John Deere 2011 Annual Report Download - page 27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND CONSOLIDATION
Structure of Operations
The 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 reflected on the equity basis.
Financial Services – Includes the company’s financial
services operations, which consist of the previous credit
segment and the “Other” segment that was combined at the
beginning of fiscal year 2011 into the financial services segment.
The “Other” segment consisted of an insurance business that
did not meet the materiality threshold of reporting. It was
previously included as a separate segment in “Financial Services”
(see Note 28).
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 financial 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 has both the power
to direct the activities that most significantly impact the VIEs’
economic performance and the obligation to absorb losses or
the right to receive benefits that could potentially be significant
to the VIEs. Deere & Company records its investment in each
unconsolidated affiliated company (generally 20 to 50 percent
ownership) at its related equity in the net assets of such affiliate
(see Note 10). Other investments (less than 20 percent owner-
ship) are recorded at cost.
Reclassifications
Certain items previously reported in specific financial statement
captions have been reclassified to conform to the 2011 financial
statement presentation. Short-term securitization borrowings
have been shown 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 receivables and wholesale notes for the
financial services statement of cash flows investing activities
have been presented on a net basis. These receivables have
short durations with a high turnover rate. The total cash flows
for the financial services investing activities have not changed.
The presentation of these receivables on the Statement of
Consolidated Cash Flows has also not changed and continues
to be shown as an adjustment to net income in the operating
activities since they are related to sales.
Variable Interest Entities
The company is the primary beneficiary of and consolidates a
VIE based on a cost sharing supply contract. The company has
both the power to direct the activities that most significantly
impact the VIE’s economic performance and the obligation to
absorb losses or the right to receive benefits that could poten-
tially be significant to the VIE. 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:
2011 2010
Cash and cash equivalents ........................................... $ 11 $ 5
Intercompany receivables ............................................. 14 10
Inventories .................................................................. 30 32
Property and equipment – net ...................................... 3 4
Other assets ................................................................ 3 6
Total assets ................................................................. $ 61 $ 57
Accounts payable and accrued expenses ...................... $ 56 $ 55
Total liabilities .............................................................. $ 56 $ 55
The VIE is financed primarily through its own liabilities.
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 previously consolidated certain wind energy
entities that were VIEs, which invested in wind farms that own
and operate turbines to generate electrical energy. In December
2010, the company sold John Deere Renewables, LLC, which
included these VIEs and other wind energy entities. The assets
of these VIEs were classified as held for sale at October 31, 2010
(see Note 4). 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
Total assets held for sale* ............................................................... $ 133
Intercompany borrowings ................................................................ $ 50
Accounts payable and accrued expenses ......................................... 5
Total liabilities ................................................................................. $ 55
* Included $129 million property and equipment and $4 million other assets.
The VIEs were financed primarily through intercompany
borrowings and equity. The VIEs’ assets were pledged as security
interests for the intercompany borrowings. The remaining
creditors of the VIEs did not have recourse to the general credit
of the company.
See Note 13 for VIEs related to securitization of financing
receivables.
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