rate contracts |
|
|
1.6 |
|
|
.9 |
|
|
1.8 |
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
|
|
|
|
|
|
|
15.2 |
|
Foreign exchange contracts |
|
|
|
|
|
6.0 |
|
|
|
|
Total derivative liabilities |
|
$ |
342.6 |
|
$ |
132.5 |
|
$ |
100.5 |
|
* Excluded from this table were the Company’s cash equivalents, which were carried at cost that approximates fair value. The cash equivalents consist primarily of money market funds that were Level 1 measurements.
Fair value, nonrecurring Level 3 measurements related to Receivables with specific allowances were not significant during any periods presented. See Note 4 for additional information.
The following is a description of the valuation methodologies the Company uses to measure certain financial instruments on the balance sheet at fair value:
Derivatives – The Company’s derivative financial instruments consist of interest rate swaps and caps, foreign currency forwards and swaps, and cross-currency interest rate swaps. The portfolio is valued based on an income approach (discounted cash flow) using market observable inputs, including swap curves and both forward and spot exchange rates for currencies.
Receivables – Specific reserve impairments are based on the fair value of the collateral, which is measured using a market approach (appraisal values or realizable values). Inputs include a selection of realizable values.
(10) It is the Company’s policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. The Company manages the relationship of the types and amounts of its funding sources to its Receivable and Lease portfolios in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. The Company also has foreign currency exposures at some of its foreign and domestic operations related to financing in currencies other than the functional currencies.
24
All derivatives are recorded at fair value on the balance sheet. Cash collateral received or paid is not offset against the derivative fair values on the balance sheet. Each derivative is designated as a cash flow hedge, a fair value hedge, or remains undesignated. All designated hedges are formally documented as to the relationship with the hedged item as well as the risk-management strategy. Both at inception and on an ongoing basis the hedging instrument is assessed as to its effectiveness. If and when a derivative is determined not to be highly effective as a hedge, or the underlying hedged transaction is no longer likely to occur, or the hedge designation is removed, or the derivative is terminated, hedge accounting is discontinued. Any past or future changes in the derivative’s fair value, which will not be effective as an offset to the income effects of the item being hedged, are recognized currently in the income statement.
Cash flow hedges
Certain interest rate contracts (swaps) were designated as hedges of future cash flows from borrowings. The total notional amounts of the receive-variable/pay-fixed interest rate contracts at April 29, 2018, October 29, 2017, and April 30, 2017 were $1,800.0 million, $1,700.0 million, and $1,600.0 million, respectively. The effective portions of the fair value gains or losses on these cash flow hedges were recorded in OCI and subsequently reclassified into interest expense in the same periods during which the hedged transactions affected earnings. These amounts offset the effects of interest rate changes on the related borrowings. Any ineffective portions of the gains or losses on all cash flow interest rate contracts designated as cash flow hedges were recognized currently in interest expense and were not material during any periods presented. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.
The amount of gain recorded in OCI at April 29, 2018 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is approximately $9.5 million after-tax. These contracts mature in up to 26 months. There were no gains or losses reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur.
Fair value hedges
Certain interest rate contracts (swaps) were designated as fair value hedges of borrowings. The total notional amounts of these receive-fixed/pay-variable interest rate contracts at April 29, 2018, October 29, 2017, and April 30, 2017 were $8,071.6 million, $8,077.2 million, and $7,055.2 million, respectively. The effective portions of the fair value gains or losses on these contracts were offset by fair value gains or losses on the hedged items (fixed-rate borrowings). Any ineffective portions of the gains or losses were recognized currently in interest expense. The ineffective portions were a loss of $2.0 million and a gain of $.1 million during the second quarter of 2018 and 2017, respectively, and a loss of $3.3 million and a gain of $2.1 million during the first six months of 2018 and 2017, respectively. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.
25
The gains (losses) on these contracts and the underlying borrowings recorded in interest expense were as follows (in millions of dollars):
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
April 29 |
|
April 30 |
|
April 29 |
|
April 30 |
||||
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
||||
Interest rate contracts * |
|
$ |
(123.9) |
|
$ |
31.8 |
|
$ |
(269.5) |
|
$ |
(197.9) |
Borrowings ** |
|
|
121.9 |
|
|
(31.7) |
|
|
266.2 |
|
|
200.0 |
* Includes changes in fair values of interest rate contracts excluding net accrued interest income of $5.2 million and $21.5 million during the second quarter of 2018 and 2017, respectively, and $17.1 million and $46.2 million during the first six months of 2018 and 2017, respectively.
** Includes adjustments for fair values of hedged borrowings excluding accrued interest expense of $62.5 million and $58.0 million during the second quarter of 2018 and 2017, respectively, and $122.0 million and $119.4 million during the first six months of 2018 and 2017, respectively.
Derivatives not designated as hedging instruments
The Company has certain interest rate contracts (swaps and caps), foreign exchange contracts (forwards and swaps), and cross-currency interest rate contracts (swaps), which were not formally designated as hedges. These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures primarily for certain borrowings. The total notional amounts of these interest rate swaps at April 29, 2018, October 29, 2017, and April 30, 2017 were $2,419.9 million, $2,311.3 million, and $2,039.1 million, the foreign exchange contracts were $1,487.4 million, $1,455.9 million, and $1,392.7 million, and the cross‑currency interest rate contracts were $82.4 million, $65.8 million, and $76.4 million, respectively. At April 29, 2018, October 29, 2017, and April 30, 2017 there were also $1,932.5 million, $1,594.3 million, and $1,873.2 million, respectively, of interest rate caps purchased and the same amounts sold at the same capped interest rate to facilitate borrowings through securitization of retail notes. The fair value gains or losses from the interest rate contracts were recognized currently in interest expense and the gains or losses from foreign exchange contracts in administrative and operating expenses, generally offsetting over time the expenses on the exposures being hedged. The cash flows from these non-designated contracts were recorded in operating activities in the statement of consolidated cash flows.
26
Fair values of derivative instruments in the consolidated balance sheet were as follows (in millions of dollars):
|
|
April 29 |
|
October 29 |
|
April 30 |
|
|||
|
|
2018 |
|
2017 |
|
2017 |
|
|||
Receivables from John Deere |
|
|
|
|
|
|
|
|
|
|
Designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
$ |
34.0 |
|
$ |
64.8 |
|
$ |
91.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
|
36.2 |
|
|
20.6 |
|
|
23.8 |
|
Cross-currency interest rate contracts |
|
|
3.0 |
|
|
5.6 |
|
|
7.3 |
|
Total not designated |
|
|
39.2 |
|
|
26.2 |
|
|
31.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
|
|
|
|
Designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
|
|
|
|
7.0 |
|
|
19.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
|
.9 |
|
|
1.1 |
|
|
1.5 |
|
Foreign exchange contracts |
|
|
30.1 |
|
|
24.6 |
|
|
10.1 |
|
Total not designated |
|
|
31.0 |
|
|
25.7 |
|
|
11.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets |
|
$ |
104.2 |
|
$ |
123.7 |
|
$ |
153.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Other Payables to John Deere |
|
|
|
|
|
|
|
|
|
|
Designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
$ |
309.5 |
|
$ |
107.2 |
|
$ |
62.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
|
31.5 |
|
|
18.4 |
|
|
20.6 |
|
Cross-currency interest rate contracts |
|
|
1.6 |
|
|
.9 |
|
|
1.8 |
|
Total not designated |
|
|
33.1 |
|
|
19.3 |
|
|
22.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Expenses |
|
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
|
|
|
6.0 |
|
|
15.2 |
|
Total not designated |
|
|
|
|
|
6.0 |
|
|
15.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities |
|
$ |
342.6 |
|
$ |
132.5 |
|
$ |
100.5 |
|
|
|
|
|
|
|
|
|
|
|
|
27
The classification and gains (losses), including accrued interest expense related to derivative instruments on the statement of consolidated income consisted of the following (in millions of dollars):
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
Expense or OCI |
|
April 29 |
|
April 30 |
|
April 29 |
|
April 30 |
|
||||
|
|
Classification |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
||||
Fair Value Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
Interest expense |
|
$ |
(118.7) |
|
$ |
53.3 |
|
$ |
(252.4) |
|
$ |
(151.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in OCI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Effective Portion): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
OCI (pretax) * |
|
|
7.1 |
|
|
(.6) |
|
|
14.7 |
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified from OCI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Effective Portion): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
Interest expense * |
|
|
.9 |
|
|
(.4) |
|
|
.9 |
|
|
(.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized Directly in Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Ineffective Portion) |
|
|
|
|
** |
|
|
** |
|
|
** |
|
|
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
Interest expense * |
|
$ |
(3.1) |
|
$ |
(2.2) |
|
$ |
(1.8) |
|
$ |
(1.6) |
|
Foreign exchange contracts |
|
Administrative and operating expenses * |
|
|
71.9 |
|
|
(21.2) |
|
|
(31.4) |
|
|
(26.8) |
|
Total not designated |
|
|
|
$ |
68.8 |
|
$ |
(23.4) |
|
$ |
(33.2) |
|
$ |
(28.4) |
|
* Includes interest and foreign exchange gains (losses) from cross-currency interest rate contracts.
** The amounts were not significant.
Included in the table above are interest expense and administrative and operating expense amounts the Company incurred on derivatives transacted with John Deere. The amount the Company recognized on these affiliate party transactions for the three months ended April 29, 2018 and April 30, 2017 were a loss of $120.0 million and a gain of $43.6 million, respectively. The amount the Company recognized on these affiliate party transactions for the six months ended April 29, 2018 and April 30, 2017 were losses of $254.7 million and $153.2 million, respectively.
Counterparty Risk and Collateral
The Company’s outstanding derivatives have been transacted with both unrelated external counterparties and with John Deere. For derivatives transacted with John Deere, the Company utilizes a centralized hedging structure in which John Deere enters into a derivative transaction with an unrelated external counterparty and simultaneously enters into a derivative transaction with the Company. Except for collateral provisions, the terms of the transaction between the Company and John Deere are identical to the terms of the transaction between John Deere and its unrelated external counterparty.
Certain of the Company’s derivative agreements executed directly with the unrelated external counterparties contain credit support provisions that may require the Company to post collateral based on the size of the net liability positions and credit ratings. At April 29, 2018, October 29, 2017, and April 30, 2017, there were no aggregate liability positions for derivatives with credit-risk-related contingent features. If the credit‑risk‑related contingent features were triggered, the Company would be required to post collateral up to an amount equal to any liability position, prior to considering applicable netting provisions.
28
Derivative instruments are subject to significant concentrations of credit risk to the banking sector. The Company manages individual unrelated external counterparty exposure by setting limits that consider the credit rating of the unrelated external counterparty, the credit default swap spread of the counterparty, and other financial commitments and exposures between the Company and the unrelated external counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Some of these agreements executed with unrelated external counterparties include credit support provisions. Each master agreement executed with an unrelated external counterparty permits the net settlement of amounts owed in the event of default or termination.
The Company also has ISDA agreements with John Deere that permit the net settlement of amounts owed between counterparties in the event of early termination. In addition, the Company has a loss sharing agreement with John Deere in which it has agreed to absorb any losses and expenses John Deere incurs if an unrelated external counterparty fails to meet its obligations on a derivative transaction that John Deere entered into to manage exposures of the Company. The loss sharing agreement does not increase the maximum amount of loss that the Company would incur, after considering collateral received and netting arrangements, as of April 29, 2018. The loss sharing agreement increased the maximum amount of loss that the Company would incur, after considering collateral received and netting arrangements, by $23.5 million and $43.0 million as of October 29, 2017 and April 30, 2017, respectively.
Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities for external derivatives and those with John Deere related to netting arrangements and any collateral received or paid were as follows (in millions of dollars):
April 29, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
Gross Amounts |
|
Netting |
|
Cash Collateral Received/Paid |
|
Net |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
External |
|
$ |
31.0 |
|
|
|
|
|
|
$ |
31.0 |
|
John Deere |
|
|
73.2 |
|
$ |
(32.9) |
|
|
|
|
40.3 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
John Deere |
|
|
342.6 |
|
|
(32.9) |
|
|
|
|
309.7 |
|
October 29, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
Gross Amounts |
|
Netting |
|
Cash Collateral Received/Paid |
|
Net |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
External |
|
$ |
32.7 |
|
$ |
(.1) |
|
|
|
$ |
32.6 |
|
John Deere |
|
|
91.0 |
|
|
(65.9) |
|
|
|
|
25.1 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
External |
|
|
6.0 |
|
|
(.1) |
|
|
|
|
5.9 |
|
John Deere |
|
|
126.5 |
|
|
(65.9) |
|
|
|
|
60.6 |
|
April 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
Gross Amounts |
|
Netting |
|
Cash Collateral Received/Paid |
|
Net |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
External |
|
$ |
31.2 |
|
$ |
(6.2) |
|
|
|
$ |
25.0 |
|
John Deere |
|
|
122.7 |
|
|
(85.3) |
|
|
|
|
37.4 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
External |
|
|
15.2 |
|
|
(6.2) |
|
|
|
|
9.0 |
|
John Deere |
|
|
85.3 |
|
|
(85.3) |
|
|
|
|
|
|
29
(11) The Company is a participating employer in certain Deere & Company sponsored defined benefit pension plans for employees in the U.S. and certain defined benefit pension plans outside the U.S. These pension plans provide for benefits that are based primarily on years of service and employee compensation. Pension expense is actuarially determined based on the Company’s employees included in the plan. The Company’s pension expense amounted to $1.7 million for the second quarter and $3.4 million for the first six months of 2018, compared with $1.4 million and $2.8 million for the same periods last year. The accumulated benefit obligation and plan net assets for the employees of the Company are not determined separately from Deere & Company. The Company provides defined benefit health care and life insurance plans for certain retired employees in the U.S. as a participating employer in Deere & Company’s sponsored plans. Health care and life insurance benefits expense is actuarially determined based on the Company’s employees included in the plans and amounted to $.6 million for the second quarter and $1.3 million for the first six months of 2018, compared with $.9 million and $1.8 million for the same periods last year. Further disclosure for these plans is included in Deere & Company’s Form 10-Q for the quarter ended April 29, 2018.
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Overview
Organization
The Company primarily generates revenues and cash by financing John Deere dealers’ sales and leases of new and used agriculture and turf equipment and construction and forestry equipment. In addition, the Company also provides wholesale financing to dealers of the foregoing equipment and finances retail revolving charge accounts.
Trends and Economic Conditions
The Company’s business is closely related to John Deere’s business. Industry sales of agricultural machinery in the U.S. and Canada are forecast to increase approximately 10 percent for 2018. Industry sales in the European Union (EU) 28 nations are forecast to increase approximately 5 percent. In South America, industry sales of tractors and combines are projected to be about the same or increase about 5 percent. Asian sales are forecast to be in line with 2017. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be about the same or increase 5 percent for 2018. John Deere’s agriculture and turf segment sales increased 22 percent in the second quarter and 20 percent for the first six months. These sales are forecast to increase about 14 percent for fiscal year 2018. Construction equipment markets reflect continued improvement in demand driven by higher housing starts in the U.S., increased activity in the oil and gas sector, and economic growth worldwide. In forestry, global industry sales are expected to be up about 10 percent. John Deere’s construction and forestry segment sales increased 84 percent in the second quarter, with Wirtgen adding 60 percent, and 73 percent for the first six months, with Wirtgen adding 44 percent. These sales are forecast to increase about 83 percent in 2018, with Wirtgen adding 56 percent to the segment’s sales. Further disclosure related to the Wirtgen acquisition is included in Deere & Company’s Form 10-Q for the quarter ended April 29, 2018.
Net income attributable to the Company in fiscal year 2018 is expected to be approximately $730 million, compared to $328 million in fiscal year 2017. The forecast increase from 2017 reflects a provisional income tax benefit of $307 million associated with tax reform, in addition to a higher average portfolio and lower losses on lease residual values, partially offset by less favorable financing spreads and increased administrative and operating expenses.
Items of concern include the uncertainty of the effectiveness of governmental actions in respect to monetary and fiscal policies, the impact of sovereign debt, eurozone issues, capital market disruptions, trade agreements, labor supply issues, changes in demand and pricing for used equipment, and geopolitical events. Significant fluctuations in foreign currency exchange rates and volatility in the price of many commodities could also impact the Company’s results.
John Deere reported higher second quarter net sales and net income from strengthening demand. Farm machinery sales in both North and South America are improving and construction equipment sales are continuing to increase sharply. John Deere made significant progress working with suppliers to increase production, but is experiencing higher raw material and freight costs. The more durable business model as well as investments in new products and businesses allows John Deere to remain confident in the present direction and believe it will continue to deliver value to customers and investors.
2018 Compared with 2017
Net income attributable to the Company was $119.2 million in the second quarter of 2018 and $518.6 million for the first six months of 2018, compared with $64.5 million and $138.7 million for the same periods last year. The increase for both periods was primarily due to a favorable provision for income taxes associated with tax reform, a higher average portfolio, lower losses on lease residual values, and lower provision for credit losses, partially offset by less favorable financing spreads.
31
Revenues totaled $617.5 million in the second quarter and $1,202.7 million for the first six months of 2018, compared with $543.9 million and $1,066.3 million for the same periods last year. Finance income earned on retail notes totaled $368.9 million for the first six months of 2018, compared with $341.0 million for the same period in 2017. The increase was primarily due to higher average financing rates. Revenues earned on revolving charge accounts amounted to $143.9 million for the first six months of 2018, compared with $130.4 million during the same period last year. The increase was primarily due to an increase in the average balance of revolving charge accounts. Finance income earned on wholesale receivables totaled $209.2 million for the first six months of 2018, compared with $172.3 million for the same period in 2017. The increase was primarily due to an increase in the average balance of wholesale receivables and higher average financing rates. Lease revenues totaled $439.7 million for the first six months of 2018, compared with $395.4 million for the first six months of 2017. The increase was primarily due to an increase in the average balance of leases. Revenues earned from John Deere totaled $161.3 million in the second quarter and $302.3 million for the first six months of 2018, compared with $127.8 million and $242.0 million for the same periods last year. The quarter and year-to-date increases were primarily due to increased compensation paid by John Deere for waived or reduced finance charges on Receivables and Leases. Revenues earned from John Deere are included in the revenue amounts discussed above and in “Other income – net” on the statement of consolidated income.
Interest expense totaled $180.3 million in the second quarter and $334.4 million for the first six months of 2018, compared with $127.1 million and $242.2 million for the same periods in 2017. The increases were primarily due to higher average borrowing rates and higher average borrowings.
Administrative and operating expenses were $111.2 million in the second quarter and $214.3 million for the first six months of 2018, compared with $115.3 million and $237.9 million for the same periods in 2017. The decrease for the quarter was primarily due to lower losses on lease residual values, offset by higher employment costs. The year-to-date decrease was primarily due to lower losses on lease residual values.
During the second quarter and first six months of 2018, the provision for credit losses totaled $13.3 million and $16.1 million, respectively, compared with $24.6 million and $28.3 million for the same periods in 2017. The decreases were primarily due to lower net write‑offs. The annualized provision for credit losses, as a percentage of the average balance of total Receivables financed, was .19 percent in the second quarter and .11 percent for the first six months of 2018, compared with .36 percent and .21 percent for the same periods in 2017. See the Company's most recently filed annual report on Form 10-K for further information regarding the Company's allowance for credit losses policies.
Depreciation of equipment on operating leases was $170.5 million in the second quarter and $337.8 million for the first six months of 2018, compared with $160.7 million and $316.9 million for the same periods in 2017. The increases were primarily the result of higher average balances of equipment on operating leases.
Provision for income taxes was an expense of $6.6 million in the second quarter and a benefit of $250.3 million for the first six months of 2018, compared with expenses of $36.6 million and $70.2 million for the same periods in 2017. The decreases were primarily due to a provisional income tax benefit related to tax reform and a lower U.S. income tax rate.
The Company’s ratio of earnings to fixed charges was 1.69 to 1 for the second quarter of 2018, compared with 1.79 to 1 for the second quarter of 2017. The Company’s ratio of earnings to fixed charges was 1.79 to 1 for the first six months of 2018, compared to 1.85 to 1 for the first six months of 2017. “Earnings” consist of income before income taxes, the cumulative effect of changes in accounting, and fixed charges excluding unamortized capitalized interest. “Fixed charges” consist of interest on indebtedness, amortization of debt discount and expense, interest related to uncertain tax positions, an estimated amount of rental expense that is deemed to be representative of the interest factor, and capitalized interest.
32
Receivable and Lease (excluding wholesale) acquisition volumes were as follows (in millions of dollars):
|
|
Three Months Ended |
|
|
|
|
|
|
||||
|
|
April 29 |
|
April 30 |
|
|
|
|
|
|
||
|
|
2018 |
|
2017 |
|
$ Change |
|
% Change |
|
|||
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
1,930.0 |
|
$ |
1,769.5 |
|
$ |
160.5 |
|
9 |
% |
Construction and forestry |
|
|
431.4 |
|
|
369.6 |
|
|
61.8 |
|
17 |
|
Total retail notes |
|
|
2,361.4 |
|
|
2,139.1 |
|
|
222.3 |
|
10 |
|
Revolving charge accounts |
|
|
1,578.3 |
|
|
1,582.9 |
|
|
(4.6) |
|
|
|
Financing leases |
|
|
98.5 |
|
|
105.1 |
|
|
(6.6) |
|
(6) |
|
Equipment on operating leases |
|
|
599.6 |
|
|
579.7 |
|
|
19.9 |
|
3 |
|
Total Receivables and Leases (excluding wholesale) |
|
$ |
4,637.8 |
|
$ |
4,406.8 |
|
$ |
231.0 |
|
5 |
% |
|
|
Six Months Ended |
|
|
|
|
|
|
||||
|
|
April 29 |
|
April 30 |
|
|
|
|
|
|
||
|
|
2018 |
|
2017 |
|
$ Change |
|
% Change |
|
|||
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
3,355.5 |
|
$ |
2,998.6 |
|
$ |
356.9 |
|
12 |
% |
Construction and forestry |
|
|
878.1 |
|
|
704.7 |
|
|
173.4 |
|
25 |
|
Total retail notes |
|
|
4,233.6 |
|
|
3,703.3 |
|
|
530.3 |
|
14 |
|
Revolving charge accounts |
|
|
3,511.2 |
|
|
3,383.8 |
|
|
127.4 |
|
4 |
|
Financing leases |
|
|
157.7 |
|
|
159.1 |
|
|
(1.4) |
|
(1) |
|
Equipment on operating leases |
|
|
979.2 |
|
|
975.5 |
|
|
3.7 |
|
|
|
Total Receivables and Leases (excluding wholesale) |
|
$ |
8,881.7 |
|
$ |
8,221.7 |
|
$ |
660.0 |
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail note volumes increased in the second quarter and first six months of 2018, compared to last year, primarily due to increases in retail sales of John Deere equipment.
