John Deere 2011 Annual Report Download

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COMMITTED TO THOSE LINKED TO THE LAND
Deere & Company
Annual Report 2 0 11

Table of contents

  • Page 1
    Deere & Company Annual Report 2011 COMMITTED TO THOSE LINKED TO THE LAND

  • Page 2
    ...founder John Deere's first 1837 plow and company's new S690 Combine, one of the world's most advanced harvesters. From left, Dave Everitt, Mike Mack, Jim Jenkins, Sam Allen, Jean Gilles, Jim Field, Mark von Pentz, and Jim Israel. Net Sales and Revenues (MM) $23,112 $26,005 $32,013 Operating Profit...

  • Page 3
    ... year-end, Deere FDUULHGVRPHELOOLRQRIFDVKDQGPDUNHWDEOHVHFXULWLHV Named "Tractor of the Year" by European farm-magazine editors, the 7280R GHOLYHUVWKHSRZHUIXHOHIÆŸFLHQF\DQG transport speeds that customers want. Deere tractors have long been present in Europe, including the Model...

  • Page 4
    ... near historic lows in relation to use. Grain prices and farm incomes have risen sharply in response. Listening to earthmoving contractors and road builders helped the company design the Deere 850K Dozer. Its 205-hp, IT4 engine and dual-path hydrostatic transmission match power and speed to load...

  • Page 5
    ..., Deere announced plans to build seven factories in markets critical to our growth. These investments build on HDUOLHURQHVWKDWKDYHDGGHGVLJQLÆŸFDQWO\WRRXUFDSDFLW\DQG marketing presence worldwide. Of the new facilities, three are in China, for construction equipment, engines and large farm...

  • Page 6
    ... of farm tractors. Only last month plans were disclosed to construct a facility in Russia for seeding, tillage and application equipment. In addition, new or expanded parts centers were opened during the year in Germany, Sweden, Canada and Russia. Finance operations were launched in China and...

  • Page 7
    ... mechanize harvesting. 120-foot boom. New models of construction equipment include advanced excavators, productive dozers, and loaders with hybridelectric drivetrains. As a company known for innovation since the time of our founder's original steel plow, John Deere received a number of WHFKQRORJ...

  • Page 8
    ...WR farmers in Africa, remained a major recipient of foundation support. As well, John Deere employees are helping enrich their communities through extensive volunteer efforts. In launching the company's formal volunteerism initiative in 2011, a group of 20 John Deere leaders including me spent...

  • Page 9
    ..., capital expenditures reach nearly $1.1 billion; 5 'H[SHQVHKLWVUHFRUGELOOLRQUHÆ HFWLQJLQYHVWPHQW in engine-emissions technology and new products. - With goal of providing value directly to shareholders, company boosts quarterly dividend rate by 17% and repurchases 20.8 million shares...

  • Page 10
    ...$2,245 FINANCIAL SERVICES - Net income attributable to Deere & Company reaches $471 million, in spite of QDUURZHUÆŸQDQFLQJVSUHDGV - ,QFUHDVLQJZRUOGZLGH SUHVHQFHDQGVWURQJ1RUWK American sales result in SRUWIROLRJURZWKRI WRURXJKO\ELOOLRQ SVA (MM) $64 $233  2009 2010 2011...

  • Page 11
    ... and Analysis ...12 Reports of Management and Independent Registered Public Accounting Firm...22 Consolidated Financial Statements ...23 Notes to Consolidated Financial Statements ...27 Selected Financial Data ...57 DEERE EQUIPMENT OPERATIONS $MM unless indicated Net Sales 2SHUDWLQJ3URÆŸW Average...

  • Page 12
    ...services primarily provide credit services, which mainly finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the equipment operations. In addition, financial services offer crop risk mitigation products and extended equipment warranties. The information...

  • Page 13
    ...to the effect of the tax expense related to the enactment of health care legislation in 2010 (see Note 8). The company has several defined benefit pension plans and defined benefit health care and life insurance plans. The company's postretirement benefit costs for these plans in 2011 were $603...

