John Deere 2009 Annual Report Download - page 31

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.
On October 31, 2007, the company adopted FASB ASC
715, Compensation-Retirement Benefi ts (FASB Statement
No. 158, Employers’ Accounting for Defi ned Benefi t Pension
and Other Postretirement Plans). ASC 715 requires retirement
benefi t liabilities or benefi t assets on the balance sheet to be
adjusted to the difference between the benefi t obligations and
the plan assets at fair value. The offset to the adjustment is
recorded directly in stockholders’ equity net of tax. The amount
recorded in stockholders’ equity represents the after-tax
unamortized actuarial gains or losses and unamortized prior
service cost (credit). ASC 715 also requires all benefi t obligations
and plan assets to be measured at fi scal year end, which the
company presently does. Prospective application of the new
accounting was required.
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:
2009 2008 2007
Pensions
Service cost .............................................. $ 124 $ 159 $ 168
Interest cost .............................................. 563 514 488
Expected return on plan assets .................. (739) (743) (682)
Amortization of actuarial loss ..................... 1 48 94
Amortization of prior service cost ............... 25 26 27
Early-retirement benefi ts ............................ 4 10
Settlements/curtailments ........................... 27 3 4
Net cost ................................................... $ 5 $ 17 $ 99
Weighted-average assumptions
Discount rates ........................................... 8.1% 6.2% 5.7%
Rate of compensation increase ................... 3.9% 3.9% 3.8%
Expected long-term rates of return ............. 8.3% 8.3% 8.4%
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:
2009 2008 2007
Health care and life insurance
Service cost .............................................. $ 28 $ 49 $ 69
Interest cost .............................................. 344 323 321
Expected return on plan assets .................. (118) (177) (156)
Amortization of actuarial loss ..................... 65 82 215
Amortization of prior service credit ............. (12) (17) (133)
Early-retirement benefi ts ............................ 1
Settlements/curtailments ........................... (1)
Net cost ................................................... $ 3 07 $ 26 0 $ 316
Weighted-average assumptions
Discount rates ........................................... 8.2% 6.4% 5.9%
Expected long-term rates of return ............. 7.8% 7.8% 7.8%
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Goodwill Impairment
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 impair-
ment was a decline in the reporting unit’s forecasted fi nancial
performance as a result of weak economic conditions. The
method for determining the fair value of the reporting unit to
measure the fair value of the goodwill was a combination of
comparable market values for similar businesses and discounted
cash fl ows.
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 Flows 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 Flows. The company transferred inventory
to equipment on operating leases of $320 million, $307 million
and $269 million in 2009, 2008 and 2007, respectively. The
company had accounts payable related to purchases of property
and equipment of $81 million, $158 million and $100 million at
October 31, 2009, 2008 and 2007, respectively.
Cash payments (receipts) for interest and income taxes
consisted of the following in millions of dollars:
2009 2008 2007
Interest:
Equipment Operations ........................... $ 388 $ 414 $ 423
Financial Services ................................. 878 1,001 1,005
Intercompany eliminations...................... (273) (288) (294)
Consolidated........................................... $ 993 $ 1,127 $ 1,134
Income taxes:
Equipment Operations ........................... $ 170 $ 667 $ 601
Financial Services ................................. (73) 95 196
Intercompany eliminations...................... 109 (50) (157)
Consolidated........................................... $ 206 $ 712 $ 640