John Deere 2010 Annual Report Download - page 28

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND CONSOLIDATION
Structure of Operations
Certain information in the notes and related commentary are
presented in a format which includes data grouped as follows:
Equipment Operations – Includes the company’s
agriculture and turf operations and construction and forestry
operations with Financial Services refl ected on the equity basis.
Financial Services – Includes the company’s credit and
certain miscellaneous service operations.
Consolidated – Represents the consolidation of the
Equipment Operations and Financial Services. References to
“Deere & Company” or “the company” refer to the entire
enterprise.
Principles of Consolidation
The consolidated fi nancial statements represent primarily the
consolidation of all companies in which Deere & Company
has a controlling interest. Certain variable interest entities
(VIEs) are consolidated since the company is the primary
benefi ciary. Deere & Company records its investment in each
unconsolidated affi liated company (generally 20 to 50 percent
ownership) at its related equity in the net assets of such affi liate
(see Note 10). Other investments (less than 20 percent owner-
ship) are recorded at cost.
Variable Interest Entities
The company is the primary benefi ciary of and consolidates a
supplier that is a VIE. The company would absorb more than a
majority of the VIE’s expected losses based on a cost sharing
supply contract. No additional support beyond what was
previously contractually required has been provided during any
periods presented. The VIE produces blended fertilizer and
other lawn care products for the agriculture and turf segment.
The assets and liabilities of this supplier VIE consisted of
the following at October 31 in millions of dollars:
2010 2009
Intercomp any re ceiv ables ............................................. $ 10 $ 32
Inventories .................................................................. 32 36
Property and equipment – net ...................................... 4 5
Ot her a ss et s ................................................................ 11 3
Total assets ................................................................. $ 57 $ 76
Shor t-term borrowings ................................................. $ 23
Accounts payable and accrued expenses ...................... $ 55 59
Total liabiliti es .............................................................. $ 55 $ 82
The VIE is fi nanced through its own accounts payable and
short-term borrowings. The assets of the VIE can only be used
to settle the obligations of the VIE. The creditors of the VIE do
not have recourse to the general credit of the company.
The company also is the primary benefi ciary of and
consolidates certain wind energy entities that are VIEs, which
invest in wind farms that own and operate turbines to generate
electrical energy. The assets of these VIEs were classifi ed as
held for sale at October 31, 2010 (see Notes 4 and 30).
Although the company owns less than a majority of the equity
voting rights, it owns most of the fi nancial rights that would
absorb the VIEs’ expected losses or returns. No additional
support to the VIEs beyond what was previously contractually
required has been provided during any periods presented.
The assets and liabilities of these wind energy VIEs
consisted of the following at October 31 in millions of dollars:
2010 2009
Receivables – net ........................................................ $ 32
Property and equipment – net ...................................... 141
Ot her a ss et s ................................................................ 1
Assets held for sale* .................................................... $ 133
Total assets ................................................................. $ 133 $ 174
Intercompany borrowings ............................................. $ 50 $ 55
Accounts payable and accrued expenses ...................... 5 6
Total liabiliti es .............................................................. $ 55 $ 61
* Includes $129 million property and equipment and $4 million other assets.
The VIEs are fi nanced primarily through intercompany
borrowings and equity. The VIEs’ assets are pledged as security
interests for the intercompany borrowings. The remaining
creditors of the VIEs do not have recourse to the general credit
of the company.
See Note 13 for VIEs related to securitization of fi nancing
receivables.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are signifi cant accounting policies in addition
to those included in other notes to the consolidated fi nancial
statements.
Use of Estimates in Financial Statements
The preparation of fi nancial 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.
Revenue Recognition
Sales of equipment and service parts are recorded when the sales
price is determinable and the risks and rewards of ownership are
transferred to independent parties based on the sales agreements
in effect. In the U.S. and most international locations, this transfer
occurs primarily when goods are shipped. In Canada and some
other international locations, certain goods are shipped to dealers
on a consignment basis under which the risks and rewards of
ownership are not transferred to the dealer. Accordingly, in
these locations, sales are not recorded until a retail customer has
purchased the goods. In all cases, when a sale is recorded by the
company, no signifi cant uncertainty exists surrounding the
purchaser’s obligation to pay. No right of return exists on sales
of equipment. Service parts returns are estimable and accrued at
the time a sale is recognized. The company makes appropriate
provisions based on experience for costs such as doubtful
receivables, sales incentives and product warranty.
Financing revenue is recorded over the lives of related
receivables using the interest method. Deferred costs on the
origination of fi nancing receivables are recognized as a reduction
in fi nance revenue over the expected lives of the receivables
using the interest method. Income and deferred costs on the
origination of operating leases are recognized on a straight-line
basis over the scheduled lease terms in fi nance revenue.