John Deere 2015 Annual Report Download

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FEET ON THE GROUND
EYES ON THE HORIZON
Deere & Company
Annual Report 2015

Table of contents

  • Page 1
    FEET ON THE GROUND EYES ON THE HORIZON Deere & Company Annual Report 2015

  • Page 2
    ... equipment sales. Financial Services revenues rose to $2.59 billion. $3,537 $3,162 $1,940 Net income was down 39% to $1.94 billion but still represented the sixth-highest total in company history. 2013 2014 2015 2013 2014 2015 * Net income attributable to Deere & Company. Shareholder Value...

  • Page 3
    ... shares outstanding due to continued share repurchases. The year's results produced healthy levels of economic profit, or Shareholder Valued Added* (SVA), meaning that operating profit stayed above the cost of capital. SVA is the primary measure used in managing the company and making investment...

  • Page 4
    ... introduced additional models of equipment for large contractors and completed the first full year of operation at its new factories in Brazil. Financial Services had record profits while financing the purchase of roughly half of the new equipment sold by Deere during the year. Net income climbed...

  • Page 5
    ... the value of having a well-rounded business lineup, which goes beyond large tractors and combines. Company results were supported by the sale of smaller tractors, hay and forage equipment, commercial worksite products, turf equipment, and service parts. GLOBAL TRENDS GUIDING PLANS Longer term, our...

  • Page 6
    ... in support of our plans for improved growth and profitability. The company continued to re-evaluate its business portfolio in 2015, narrowing its focus on businesses that we believe will have the greatest impact on our growth goals. During the year, we completed the sale of our crop insurance unit...

  • Page 7
    ... Deere dealers capture market share by reaching new customers. The machine setup meets the needs of many small livestock producers and hay growers. of powerful four-track tractors and a new line of round balers, as well as productive forage harvesters and a small tractor for paddy-rice applications...

  • Page 8
    ..., growers save on seed and get crops planted more accurately, helping boost yields. Announced acquisitions should accelerate adoption of these technologies globally. and improved employment opportunities. In all, it is estimated that more than 15 million people saw direct benefit from the company...

  • Page 9
    ... business model will allow the company to continue delivering solid results even in a depressed farm economy. On visits to company locations throughout the world in 2015, I was reminded time and again of the pride that our employees and other stakeholders share in being associated with John Deere...

  • Page 10
    ... on sales, especially for construction equipment. Another factor is having an organization that is highly aligned in relation to our goals. Employees have a clear idea of where we're headed and what is expected of them. They believe in the company and are deeply committed to its success. Such...

  • Page 11
    ... out in a reasonably short period of time. Whatever the case, we're continuing to refine our cost and asset structure with an eye toward achieving good returns, even in weak markets. At the same time, we're confident the investments we've made in global capacity, product support, distinctive quality...

  • Page 12
    ... million. 2013 - Deere and United Auto Workers reach agreement on six-year labor contract affecting about 10,000 Deere manufacturing employees at factories in Illinois, Iowa, and Kansas. 2014 2015 - While helping meet global emissions regulations, company's engine business provides a competitive...

  • Page 13
    ... in $VLDÆŸOOLQJODUJHHTXLSPHQW 2013 2014 2015 orders in China for U.S.-built cotton harvesters and combines; also introduces light-weight, low-cost tractor for rice farmers in Southeast Asia. - Focused on precision agriculture, company agrees to purchase European planter manufacturer Monosem and...

  • Page 14
    ... the cumulative total returns of Deere & Company, the S&P 500 Stock Index, and the S&P 500 Construction & Farm Machinery Index over a seven-year period. It assumes $100 was invested on October 31, 2008, and that dividends were reinvested. Deere & Company stock price at October 31, 2015, was $78.00...

  • Page 15
    ...DQG equally ambitious returns at other points in the cycle. (For purposes of this calculation, operating assets DUHDYHUDJHLGHQWLÆŸDEOHDVVHWVGXULQJWKH\HDUZLWK inventories valued at standard cost.) FINANCIAL SERVICES $MM unless indicated Net Income Attributable to Deere & Company p y Average...

  • Page 16
    ..., Worldwide C&F, Labor Relations, and Security BRIAN J. RAUCH (21) Senior Vice President, Engineering, Manufacturing, and Supply Management DOMENIC G. RUCCOLO (25) Senior Vice President, Sales & Marketing WORLDWIDE FINANCIAL SERVICES DIVISION MICHAEL J. MACK (29) Group President, Financial Services...

  • Page 17
    ... at Deere & Company World Headquarters. SAMUEL R. ALLEN (6) Chairman and Chief Executive Officer, Deere & Company CRANDALL C. BOWLES (19) Director, The Springs Company Asset management VANCE D. COFFMAN (11) Retired Chairman, Lockheed Martin Corporation Aerospace, defense, and information technology...