Total Receivables and Leases owned were as follows (in millions of dollars):
|
|
April 29 |
|
October 29 |
|
April 30 |
|
|||
|
|
2018 |
|
2017 |
|
2017 |
|
|||
Retail notes: |
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
14,183.0 |
|
$ |
14,642.9 |
|
$ |
14,079.1 |
|
Construction and forestry |
|
|
2,724.0 |
|
|
2,571.7 |
|
|
2,530.3 |
|
Total retail notes |
|
|
16,907.0 |
|
|
17,214.6 |
|
|
16,609.4 |
|
Revolving charge accounts |
|
|
3,152.5 |
|
|
3,572.6 |
|
|
2,990.7 |
|
Wholesale receivables |
|
|
9,129.7 |
|
|
6,894.3 |
|
|
7,548.1 |
|
Financing leases |
|
|
666.8 |
|
|
714.2 |
|
|
596.3 |
|
Equipment on operating leases |
|
|
4,793.5 |
|
|
4,718.3 |
|
|
4,383.7 |
|
Total Receivables and Leases |
|
$ |
34,649.5 |
|
$ |
33,114.0 |
|
$ |
32,128.2 |
|
33
Total Receivable amounts 30 days or more past due and still accruing finance income were $447.6 million, $402.0 million, and $469.8 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. These past due amounts represented 1.50 percent, 1.42 percent, and 1.69 percent of the Receivables financed at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. Total non-performing Receivables, which represent loans for which the Company has ceased accruing finance income, were $117.2 million, $107.8 million, and $115.5 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. The total non-performing Receivables as a percentage of the ending Receivables balance was .39 percent, .38 percent, and .42 percent at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. An allowance for credit losses was recorded for the estimated uncollectible amount. See Note 4 to the interim consolidated financial statements for additional information.
Total Receivable write-offs and recoveries, by product, and as an annualized percentage of average balances held during the period, were as follows (in millions of dollars):
|
|
Three Months Ended |
|
||||||||
|
|
April 29, 2018 |
|
April 30, 2017 |
|
||||||
|
|
Dollars |
|
Percent |
|
Dollars |
|
Percent |
|
||
Write-offs: |
|
|
|
|
|
|
|
|
|
|
|
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
(2.0) |
|
(.06) |
% |
$ |
(4.6) |
|
(.13) |
% |
Construction and forestry |
|
|
(2.7) |
|
(.40) |
|
|
(6.1) |
|
(.98) |
|
Total retail notes |
|
|
(4.7) |
|
(.11) |
|
|
(10.7) |
|
(.26) |
|
Revolving charge accounts |
|
|
(14.3) |
|
(2.03) |
|
|
(17.1) |
|
(2.58) |
|
Wholesale receivables |
|
|
(.4) |
|
(.02) |
|
|
|
|
|
|
Financing leases |
|
|
(.6) |
|
(.37) |
|
|
(1.5) |
|
(1.06) |
|
Total write-offs |
|
|
(20.0) |
|
(.28) |
|
|
(29.3) |
|
(.44) |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
1.4 |
|
.04 |
|
|
2.2 |
|
.07 |
|
Construction and forestry |
|
|
.6 |
|
.09 |
|
|
.6 |
|
.10 |
|
Total retail notes |
|
|
2.0 |
|
.05 |
|
|
2.8 |
|
.07 |
|
Revolving charge accounts |
|
|
5.5 |
|
.78 |
|
|
4.8 |
|
.71 |
|
Wholesale receivables |
|
|
|
|
|
|
|
|
|
|
|
Financing leases |
|
|
.2 |
|
.12 |
|
|
.1 |
|
.07 |
|
Total recoveries |
|
|
7.7 |
|
.11 |
|
|
7.7 |
|
.12 |
|
Total net write-offs |
|
$ |
(12.3) |
|
(.17) |
% |
$ |
(21.6) |
|
(.32) |
% |
34
|
|
Six Months Ended |
|
||||||||
|
|
April 29, 2018 |
|
April 30, 2017 |
|
||||||
|
|
Dollars |
|
Percent |
|
Dollars |
|
Percent |
|
||
Write-offs: |
|
|
|
|
|
|
|
|
|
|
|
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
$ |
(4.1) |
|
(.06) |
% |
$ |
(8.6) |
|
(.12) |
% |
Construction and forestry |
|
|
(5.8) |
|
(.44) |
|
|
(9.5) |
|
(.76) |
|
Total retail notes |
|
|
(9.9) |
|
(.12) |
|
|
(18.1) |
|
(.22) |
|
Revolving charge accounts |
|
|
(18.9) |
|
(1.31) |
|
|
(20.2) |
|
(1.54) |
|
Wholesale receivables |
|
|
(.5) |
|
(.01) |
|
|
(.1) |
|
|
|
Financing leases |
|
|
(1.5) |
|
(.45) |
|
|
(2.6) |
|
(.91) |
|
Total write-offs |
|
|
(30.8) |
|
(.22) |
|
|
(41.0) |
|
(.31) |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
Retail notes: |
|
|
|
|
|
|
|
|
|
|
|
Agriculture and turf |
|
|
3.5 |
|
.05 |
|
|
2.9 |
|
.04 |
|
Construction and forestry |
|
|
1.1 |
|
.08 |
|
|
.8 |
|
.06 |
|
Total retail notes |
|
|
4.6 |
|
.05 |
|
|
3.7 |
|
.04 |
|
Revolving charge accounts |
|
|
10.6 |
|
.73 |
|
|
10.1 |
|
.77 |
|
Wholesale receivables |
|
|
|
|
|
|
|
|
|
|
|
Financing leases |
|
|
.3 |
|
.09 |
|
|
.2 |
|
.07 |
|
Total recoveries |
|
|
15.5 |
|
.11 |
|
|
14.0 |
|
.11 |
|
Total net write-offs |
|
$ |
(15.3) |
|
(.11) |
% |
$ |
(27.0) |
|
(.20) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits withheld from dealers and merchants, representing mainly the aggregate dealer retail note and lease withholding accounts from individual John Deere dealers to which losses from retail notes and leases originating from the respective dealers can be charged, amounted to $170.8 million at April 29, 2018, compared with $181.0 million at October 29, 2017 and $184.2 million at April 30, 2017.
The Company’s allowance for credit losses on all Receivables financed totaled $114.8 million at April 29, 2018, $113.8 million at October 29, 2017, and $113.0 million at April 30, 2017. The allowance for credit losses represented .38 percent of the total Receivables financed at April 29, 2018, .40 percent at October 29, 2017, and .41 percent at April 30, 2017. The allowance is subject to an ongoing evaluation based on many quantitative and qualitative factors, including historical loss experience by product category, portfolio duration, delinquency trends, economic conditions, and credit risk quality. The Company believes its allowance is sufficient to provide for losses in its existing Receivable portfolio.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under “Overview” and other forward-looking statements herein that relate to future events, expectations and trends involve factors that are subject to change, and risks and uncertainties that could cause actual results to differ materially.
35
Factors that could materially affect the Company’s operations, access to capital, expenses and, results include changes in, uncertainty surrounding and the impact of governmental trade, banking, monetary, and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs, and other areas. Actions by central banks, financial, and securities regulators may affect the costs and expenses of financing the Company and the financing rates it is able to offer. The Company’s business is affected by general economic conditions in the global markets in which the Company operates because deteriorating economic conditions and political instability can result in decreased customer confidence, lower demand for equipment, higher credit losses, and greater currency risk. The Company’s business is also affected by actions of banks, financing and leasing companies, and other lenders that compete with the Company for customers; capital market disruptions; significant changes in capital market liquidity and associated funding costs; interest rates and foreign currency exchange rates and their volatility; changes to and compliance with privacy regulations; changes in weather patterns; the political and social stability of the global markets in which the Company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts; natural disasters; and the spread of major epidemics.
Significant changes in market liquidity conditions, changes in the Company’s credit ratings, and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the Company’s earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of John Deere’s products and customer confidence and purchase decisions, borrowing and repayment practices, and the number and size of customer loan delinquencies and defaults. A debt crisis, in Europe or elsewhere, could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, and Company operations and results. Security breaches, cybersecurity attacks, technology failures, and other disruptions to the Company’s information technology infrastructure also could materially affect results. The Company’s operations could be impaired by changes in the equity, bond, and other financial markets, which would negatively affect earnings.
The anticipated withdrawal of the United Kingdom from the European Union and the perceptions as to the impact of the withdrawal may adversely affect business activity, political stability, and economic conditions in the United Kingdom, the European Union, and elsewhere. The economic conditions and outlook could be further adversely affected by (i) the uncertainty concerning the timing and terms of the exit, (ii) new or modified trading arrangements between the United Kingdom and other countries, (iii) the risk that one or more other European Union countries could come under increasing pressure to leave the European Union, or (iv) the risk that the euro as the single currency of the Eurozone could cease to exist. Any of these developments, or the perception that any of these developments are likely to occur, could affect economic growth or business activity in the United Kingdom or the European Union, and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, currency exchange rates, interest rates, financial institutions, and political, financial, and monetary systems. Any of these developments could affect our businesses, liquidity, results of operations, and financial position.
The liquidity and ongoing profitability of the Company depend largely on timely access to capital in order to meet future cash flow requirements, and to fund operations, costs, and purchases of John Deere’s products. If general economic conditions deteriorate or capital markets become more volatile, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact the Company’s write-offs and provision for credit losses.
In addition, the Company’s business is closely related to John Deere’s business. Further information, including factors that could materially affect the Company’s and John Deere’s financial results, is included in the most recent Deere & Company Form 10-K and Form 10-Q (including, but not limited to, the factors discussed in Item 1A. Risk Factors of the Form 10-K and quarterly reports on Form 10-Q) and other Deere & Company and Capital Corporation quarterly and other filings with the SEC.
Critical Accounting Policies
See the Company’s critical accounting policies discussed in the Management’s Discussion and Analysis of the most recent annual report filed on Form 10-K. There have been no material changes to these policies.
36
Capital Resources and Liquidity
For additional information on the Company's dependence on and relationships with Deere & Company, see the Company's most recently filed annual report on Form 10-K.
During the first six months of 2018, the aggregate net cash provided by operating and financing activities was used primarily to fund Receivables and Leases. Net cash provided by operating activities was $643.5 million in the first six months of 2018. Net cash provided by financing activities totaled $1,363.9 million in the first six months of 2018, resulting primarily from an increase in total external borrowings of $921.5 million and a net increase in payables to John Deere of $823.9 million, partially offset by dividends paid of $365.0 million. Net cash used for investing activities totaled $2,002.3 million in the first six months of 2018, primarily due to an increase in net wholesale receivables of $2,195.5 million and the cost of equipment on operating leases acquired exceeding proceeds from sales of equipment on operating leases by $464.1 million, partially offset by the collections of Receivables (excluding wholesale) exceeding the cost of Receivables acquired (excluding wholesale) by $672.2 million. Cash and cash equivalents increased $5.4 million during the first six months of 2018.
During the first six months of 2017, the aggregate net cash provided by operating activities was used primarily to fund Receivables and Leases. Net cash provided by operating activities was $662.9 million in the first six months of 2017. Net cash used for investing activities totaled $572.1 million in the first six months of 2017, primarily due to an increase in wholesale receivables of $982.5 million and the cost of equipment on operating leases exceeding proceeds from sales of equipment on operating leases by $403.5 million, partially offset by the collections of Receivables (excluding wholesale) exceeding the cost of Receivables (excluding wholesale) by $807.1 million. Net cash used for financing activities totaled $105.5 million in the first six months of 2017, resulting primarily from a net decrease in total external borrowings of $256.7 million and dividends paid of $240.0 million, partially offset by an increase in payables to John Deere of $403.9 million. Cash and cash equivalents decreased $15.7 million during the first six months of 2017.
