John Deere 2010 Annual Report Download - page 32

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Cash payments (receipts) for interest and income taxes
consisted of the following in millions of dollars:
2010 2009 2008
Interest:
Equipment Operations ........................... $ 378 $ 388 $ 414
Financial Services ................................. 679 878 1,001
Intercompany eliminations...................... (229) (273) (288)
Consolidated........................................... $ 828 $ 993 $ 1,127
Income taxes:
Equipment Operations ........................... $ 639 $ 170 $ 667
Financial Services ................................. (63) (73) 95
Intercompany eliminations...................... 51 109 (50)
Consolidated........................................... $ 627 $ 206 $ 712
7. PENSION AND OTHER POSTRETIREMENT BENEFITS
The company has several defi ned benefi t pension plans
covering its U.S. employees and employees in certain foreign
countries. The company has several postretirement health care
and life insurance plans for retired employees in the U.S. and
Canada. The company uses an October 31 measurement date
for these plans.
The components of net periodic pension cost and the
assumptions related to the cost consisted of the following in
millions of dollars and in percents:
2010 2009 2008
Pensions
Service cost .............................................. $ 176 $ 124 $ 159
Interest cost .............................................. 510 563 514
Expected return on plan assets .................. (761) (739) (743)
Amortization of actuarial losses .................. 113 1 48
Amortization of prior service cost ............... 42 25 26
Early-retirement benefi ts ............................ 4 10
Settlements/curtailments ........................... 24 27 3
Net cost ................................................... $ 104 $ 5 $ 17
Weighted-average assumptions
Discount rates ........................................... 5.5% 8.1% 6.2%
Rate of compensation increase ................... 3.9% 3.9% 3.9%
Expected long-term rates of return ............. 8.3% 8.3% 8.3%
The components of net periodic postretirement benefi ts
cost and the assumptions related to the cost consisted of the
following in millions of dollars and in percents:
2010 2009 2008
Health care and life insurance
Service cost .............................................. $ 44 $ 28 $ 49
Interest cost .............................................. 337 344 323
Expected return on plan assets .................. (122) (118) (177)
Amortization of actuarial losses .................. 311 65 82
Amortization of prior service credit ............. (16) (12) (17)
Early-retirement benefi ts ............................ 1
Set tlement s / curt ailments ........................... (1)
Net cost ................................................... $ 5 5 4 $ 3 07 $ 2 6 0
Weighted-average assumptions
Discount rates ........................................... 5.6% 8.2% 6.4%
Expected long-term rates of return ............. 7.8% 7.8% 7.8%
Goodwill Impairment
In the fourth quarter of 2010, the company recorded a non-
cash charge in cost of sales for the impairment of goodwill of
$27 million pretax, or $25 million after-tax. The charge was
associated with the company’s John Deere Water reporting
unit, which is included in the agriculture and turf operating
segment. The goodwill impairment was due to a decline in the
forecasted fi nancial performance as a result of the global
economic downturn and more complex integration activities.
In the fourth quarter of 2009, the company recorded a
non-cash charge in cost of sales for the impairment of goodwill
of $289 million pretax, or $274 million after-tax. The charge
was associated with the company’s John Deere Landscapes
reporting unit, which is included in the agriculture and turf
operating segment. The key factor contributing to the goodwill
impairment was a decline in the reporting unit’s forecasted
fi nancial performance as a result of weak economic conditions.
The methods for determining the fair value of the
reporting units to measure the fair value of the goodwill
included a combination of discounted cash fl ows and
comparable market values for similar businesses (see Note 26).
6. CASH FLOW INFORMATION
For purposes of the statement of consolidated cash fl ows,
the company considers investments with purchased maturities
of three months or less to be cash equivalents. Substantially all
of the company’s short-term borrowings, excluding the current
maturities of long-term borrowings, mature or may require
payment within three months or less.
The Equipment Operations sell a signifi cant portion of
their trade receivables to Financial Services. These intercompany
cash fl ows are eliminated in the consolidated cash fl ows.
All cash fl ows from the changes in trade accounts and
notes receivable (see Note 12) are classifi ed as operating
activities in the statement of consolidated cash fl ows as these
receivables arise from sales to the company’s customers.
Cash fl ows from fi nancing receivables that are related to sales
to the company’s customers (see Note 12) are also included in
operating activities. The remaining fi nancing receivables are
related to the fi nancing of equipment sold by independent
dealers and are included in investing activities.
The company had the following non-cash operating and
investing activities that were not included in the statement of
consolidated cash fl ows. The company transferred inventory
to equipment on operating leases of $405 million, $320 million
and $307 million in 2010, 2009 and 2008, respectively.
The company also had accounts payable related to purchases
of property and equipment of $135 million, $81 million and
$158 million at October 31, 2010, 2009 and 2008, respectively.