John Deere 2013 Annual Report Download

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FEET ON THE GROUND
EYES ON THE HORIZON
Deere & Company
Annual Report 2013
DEERE & COMPANY ANNUAL REPORT 2013

Table of contents

  • Page 1
    FEET ON THE GROUND EYES ON THE HORIZON Deere & Company Annual Report 2013

  • Page 2
    .... * Net income attributable to Deere & Company. 2011 2012 2013 2011 2012 2013 SVA (MM) $2,527 $2,776 $3,390 Dividends Declared (U.S. dollars per share) Strong profits, plus the disciplined use of assets and the skillful execution of business plans, propelled SVA*, or Shareholder Value Added...

  • Page 3
    ... year. Net Sales (actual) $50 B R&D Spending $1.2 $1.4 $1.5 Capital Expenditures $1.1 2011 $1.4 2012 $1.1 2013 Keeping our "eyes on the horizon," carrying out our ambitious growth plans, requires an extensive investment in new products and capacity. Seven new factories in markets key to...

  • Page 4
    ... capital charge - is the primary measure used in managing the company and making investment decisions. Operating cash flow totaled $3.25 billion for the year. These dollars funded important geographic expansions and delivered value directly to investors as dividends and share repurchases. Dividend...

  • Page 5
    ... has allowed Deere to make global investments at unprecedented rates while keeping its balance sheet strong. At year-end, Deere carried some $5 billion of cash and securities, with relatively low debt. Our financial-services operation remained conservatively capitalized as well. A&T SETTING PACE Our...

  • Page 6
    ...help customers manage and make better use of data. New wireless data transmission, for example, links equipment to the farm's management system and trusted advisors through the MyJohnDeere platform. To capitalize on this promising situation, Deere has been pursuing a far-reaching operating strategy...

  • Page 7
    ... years. To help customers get the most value from their John Deere equipment, we opened new parts-distribution centers in South Africa and Argentina. In addition, plans were announced to expand our parts operations in Brazil and India, in line with growth in our businesses. The company augmented its...

  • Page 8
    ... in the lawn-care equipment business with the introduction of a series of premium lawn tractors and an innovative flex-fuel commercial mower. Also making its debut was Deere's first hybrid-electric model of construction equipment. Many new products feature John Deere engine technology that reduces...

  • Page 9
    ... communities. In another case, a global team of innovation. The company's advanced products and technology earned further honors in 2013 and brought additional value to our customers. Deere was named one of the world's top 100 innovators by a leading business-media group based on our patents and...

  • Page 10
    ...addition, the company again was featured in a listing of the top-100 global brands. In 2010, Deere set an ambitious course, targeting significant global growth. As a result, seven new factories outside the U.S. were put into operation in 2013, including this engine factory near Tianjin, China, where...

  • Page 11
    ...value to customers, investors and other stakeholders in the years ahead. We have no doubt the company is well-equipped to seize these opportunities - and we are proud to reaffirm our belief that John Deere's best days are on the horizon! The John Deere senior management team at company headquarters...

  • Page 12
    2013 HIGHLIGHTS DEERE ENTERPRISE - Demand for farm machinery DQGLQFUHDVHGÆŸQDQFLQJOHDG WRJDLQLQ...RI HTXLSPHQW-RKQ'HHUHGHVLJQVEXLOGVDQGVHOOVLQ$VLDPDUNHWV 2011 2012 2013 EQUIPMENT OPERATIONS - (TXLSPHQWVDOHVLQFUHDVHWR ELOOLRQRSHUDWLQJSURÆŸW FOLPEVWRELOOLRQ...

  • Page 13
    ...2008 Deere & Company - Building presence in China, 2011 2012 2013 division begins production of wheel loaders, excavators for China and other markets DWQHZIDFWRU\LQ7LDQMLQDSSRLQWVQHZGHDOHUV - Continuing expansion in South America, division establishes dealer network in Brazil, prepares new...