The Company relies on its ability to raise substantial amounts of funds to finance its Receivable and Lease portfolios. The Company has access to most global markets at a reasonable cost and expects to have sufficient sources of global funding and liquidity to meet its funding needs. The Company’s ability to meet its debt obligations is supported in a number of ways. The assets of the Company are self-liquidating in nature. A solid equity position is available to absorb unusual losses on these assets and all commercial paper is backed by unsecured, committed borrowing lines from various banks. Liquidity is also provided by the Company’s ability to securitize these assets and through the issuance of term debt. Additionally, liquidity may be provided through loans from John Deere. The Company’s commercial paper outstanding at April 29, 2018, October 29, 2017, and April 30, 2017 was $1,872.2 million, $1,993.2 million, and $1,227.4 million, respectively, while the total cash and cash equivalents position was $1,060.9 million, $1,055.5 million, and $1,073.9 million, respectively. The amount of cash and cash equivalents held by foreign subsidiaries, in which earnings are considered indefinitely reinvested, was approximately $82.5 million, $150.0 million, and $70.4 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively.
Capital Corporation has a revolving credit agreement to utilize bank conduit facilities to securitize retail notes (see Note 5). At April 29, 2018, this facility had a total capacity, or “financing limit,” of $3,500.0 million of secured financings at any time. After a two‑year revolving period, unless the banks and Capital Corporation agree to renew, Capital Corporation would liquidate the secured borrowings over time as payments on the retail notes are collected. At April 29, 2018, $1,851.5 million of short-term securitization borrowings was outstanding under the agreement.
37
During the first six months of 2018, the Company issued $3,307.0 million and retired $2,412.5 million of long-term borrowings, which were primarily medium-term notes. During the first six months of 2018, the Company also issued $1,739.2 million and retired $1,570.0 million of retail note securitization borrowings and maintained an average commercial paper balance of $1,712.5 million. At April 29, 2018, the Company’s funding profile included $1,908.9 million of commercial paper and other notes payable, $4,287.9 million of securitization borrowings, $1,382.8 million of loans from John Deere, $23,261.7 million of unsecured term debt, and $3,834.8 million of equity capital. The Company’s funding profile may be altered to reflect such factors as relative costs of funding sources, assets available for securitizations, and capital market accessibility.
Total interest-bearing indebtedness amounted to $30,841.3 million at April 29, 2018, compared with $29,314.4 million at October 29, 2017 and $28,636.7 million at April 30, 2017. Total short‑term indebtedness amounted to $13,244.4 million at April 29, 2018, compared with $11,780.0 million at October 29, 2017 and $12,674.4 million at April 30, 2017. Total long-term indebtedness amounted to $17,596.9 million at April 29, 2018, compared with $17,534.4 million at October 29, 2017 and $15,962.3 million at April 30, 2017. The ratio of total interest-bearing debt, including securitization indebtedness, to stockholder’s equity was 8.0 to 1 at April 29, 2018, compared with 8.0 to 1 at October 29, 2017 and 8.2 to 1 at April 30, 2017.
Stockholder’s equity was $3,834.8 million at April 29, 2018, compared with $3,657.2 million at October 29, 2017 and $3,488.1 million at April 30, 2017. The increase in the first six months of 2018 was primarily due to net income attributable to the Company of $518.6 million, partially offset by dividend payments of $365.0 million.
Lines of Credit
The Company has access to bank lines of credit with various banks throughout the world. Some of the lines are available to both the Company and Deere & Company. Worldwide lines of credit totaled $7,512.9 million at April 29, 2018, $3,995.2 million of which were unused. For the purpose of computing unused credit lines, commercial paper and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, of the Company and Deere & Company were primarily considered to constitute utilization. Included in the total credit lines at April 29, 2018 were 364-day credit facility agreements of $750.0 million expiring in October 2018, and $1,750.0 million expiring in April 2019. In addition, total credit lines included long-term credit facility agreements of $2,500.0 million expiring in April 2021 and $2,500.0 million expiring in April 2022. These credit agreements require the Company to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and its ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholder’s equity excluding accumulated other comprehensive income (loss)) at not more than 11 to 1 at the end of any fiscal quarter. All of these requirements of the credit agreements have been met during the periods included in the consolidated financial statements.
Debt Ratings
The Company's ability to obtain funding is affected by its debt ratings, which are closely related to the outlook for and the financial condition of John Deere, and the nature and availability of support facilities, such as its lines of credit and the support agreement from Deere & Company.
To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company’s securities as an indicator of credit quality for fixed income investors. A credit rating agency may change or withdraw Company ratings based on its assessment of the Company’s current and future ability to meet interest and principal repayment obligations. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets.
38
The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company debt securities by the rating agencies engaged by the Company are the same as those for John Deere. Those ratings are as follows:
|
|
Senior Long-Term |
|
Short-Term |
|
Outlook |
|
Fitch Ratings |
|
A |
|
F1 |
|
Stable |
|
Moody’s Investors Service, Inc. |
|
A2 |
|
Prime-1 |
|
Stable |
|
Standard & Poor’s |
|
A |
|
A-1 |
|
Stable |
|
Dividends
Capital Corporation declared and paid cash dividends to John Deere Financial Services, Inc. (JDFS) of $365.0 million and $240.0 million in the first six months of 2018 and 2017, respectively. In each case, JDFS paid comparable dividends to Deere & Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
See the Company’s most recent annual report filed on Form 10-K (Part II, Item 7A). There has been no material change in this information.
Item 4. Controls and Procedures.
The Company’s principal executive officer and its principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (Act)) were effective as of April 29, 2018, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Act. During the second quarter, there were no changes that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
39
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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 retail credit matters. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its financial statements.
See the Company's most recent annual report on Form 10-K (Part I, Item 1A). There has been no material change in this information. The risks described in the annual report on Form 10-K and the “Safe Harbor Statement” in this report are not the only risks faced by the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Omitted pursuant to instruction H.
Item 3. Defaults Upon Senior Securities.
Omitted pursuant to instruction H.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Certain instruments relating to long-term borrowings, 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 SEC.
|
|
3.2 |
|
|
|
12 |
|
|
|
31.1 |
|
|
|
31.2 |
|
|
|
32 |
|
|
|
101 |
Interactive Data File |
|
|
* Incorporated by reference. Copies of these exhibits are available from the Company upon request.
40
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.
|
|
|
|
|
|
|
|
||
|
|
|
||
|
|
JOHN DEERE CAPITAL CORPORATION |
||
|
|
|
||
|
|
|
||
|
|
|
||
|
|
|
||
Date: |
May 31, 2018 |
|
By: |
/s/ Rajesh Kalathur |
|
|
Rajesh Kalathur |
||
|
|
Senior Vice President and |
||
|
|
Principal Financial Officer |
41
John Deere Capital Corporation and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(in millions of dollars)
|
|
Six Months Ended |
|
Year Ended |
|
|||||||||||||||||
|
|
April 29 |
|
April 30 |
|
October 29 |
|
October 30 |
|
November 1 |
|
November 2 |
|
October 27 |
|
|||||||
|
|
2018 |
|
2017 |
|
2017 |
|
2016 |
|
2015 |
|
2014 |
|
2013 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income of consolidated group before income taxes |
|
$ |
267.1 |
|
$ |
208.2 |
|
$ |
498.8 |
|
$ |
520.2 |
|
$ |
766.9 |
|
$ |
802.9 |
|
$ |
725.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed charges excluding capitalized interest |
|
|
336.1 |
|
|
243.8 |
|
|
524.7 |
|
|
425.8 |
|
|
316.7 |
|
|
285.7 |
|
|
356.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earnings |
|
$ |
603.2 |
|
$ |
452.0 |
|
$ |
1,023.5 |
|
$ |
946.0 |
|
$ |
1,083.6 |
|
$ |
1,088.6 |
|
$ |
1,082.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense of consolidated group including capitalized interest |
|
$ |
335.2 |
|
$ |
242.4 |
|
$ |
521.6 |
|
$ |
423.4 |
|
$ |
312.9 |
|
$ |
281.1 |
|
$ |
352.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense |
|
|
1.7 |
|
|
1.6 |
|
|
3.6 |
|
|
3.6 |
|
|
3.8 |
|
|
4.6 |
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges |
|
$ |
336.9 |
|
$ |
244.0 |
|
$ |
525.2 |
|
$ |
427.0 |
|
$ |
316.7 |
|
$ |
285.7 |
|
$ |
356.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges |
|
|
1.79 |
|
|
1.85 |
|
|
1.95 |
|
|
2.22 |
|
|
3.42 |
|
|
3.81 |
|
|
3.04 |
|
The computation of the ratio of earnings to fixed charges is based on applicable amounts of the Company plus dividends received from unconsolidated affiliates. “Earnings” consist of income before income taxes, the cumulative effect of changes in accounting and fixed charges excluding unamortized capitalized interest. “Fixed charges” consist of interest on indebtedness, amortization of debt discount and expense, interest related to uncertain tax positions, an estimated amount of rental expense that 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.