  • Page 18
    ...'HHUHFRP,QYHVWRUV INVESTOR RELATIONS Securities analysts, portfolio managers, and representatives RIÆŸQDQFLDOLQVWLWXWLRQVPD\FRQWDFW 7RQ\+XHJHO 'LUHFWRU,QYHVWRU5HODWLRQV 'HHUH &RPSDQ\ 2QH-RKQ'HHUH3ODFH0ROLQH 3KRQH ZZZ-RKQ'HHUHFRP,QYHVWRUV STOCK EXCHANGES 'HHUH &RPSDQ\FRPPRQ...

  • Page 19
    ... construction and forestry. The company's financial sernices primarily pronide credit sernices, which mainly finance sales and leases of equipment by John Deere dealers and trade receinables purchased from the equipment operations. In addition, financial sernices offer extended equipment warranties...

  • Page 20
    ... on operating leases. The company has seneral defined benefit pension plans and defined benefit health care and life insurance plans. The company's postretirement benefit costs for these plans in 2015 were $512 million, compared with $432 million in 2014. The long-term expected return on plan assets...

  • Page 21
    ... Deere & Company for the financial sernices operations is expected to be approximately $550 million. The outlook reflects less fanorable financing spreads and an increased pronision for credit losses. Additionally, 2015 results benefited from a gain on the sale of the Crop Insurance operations. SAFE...

  • Page 22
    ... of John Deere Capital Corporation and other credit subsidiaries depend largely on timely access to capital in order to meet future cash flow requirements, to fund operations and costs associated with engaging in dinersified funding actinities, and to fund purchases of the company's products. If...

  • Page 23
    ... operations (see Notes 4 and 5). The company has seneral defined benefit pension plans and defined benefit health care and life insurance plans. The company's postretirement benefit costs for these plans in 2014 were $432 million, compared with $575 million in 2013. The long-term expected return...

  • Page 24
    ... cash flows was used mainly to repurchase common stock of $7,033 million, acquire receinables (excluding receinables related to sales) and equipment on operating leases that exceeded collections of receinables and the proceeds from sales of equipment on operating leases by $6,804 million, purchase...

  • Page 25
    ... from Deere & Company of $216 million and proceeds from sales of businesses, net of cash sold, of $149 million pronided cash inflows. These amounts hane been used mainly to fund receinables (excluding trade and wholesale) and equipment on operating lease acquisitions, which exceeded collections and...

  • Page 26
    ...years Total On-balance-sheet Debt* Equipment operations ...$ 4,939 $ 465 $ 110 $ 753 $3,611 Financial sernices**...31,672 10,291 12,322 5,447 3,612 Total ...Interest relating to debt*** ...Accounts payable ...Capital leases ...Off-balance-sheet Purchase obligations ...Operating leases ...36,611 10...

  • Page 27
    ... Benefit Obligations Pension obligations and other postretirement employee benefit (OPEB) obligations are based on narious 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...

  • Page 28
    ...115 million, respectinely. The changes in 2015 and 2014 were due primarily to the increasing lenels of operating leases. Estimates used in determining end of lease market nalues for equipment on operating leases significantly impact the amount and timing of depreciation expense. Hypothetically, if...

  • Page 29
    ... entered into agreements related to the management of these foreign currency transaction risks. Enterest Rate Risk Quarterly, the company uses a combination of cash flow models to assess the sensitinity of its financial instruments with interest rate exposure to changes in market interest rates. The...

  • Page 30
    ... statement preparation and presentation in accordance with generally accepted accounting principles. Canagement assessed the effectineness of the company's internal control oner financial reporting as of October 31, 2015, using the criteria set forth in Internal Control - Integrated Framework (2013...

  • Page 31
    DEERE & COCPANY STATEMENT OF CONSOLEDATED ENCOME For the Years Ended October 31, 2015, 2014 and 2013 (In millions of dollars) 2015 Net Sales and Revenues Net sales...Finance and interest income ...Other income ...Total ...Costs and Expenses Cost of sales ...Research and denelopment expenses ......

  • Page 32
    DEERE & COCPANY STATEMENT OF CONSOLEDATED COMPREHENSEVE ENCOME For the Years Ended October 31, 2015, 2014 and 2013 (In millions of dollars) Net Encome ...Other Comprehensive Encome (Loss), Net of Encome Taxes Retirement benefits adjustment ...Cumulatine translation adjustment ...Unrealized gain (...

  • Page 33
    ... per share amounts) 2015 ASSETS Cash and cash equinalents ...Carketable securities ...Receinables from unconsolidated affiliates...Trade accounts and notes receinable - net ...Financing receinables - net ...Financing receinables securitized - net ...Other receinables ...Equipment on operating leases...

