Why did Deere report a net loss in fiscal 1993 when it was profitable before special items?

The loss came from a $1,105 million after-tax non-cash cumulative charge from adopting FASB Statements 106 and 112 as of November 1, 1992. These rules require accruing retiree health care, life insurance, and postemployment benefits as employees earn them, rather than expensing them as paid. The charge was a one-time item, but the ongoing incremental expense from the new rules was $38 million after tax in 1993.

How did the core business perform in 1993?

Core operations improved substantially. Net sales of equipment rose 13% to $6.48 billion, with production tonnage up 11%. North American equipment sales jumped 19%, helped by a federal investment tax credit that was not enacted, which prompted farmers to buy equipment they had delayed in 1992. Lower sales incentive costs also improved price realization. Overseas equipment operations, however, posted a larger loss, largely because of European weakness and currency effects.

What is the outlook for 1994?

Management expects Equipment Operations results to improve significantly in 1994. Initial production schedules were about 9% higher than 1993 output, with agricultural up about 5%, lawn and grounds care up about 10%, and industrial up about 17%. Management expects North American agricultural retail sales to be near 1993 levels, while European agricultural sales are expected to continue declining. Capital expenditures for 1994 are estimated at about $230 million.

Are there material legal or regulatory risks disclosed?

Deere disclosed Texas consumer credit class actions tied to financing recreational vehicles and boats, which it considers unlikely to have a material adverse effect on its financial position. It also noted that the EPA may issue off-road engine emission standards in 1994, with management not expecting a material impact, and that it is a potentially responsible party at certain hazardous waste sites with no expected material effect.

What is the company's debt and capital position?

Consolidated long-term borrowings were $2,548 million and short-term borrowings fell to $1,601 million from $3,080 million. Equipment Operations' debt-to-total-capital ratio was 42.6%, down from 44.1%. Consolidated unsecured credit lines totaled $3,344 million, of which $2,296 million were unused. The company also redeemed its $80 million 8% debentures due 2002 on January 4, 1994, and the John Deere Capital Corporation's $40 million 9.35% subordinated debentures.

DE 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed January 28, 1994. Cited figures are marked; the original filing is the authoritative source.

Deere & Company's fiscal 1993 (year ended October 31, 1993) was dominated by a large non-cash accounting charge.

The company reported a worldwide net loss of $921 million^a, or $11.91 per share, after adopting FASB Statements 106 (postretirement benefits) and 112 (postemployment benefits) effective November 1, 1992, which produced a $1,105 million after-tax cumulative charge ($14.30 per share). Before special items, income was $286 million ($3.70 per share), versus $37 million ($0.49 per share) in 1992.

After restructuring charges ($80 million^b after tax from the European downsizing), the accounting changes, and a tax-rate benefit, income before the accounting change was $184 million ($2.39 per share). Worldwide net sales and revenues rose 11% to $7,754 million, and net equipment sales rose 13% to $6,479 million, driven by a sharp recovery in North American agricultural, industrial, and lawn and grounds care demand.

02—Key points

Key Highlights

Net loss of $921 million ($11.91/share) driven by a $1,105 million after-tax non-cash charge from adopting FAS 106 and 112; income before that charge was $184 million ($2.39/share).
Income before special items rose to $286 million ($3.70/share) from $37 million ($0.49/share) in 1992, reflecting a strong North American equipment recovery.
Worldwide net equipment sales rose 13% to $6,479 million; North American equipment sales increased 19%, while overseas sales fell 2%.
Equipment Operations' pre-special-item income improved to $114 million from a $107 million loss in 1992, while Financial Services net income rose to $157 million from $138 million.
European restructuring charge of $80 million after tax ($107 million pretax) announced in Q2 1993 to downsize and rationalize overseas operations.
Stockholders' equity fell to $2,085 million from $2,650 million, while common shares rose to 85.7 million after an 8.05 million-share public offering netting $535 million in September 1993.
Management expects 1994 Equipment Operations results to improve significantly, with worldwide production schedules about 9% higher than 1993 and North American agricultural retail sales near 1993 levels.

03—Questions

Frequently Asked Questions

Why did Deere report a net loss in fiscal 1993 when it was profitable before special items?
The loss came from a $1,105 million after-tax non-cash cumulative charge from adopting FASB Statements 106 and 112 as of November 1, 1992. These rules require accruing retiree health care, life insurance, and postemployment benefits as employees earn them, rather than expensing them as paid. The charge was a one-time item, but the ongoing incremental expense from the new rules was $38 million after tax in 1993.
How did the core business perform in 1993?
Core operations improved substantially. Net sales of equipment rose 13% to $6.48 billion, with production tonnage up 11%. North American equipment sales jumped 19%, helped by a federal investment tax credit that was not enacted, which prompted farmers to buy equipment they had delayed in 1992. Lower sales incentive costs also improved price realization. Overseas equipment operations, however, posted a larger loss, largely because of European weakness and currency effects.
What is the outlook for 1994?
Management expects Equipment Operations results to improve significantly in 1994. Initial production schedules were about 9% higher than 1993 output, with agricultural up about 5%, lawn and grounds care up about 10%, and industrial up about 17%. Management expects North American agricultural retail sales to be near 1993 levels, while European agricultural sales are expected to continue declining. Capital expenditures for 1994 are estimated at about $230 million.
Are there material legal or regulatory risks disclosed?
Deere disclosed Texas consumer credit class actions tied to financing recreational vehicles and boats, which it considers unlikely to have a material adverse effect on its financial position. It also noted that the EPA may issue off-road engine emission standards in 1994, with management not expecting a material impact, and that it is a potentially responsible party at certain hazardous waste sites with no expected material effect.
What is the company's debt and capital position?
Consolidated long-term borrowings were $2,548 million and short-term borrowings fell to $1,601 million from $3,080 million. Equipment Operations' debt-to-total-capital ratio was 42.6%, down from 44.1%. Consolidated unsecured credit lines totaled $3,344 million, of which $2,296 million were unused. The company also redeemed its $80 million 8% debentures due 2002 on January 4, 1994, and the John Deere Capital Corporation's $40 million 9.35% subordinated debentures.

04—Continue

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