CERTIFICATIONS
I, Samuel R. Allen, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of John Deere Capital Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
|
|
|
Date: |
May 31, 2018 |
|
By: |
/s/ Samuel R. Allen |
|
|
Samuel R. Allen |
||
|
|
Chairman and Chief Executive Officer |
CERTIFICATIONS
I, Rajesh Kalathur, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of John Deere Capital Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: |
May 31, 2018 |
|
By: |
/s/ Rajesh Kalathur |
|
|
Rajesh Kalathur |
||
|
|
Senior Vice President and |
||
|
|
Principal Financial Officer |
STATEMENT PURSUANT TO
18 U.S.C. SECTION 1350
AS REQUIRED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of John Deere Capital Corporation (the “Company”) on Form 10-Q for the period ending April 29, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify that to the best of our knowledge:
1. |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
May 31, 2018 |
|
/s/ Samuel R. Allen |
|
Chairman and Chief Executive Officer |
|
|
Samuel R. Allen |
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2018 |
|
/s/ Rajesh Kalathur |
|
Senior Vice President and Principal Financial Officer |
|
|
Rajesh Kalathur |
|
|
A signed original of this written statement required by Section 906 has been provided to John Deere Capital Corporation and will be retained by John Deere Capital Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
Document and Entity Information |
6 Months Ended |
---|---|
Apr. 29, 2018
shares
| |
Document and Entity Information | |
Entity Registrant Name | DEERE JOHN CAPITAL CORP |
Entity Central Index Key | 0000027673 |
Document Type | 10-Q |
Document Period End Date | Apr. 29, 2018 |
Amendment Flag | false |
Current Fiscal Year End Date | --10-28 |
Entity Current Reporting Status | Yes |
Entity Filer Category | Non-accelerated Filer |
Entity Common Stock, Shares Outstanding | 2,500 |
Document Fiscal Year Focus | 2018 |
Document Fiscal Period Focus | Q2 |
Statement of Consolidated Comprehensive Income - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Apr. 29, 2018 |
Apr. 30, 2017 |
Apr. 29, 2018 |
Apr. 30, 2017 |
|
Statement of Consolidated Comprehensive Income | ||||
Net income | $ 119.2 | $ 64.5 | $ 518.6 | $ 138.8 |
Other comprehensive income (loss), net of income taxes | ||||
Cumulative translation adjustment | (17.2) | 7.4 | 13.8 | 1.6 |
Unrealized gain (loss) on derivatives | 4.9 | (0.2) | 10.2 | 2.0 |
Other comprehensive income (loss), net of income taxes | (12.3) | 7.2 | 24.0 | 3.6 |
Comprehensive income of consolidated group | 106.9 | 71.7 | 542.6 | 142.4 |
Less: Comprehensive income attributable to noncontrolling interests | 0.1 | |||
Comprehensive income attributable to the Company | $ 106.9 | $ 71.7 | $ 542.6 | $ 142.3 |
Consolidated Balance Sheet (Parenthetical) - shares |
Apr. 29, 2018 |
Oct. 29, 2017 |
Apr. 30, 2017 |
---|---|---|---|
Consolidated Balance Sheet | |||
Common stock, issued shares | 2,500 | 2,500 | 2,500 |
Common stock, outstanding shares | 2,500 | 2,500 | 2,500 |
Statement of Changes in Consolidated Stockholder's Equity - USD ($) $ in Millions |
Common Stock |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Non-controlling Interests |
Total |
---|---|---|---|---|---|
Balance at Oct. 30, 2016 | $ 1,482.8 | $ 2,186.3 | $ (83.8) | $ 0.4 | $ 3,585.7 |
Increase (Decrease) in Stockholder's Equity | |||||
Net income | 138.7 | 0.1 | 138.8 | ||
Other comprehensive income | 3.6 | 3.6 | |||
Dividends declared | (240.0) | (240.0) | |||
Balance at Apr. 30, 2017 | 1,482.8 | 2,085.0 | (80.2) | 0.5 | 3,488.1 |
Balance at Oct. 29, 2017 | 1,482.8 | 2,229.7 | (55.8) | 0.5 | 3,657.2 |
Increase (Decrease) in Stockholder's Equity | |||||
Net income | 518.6 | 518.6 | |||
Other comprehensive income | 24.0 | 24.0 | |||
Dividends declared | (365.0) | (365.0) | |||
Balance at Apr. 29, 2018 | $ 1,482.8 | $ 2,383.3 | $ (31.8) | $ 0.5 | $ 3,834.8 |
Organization and Consolidation |
6 Months Ended |
---|---|
Apr. 29, 2018 | |
Organization and Consolidation | |
Organization and Consolidation | (1) The interim consolidated financial statements of John Deere Capital Corporation (Capital Corporation) and its subsidiaries (collectively called the 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. The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The second quarter ends for fiscal year 2018 and 2017 were April 29, 2018 and April 30, 2017, respectively. Both periods contained 13 weeks. The Company provides and administers financing for retail purchases of new equipment manufactured by Deere & Company’s agriculture and turf and construction and forestry operations and used equipment taken in trade for this equipment. The Company generally purchases retail installment sales and loan contracts (retail notes) from Deere & Company and its wholly-owned subsidiaries (collectively called John Deere). John Deere generally acquires these retail notes through John Deere retail dealers. The Company also purchases and finances a limited amount of non-Deere retail notes. The Company also finances and services revolving charge accounts, in most cases acquired from and offered through merchants in the agriculture and turf and construction and forestry markets (revolving charge accounts). The Company also provides wholesale financing for inventories of John Deere agriculture and turf and construction and forestry equipment owned by dealers of those products (wholesale receivables). In addition, the Company leases John Deere equipment and a limited amount of non‑Deere equipment to retail customers (financing and operating leases). The Company also offers credit enhanced international export financing to select customers and dealers, which generally involves John Deere products. Retail notes, revolving charge accounts, wholesale receivables, and financing leases are collectively called “Receivables.” Receivables and equipment on operating leases are collectively called “Receivables and Leases.”
|
New Accounting Standards |
6 Months Ended |
---|---|
Apr. 29, 2018 | |
New Accounting Standards | |
New Accounting Standards | (2) New accounting standards adopted are as follows: In the first quarter of 2018, the Company early adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends Accounting Standards Codification (ASC) 715, Compensation – Retirement Benefits. This ASU required that employers report only the service cost component of the total defined benefit pension and postretirement benefit cost in the same income statement lines as compensation for the participating employees. The other components of these benefit costs are reported outside of operating profit. The ASU was adopted on a retrospective basis that decreased operating profit in the second quarter and first six months of 2018 by $2.1 million and $4.1 million, respectively, and second quarter and first six months of 2017 by $1.9 million and $3.6 million, respectively. The adoption did not impact the presentation of defined benefit pension and postretirement benefit costs on the income statement, as the Company reports both the service cost component and other components of these benefit costs in the income statement line administrative and operating expenses. In addition, only the service cost component of the benefit costs is eligible for capitalization, which was adopted beginning the first quarter of 2018. In the first quarter of 2018, the Company adopted ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which amends ASC 323, Investments – Equity Method and Joint Ventures, which did not have a material effect on the Company’s consolidated financial statements. In March 2018, the FASB issued ASU No. 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which amends ASC 740, Income Taxes. In December 2017, the U.S. government enacted new tax legislation (tax reform). This ASU incorporates SEC Staff Accounting Bulletin No. 118, which was also issued in December 2017, into the ASC. The ASU provides guidance on when to record and disclose provisional amounts related to tax reform. In addition, the ASU allows for a measurement period up to one year after the enactment date of tax reform to complete the related accounting requirements and was effective when issued. The Company will complete the adjustments related to tax reform within the allowed period. The effects of tax reform on the Company’s consolidated financial statements are outlined in Note 8. New accounting standards to be adopted are as follows: In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue. The FASB issued several amendments clarifying various aspects of the ASU, including revenue transactions that involve a third party, goods or services that are immaterial in the context of the contract, and licensing arrangements. The Company will adopt the ASU effective the first quarter of fiscal year 2019 using a modified retrospective method. The Company’s evaluation of the ASU is largely complete. At this point of the evaluation, the Company has not identified an item that will have a material effect on the Company’s consolidated financial statements. The Company continues to evaluate the ASU’s potential effects on the consolidated financial statements. In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends ASC 825-10, Financial Instruments – Overall. This ASU changes the treatment for available-for-sale equity investments by recognizing unrealized fair value changes directly in net income and no longer in Other Comprehensive Income (OCI). The effective date will be the first quarter of fiscal year 2019. Early adoption of the provisions affecting the Company is not permitted. The ASU will be adopted with a cumulative-effect adjustment to the balance sheet in the year of adoption. The Company is evaluating the potential effects on the consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. The ASU’s primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset during the term of operating lease arrangements. The ASU does not significantly change the lessee’s recognition, measurement, and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. The ASU currently requires that lessees and lessors use a modified retrospective transition approach. In January 2018, the FASB issued an exposure draft to provide for an adoption option that would not require earlier periods to be restated at the adoption date. The effective date will be the first quarter of fiscal year 2020 with early adoption permitted. The Company is evaluating the potential adoption options and the effects on the consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASC 326, Financial Instruments – Credit Losses. The ASU revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss methodology to an expected loss methodology. The ASU affects trade receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. The effective date will be the first quarter of fiscal year 2021, with early adoption permitted beginning in fiscal year 2020. The ASU will be adopted using a modified-retrospective approach. The Company is evaluating the potential effects on the consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which amends ASC 230, Statement of Cash Flows. This ASU provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted. The ASU will be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements. In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which amends ASC 740, Income Taxes. This ASU requires that the income tax consequences of an intra-entity asset transfer other than inventory are recognized at the time of the transfer. The effective date will be the first quarter of fiscal year 2019. The ASU will be adopted using a modified-retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which amends ASC 230, Statement of Cash Flows. This ASU requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted, and will be adopted using a retrospective transition approach. The adoption will not have a material effect on the Company’s consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which amends ASC 805, Business Combinations. This ASU provides further guidance on the definition of a business to determine whether transactions should be accounted for as acquisitions of assets or businesses. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted in certain cases. The ASU will be adopted on a prospective basis and will not have a material effect on the Company’s consolidated financial statements. In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, which amends ASC 718, Compensation – Stock Compensation. This ASU provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. The ASU will be adopted on a prospective basis. The effective date is the first quarter of fiscal year 2019, with early adoption permitted. The adoption will not have a material effect on the Company’s consolidated financial statements. In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815, Derivatives and Hedging. The purpose of this ASU is to better align a company’s risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements. The effective date is fiscal year 2020, with early adoption permitted. The Company is evaluating the potential effects on the consolidated financial statements. In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends ASC 220, Income Statement – Reporting Comprehensive Income. Included in the provisions of tax reform is a reduction of the corporate income tax rate from 35 percent to 21 percent. Accounting principles generally accepted in the U.S. require that deferred taxes are remeasured to the new corporate tax rate in the period legislation is enacted. The deferred tax adjustment is recorded in the provision for income taxes, including items for which the tax effects were originally recorded in OCI. This treatment results in the items in OCI not reflecting the appropriate tax rate, which are referred to as stranded tax effects. This ASU allows a reclassification from accumulated OCI to retained earnings for stranded tax effects resulting from tax reform. The effective date is fiscal year 2020, with early adoption permitted, including in interim periods. The ASU can be adopted at the beginning of an interim or annual period or retrospectively to each period affected by tax reform. The Company is evaluating the potential effects of the ASU on the consolidated financial statements. |
Other Comprehensive Income Items |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Other Comprehensive Income Items | (3) The after-tax changes in accumulated other comprehensive income (loss) were as follows (in millions of dollars):
Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, (in millions of dollars):
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Receivables |
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Receivables | (4) Past due balances of Receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date. The Company monitors the credit quality of Receivables as either performing or non-performing monthly. Non-performing Receivables represent loans for which the Company has ceased accruing finance income. Generally, when retail notes are approximately 120 days delinquent, accrual of finance income is suspended, the collateral is repossessed or the account is designated for litigation, and the estimated uncollectible amount, after charging the dealer's withholding account, if any, is written off to the allowance for credit losses. Revolving charge accounts are generally deemed to be uncollectible and written off to the allowance for credit losses when delinquency reaches 120 days. Generally, when a wholesale receivable becomes 60 days delinquent, the Company determines whether the accrual of finance income on interest-bearing wholesale receivables should be suspended, the collateral should be repossessed or the account should be designated for litigation, and the estimated uncollectible amount written off to the allowance for credit losses. Generally, when a financing lease account becomes 120 days delinquent, the accrual of lease revenue is suspended, the equipment is repossessed or the account is designated for litigation, and the estimated uncollectible amount, after charging the dealer's withholding account, if any, is written off to the allowance for credit losses. Finance income for non-performing Receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured. An age analysis of past due Receivables that are still accruing interest and non-performing Receivables was as follows (in millions of dollars):
Allowances for credit losses on Receivables are maintained in amounts considered to be appropriate in relation to the Receivables outstanding based on historical loss experience by product category, portfolio duration, delinquency trends, economic conditions, and credit risk quality. An analysis of the allowance for credit losses and investment in Receivables was as follows (in millions of dollars):
* Remainder is collectively evaluated.