  • Page 14
    ... with inventories valued at standard cost.) FINANCIAL SERVICES $MM unless indicated Net Income Attributable to Deere & Company Average Equity ROE % $MM Operating Profit Average Equity Operating Profit Cost of Equity SVA 2011 471 3,194 14.7 2011 725 3,194 725 -492 233 2012 460 3,470 13.3 2012 712...

  • Page 15
    ...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 16
    ... equipment on operating leases and the impairment charge for the write-down to realizable value of assets being held for sale (see Note 5). The company has several defined benefit pension plans and defined benefit health care and life insurance plans. The company's postretirement benefit costs...

  • Page 17
    ... effects of foreign currency exchange, higher selling, administrative and general expenses, increased production costs and higher warranty costs. The results were also affected by impairment charges for the Water operations. Net sales were 4 percent higher primarily reï¬,ecting price realization...

  • Page 18
    ... to the company's information technology infrastructure; changes in company declared dividends and common stock issuances and repurchases. Company results are also affected by changes in the level and funding of employee retirement benefits, changes in market values of investment assets, the level...

  • Page 19
    ... costs related to new products, engine emission requirements and incentive compensation expenses. The equipment operations' net income was $2,616 million in 2012, compared with $2,329 million in 2011. The same operating factors mentioned above, as well as an increase in the effective tax rate...

  • Page 20
    ...The increase in production costs was primarily related to new products, engine emission requirements and incentive compensation expenses. Worldwide Financial Services Operations The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the company...

  • Page 21
    ... debt capital markets, the company relies on credit rating agencies to assign short-term and long-term credit ratings to the company's securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell or hold company...

  • Page 22
    ... change in investment from Deere & Company. The financial services operations' ratio of total interest-bearing debt to total stockholder's equity was 7.3 to 1 at the end of 2013, 7.2 to 1 at the end of 2012 and 7.5 to 1 at the end of 2011. The Capital Corporation has a revolving credit agreement to...

  • Page 23
    ... 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 assets, compensation increases, retirement rates, mortality rates...

  • Page 24
    ...in 2013 and 2012 were primarily due to the increasing levels of operating leases. Assumptions Percentage Change Pension Discount rate** ...+/-.5 Expected return on assets ...+/-.5 OPEB Discount rate** ...+/-.5 Expected return on assets ...+/-.5 Health care cost trend rate** ...+/-1.0 * Projected...

  • Page 25
    ... 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...

  • Page 26
    ... balance sheets of Deere & Company and subsidiaries (the "Company") as of October 31, 2013 and 2012, and the related statements of consolidated income, comprehensive income, changes in consolidated stockholders' equity, and consolidated cash ï¬,ows for each of the three years in the period ended...

  • Page 27
    Deere & Company STATEMENT OF CONSOLIDATED INCOME For the Years Ended October 31, 2013, 2012 and 2011 (In millions of dollars) 2013 _____ Net Sales and Revenues Net sales ...Finance and interest income ...Other income ...Total ...Costs and Expenses Cost of sales ...Research and development expenses ...

  • Page 28
    Deere & Company STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME For the Years Ended October 31, 2013, 2012 and 2011 (In millions of dollars) 2013 _____ Net Income ...Other Comprehensive Income (Loss), Net of Income Taxes Retirement benefits adjustment...Cumulative translation adjustment...Unrealized...

  • Page 29
    ...Inventories ...Property and equipment - net ...Investments in unconsolidated affiliates ...Goodwill ...Other intangible assets - net ...Retirement benefits ...Deferred income taxes ...Other assets...Assets held for sale ...Total Assets ...LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Short-term...

  • Page 30
    ... receivables related to sales...Insurance receivables ...Inventories ...Accounts payable and accrued expenses...Accrued income taxes payable/receivable ...Retirement benefits ...Other ...Net cash provided by operating activities...Cash Flows from Investing Activities Collections of receivables...

  • Page 31
    ...For the Years Ended October 31, 2011, 2012 and 2013 (In millions of dollars) Deere & Company Stockholders Total Stockholders' Equity Balance October 31, 2010 ...Net income...Other comprehensive loss ...Repurchases of common stock ...Treasury shares reissued ...Dividends declared ...Stock options and...

