John Deere 2014 Annual Report Download - page 24

Equipment Operations outside U.S. and Canada
The equipment operations outside the U.S. and Canada had
an operating profit of $996 million in 2013, compared with
$561 million in 2012. The increase was due primarily to the
effects of improved price realization and higher shipment
volumes, partially offset by the unfavorable 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
reflecting price realization and increased shipment volumes,
partially offset by the effect of foreign currency translation.
The physical volume of sales increased 3 percent, compared
with 2012.
CAPITAL RESOURCES AND LIQUIDITY
The discussion of capital resources and liquidity has been
organized to review separately, where appropriate, the company’s
consolidated totals, equipment operations and financial services
operations.
CONSOLIDATED
Positive cash flows from consolidated operating activities in 2014
were $3,526 million. This resulted primarily from net income
adjusted for non-cash provisions, a change in accrued income
taxes payable/receivable and a change in the retirement benefits,
which were partially offset by increases in receivables related to
sales, inventories and insurance receivables. Cash outflows from
investing activities were $2,881 million in 2014, due primarily
to the cost of receivables (excluding receivables related to sales)
and cost of equipment on operating leases exceeding the
collections of receivables and the proceeds from sales of
equipment on operating leases by $2,441 million, purchases of
property and equipment of $1,048 million, partially offset by
proceeds from maturities and sales exceeding purchases of
marketable securities by $408 million. Cash outflows from
financing activities were $288 million in 2014 due primarily to
repurchases of common stock of $2,731 million and dividends
paid of $786 million, partially offset by an increase in borrowings
of $3,112 million. Cash and cash equivalents increased $283
million during 2014.
Over the last three years, operating activities have provided
an aggregate of $7,948 million in cash. In addition, increases in
borrowings were $11,778 million, proceeds from sales of
businesses were $398 million and proceeds from issuance of
common stock (resulting from the exercise of stock options)
were $385 million. The aggregate amount of these cash flows
was used mainly to acquire receivables (excluding receivables
related to sales) and equipment on operating leases that exceeded
collections of receivables and the proceeds from sales of
equipment on operating leases by $7,721 million, repurchase
common stock of $5,850 million, purchase property and
equipment of $3,526 million, pay dividends of $2,237 million
and purchase marketable securities that exceeded proceeds from
maturities and sales by $456 million. Cash and cash equivalents
increased $140 million over the three-year period.
The company has access to most global markets at
reasonable costs and expects to have sufficient sources of global
funding and liquidity to meet its funding needs. The company’s
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 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, 2014 and 2013 was $2,633
million and $3,162 million, respectively, while the total cash
and cash equivalents and marketable securities position was
$5,002 million and $5,129 million, respectively. The amount
of the total cash and cash equivalents and marketable securities
held by foreign subsidiaries, in which earnings are considered
indefinitely reinvested, was $1,025 million and $559 million at
October 31, 2014 and 2013, respectively.
Lines of Credit. The company also has access to bank
lines of credit with various banks throughout the world.
Worldwide lines of credit totaled $6,413 million at October 31,
2014, $3,367 million of which were unused. For the purpose of
computing unused credit lines, commercial paper and short-term
bank borrowings, excluding secured borrowings and the current
portion of long-term borrowings, were primarily considered
to constitute utilization. Included in the total credit lines at
October 31, 2014 were long-term credit facility agreements
of $2,500 million, expiring in April 2018, and $2,500 million,
expiring in April 2019. These credit agreements require
John Deere Capital Corporation (Capital Corporation) to
maintain its consolidated ratio of earnings to fixed charges at
not less than 1.05 to 1 for each fiscal quarter and the ratio of
senior debt, excluding securitization indebtedness, to capital
base (total subordinated debt and stockholder’s equity excluding
accumulated other comprehensive income (loss)) at not more
than 11 to 1 at the end of any fiscal quarter. The credit agree-
ments also require the equipment operations to maintain a ratio
of total debt to total capital (total debt and stockholders’ equity
excluding accumulated other comprehensive income (loss)) of
65 percent or less at the end of each fiscal quarter. Under this
provision, the company’s excess equity capacity and retained
earnings balance free of restriction at October 31, 2014 was
$10,115 million. Alternatively under this provision, the
equipment operations had the capacity to incur additional debt
of $18,785 million at October 31, 2014. All of these require-
ments of the credit agreements have been met during the periods
included in the consolidated financial statements.
Debt Ratings. To access public 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 securities. A credit rating agency may
change or withdraw company ratings based on its assessment
of the company’s current and future ability to meet interest and
principal repayment obligations. Each agency’s rating should
be evaluated independently of any other rating. Lower credit
ratings generally result in higher borrowing costs, including
costs of derivative transactions, and reduced access to debt
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