* Remainder is collectively evaluated. Receivables are considered impaired when it is probable the Company will be unable to collect all amounts due according to the contractual terms. Receivables reviewed for impairment generally include those that are either past due, or have provided bankruptcy notification, or require significant collection efforts. Receivables that are impaired are generally classified as non‑performing. An analysis of impaired Receivables was as follows (in millions of dollars):
* Finance income recognized was not material. A troubled debt restructuring is generally the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During the first six months of 2018, the Company identified 212 Receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $11.2 million pre‑modification and $10.6 million post‑modification. During the first six months of 2017, there were 222 Receivable contracts, primarily retail notes, with aggregate balances of $4.8 million pre‑modification and $3.8 million post‑modification. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At April 29, 2018, the Company had no commitments to lend additional funds to borrowers whose accounts were modified in troubled debt restructurings. |
Securitization of Receivables |
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Securitization of Receivables | (5) Securitization of receivables: The Company, as a part of its overall funding strategy, periodically transfers certain Receivables (retail notes) into variable interest entities (VIEs) that are special purpose entities (SPEs), or non‑VIE banking operations, as part of its asset-backed securities programs (securitizations). The structure of these transactions is such that the transfer of the retail notes did not meet the accounting criteria for sales of receivables, and is, therefore, accounted for as a secured borrowing. SPEs utilized in securitizations of retail notes differ from other entities included in the Company’s consolidated statements because the assets they hold are legally isolated. Use of the assets held by the SPEs or the non‑VIEs is restricted by terms of the documents governing the securitization transactions. In these securitizations, the retail notes are transferred to certain SPEs or to non-VIE banking operations, which in turn issue debt to investors. The debt securities issued to the third party investors result in secured borrowings, which are recorded as “Securitization borrowings” on the balance sheet. The securitized retail notes are recorded as “Retail notes securitized” on the balance sheet. The total restricted assets on the balance sheet related to these securitizations include the retail notes securitized less an allowance for credit losses, and other assets primarily representing restricted cash. For those securitizations in which retail notes are transferred into SPEs, the SPEs supporting the secured borrowings are consolidated unless the Company does not have both the power to direct the activities that most significantly impact the SPEs’ economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the SPEs. No additional support to these SPEs beyond what was previously contractually required has been provided during the reporting periods. In certain securitizations, the Company consolidates the SPEs since it has both the power to direct the activities that most significantly impact the SPEs’ economic performance through its role as servicer of all the Receivables held by the SPEs and the obligation through variable interests in the SPEs to absorb losses or receive benefits that could potentially be significant to the SPEs. The restricted assets (retail notes securitized, allowance for credit losses, and other assets) of the consolidated SPEs totaled $2,488.9 million, $2,630.5 million, and $2,588.8 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. The liabilities (securitization borrowings and accrued interest) of these SPEs totaled $2,438.4 million, $2,571.1 million, and $2,522.4 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. The credit holders of these SPEs do not have legal recourse to the Company’s general credit. In certain securitizations, the Company transfers retail notes to non-VIE banking operations, which are not consolidated since the Company does not have a controlling interest in the entities. The Company’s carrying values and interests related to the securitizations with the unconsolidated non-VIEs were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of $572.8 million, $478.4 million, and $413.2 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. The liabilities (securitization borrowings and accrued interest) were $542.6 million, $454.1 million, and $389.7 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. In certain securitizations, the Company transfers retail notes into bank-sponsored, multi-seller, commercial paper conduits, which are SPEs that are not consolidated. The Company does not service a significant portion of the conduits’ receivables, and therefore, does not have the power to direct the activities that most significantly impact the conduits’ economic performance. These conduits provide a funding source to the Company (as well as other transferors into the conduit) as they fund the retail notes through the issuance of commercial paper. The Company’s carrying values and variable interest related to these conduits were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of $1,383.1 million, $1,155.1 million, and $1,394.7 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. The liabilities (securitization borrowings and accrued interest) related to these conduits were $1,310.3 million, $1,096.3 million, and $1,315.2 million at April 29, 2018, October 29, 2017, and April 30, 2017, respectively. The Company’s carrying amount of the liabilities to the unconsolidated conduits, compared to the maximum exposure to loss related to these conduits, which would only be incurred in the event of a complete loss on the restricted assets was as follows (in millions of dollars):
The total assets of unconsolidated VIEs related to securitizations were approximately $35.9 billion at April 29, 2018. The components of consolidated restricted assets related to secured borrowings in securitization transactions were as follows (in millions of dollars):
The components of consolidated secured borrowings and other liabilities related to securitizations were as follows (in millions of dollars):
The secured borrowings related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash flows generated by the restricted assets. Due to the Company's short-term credit rating, cash collections from these restricted assets are not required to be placed into a segregated collection account until immediately prior to the time payment is required to the secured creditors. At April 29, 2018, the maximum remaining term of all restricted securitized retail notes was approximately seven years. |
Notes Receivable from John Deere |
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Notes Receivable from John Deere | (6) Notes receivable from John Deere: The Company makes loans to affiliated companies. The Company receives interest from John Deere at competitive market interest rates. The lending agreements range in maturity up to five years. Interest earned from John Deere was $2.3 million in the second quarter of 2018 and $5.1 million for the first six months of 2018, compared with none for the same periods in 2017. The Company had notes receivable from John Deere with the following affiliated companies as follows (in millions of dollars):
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Commitments and Contingencies |
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Commitments and Contingencies | |
Commitments and Contingencies | (7) Commitments and contingencies: At April 29, 2018, John Deere Financial Inc., the John Deere finance subsidiary in Canada, had $320.8 million of commercial paper and a fair value liability of $30.4 million for derivatives outstanding, prior to considering applicable netting provisions, with a notional amount of $1,716.9 million that were guaranteed by Capital Corporation. Capital Corporation has a variable interest in John Deere Canada Funding Inc. (JDCFI), a wholly-owned subsidiary of John Deere Financial Inc., which was created as a VIE to issue debt in public markets to fund the operations of affiliated companies in Canada. Capital Corporation has a variable interest in JDCFI because it provides guarantees for all debt issued by JDCFI, however it does not consolidate JDCFI because it does not have the power to direct the activities that most significantly impact JDCFI’s economic performance. Capital Corporation has no carrying value of assets or liabilities related to JDCFI. Its maximum exposure to loss is the amount of the debt issued by JDCFI and guaranteed by Capital Corporation, which was $2,176.4 million at April 29, 2018. The weighted average interest rate on the debt at April 29, 2018 was 2.2 percent with a maximum remaining maturity of approximately five years. No additional support beyond what was previously contractually required has been provided to JDCFI during the reporting periods. The Company has commitments to extend credit to customers and John Deere dealers through lines of credit and other pre-approved credit arrangements. The Company applies the same credit policies and approval process for these commitments to extend credit as it does for its Receivables. Collateral is not required for these commitments, but if credit is extended, collateral may be required upon funding. The amount of unused commitments to extend credit to John Deere dealers was $7.0 billion at April 29, 2018. The amount of unused commitments to extend credit to customers was $27.9 billion at April 29, 2018. A significant portion of these commitments is not expected to be fully drawn upon; therefore, the total commitment amounts likely do not represent a future cash requirement. The Company generally has the right to unconditionally cancel, alter, or amend the terms of these commitments at any time. Over 95 percent of the unused commitments to extend credit to customers relate to revolving charge accounts. At April 29, 2018, Capital Corporation had $31.0 million in unused loan commitments denominated in rubles to Limited Liability Company John Deere Financial, the John Deere finance subsidiary in Russia. At April 29, 2018, the Company had restricted other assets of approximately $32.0 million. See Note 5 for additional restricted assets associated with borrowings related to securitizations. 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 retail credit. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements. |
Income Taxes |
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Income Taxes | (8) On December 22, 2017, the U.S. government enacted tax reform. The primary provisions of tax reform expected to impact the Company in fiscal year 2018 are a reduction to the corporate income tax rate from 35 percent to 21 percent and a transition from a worldwide corporate tax system to a territorial tax system. The reduction in the corporate income tax rate requires the Company to remeasure its net deferred tax liabilities to the new corporate tax rate and the transition to a territorial tax system requires payment of a one‑time tax on deemed repatriation of undistributed and previously untaxed non-U.S. earnings. The Company currently plans to pay the deemed repatriation tax over an eight year period, as allowed by tax reform. In December 2017, the SEC issued a staff accounting bulletin that allows for a measurement period up to one year after the enactment date of tax reform to complete the related accounting requirements. The tax reform measurement period adjustments and the effects on the results of the second quarter and first six months of 2018 were as follows (in millions of dollars):
The second quarter measurement period benefit on the net deferred tax liabilities primarily results from expanded bonus depreciation on lease transactions and a planned, voluntary contribution to U.S. pension and other postretirement benefit plans, which result in tax deductions applicable to the 2017 tax year. Further disclosure related to this contribution is included in Deere & Company’s Form 10-Q for the quarter ended April 29, 2018. The provision for income taxes was also affected by other tax reform items, primarily the lower corporate income tax rate on current year income. The 21 percent corporate income tax rate is effective January 1, 2018. Based on the Company’s October fiscal year end, the U.S. statutory income tax rate for fiscal year 2018 will be approximately 23.3 percent. The tax benefit for the first six months of 2018 is provisional as outlined below and may change during the remaining measurement period. The Company completed a preliminary assessment of earnings that could be repatriated based on reinvestment needs of non-U.S. operations and earnings available for repatriation. The estimated withholding tax that would be incurred from the repatriation of those earnings is included in the first six months of 2018 provisional income tax benefit. The Company continues to analyze the provisions of tax reform addressing the net deferred tax liability remeasurement and the calculations, and the deemed earnings repatriation tax, including the determination of undistributed non-U.S. earnings. In addition, the Company is evaluating actions, including repatriating additional non-U.S. earnings and other actions that could affect the Company’s 2017 U.S. taxable income. The Company also continues to prepare its 2017 U.S. income tax returns, undergo income tax audits, and monitor potential legislative action and regulatory interpretations of tax reform. Based on the effective date of certain provisions, the Company will be subject to additional requirements of tax reform beginning in fiscal year 2019. Those provisions include a tax on global intangible low-taxed income (GILTI), a tax determined by base erosion and anti-abuse tax benefits (BEAT) from certain payments between a U.S. corporation and foreign subsidiaries, a limitation of certain executive compensation, a deduction for foreign derived intangible income (FDII), and interest expense limitations. The Company has not completed its analysis of those provisions and the estimated effects. The Company also has not determined its accounting policy to treat the taxes due on GILTI as a period cost or include them in the determination of deferred taxes. The Company’s unrecognized tax benefits at April 29, 2018 were $41.1 million, compared to $35.5 million at October 29, 2017. The liability at April 29, 2018 consisted of approximately $19.8 million, which would affect the effective tax rate if it was recognized. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The changes in the unrecognized tax benefits for the first six months of 2018 were not significant. The Company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next 12 months would not be significant. |
Fair Value Measurements |
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Fair Value Measurements | (9) Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine fair value, the Company uses various methods including market and income approaches. The Company utilizes valuation models and techniques that maximize the use of observable inputs. The models are industry-standard models that consider various assumptions including time values and yield curves as well as other economic measures. These valuation techniques are consistently applied. Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs. Level 3 measurements include significant unobservable inputs. The fair values of financial instruments that do not approximate the carrying values were as follows (in millions of dollars):
* Fair value measurements above were Level 3 for all Receivables and Level 2 for all borrowings. Fair values of Receivables that were issued long-term were based on the discounted values of their related cash flows at interest rates currently being offered by the Company for similar Receivables. The fair values of the remaining Receivables approximated the carrying amounts. Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or on the discounted values of their related cash flows at current market interest rates. Certain long-term borrowings have been swapped to current variable interest rates. The carrying values of these long-term borrowings include adjustments related to fair value hedges. Assets and liabilities measured at fair value as Level 2 measurements on a recurring basis were as follows (in millions of dollars):
* Excluded from this table were the Company’s cash equivalents, which were carried at cost that approximates fair value. The cash equivalents consist primarily of money market funds that were Level 1 measurements. Fair value, nonrecurring Level 3 measurements related to Receivables with specific allowances were not significant during any periods presented. See Note 4 for additional information. The following is a description of the valuation methodologies the Company uses to measure certain financial instruments on the balance sheet at fair value: Derivatives – The Company’s derivative financial instruments consist of interest rate swaps and caps, foreign currency forwards and swaps, and cross-currency interest rate swaps. The portfolio is valued based on an income approach (discounted cash flow) using market observable inputs, including swap curves and both forward and spot exchange rates for currencies. Receivables – Specific reserve impairments are based on the fair value of the collateral, which is measured using a market approach (appraisal values or realizable values). Inputs include a selection of realizable values. |
