John Deere 2012 Annual Report Download

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FEET ON THE GROUND
EYES ON THE HORIZON
Deere & Company
Annual Report 2012
DEERE & COMPANY ANNUAL REPORT 2012

Table of contents

  • Page 1
    Deere & Company Annual Report 2012 FEET ON THE GROUND EYES ON THE HORIZON

  • Page 2
    ... shaped our character and sustained our success for many generations. Net Sales and Revenues (MM) $26,005 $32,013 $36,157 Operating Profit (MM) $3,408 $4,564 $5,109 Net Income *(MM) $1,865 $2,800 $3,065 2010 2011 2012 2010 2011 2012 2010 2011 2012 2 * Net income attributable to Deere...

  • Page 3
    ...-end, Deere's equipment operations carried some $5 billion of cash and marketable securities with relatively low net debt. Our financial services remained conservatively capitalized as well. The advanced John Deere 644K Hybrid Wheel Loader features both diesel and electric power, giving customers...

  • Page 4
    ... billion were completed. Since mid-2004, the company has increased the quarterly dividend rate on 10 occasions and repurchased about 160 million shares of stock. POWERFUL TRENDS DRIVING PLANS Despite persistent global economic concerns, longer-term trends based on population growth and rising living...

  • Page 5
    ..., for construction equipment; one is located in India, for the manufacture of farm tractors; and another is in Russia, for seeding, tillage and application equipment. Most are expected to begin production in 2013 or 2014. In a related development, a new combine factory in India went into operation...

  • Page 6
    ... in the United States. In 2012, significant factory expansions were announced for tractors, sprayers, and cylinders, among other products. We added some 2,300 to our U.S. and Canadian employee base as well. John Deere is becoming a more global enterprise by the day. Yet we fully intend to achieve...

  • Page 7
    ... models were highlighted by the company's largest-ever articulated dump truck, as well as backhoes, crawlers and excavators offering increased levels of performance. Many of our new products feature John Deere engine technology that reduces emissions while meeting customer requirements for power...

  • Page 8
    ... record got even better in 2012. The rate of injuries causing time away from work reached a record low with more than half of our locations not reporting a single lost-time incident. In other milestones, Deere was listed among the world's most-admired companies by Fortune magazine and named to 8

  • Page 9
    ...of which supports our confidence in the company's present course and in our ability to deliver value to customers and investors in the years ahead. On visits to company locations throughout the world in 2012, I was reminded time and again of the pride our employees share in being part of John Deere...

  • Page 10
    ...JDLQ $1,813 SVA (MM) $2,245 $2,534 FINANCIAL SERVICES - Net income attributable to Deere & Company declines to $460 million from $471 million in 2011 despite growth in credit portfolio and lower provision for losses. - Net receivables and leases ÆŸQDQFHGLQFUHDVHWR $31.6 billion.  SVA...

  • Page 11
    ... Registered Public Accounting Firm...23 Consolidated Financial Statements ...24 Notes to Consolidated Financial Statements ...28 Selected Financial Data ...57 DEERE EQUIPMENT OPERATIONS $MM unless indicated 2010 2011 2012 Net Sales 23573 29466 33501 2SHUDWLQJ3URÆŸW Average Assets :LWK...

  • 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
    ...lower average borrowing rates. Other operating expenses increased primarily due to higher crop insurance claims and costs and depreciation of equipment on operating leases. The company has several defined benefit pension plans and defined benefit health care and life insurance plans. The company...

  • Page 14
    ...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 conditions (including its effects on timely planting...

  • Page 15
    ...nancial covenants in credit agreements could impact access to funding and funding costs, which could reduce the company's earnings and cash ï¬,ows. Financial market conditions could also negatively impact customer access to capital for purchases of the company's products and customer confidence and...

  • Page 16
    ... tax rate for the provision for income taxes was lower in 2011 primarily due 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...

  • Page 17
    ... exposures to receivables from customers in European countries experiencing economic strains are not significant. Sources of liquidity for the company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization...

  • Page 18
    ... company securities by the rating agencies engaged by the company are as follows: Senior Long-Term Moody's Investors Service, Inc...Standard & Poor's ...A2 A Short-Term Prime-1 A-1 Outlook Stable Stable Trade accounts and notes receivable primarily arise from sales of goods to independent dealers...

  • Page 19
    ... 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 primarily for investing activities. Cash ï¬,ows from the financial services...

  • Page 20
    ... relating to debt***.. 5,353 Accounts payable ...3,312 Capital leases ...57 Off-balance-sheet Purchase obligations ...Operating leases...4,299 462 8,231 716 3,184 28 4,251 148 10,323 1,046 86 21 38 182 4,721 752 38 4 10 75 8,633 2,839 4 4 the company records the sale. Changes in the mix and types...

  • Page 21
    ..., economic conditions, interest rates, growth rates, pricing, changes in business strategies and competition. Based on this testing, the company identified a reporting unit in 2012 and 2010 for which the goodwill was impaired. In the fourth quarters of 2012 and 2010, the company recorded non-cash...