  • Page 14
    ...the company's businesses. The company's agricultural equipment business is subject to a number of uncertainties including the many interrelated factors that affect farmers' confidence. These factors include worldwide economic conditions, demand for agricultural products, world grain stocks, weather...

  • Page 15
    ... care costs including those which may result from governmental action. The liquidity and ongoing profitability of John Deere Capital Corporation (Capital Corporation) and other credit subsidiaries depend largely on timely access to capital to meet future cash ï¬,ow requirements and fund operations...

  • Page 16
    ... benefit pension plans and defined benefit health care and life insurance plans. The company's postretirement benefit costs for these plans in 2010 were $658 million, compared with $312 million in 2009, primarily due to a decrease in discount rates. The long-term expected return on plan assets...

  • Page 17
    ..., marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets) and committed and uncommitted bank lines of credit. The company's commercial paper outstanding at October 31, 2011 and 2010 was...

  • Page 18
    ...combination of commercial paper, term debt, securitization of retail notes, equity capital and from time to time borrowings from Deere & Company. The cash provided by operating activities and financing activities was used for investing activities. Cash ï¬,ows from the financial services' operating...

  • Page 19
    ... in payables owed to Deere & Company. The financial services operations' ratio of total interest-bearing debt to total stockholder's equity was 7.5 to 1 at the end of 2011, 7.1 to 1 at the end of 2010 and 7.2 to 1 at the end of 2009. At October 31, 2011, Capital Corporation had a revolving credit...

  • Page 20
    ... Benefit Obligations Pension obligations and other postretirement employee benefit (OPEB) obligations are based on various assumptions used by the company's actuaries in calculating these amounts. These assumptions include discount rates, health care cost trend rates, expected return on plan...

  • Page 21
    ... effect on the 2011 net cash inï¬,ows. In the financial services operations, the company's policy is to hedge the foreign currency risk if the currency of the borrowings does not match the currency of the receivable portfolio. As a result, a hypothetical 10 percent adverse change in the value...

  • Page 22
    ... ACCOUNTING FIRM Deere & Company: We have audited the accompanying consolidated balance sheets of Deere & Company and subsidiaries (the "Company") as of October 31, 2011 and 2010, and the related statements of consolidated income, changes in consolidated stockholders' equity, and consolidated cash...

  • Page 23
    Deere & Company STATEMENT OF CONSOLIDATED INCOME For the Years Ended October 31, 2011, 2010 and 2009 (In millions of dollars and shares except per share amounts) 2011 _____ Net Sales and Revenues Net sales ...Finance and interest income ...Other income ...Total ...Costs and Expenses Cost of sales ...

  • Page 24
    Deere & Company CONSOLIDATED BALANCE SHEET As of October 31, 2011 and 2010 (In millions of dollars except per share amounts) 2011 _____ ASSETS Cash and cash equivalents...Marketable securities ...Receivables from unconsolidated affiliates ...Trade accounts and notes receivable - net ...Financing ...

  • Page 25
    ......Payments of long-term borrowings ...Proceeds from issuance of common stock ...Repurchases of common stock ...Dividends paid ...Excess tax benefits from share-based compensation ...Other ...Net cash provided by (used for) financing activities...Effect of Exchange Rate Changes on Cash and Cash...

  • Page 26
    Deere & Company STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY For the Years Ended October 31, 2009, 2010 and 2011 (In millions of dollars) Deere & Company Stockholders Total Stockholders' Equity Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss) Noncontrolling ...

  • Page 27
    ... separately from other short-term borrowings on the Consolidated Balance Sheet as a result of the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2009-17 (see Note 3). In the Supplemental Consolidating Data in Note 31, the costs and collections of trade...

  • Page 28
    ...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...

  • Page 29
    ... in transferred financial assets accounted for as sales. The adoption did not have a material effect on the company's consolidated financial statements. In the first quarter of 2011, the company adopted FASB ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with...