  • Page 32
    ... a dealer sells the equipment to a retail customer. The estimate is based on historical data, announced incentive programs, field inventory levels and retail sales volumes. Product Warranties At the time a sale is recognized, the company records the estimated future warranty costs. These costs are...

  • Page 33
    ...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 34
    ... effect on the company's consolidated financial statements. New Accounting Standards to be Adopted In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which amends ASC 210, Balance Sheet. This ASU requires entities to disclose gross and net...

  • Page 35
    ... payable related to purchases of property and equipment of $198 million, $185 million and $135 million at October 31, 2013, 2012 and 2011, respectively. Cash payments for interest and income taxes consisted of the following in millions of dollars: 2013 Interest: Equipment operations ...Financial...

  • Page 36
    ... percents: 2013 Health care and life insurance Service cost ...Interest cost ...Expected return on plan assets ...Amortization of actuarial loss ...Amortization of prior service credit ...Net cost...Weighted-average assumptions Discount rates ...Expected long-term rates of return ...$ 2012 2011 The...

  • Page 37
    ... Current liability ...Noncurrent liability ...Total ...$ Health Care and Life Insurance _____ 2013 2012 The benefits expected to be paid from the benefit plans, which reï¬,ect expected future years of service, are as follows in millions of dollars: Pensions 2014...$ 690 2015...673 2016...672 2017...

  • Page 38
    ...15) Total net assets ...$ 1,157 $ The fair values of the health care 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...

  • Page 39
    ..., credit risk and prepayment speeds, or they are valued using the closing prices in the active market in which the fixed income investment trades. Fixed income funds are valued using the NAV, based on the fair value of the underlying securities. Real Estate, Venture Capital and Private Equity...

  • Page 40
    ...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 $178 million in 2013, $155 million in 2012 and $108 million in 2011. The contribution rate...

  • Page 41
    ... in Canada and Germany, also remain subject to examination by taxing authorities. The company's policy is to recognize interest related to income taxes in interest expense and interest income, and recognize penalties in selling, administrative and general expenses. During 2013, 2012 and 2011, the...

  • Page 42
    ... 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 43
    ... millions of dollars: 2013 2012 Unrestricted/Securitized Unrestricted/Securitized Retail notes: Equipment: Agriculture and turf ...$ 16,209 Construction and forestry...1,449 Total ...Wholesale notes ...Revolving charge accounts ...Financing leases (direct and sales-type) ...Operating loans ...Total...

  • Page 44
    ... in financing receivables follows in millions of dollars: Retail Notes 2013 Allowance: Beginning of year balance...$ Provision (credit) ...Write-offs ...Recoveries ...Translation adjustments ...End of year balance* ...$ Revolving Charge Accounts Other Total 110 (2) (11) 9 (5) 101 $ 40 5 (21) 17...

  • Page 45
    ... did not meet the criteria of sales of receivables, and is, therefore, accounted for as a secured borrowing. SPEs utilized in securitizations of retail notes differ from other entities included in the company's consolidated statements because the assets they hold are legally isolated. Use of the...

  • Page 46
    ...'s short-term credit rating, cash collections from these restricted assets are not required to be placed into a segregated collection account until immediately prior to the time payment is required to the secured creditors. At October 31, 2013, the maximum remaining term of all securitized retail...

  • Page 47
    ...on operating leases totaled $1,274 million at October 31, 2013 and are scheduled in millions of dollars as follows: 2014 - $522, 2015 - $360, 2016 - $229, 2017 - $136 and 2018 - $27. 15. INVENTORIES Most inventories owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost, on...

  • Page 48
    ... of dollars: 2014 - $12, 2015 - $11, 2016 - $10, 2017 - $10 and 2018 - $6. 18. TOTAL SHORT-TERM BORROWINGS Total short-term borrowings at October 31 consisted of the following in millions of dollars: 2013 Equipment Operations Commercial paper ...Notes payable to banks ...$ Long-term borrowings due...