  • Page 22
    ...operations related to buying, selling and financing in currencies other than the functional currencies. The company has entered into agreements related to the management of these foreign currency transaction risks. Interest Rate Risk Quarterly, the company uses a combination of cash ï¬,ow models to...

  • Page 23
    ... ACCOUNTING FIRM Deere & Company: We have audited the accompanying consolidated balance sheets of Deere & Company and subsidiaries (the "Company") as of October 31, 2012 and 2011, and the related statements of consolidated income, changes in consolidated stockholders' equity, and consolidated cash...

  • Page 24
    Deere & Company STATEMENT OF CONSOLIDATED INCOME For the Years Ended October 31, 2012, 2011 and 2010 (In millions of dollars and shares except per share amounts) 2012 _____ Net Sales and Revenues Net sales ...Finance and interest income ...Other income ...Total ...Costs and Expenses Cost of sales ...

  • Page 25
    Deere & Company CONSOLIDATED BALANCE SHEET As of October 31, 2012 and 2011 (In millions of dollars except per share amounts) 2012 _____ ASSETS Cash and cash equivalents...Marketable securities ...Receivables from unconsolidated affiliates ...Trade accounts and notes receivable - net ...Financing ...

  • Page 26
    ......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 27
    ... STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY For the Years Ended October 31, 2010, 2011 and 2012 (In millions of dollars) Deere & Company Stockholders Total Stockholders' Equity Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests Comprehensive Income Common Stock...

  • Page 28
    ... and equipment - net ...Other assets...Total assets ...$ Short-term borrowings ...$ Accounts payable and accrued expenses ...Total liabilities ...$ 26 7 25 2 5 65 5 48 53 $ 2011 11 14 30 3 3 61 56 56 Reclassification Certain items previously reported in the Consolidated Statement of Cash Flows...

  • Page 29
    ...the company and its customers. These taxes may include sales, use, value-added and some excise taxes. The company reports the collection of these taxes on a net basis (excluded from revenues). Shipping and Handling Costs Shipping and handling costs related to the sales of the company's equipment are...

  • Page 30
    ... required. The effective date will be the first quarter of fiscal year 2013. The adoption will not have a material effect on the company's consolidated financial statements. 4. DISPOSITION In December 2010, the company sold John Deere Renewables, LLC, its wind energy business for approximately...

  • Page 31
    ...Income taxes: Equipment operations ...Financial services ...Intercompany eliminations...Consolidated...$ 2011 2010 The company has several defined benefit pension plans and postretirement health care and life insurance plans covering its U.S. employees and employees in certain foreign countries...

  • Page 32
    ...: Pensions _____ 2012 2011 Health Care and Life Insurance _____ 2012 2011 In 2011, the company decided to participate in a prescription drug plan to provide group benefits under Medicare Part D as an alternative to collecting the retiree drug subsidy. This change, which will take effect in 2013...

  • Page 33
    ... the pension plan assets at October 31, 2012 follow in millions of dollars: Total Cash and short-term investments...$ Equity: U.S. equity securities...U.S. equity funds...International equity securities ...International equity funds ...Fixed Income: Government and agency securities.. Corporate debt...

  • Page 34
    ... the pension plan assets at October 31, 2011 follow in millions of dollars: Total Cash and short-term investments...$ Equity: U.S. equity securities...U.S. equity funds...International equity securities ...International equity funds ...Fixed Income: Government and agency securities.. Corporate debt...

  • Page 35
    ... of the company's diversified investment policy, there were no significant concentrations of risk. The expected long-term rate of return on plan assets reï¬,ects management's expectations of long-term average rates of return on funds invested to provide for benefits included in the projected bene...

  • Page 36
    ... liabilities ...$ 2,136 Tax over book depreciation...$ 606 Accrual for sales allowances ...546 Pension liabilities - net ...457 Lease transactions ...317 Accrual for employee benefits ...249 Tax loss and tax credit carryforwards ...249 Share-based compensation ...133 Inventory ...131 Goodwill and...

  • Page 37
    ... or market equipment. Deere & Company's share of the income or loss of these companies is reported in the consolidated income statement under "Equity in income (loss) of unconsolidated affiliates." The investment in these companies is reported in the consolidated balance sheet under "Investments in...

  • Page 38
    ... 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 primarily charged to dealers on outstanding balances, from the earlier of the date when goods are sold to retail customers...

  • Page 39
    ...of dollars: 2012 2011 Unrestricted/Securitized Unrestricted/Securitized Retail notes: Equipment: Agriculture and turf ...$ 14,144 Construction and forestry...1,091 Recreational products ...Total ...Wholesale notes ...Revolving charge accounts ...Financing leases (direct and sales-type) ...Operating...

  • Page 40
    ... that are 90 days or greater past due and still accruing finance income. An analysis of the allowance for credit losses and investment in financing receivables follows in millions of dollars: Retail Notes 2012 Allowance: Beginning of year balance...$ Provision (credit) ...Write-offs ...Recoveries...