  • Page 30
    ... within a portfolio and the application of premiums and discounts on fair value measurements. The effective date will be the second quarter of fiscal year 2012. The adoption will not have a material effect on the company's consolidated financial statements. In June 2011, the FASB issued ASU No...

  • Page 31
    ... 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...

  • Page 32
    ... cost...Weighted-average assumptions Discount rates ...Expected long-term rates of return ...$ 2010 2009 The benefit plan obligations, funded status and the assumptions related to the obligations at October 31 in millions of dollars follow: Pensions _____ 2011 2010 Health Care and Life Insurance...

  • Page 33
    ... (750) The company expects to contribute approximately $439 million to its pension plans and approximately $27 million to its health care and life insurance plans in 2012, which include direct benefit payments on unfunded plans. The benefits expected to be paid from the benefit plans, which re...

  • Page 34
    ...) Total net assets ...$ 1,459 $ The fair values of the health care assets by category at October 31, 2010 follow in millions of dollars: Total Level 1 23 $ 515 75 1 255 Level 2 123 Level 3 Cash and short-term investments...$ 146 $ Equity: U.S. equity securities...515 International equity securities...

  • Page 35
    ... the company's pension plan trust. The company has defined contribution plans related to employee investment and savings plans primarily in the U.S. The company's contributions and costs under these plans were $108 million in 2011, $85 million in 2010 and $131 million in 2009. The contribution rate...

  • Page 36
    ... November 1, 2013. Since the tax effects for the retiree health care liabilities were reï¬,ected in the company's financial statements, the entire impact of this tax change relating to the future retiree drug costs was recorded in tax expense in the second quarter of 2010, which was the period in...

  • Page 37
    ... operating leases ...Cost of services ...Insurance claims and expenses ...Other ...Total ...$ 217 $ 236 11 160 624 $ 2010 276 $ 198 10 122 606 $ 2009 236 182 9 87 514 $ $ End of year balance ...$ 199 The amount of unrecognized tax benefits at October 31, 2011 that would affect the effective tax...

  • Page 38
    ...nancial services and provide compensation to these operations at approximate market rates of interest. Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Under the terms of the sales to dealers, interest is charged to dealers on outstanding balances, from...

  • Page 39
    ...: 2011 2010 Unrestricted/Securitized Unrestricted/Securitized Retail notes: Equipment: Agriculture and turf ...$ 12,969 Construction and forestry...1,036 Recreational products ...4 Total ...Wholesale notes ...Revolving charge accounts ...Financing leases (direct and sales-type) ...Operating loans...

  • Page 40
    ...nancing receivables outstanding at October 31, 2011 and 2010, respectively. In addition, at October 31, 2011 and 2010, the company's financial services operations had $188 million and $182 million, respectively, of deposits withheld from dealers and merchants available for potential credit losses...

  • Page 41
    ... retail notes related to secured borrowings, the retail notes are transferred to certain SPEs or to a non-VIE banking operation, which in turn issue debt to investors. The resulting secured borrowings are recorded as "Short-term securitization borrowings" on the balance sheet. The securitized retail...

  • Page 42
    ...647 Finished goods and parts ...3,584 Total FIFO value...5,857 Less adjustment to LIFO value...1,486 Inventories...$ 4,371 2010 $ 1,201 483 2,777 4,461 1,398 $ 3,063 In 2010, the company signed an agreement to sell its wind energy business and reclassified the related net property and equipment of...

  • Page 43
    ...notes payable related to short-term securitization borrowings for financial services are secured by financing receivables (retail notes) on the balance sheet (see Note 13). Although these notes payable are classified as short-term since payment is required if the retail notes are liquidated early...

  • Page 44
    ...dollars: 2011 Equipment Operations Accounts payable: Trade payables ...$ 2,163 Dividends payable ...168 Other ...99 Accrued expenses: Employee benefits ...1,188 Product warranties ...662 Dealer sales discounts ...1,092 Accrued income taxes ...127 Other ...1,370 Total ...$ 6,869 (continued) 2010 12...

  • Page 45
    ...has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs and current quality developments. The premiums for the company's extended warranties are primarily recognized in income in...

