John Deere 2013 Annual Report Download - page 22

Inventories decreased by $235 million in 2013 primarily
due to the reclassification of inventories related to the
Landscapes operations to held for sale (see Note 4). Most of
these inventories are valued on the last-in, first-out (LIFO)
method. The ratios of inventories on a first-in, first-out (FIFO)
basis (see Note 15), which approximates current cost, to fiscal
year cost of sales were 25 percent and 26 percent at October 31,
2013 and 2012, respectively.
Total interest-bearing debt of the equipment operations
was $5,951 million at the end of 2013, compared with $5,870
million at the end of 2012 and $3,696 million at the end of 2011.
The ratio of total debt to total capital (total interest-bearing
debt and stockholders’ equity) at the end of 2013, 2012 and
2011 was 37 percent, 46 percent and 35 percent, respectively.
Property and equipment cash expenditures for the
equipment operations in 2013 were $1,155 million, compared
with $1,316 million in 2012. Capital expenditures in 2014 are
estimated to be $1,200 million.
FINANCIAL SERVICES
The financial services operations rely on their ability to
raise substantial amounts of funds to finance their receivable
and lease portfolios. Their primary sources of funds for this
purpose are a combination of commercial paper, term debt,
securitization of retail notes, equity capital and borrowings
from Deere & Company.
The cash provided by operating activities and financing
activities was used primarily for investing activities. Cash flows
from the financial services’ operating activities, including
intercompany cash flows, were $1,244 million in 2013.
Cash used by investing activities totaled $5,845 million in 2013,
primarily due to the cost of receivables (excluding trade and
wholesale) and cost of equipment on operating leases exceeding
collections of these receivables and the proceeds from sales of
equipment on operating leases by $4,523 million and an increase
in trade receivables and wholesale notes of $1,153 million.
Cash provided by financing activities totaled $4,321 million in
2013, representing primarily an increase in external borrowings
of $2,397 million, borrowings from Deere & Company of $2,007
million and capital investment from Deere & Company of
$122 million, partially offset by dividends paid of $186 million
to Deere & Company. Cash and cash equivalents decreased
$264 million.
Over the last three years, the operating activities, including
intercompany cash flows, have provided $3,186 million in cash.
In addition, an increase in total borrowings of $10,707 million
and capital investment from Deere & Company of $455 million
provided cash inflows. These amounts have been used mainly
to fund receivables (excluding trade and wholesale) and
equipment on operating lease acquisitions, which exceeded
collections and the proceeds from sales of equipment on
operating leases by $10,275 million, fund an increase in trade
receivables and wholesale notes of $3,233 million and pay
dividends to Deere & Company of $570 million. Cash and cash
equivalents increased $39 million over the three-year period.
Receivables and equipment on operating leases increased
by $4,851 million in 2013, compared with 2012. Total acquisi-
tion volumes of receivables (excluding trade and wholesale notes)
and cost of equipment on operating leases increased 14 percent
in 2013, compared with 2012. The volumes of operating leases,
retail notes and financing leases increased approximately 34
percent, 19 percent and 6 percent, respectively, while revolving
charge accounts remained about the same and operating loans
decreased 52 percent due to lower market coverage. The amount
of wholesale notes increased 23 percent and trade receivables
increased 6 percent during 2013. At October 31, 2013 and
2012, net receivables and leases administered, which include
receivables administered but not owned, were $36,559 million
and $31,746 million, respectively.
Total external interest-bearing debt of the financial
services operations was $28,524 million at the end of 2013,
compared with $26,551 million at the end of 2012 and $22,894
million at the end of 2011. Total external borrowings have
changed generally corresponding with the level of the receivable
and lease portfolio, the level of cash and cash equivalents, the
change in payables owed to Deere & Company and the change
in investment from Deere & Company. The financial services
operations’ ratio of total interest-bearing debt to total stock-
holder’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 utilize bank conduit facilities to securitize retail
notes (see Note 13). At October 31, 2013, the facility had a
total capacity, or “financing limit,” of up to $3,000 million of
secured financings at any time. The facility was renewed in
November 2013 for the same capacity. After a three-year
revolving period, unless the banks and Capital Corporation
agree to renew, Capital Corporation would liquidate the
secured borrowings over time as payments on the retail notes
are collected. At October 31, 2013, $1,563 million of short-
term securitization borrowings was outstanding under the
agreement.
During 2013, the financial services operations issued
$2,789 million and retired $2,255 million of retail note securiti-
zation borrowings. During 2013, the financial services operations
also issued $4,451 million and retired $4,767 million of
long-term borrowings. The long-term borrowing retirements
included $650 million of 5.10% Debentures due in January
2013. The remaining issuances and retirements were primarily
medium-term notes.
OFF-BALANCE-SHEET ARRANGEMENTS
At October 31, 2013, the company had approximately
$270 million of guarantees issued primarily to banks outside the
U.S. related to third-party receivables for the retail financing
of John Deere equipment. The company may recover a portion
of any required payments incurred under these agreements from
repossession of the equipment collateralizing the receivables.
The maximum remaining term of the receivables guaranteed at
October 31, 2013 was approximately seven years.
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