  • Page 41
    ... in the company's consolidated statements because the assets they hold are legally isolated. Use of the assets held by the SPEs or the non-VIE is restricted by terms of the documents governing the securitization transactions. In securitizations of retail notes related to secured borrowings, the...

  • Page 42
    ... related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash ï¬,ows generated by the restricted assets. Due to the company's short-term credit rating, cash collections...

  • Page 43
    ...cation at October 31 in millions of dollars would have been as follows: 2012 Raw materials and supplies ...$ 1,874 Work-in-process ...652 Finished goods and parts ...4,065 Total FIFO value...6,591 Less adjustment to LIFO value...1,421 Inventories...$ 5,170 2011 $ 1,626 647 3,584 5,857 1,486 $ 4,371...

  • Page 44
    ... fair value adjustments related to interest rate swaps. The short-term securitization borrowings for financial services are secured by financing receivables (retail notes) on the balance sheet (see Note 13). Although these securitization borrowings are classified as short-term since payment is...

  • Page 45
    ... of dollars: 2012 Equipment Operations Accounts payable: Trade payables ...$ 2,287 Dividends payable ...179 Other ...147 Accrued expenses: Employee benefits ...1,337 Product warranties ...733 Dealer sales discounts ...1,413 Other ...1,583 Total ...Financial Services Accounts payable: Deposits...

  • Page 46
    ... not have a material effect on its financial statements. 23. CAPITAL STOCK The number of common shares the company is authorized to issue is 1,200 million. The number of authorized preferred shares, none of which has been issued, is nine million. The Board of Directors at its meeting in May 2008...

  • Page 47
    ... the contractual life of the options are based on U.S. Treasury security yields at the time of grant. The assumptions used for the binomial lattice model to determine the fair value of options follow: 2012 2011 2010 Risk-free interest rate ...01% - 2.0% .08% - 3.3% .01% - 3.6% Expected dividends...

  • Page 48
    ... and transactions with stockholders. Following are the items included in other comprehensive income (loss) for Deere & Company and the related tax effects in millions of dollars: Before Tax Amount 2010 Retirement benefits adjustment: Net actuarial losses and prior service cost ...$ (213) Reclassi...

  • Page 49
    ... of the valuation methodologies the company uses to measure certain financial instruments on the balance sheet and nonmonetary assets at fair value: Marketable Securities - The portfolio of investments is primarily valued on a market approach (matrix pricing model) in which all significant...

  • Page 50
    ... the company and the counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Some of these agreements include credit support provisions. Each master agreement permits the net settlement of amounts owed in the event...

  • 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
    ... income tax assets, marketable securities and cash and cash equivalents as disclosed in Note 31, net of certain intercompany eliminations. Net income attributable to Deere & Company ...$ 3,065 $ 2,800 $ 1,865 * Operating profit of the financial services business segment includes the effect of...

  • Page 53
    ...the Board of Directors meeting on December 5, 2012, payable on February 1, 2013 to stockholders of record on December 31, 2012. Common stock per share sales prices from New York Stock Exchange composite transactions quotations follow: First Quarter 2012 Market price High ...Low ...2011 Market price...

  • Page 54
    ... SUPPLEMENTAL CONSOLIDATING DATA INCOME STATEMENT For the Years Ended October 31, 2012, 2011 and 2010 (In millions of dollars) EQUIPMENT OPERATIONS* 2012 2011 2010 Net Sales and Revenues Net sales ...Finance and interest income ...Other income ...Total ...Costs and Expenses Cost of sales ...Research...

  • Page 55
    ... CONSOLIDATING DATA (continued) BALANCE SHEET As of October 31, 2012 and 2011 (In millions of dollars except per share amounts) EQUIPMENT OPERATIONS* 2012 2011 ASSETS Cash and cash equivalents...Marketable securities ...Receivables from unconsolidated subsidiaries and affiliates...Trade accounts...

  • Page 56
    ...term borrowings ...Proceeds from issuance of 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...

  • Page 57
    Deere & Company SELECTED FINANCIAL DATA (Dollars in millions except per share amounts) 2012 Net sales and revenues ...$36,157 Net sales ...33,501 Finance and interest income ...Research and development expenses ...Selling, administrative and general expenses ...Interest expense ...Income from ...

  • Page 58
    ...as of January 1, 2013 ANNUAL MEETING The annual meeting of company stockholders will be held at 10 a.m. CT on February 27, 2013, at the Deere & Company World Headquarters, One John Deere Place, Moline, Illinois. TRANSFER AGENT & REGISTRAR Send all correspondence, including address changes and FHUWL...

  • Page 59
    ...- 2012 Deere board member David Speer died November 17 at age 61. He was chairman DQGFKLHIH[HFXWLYHRIƟFHURI,OOLQRLV7RRO :RUNV,QFDQGKDGEHHQDPHPEHURI the Deere board of directors since 2008. ŧ'DYLGZDVDYDOXHGPHPEHURIRXUERDUG EULQJLQJJUHDWSHUVRQDOHQHUJ\H[WHQVLYH business...

  • Page 60
    Deere & Company One John Deere Place Moline, Illinois 61265 (309) 765-8000 www.JohnDeere.com