  • Page 49
    ...: 2013 Equipment Operations Accounts payable: Trade payables ...$ 2,174 Dividends payable ...192 Other ...197 Accrued expenses: Dealer sales discounts ...1,491 Employee benefits ...1,408 Product warranties ...822 Unearned revenue ...368 Other ...1,339 Total ...Financial Services Accounts payable...

  • Page 50
    .... Repurchases of the company's common stock under this plan will be made from time to time, at the company's discretion, in the open market. A reconciliation of basic and diluted net income per share attributable to Deere & Company follows in millions, except per share amounts: 2013 2012 2011 Net...

  • Page 51
    ... 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 during 2013, 2012 and 2011 were $106.75, $92.85 and $107.31 per unit, respectively, based on a lattice valuation model excluding dividends. The company...

  • Page 52
    ... $ (894) Total other comprehensive income (loss) ...$(1,233) (continued) Fair values of the financing receivables that were issued long-term were based on the discounted values of their related cash ï¬,ows at interest rates currently being offered by the company for similar financing receivables...

  • Page 53
    ... interest rates. The carrying values of these long-term borrowings included adjustments related to fair value hedges. Assets and liabilities measured at October 31 at fair value on a recurring basis in millions of dollars follow: 2013* 2012* Marketable securities Equity fund ...$ 20 U.S. government...

  • Page 54
    ... million at October 31, 2013 and 2012, respectively. The effective portions of the fair value gains or losses on these cash ï¬,ow hedges were recorded in other comprehensive income (OCI) and subsequently reclassified into interest expense or other operating expenses (foreign exchange) in the same...

  • Page 55
    ..., log harvesters and related attachments. The products and services produced by the segments above are marketed primarily through independent retail dealer networks and major retail outlets. The financial services segment primarily finances sales and leases by John Deere dealers of new and used...

  • Page 56
    ... $ 48,207 * Corporate assets are primarily the equipment operations' retirement benefits, deferred 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 ...$ 3,537 $ 3,065...

  • Page 57
    ...: Equipment operations net sales ...Financial services revenues ...Total ...Other revenues ...13,177 318 13,495 448 22,737 12,694 305 12,999 421 19,214 12,109 306 12,415 384 At October 31, 2013, there were 24,850 holders of record of the company's $1 par value common stock. Quarterly information...

  • Page 58
    ... DATA INCOME STATEMENT For the Years Ended October 31, 2013, 2012 and 2011 (In millions of dollars) EQUIPMENT OPERATIONS* 2013 2012 2011 Net Sales and Revenues Net sales ...Finance and interest income ...Other income ...Total ...Costs and Expenses Cost of sales ...Research and development...

  • Page 59
    ... and equipment - net ...Investments in unconsolidated subsidiaries and affiliates ...Goodwill ...Other intangible assets - net ...Retirement benefits ...Deferred income taxes ...Other assets...Assets held for sale ...Total Assets ...LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Short-term...

  • Page 60
    ...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 61
    ... from continuing operations* ...Net income* ...Return on net sales...Return on beginning Deere & Company stockholders' equity ...Comprehensive income (loss)* ...2,115 1,477 3,606 741 3,537 3,537 10.1% 51.7% 5,416 2012 $36,157 33,501 1,981 1,434 3,417 783 3,065 3,065 9.1% 45.1% 2,171 2011 $32,013...

  • Page 62
    ...GILLES (33) Senior Vice President, John Deere Power Systems, Worldwide Parts Services, Advanced Technology & Engineering, and Global Supply Management & Logistics MAX A. GUINN (33) Senior Vice President, Human Resources, Communications, Public Affairs, and Labor Relations MARY K.W. JONES (16) Senior...

  • Page 63
    ... R. PAGE (effective June 1, 2013) Executive Chairman, Cargill, Inc. agricultural, food, financial, and industrial products and services THOMAS H. PATRICK (13) Chairman, New Vernon Capital, LLC private equity fund AULANA L. PETERS (11) Retired Partner, Gibson, Dunn & Crutcher LLP law firm SHERRY...

  • Page 64
    Deere & Company One John Deere Place Moline, Illinois 61265 (309) 765-8000 www.JohnDeere.com