Derivative Instruments |
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Derivative Instruments | (10) It is the Company’s policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. The Company manages the relationship of the types and amounts of its funding sources to its Receivable and Lease portfolios in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. The Company also has foreign currency exposures at some of its foreign and domestic operations related to financing in currencies other than the functional currencies. All derivatives are recorded at fair value on the balance sheet. Cash collateral received or paid is not offset against the derivative fair values on the balance sheet. Each derivative is designated as a cash flow hedge, a fair value hedge, or remains undesignated. All designated hedges are formally documented as to the relationship with the hedged item as well as the risk-management strategy. Both at inception and on an ongoing basis the hedging instrument is assessed as to its effectiveness. If and when a derivative is determined not to be highly effective as a hedge, or the underlying hedged transaction is no longer likely to occur, or the hedge designation is removed, or the derivative is terminated, hedge accounting is discontinued. Any past or future changes in the derivative’s fair value, which will not be effective as an offset to the income effects of the item being hedged, are recognized currently in the income statement. Cash flow hedges Certain interest rate contracts (swaps) were designated as hedges of future cash flows from borrowings. The total notional amounts of the receive-variable/pay-fixed interest rate contracts at April 29, 2018, October 29, 2017, and April 30, 2017 were $1,800.0 million, $1,700.0 million, and $1,600.0 million, respectively. The effective portions of the fair value gains or losses on these cash flow hedges were recorded in OCI and subsequently reclassified into interest expense in the same periods during which the hedged transactions affected earnings. These amounts offset the effects of interest rate changes on the related borrowings. Any ineffective portions of the gains or losses on all cash flow interest rate contracts designated as cash flow hedges were recognized currently in interest expense and were not material during any periods presented. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows. The amount of gain recorded in OCI at April 29, 2018 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is approximately $9.5 million after-tax. These contracts mature in up to 26 months. There were no gains or losses reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur. Fair value hedges Certain interest rate contracts (swaps) were designated as fair value hedges of borrowings. The total notional amounts of these receive-fixed/pay-variable interest rate contracts at April 29, 2018, October 29, 2017, and April 30, 2017 were $8,071.6 million, $8,077.2 million, and $7,055.2 million, respectively. The effective portions of the fair value gains or losses on these contracts were offset by fair value gains or losses on the hedged items (fixed-rate borrowings). Any ineffective portions of the gains or losses were recognized currently in interest expense. The ineffective portions were a loss of $2.0 million and a gain of $.1 million during the second quarter of 2018 and 2017, respectively, and a loss of $3.3 million and a gain of $2.1 million during the first six months of 2018 and 2017, respectively. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows. The gains (losses) on these contracts and the underlying borrowings recorded in interest expense were as follows (in millions of dollars):
* Includes changes in fair values of interest rate contracts excluding net accrued interest income of $5.2 million and $21.5 million during the second quarter of 2018 and 2017, respectively, and $17.1 million and $46.2 million during the first six months of 2018 and 2017, respectively. ** Includes adjustments for fair values of hedged borrowings excluding accrued interest expense of $62.5 million and $58.0 million during the second quarter of 2018 and 2017, respectively, and $122.0 million and $119.4 million during the first six months of 2018 and 2017, respectively. Derivatives not designated as hedging instruments The Company has certain interest rate contracts (swaps and caps), foreign exchange contracts (forwards and swaps), and cross-currency interest rate contracts (swaps), which were not formally designated as hedges. These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures primarily for certain borrowings. The total notional amounts of these interest rate swaps at April 29, 2018, October 29, 2017, and April 30, 2017 were $2,419.9 million, $2,311.3 million, and $2,039.1 million, the foreign exchange contracts were $1,487.4 million, $1,455.9 million, and $1,392.7 million, and the cross‑currency interest rate contracts were $82.4 million, $65.8 million, and $76.4 million, respectively. At April 29, 2018, October 29, 2017, and April 30, 2017 there were also $1,932.5 million, $1,594.3 million, and $1,873.2 million, respectively, of interest rate caps purchased and the same amounts sold at the same capped interest rate to facilitate borrowings through securitization of retail notes. The fair value gains or losses from the interest rate contracts were recognized currently in interest expense and the gains or losses from foreign exchange contracts in administrative and operating expenses, generally offsetting over time the expenses on the exposures being hedged. The cash flows from these non-designated contracts were recorded in operating activities in the statement of consolidated cash flows.
Fair values of derivative instruments in the consolidated balance sheet were as follows (in millions of dollars):
The classification and gains (losses), including accrued interest expense related to derivative instruments on the statement of consolidated income consisted of the following (in millions of dollars):
* Includes interest and foreign exchange gains (losses) from cross-currency interest rate contracts. ** The amounts were not significant. Included in the table above are interest expense and administrative and operating expense amounts the Company incurred on derivatives transacted with John Deere. The amount the Company recognized on these affiliate party transactions for the three months ended April 29, 2018 and April 30, 2017 were a loss of $120.0 million and a gain of $43.6 million, respectively. The amount the Company recognized on these affiliate party transactions for the six months ended April 29, 2018 and April 30, 2017 were losses of $254.7 million and $153.2 million, respectively. Counterparty Risk and Collateral The Company’s outstanding derivatives have been transacted with both unrelated external counterparties and with John Deere. For derivatives transacted with John Deere, the Company utilizes a centralized hedging structure in which John Deere enters into a derivative transaction with an unrelated external counterparty and simultaneously enters into a derivative transaction with the Company. Except for collateral provisions, the terms of the transaction between the Company and John Deere are identical to the terms of the transaction between John Deere and its unrelated external counterparty. Certain of the Company’s derivative agreements executed directly with the unrelated external counterparties contain credit support provisions that may require the Company to post collateral based on the size of the net liability positions and credit ratings. At April 29, 2018, October 29, 2017, and April 30, 2017, there were no aggregate liability positions for derivatives with credit-risk-related contingent features. If the credit‑risk‑related contingent features were triggered, the Company would be required to post collateral up to an amount equal to any liability position, prior to considering applicable netting provisions. Derivative instruments are subject to significant concentrations of credit risk to the banking sector. The Company manages individual unrelated external counterparty exposure by setting limits that consider the credit rating of the unrelated external counterparty, the credit default swap spread of the counterparty, and other financial commitments and exposures between the Company and the unrelated external counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Some of these agreements executed with unrelated external counterparties include credit support provisions. Each master agreement executed with an unrelated external counterparty permits the net settlement of amounts owed in the event of default or termination. The Company also has ISDA agreements with John Deere that permit the net settlement of amounts owed between counterparties in the event of early termination. In addition, the Company has a loss sharing agreement with John Deere in which it has agreed to absorb any losses and expenses John Deere incurs if an unrelated external counterparty fails to meet its obligations on a derivative transaction that John Deere entered into to manage exposures of the Company. The loss sharing agreement does not increase the maximum amount of loss that the Company would incur, after considering collateral received and netting arrangements, as of April 29, 2018. The loss sharing agreement increased the maximum amount of loss that the Company would incur, after considering collateral received and netting arrangements, by $23.5 million and $43.0 million as of October 29, 2017 and April 30, 2017, respectively. Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities for external derivatives and those with John Deere related to netting arrangements and any collateral received or paid were as follows (in millions of dollars):
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Pension and Other Postretirement Benefits |
6 Months Ended |
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Apr. 29, 2018 | |
Pension and Other Postretirement Benefits | |
Pension and Other Postretirement Benefits | (11) The Company is a participating employer in certain Deere & Company sponsored defined benefit pension plans for employees in the U.S. and certain defined benefit pension plans outside the U.S. These pension plans provide for benefits that are based primarily on years of service and employee compensation. Pension expense is actuarially determined based on the Company’s employees included in the plan. The Company’s pension expense amounted to $1.7 million for the second quarter and $3.4 million for the first six months of 2018, compared with $1.4 million and $2.8 million for the same periods last year. The accumulated benefit obligation and plan net assets for the employees of the Company are not determined separately from Deere & Company. The Company provides defined benefit health care and life insurance plans for certain retired employees in the U.S. as a participating employer in Deere & Company’s sponsored plans. Health care and life insurance benefits expense is actuarially determined based on the Company’s employees included in the plans and amounted to $.6 million for the second quarter and $1.3 million for the first six months of 2018, compared with $.9 million and $1.8 million for the same periods last year. Further disclosure for these plans is included in Deere & Company’s Form 10-Q for the quarter ended April 29, 2018. |
Summary of Significant Accounting Policies (Policies) |
6 Months Ended |
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Apr. 29, 2018 | |
Summary of Significant Accounting Policies | |
Use of Estimates in Financial Statements | 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. |
Fiscal Year | The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The second quarter ends for fiscal year 2018 and 2017 were April 29, 2018 and April 30, 2017, respectively. Both periods contained 13 weeks. |
Receivables - Non-Performing, Policy | Past due balances of Receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date. The Company monitors the credit quality of Receivables as either performing or non-performing monthly. Non-performing Receivables represent loans for which the Company has ceased accruing finance income. Generally, when retail notes are approximately 120 days delinquent, accrual of finance income is suspended, the collateral is repossessed or the account is designated for litigation, and the estimated uncollectible amount, after charging the dealer's withholding account, if any, is written off to the allowance for credit losses. Revolving charge accounts are generally deemed to be uncollectible and written off to the allowance for credit losses when delinquency reaches 120 days. Generally, when a wholesale receivable becomes 60 days delinquent, the Company determines whether the accrual of finance income on interest-bearing wholesale receivables should be suspended, the collateral should be repossessed or the account should be designated for litigation, and the estimated uncollectible amount written off to the allowance for credit losses. Generally, when a financing lease account becomes 120 days delinquent, the accrual of lease revenue is suspended, the equipment is repossessed or the account is designated for litigation, and the estimated uncollectible amount, after charging the dealer's withholding account, if any, is written off to the allowance for credit losses. Finance income for non-performing Receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured. Receivables are considered impaired when it is probable the Company will be unable to collect all amounts due according to the contractual terms. Receivables reviewed for impairment generally include those that are either past due, or have provided bankruptcy notification, or require significant collection efforts. Receivables that are impaired are generally classified as non-performing.
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Receivables - Allowance for Credit Losses, Policy | Allowances for credit losses on Receivables are maintained in amounts considered to be appropriate in relation to the Receivables outstanding based on historical loss experience by product category, portfolio duration, delinquency trends, economic conditions, and credit risk quality. |
Troubled Debt Restructuring, Policy | A troubled debt restructuring is generally the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. |
Fair Value of Financial Instruments, Policy | Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine fair value, the Company uses various methods including market and income approaches. The Company utilizes valuation models and techniques that maximize the use of observable inputs. The models are industry-standard models that consider various assumptions including time values and yield curves as well as other economic measures. These valuation techniques are consistently applied. |
Derivative Financial Instruments | It is the Company’s policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. The Company manages the relationship of the types and amounts of its funding sources to its Receivable and Lease portfolios in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. The Company also has foreign currency exposures at some of its foreign and domestic operations related to financing in currencies other than the functional currencies. All derivatives are recorded at fair value on the balance sheet. Cash collateral received or paid is not offset against the derivative fair values on the balance sheet. Each derivative is designated as a cash flow hedge, a fair value hedge, or remains undesignated. All designated hedges are formally documented as to the relationship with the hedged item as well as the risk-management strategy. Both at inception and on an ongoing basis the hedging instrument is assessed as to its effectiveness. If and when a derivative is determined not to be highly effective as a hedge, or the underlying hedged transaction is no longer likely to occur, or the hedge designation is removed, or the derivative is terminated, hedge accounting is discontinued. Any past or future changes in the derivative’s fair value, which will not be effective as an offset to the income effects of the item being hedged, are recognized currently in the income statement. |
Other Comprehensive Income Items (Tables) |
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Other Comprehensive Income Items | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of After-Tax Changes in Accumulated Other Comprehensive Income (Loss) | The after-tax changes in accumulated other comprehensive income (loss) were as follows (in millions of dollars):
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Schedule of Amounts Recorded in and Reclassifications out of Other Comprehensive Income (Loss) and the Income Tax Effects | Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, (in millions of dollars):
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Receivables (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Age Analysis of past due Receivables that are still accruing interest and non-performing Receivables | An age analysis of past due Receivables that are still accruing interest and non-performing Receivables was as follows (in millions of dollars):
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Analysis of the Allowance for Credit Losses and Investment in Receivables | An analysis of the allowance for credit losses and investment in Receivables was as follows (in millions of dollars):
* Remainder is collectively evaluated.