  • Page 46
    ...award one share of common stock for each unit at the end of the vesting period and include dividend equivalent payments. The performance/service based units are subject to a performance metric based on the company's compound annual revenue growth rate, compared to a benchmark group of companies over...

  • Page 47
    ... on the market price of a share of underlying common stock excluding dividends. The fair value of the market/service based units at the grant date was $107.31 per unit based on a lattice valuation model excluding dividends. The company's nonvested restricted shares at October 31, 2011 and changes...

  • Page 48
    ... _____ 2011 2010 2009 $ $ $ 5 $ 21 27 $ 289 35 * Does not include cost to sell. ** Primarily wholesale notes and operating loans. *** See Note 4. Fair values of the long-term financing receivables were based on the discounted values of their related cash ï¬,ows at current market interest rates...

  • Page 49
    ...able net assets. An estimate of the fair value of the reporting unit is determined through a combination of an income approach (discounted cash ï¬,ows) and market values for similar businesses, which includes inputs such as interest rates and selections of similar businesses. Property and Equipment...

  • Page 50
    ... 2010 $ 150 (149) Fair values of derivative instruments in the consolidated balance sheet at October 31 in millions of dollars follow: 2011 Other Assets Designated as hedging instruments: Interest rate contracts ...$ Not designated as hedging instruments: Interest rate contracts ...Foreign exchange...

  • Page 51
    ...machinery; hay and forage equipment, including self-propelled forage harvesters and attachments, balers and mowers; turf and utility equipment, including riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, and commercial mowing equipment, along with a broad line of...

  • Page 52
    ... U.S. and Canada: Equipment operations net sales ...Financial services revenues ...Total ...Other revenues ...19,214 12,109 306 12,415 384 16,611 8,779 257 9,036 358 14,823 7,734 227 7,961 328 Interest expense Agriculture and turf...$ Construction and forestry ...Financial services ...Corporate...

  • Page 53
    ...34 A quarterly dividend of $.41 per share was declared at the Board of Directors meeting on December 7, 2011, payable on February 1, 2012 to stockholders of record on December 30, 2011. In November 2011, the company's financial services operations issued $600 million of 1.25% medium-term notes due...

  • Page 54
    ... Company ...* Deere & Company with Financial Services on the equity basis. The supplemental consolidating data is presented for informational purposes. The "Equipment Operations" reï¬,ect the basis of consolidation described in Note 1 to the consolidated financial statements. The consolidated group...

  • Page 55
    ... and Stockholders' Equity ...* Deere & Company with Financial Services on the equity basis. The supplemental consolidating data is presented for informational purposes. The "Equipment Operations" reï¬,ect the basis of consolidation described in Note 1 to the consolidated financial statements...

  • Page 56
    ... common stock ...Repurchases of common stock ...Capital investment from Equipment Operations ...Dividends paid ...Excess tax benefits from share-based compensation ...Other ...Net cash provided by (used for) financing activities...Effect of Exchange Rate Changes on Cash and Cash Equivalents ...Net...

  • Page 57
    ... Return on beginning Deere & Company stockholders' equity ...44.5% Income per share from continuing operations - basic* ...$ 6.71 - diluted* ...6.63 Net income per share - basic* ...- diluted* ...Dividends declared per share ...Dividends paid per share...Average number of common shares outstanding...

  • Page 58
    ... *5(*25

  • Page 59
    ... (11) Chairman New Vernon Capital, LLC private equity fund AULANA L. PETERS (9) Retired Partner Gibson, Dunn & Crutcher LLP law firm DAVID B. SPEER (3) Chairman and Chief Executive Officer Illinois Tool Works Inc. engineered components, industrial systems and consumables (Not pictured: Elected 12...

  • Page 60
    Deere & Company One John Deere Place Moline, Illinois 61265 (309) 765-8000 www.JohnDeere.com "I will never put my name on a product that does not have in it the best that is in me." - John Deere Medallion created to celebrate the company's centennial in 1937.