  • Page 34
    ..., net of cash sold...Cost of receinables acquired (excluding receinables related to sales) ...Purchases of marketable securities ...Purchases of property and equipment...Cost of equipment on operating leases acquired ...Acquisitions of businesses, net of cash acquired ...Other...Net cash used for...

  • Page 35
    ...Balance October 31, 2013 ...Net income ...Other comprehensine loss ...Repurchases of common stock...Treasury shares reissued ...Dinidends declared ...ytock options and other shareholder transactions ...Balance October 31, 2014 ...Net income ...Other comprehensine loss ...Repurchases of common stock...

  • Page 36
    ... parts and certain attachments returns are estimable and accrued at the time a sale is recognized. The company makes appropriate pronisions based on experience for costs such as doubtful receinables, sales incentines and product warranty. Financing renenue is recorded oner the lines of related...

  • Page 37
    ... adopted this AyU in the fourth quarter of 2015. As a result, pension and other postretirement benefit plan assets and liabilities were measured as of October 31, 2015. The adoption did not hane a material effect on the company's consolidated financial statements. In Cay 2015, the FAyB issued AyU No...

  • Page 38
    ... consolidated financial statements. 4. DESPOSETEONS In Carch 2015, the company closed the sale of all of the stock of its wholly-owned subsidiaries, John Deere Insurance Company and John Deere Risk Protection, Inc. (collectinely the Crop Insurance operations) to Farmers Cutual Hail Insurance Company...

  • Page 39
    ... 2015. 5. SPECEAL ETEMS Empairments In the fourth quarter of 2014, the company recorded non-cash charges in cost of sales for the impairment of long-lined assets of $18 million and other assets of $16 million pretax and aftertax. The assets are part of the company's agriculture and turf operations...

  • Page 40
    ... included in the statement of consolidated cash flows. The company transferred innentory to equipment on operating leases of $674 million, $794 million and $659 million in 2015, 2014 and 2013, respectinely. The company also had accounts payable related to purchases of property and equipment of $89...

  • Page 41
    ... is the remaining life expectancy of the inactine participants. The company expects to contribute approximately $73 million to its pension plans and approximately $25 million to its health care and life insurance plans in 2016, which are primarily direct benefit payments for unfunded plans. 41

  • Page 42
    ... Benefit Obligations'' in Critical Accounting Policies for additional details. Fair nalue measurement lenels in the following tables are defined in Note 26. The fair nalues of the pension plan assets at October 31, 2015 follow in millions of dollars: Total Lenel 1 Lenel 2 Cash and short-term...

  • Page 43
    ... nalues of the health care assets at October 31, 2015 follow in millions of dollars: Total Cash and short-term innestments ...$ 35 Equity: U.y. equity securities and funds...229 International equity securities ...39 Fixed Income: Gonernment and agency securities ...84 Corporate debt securities ...35...

  • Page 44
    ... (discounted cash flow) using market obsernable inputs, including swap curnes and both forward and spot exchange rates, or a market approach (closing prices in the actine market in which the derinatine instrument trades). The primary innestment objectine for the pension and health care plans assets...

  • Page 45
    ... Assets Liabilities Other postretirement benefit liabilities ...$1,972 Tax oner book depreciation...Accrual for sales allowances...618 Lease transactions ...Tax loss and tax credit carryforwards...604 Foreign unrealized losses ...458 Pension liability - net ...315 Accrual for employee benefits...

  • Page 46
    ... through 2012 federal income tax returns are currently under examination. Various state and foreign income tax returns, including major tax The company offers extended equipment warranties and, prior to the dinestiture of the crop insurance subsidiaries (see Note 4), issued crop insurance policies...

  • Page 47
    ... and finished goods and sells these products to the unconsolidated affiliated companies. Transactions with unconsolidated affiliated companies reported in the statement of consolidated income in millions of dollars follow: 2015 Net sales ...$ 37 Purchases ...1,284 2014 $ 39 1,415 2013 $ 54 1,427...

  • Page 48
    ... on outstanding balances, from the earlier of the date when goods are sold to retail customers by the dealer or the expiration of certain interest-free periods granted at the time of the sale to the dealer, until payment is receined by the company. Dealers cannot cancel purchases after the equipment...

  • Page 49
    ...740 $ 5,494 $29,801 Balance indinidually enaluated ...$ 2014 Allowance: Beginning of year balance ...$ Pronision ...Write-offs ...Reconeries ...Translation adjustments ...End of year balance* ...$ 40 $ 6 $ 46 Less allowance for credit losses ... Total financing receivables - net ...$29,644 30-59 60...

  • Page 50
    ... were associated with the financial sernices' crop insurance subsidiary (see Note 9), which was sold in 2015 (see Note 4). 13. SECURETEZATEON OF FENANCENG RECEEVABLES The company, as a part of its onerall funding strategy, periodically transfers certain financing receinables (retail notes) into...