* Remainder is collectively evaluated. |
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Analysis of Impaired Receivables | An analysis of impaired Receivables was as follows (in millions of dollars):
* Finance income recognized was not material. |
Securitization of Receivables (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 29, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securitization of Receivables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unconsolidated Conduits, Carrying Amount of Liabilities Compared to Maximum Exposure to Loss | The Company’s carrying amount of the liabilities to the unconsolidated conduits, compared to the maximum exposure to loss related to these conduits, which would only be incurred in the event of a complete loss on the restricted assets was as follows (in millions of dollars):
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Components of Consolidated Restricted Assets, Secured Borrowings and Other Liabilities Related to Securitization Transactions | The components of consolidated restricted assets related to secured borrowings in securitization transactions were as follows (in millions of dollars):
The components of consolidated secured borrowings and other liabilities related to securitizations were as follows (in millions of dollars):
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Notes Receivable from John Deere (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Receivable from John Deere | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Receivable from John Deere | The Company had notes receivable from John Deere with the following affiliated companies as follows (in millions of dollars):
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Income Taxes (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax Reform Measurement Period Adjustments and Effects on Results | The tax reform measurement period adjustments and the effects on the results of the second quarter and first six months of 2018 were as follows (in millions of dollars):
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Fair Value Measurements (Tables) |
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Fair Value Measurements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments | The fair values of financial instruments that do not approximate the carrying values were as follows (in millions of dollars):
* Fair value measurements above were Level 3 for all Receivables and Level 2 for all borrowings. |
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Assets and Liabilities Measured at Fair Value on a Recurring Basis | Assets and liabilities measured at fair value as Level 2 measurements on a recurring basis were as follows (in millions of dollars):
* Excluded from this table were the Company’s cash equivalents, which were carried at cost that approximates fair value. The cash equivalents consist primarily of money market funds that were Level 1 measurements. |
Derivative Instruments (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Derivative Instruments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Hedge Interest Rate Contracts and Underlying Borrowings | The gains (losses) on these contracts and the underlying borrowings recorded in interest expense were as follows (in millions of dollars):
* Includes changes in fair values of interest rate contracts excluding net accrued interest income of $5.2 million and $21.5 million during the second quarter of 2018 and 2017, respectively, and $17.1 million and $46.2 million during the first six months of 2018 and 2017, respectively. ** Includes adjustments for fair values of hedged borrowings excluding accrued interest expense of $62.5 million and $58.0 million during the second quarter of 2018 and 2017, respectively, and $122.0 million and $119.4 million during the first six months of 2018 and 2017, respectively. |
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Fair Value of Derivative Instruments in Consolidated Balance Sheet | Fair values of derivative instruments in the consolidated balance sheet were as follows (in millions of dollars):
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Gains (Losses) Related to Derivative Instruments on Statement of Consolidated Income | The classification and gains (losses), including accrued interest expense related to derivative instruments on the statement of consolidated income consisted of the following (in millions of dollars):
* Includes interest and foreign exchange gains (losses) from cross-currency interest rate contracts. ** The amounts were not significant. |
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Impact on Derivative Assets and Liabilities for External Derivatives and those with John Deere Related to Netting Arrangements and Collateral | Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities for external derivatives and those with John Deere related to netting arrangements and any collateral received or paid were as follows (in millions of dollars):
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New Accounting Standards (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Apr. 29, 2018 |
Apr. 30, 2017 |
Apr. 29, 2018 |
Apr. 30, 2017 |
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ASU 2017-07 | Early Adoption | ||||
New accounting standards adopted | ||||
Operating profit (loss) | $ (2.1) | $ (1.9) | $ (4.1) | $ (3.6) |
Receivables - Troubled Debt Restructurings (Details) $ in Millions |
6 Months Ended | |
---|---|---|
Apr. 29, 2018
USD ($)
item
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Apr. 30, 2017
USD ($)
item
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Receivables Related to Troubled Debt Restructurings | ||
Receivable contracts in troubled debt restructuring, number | item | 212 | 222 |
Receivables in troubled debt restructurings, aggregate balances, pre-modification | $ 11.2 | $ 4.8 |
Receivables in troubled debt restructurings, aggregate balances, post-modification | 10.6 | 3.8 |
Receivable contracts in troubled debt restructuring, subsequently defaulted | 0.0 | $ 0.0 |
Commitments to lend additional funds to borrowers whose accounts were modified in troubled debt restructurings | $ 0.0 |
Notes Receivable from John Deere (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Apr. 29, 2018 |
Apr. 30, 2017 |
Apr. 29, 2018 |
Apr. 30, 2017 |
Oct. 29, 2017 |
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John Deere | |||||
Notes Receivable from John Deere | |||||
Interest earned | $ 2.3 | $ 0.0 | $ 5.1 | $ 0.0 | |
Notes receivable from John Deere | 151.3 | $ 151.3 | $ 156.7 | ||
John Deere | Maximum | |||||
Notes Receivable from John Deere | |||||
Maximum terms for related party notes receivable | 5 years | ||||
Limited Liability Company John Deere Financial | |||||
Notes Receivable from John Deere | |||||
Notes receivable from John Deere | 98.6 | $ 98.6 | 102.2 | ||
Banco John Deere S.A. | |||||
Notes Receivable from John Deere | |||||
Notes receivable from John Deere | $ 52.7 | $ 52.7 | $ 54.5 |
Commitments and Contingencies - Commitments (Details) $ in Millions |
Apr. 29, 2018
USD ($)
|
---|---|
Commitments | |
Restricted other assets | $ 32.0 |
Limited Liability Company John Deere Financial | |
Commitments | |
Unused commitments | 31.0 |
John Deere dealers | |
Commitments | |
Unused commitments | 7,000.0 |
Customers | |
Commitments | |
Unused commitments | $ 27,900.0 |
Minimum percentage of unused commitments to extend credit to customers that relate to revolving charge accounts | 95.00% |
Income Taxes - Tax Reform (Details) - USD ($) $ in Millions |
3 Months Ended | 4 Months Ended | 6 Months Ended | 12 Months Ended | |
---|---|---|---|---|---|
Apr. 29, 2018 |
Apr. 29, 2018 |
Apr. 29, 2018 |
Oct. 28, 2018 |
Dec. 31, 2017 |
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U.S. Tax Reform | |||||
Corporate federal statutory tax rate (as a percent) | 21.00% | 35.00% | |||
Deemed repatriation tax payment period | 8 years | ||||
Net deferred tax liability remeasurement | $ 18.5 | $ 322.4 | |||
Deemed earnings repatriation tax | (0.1) | (15.7) | |||
Total discrete tax benefit (expense) | $ 18.4 | $ 306.7 | |||
Forecasted | |||||
U.S. Tax Reform | |||||
Corporate federal statutory tax rate (as a percent) | 23.30% |
Income Taxes - Unrecognized Tax Benefits (Details) - USD ($) $ in Millions |
Apr. 29, 2018 |
Oct. 29, 2017 |
---|---|---|
Unrecognized Tax Benefits | ||
Unrecognized tax benefits | $ 41.1 | $ 35.5 |
Unrecognized tax benefits affecting effective tax rate if recognized | $ 19.8 |
Derivative Instruments - Cash Flow Hedges (Details) - USD ($) $ in Millions |
6 Months Ended | ||
---|---|---|---|
Apr. 29, 2018 |
Oct. 29, 2017 |
Apr. 30, 2017 |
|
Cash Flow Hedges | |||
Cash flow hedge gain (loss) recorded in OCI to be reclassified within twelve months | $ 9.5 | ||
Maximum maturity of cash flow hedge interest rate and cross-currency interest rate contracts | 26 months | ||
Gains or losses reclassified from OCI to earnings | $ 0.0 | ||
Interest rate contracts | Cash flow hedges | Designated as hedges | |||
Cash Flow Hedges | |||
Notional amounts | $ 1,800.0 | $ 1,700.0 | $ 1,600.0 |
Derivative Instruments - Fair Value Hedges (Details) - Interest rate contracts - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Apr. 29, 2018 |
Apr. 30, 2017 |
Apr. 29, 2018 |
Apr. 30, 2017 |
Oct. 29, 2017 |
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Fair Value Hedges | |||||
Gains (losses) on ineffective portion of interest rate fair value hedge derivatives | $ (2.0) | $ 0.1 | $ (3.3) | $ 2.1 | |
Gain (Loss) on Fair Value Hedges | |||||
Gains (losses) on interest rate contracts | (123.9) | 31.8 | (269.5) | (197.9) | |
Net accrued interest income on interest rate contracts | 5.2 | 21.5 | 17.1 | 46.2 | |
Gains (losses) on borrowings | 121.9 | (31.7) | 266.2 | 200.0 | |
Accrued interest expense on borrowings | 62.5 | 58.0 | 122.0 | 119.4 | |
Fair Value Hedges | Designated as hedges | |||||
Fair Value Hedges | |||||
Notional amounts | $ 8,071.6 | $ 7,055.2 | $ 8,071.6 | $ 7,055.2 | $ 8,077.2 |
Derivative Instruments - Not Designated as Hedging Instruments (Details) - Not Designated as Hedging Instruments - USD ($) $ in Millions |
Apr. 29, 2018 |
Oct. 29, 2017 |
Apr. 30, 2017 |
---|---|---|---|
Interest rate contracts | |||
Derivatives Not Designated as Hedging Instruments | |||
Notional amounts | $ 2,419.9 | $ 2,311.3 | $ 2,039.1 |
Interest rate caps | Purchased | |||
Derivatives Not Designated as Hedging Instruments | |||
Notional amounts | 1,932.5 | 1,594.3 | 1,873.2 |
Interest rate caps | Sold | |||
Derivatives Not Designated as Hedging Instruments | |||
Notional amounts | 1,932.5 | 1,594.3 | 1,873.2 |
Foreign exchange contracts | |||
Derivatives Not Designated as Hedging Instruments | |||
Notional amounts | 1,487.4 | 1,455.9 | 1,392.7 |
Cross-currency interest rate contracts | |||
Derivatives Not Designated as Hedging Instruments | |||
Notional amounts | $ 82.4 | $ 65.8 | $ 76.4 |
Pension and Other Postretirement Benefits (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Apr. 29, 2018 |
Apr. 30, 2017 |
Apr. 29, 2018 |
Apr. 30, 2017 |
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Pensions | ||||
Defined Benefit Plan Disclosure | ||||
Expenses related to defined benefit plans | $ 1.7 | $ 1.4 | $ 3.4 | $ 2.8 |
Health Care and Life Insurance | ||||
Defined Benefit Plan Disclosure | ||||
Expenses related to defined benefit plans | $ 0.6 | $ 0.9 | $ 1.3 | $ 1.8 |
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