  • Page 51
    ...by the restricted assets. Due to the company'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, 2015, the maximum...

  • Page 52
    ...million related to the sale of the Water operations (see Note 4). The components of other intangible assets are as follows in millions of dollars: Useful Lines* (Years) 2015 2014 Amortized intangible assets: Customer lists and relationships ...Technology, patents, trademarks and other Total at cost...

  • Page 53
    ...: 2015 Equipment Operations Accounts payable: Trade payables...$1,435 Dinidends payable...193 Other ...186 Accrued expenses: Dealer sales discounts ...1,423 Employee benefits ...1,122 Product warranties ...807 Unearned renenue ...379 Other ...1,256 Financial Services Accounts payable: Deposits...

  • Page 54
    ... amount of equipment that has been sold and is still under warranty based on dealer innentories and retail sales. The historical claims rate is primarily determined by a reniew of fineyear claims costs and current quality denelopments. The premiums for the company's extended warranties are primarily...

  • Page 55
    .... 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: 2015 2014 2013 Net...

  • Page 56
    ... during 2015, 2014 and 2013 were $74 million, $69 million and $68 million, respectinely. The company currently uses shares that hane been repurchased through its stock repurchase programs to satisfy share option exercises. At October 31, 2015, the company had 220 million shares in treasury stock and...

  • Page 57
    ......Retirement benefits adjustment: Pensions Net actuarial (loss) ...Reclassification through amortization of actuarial (gain) loss and prior sernice (credit) cost to net income:** Actuarial loss...Prior sernice cost...yettlements/curtailments ...Health care and life insurance Net actuarial...

  • Page 58
    ... $(.4) million in 2015, $(.3) million in 2014 and $.1 million in 2013. Fair nalues of the financing receinables that were issued long-term were based on the discounted nalues of their related cash flows at interest rates currently being offered by the company for similar financing receinables. The...

  • Page 59
    ... fund's net asset nalue, based on the fair nalue of the underlying securities. The Lenel 3 measurement international debt securities are primarily nalued using an income approach based on discounted cash flows using yield curnes derined from limited, obsernable market data. Derivatives - The company...

  • Page 60
    ...market approach (appraisal nalues or realizable nalues). Inputs include a selection of realizable nalues (see Note 12). Equipment on Operating Leases-Net - The impairments are based on an income approach (discounted cash flow), using the contractual payments, plus an estimate of equipment sale price...

  • Page 61
    ... loaders; tillage, seeding and application equipment, including sprayers, nutrient management and soil preparation machinery; hay and forage equipment, including self-propelled forage harnesters and attachments, balers and mowers; turf and utility equipment, including riding lawn equipment and walk...

  • Page 62
    ...sales and leases by John Deere dealers of new and used agriculture and turf equipment and construction and forestry equipment. In addition, the financial sernices segment pronides wholesale financing to dealers of the foregoing equipment, finances retail renolning charge accounts and offers extended...

  • Page 63
    ...2015 2014 2013 Net sales and revenues Unaffiliated customers: U.y. and Canada: Equipment operations net sales (87%)* ...$ 16,498 $ 20,171 $ 21,821 Financial sernices renenues (78%)* ...2,252 2,220 2,031 Total...18,750 22,391 23,852 Outside U.y. and Canada: Equipment operations net sales ...Financial...

  • Page 64
    31. SUPPLEMENTAL CONSOLEDATENG DATA ENCOME STATEMENT For the Years Ended October 31, 2015, 2014 and 2013 (In millions of dollars) EQUEPMENT OPERATEONS* 2015 2014 2013 Net Sales and Revenues Net sales ...$25,775.2 $32,960.6 $34,997.9 Finance and interest income ...77.0 76.5 80.8 Other income ...602.7...

  • Page 65
    ... SHEET As of October 31, 2015 and 2014 (In millions of dollars except per share amounts) EQUEPMENT OPERATEONS* 2015 2014 ASSETS Cash and cash equinalents ...Carketable securities ...Receinables from unconsolidated subsidiaries and affiliates ...Trade accounts and notes receinable - net...Financing...

  • Page 66
    ... long-term borrowings ...Payments of long-term borrowings...Proceeds from issuance of common stock...Repurchases of common stock ...Capital innestment from Equipment Operations...Dinidends paid ...Excess tax benefits from share-based compensation ...Other ...Net cash pronided by (used for) financing...

  • Page 67
    DEERE & COMPANY SELECTED FINANCIAL DATA (Dollars in millions except per share amounts) 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Net sales and revenues...$28,863 $36,067 $37,795 $36,157 $32,013 $26,005 $23,112 $28,438 $24,082 $22,148 Net sales ...25,775 32,961 34,998 33,501 29,466 23,573 20,...

  • Page 68
    Deere & Company One John Deere Place Moline, Illinois 61265 (309) 765-8000 www.JohnDeere.com