Press release from John Deere and Company
Deere Completes Profitable Year In Face of Historic Economic Slowdown
Company reports full-year earnings of $873 million; financial condition remains
strong.
Quarterly loss of $223 million includes $322 million after-tax charge for goodwill
impairment and voluntary employee separation; excluding these items, earnings
were $99 million (see appendix).
Trade receivables and inventories reduced by more than $1 billion for year,
reflecting commitment to disciplined asset management.
Earnings of about $900 million forecast in 2010.
MOLINE, Illinois (November 25, 2009) — Deere & Company today announced a worldwide
net loss of $222.8 million, or $0.53 per share, for the fourth quarter ended October 31, compared
with net income of $345.0 million, or $0.81 per share, for the same period last year. Affecting
fourth-quarter 2009 results were charges of $364.8 million pretax and $321.8 million after-tax, or
$0.76 per share, due to the previously announced impairment of goodwill related to the John
Deere Landscapes reporting unit and voluntary employee-separation expenses associated with
the formation of the new agriculture and turf division. These items are included in the results of
the agriculture and turf operating segment. Without the items, earnings for the quarter would have
been $99.0 million, or $0.23 per share. (Information on non-GAAP financial measures is included
in the appendix.)
For the full year, net income was $873.5 million, or $2.06 per share, compared with $2.053
billion, or $4.70 per share, last year. Included in the year’s net income are the items cited above,
which totaled $380.6 million pretax and $331.8 million after-tax, or $0.78 per share, on an annual
basis.
Worldwide net sales and revenues declined 28 percent, to $5.334 billion, for the fourth
quarter and were down 19 percent, to $23.112 billion, for the full year. Net sales of the equipment
operations were $4.726 billion for the quarter and $20.756 billion for the year, compared with
$6.734 billion and $25.803 billion last year.
Deere Announces Fourth-Quarter Earnings Page 2
"In the face of intense global economic pressure, John Deere has completed a solidly
profitable year and maintained its strong financial condition," said Samuel R. Allen, president and
chief executive officer. "All our businesses are benefiting from the consistent execution of plans to
keep a tight rein on costs and inventories. In addition, Deere has made further progress
extending its competitive position through a relentless focus on customers and a steady
investment in new projects, products and geographies."
Summary of Operations
Net sales of the worldwide equipment operations decreased 30 percent for the quarter and
were down 20 percent for the year. Sales included a favorable currency-translation effect of 1
percent for the quarter and an unfavorable currency-translation effect of 4 percent for the year.
Also included in sales was price realization of 3 percent for the quarter and 5 percent for the year.
Equipment net sales in the United States and Canada declined 26 percent for the quarter and 14
percent for the year. Net sales outside the United States and Canada were down 35 percent for
the quarter and 28 percent for the year, with a favorable currency-translation effect of 1 percent
for the quarter and an unfavorable currency-translation effect of 8 percent for the year.
Deere’s equipment operations reported an operating loss of $22 million for the quarter and
operating profit of $1.365 billion for the year, compared with operating profit of $549 million and
$2.927 billion for the same periods last year. The deterioration in the quarter primarily was due to
lower shipment and production volumes, a goodwill impairment charge, unfavorable effects of
foreign exchange and voluntary employee-separation expenses. Partially offsetting these factors
were lower raw-material costs, improved price realization and lower selling, administrative and
general expenses. Full-year results were down primarily due to lower shipment and production
volumes, the unfavorable effects of foreign exchange, a goodwill impairment charge, higher rawmaterial
costs and voluntary employee-separation expenses. These factors were partially offset
by improved price realization and lower selling, administrative and general expenses.
Equipment operations reported a net loss of $201 million for the quarter and net income of
$678 million for the year, compared with net income of $268 million and $1.676 billion last year.
The operating factors mentioned above, in addition to unfavorable tax effects, had an impact on
both quarterly and full-year results.
Trade receivables and inventories ended the year at $5.014 billion compared with $6.276
billion in 2008. "As a result of our success aligning factory production with retail activity, trade
receivables and inventories remained at 24 percent of full-year sales in spite of a significant
decline in demand," said Allen.
Financial services reported a net loss of $15.3 million for the quarter and net income of
$202.5 million for the full year versus net income of $69.9 million and $337.4 million for the
Deere Announces Fourth-Quarter Earnings Page 3
comparable periods last year. Quarterly results were lower largely due to the reversal and
deferral of wind energy tax credits eligible for cash grants and a higher provision for credit losses.
Other factors included higher losses on residual values for construction-equipment operating
leases and lower commissions from crop insurance. Full-year net income was lower primarily due
to a higher provision for credit losses, lower commissions from crop insurance, narrower financing
spreads and higher losses from construction-equipment operating lease residual values. These
factors were partially offset by a lower effective tax rate primarily from wind energy tax credits and
lower selling, administrative and general expenses.
Company Outlook & Summary
Company equipment sales are projected to be down about 1 percent for fiscal 2010 and be
down about 10 percent for the first quarter compared with the same periods a year ago. This
includes a favorable currency-translation impact of about 1 percent for the year and about 3
percent for the quarter. Deere’s net income is anticipated to be approximately $900 million for
2010. Mainly due to lower discount rates, the company expects postretirement benefit costs to be
about $400 million higher on a pretax basis in 2010 than in 2009.
Deere’s ability to remain on a profitable course in such a difficult environment is a tribute
to a committed team of employees, dealers and suppliers worldwide, according to Allen. "Thanks
in large part to their dedication and hard work, our operations have remained on a solid footing
and our plans for meeting the world’s growing need for food and infrastructure are continuing to
move forward," he commented. "We remain extremely confident about the company’s future,
which in our view holds considerable promise for delivering significant value to the company and
its investors in the years ahead."
* * *
Equipment Division Performance
Agriculture & Turf. Sales declined 26 percent for the quarter and 14 percent for the full
year largely due to lower shipment volumes, partially offset by improved price realization. In
addition, sales for the year were affected unfavorably by currency translation. The division had an
operating loss of $24 million for the quarter and operating profit of $1.448 billion for the full year,
compared with last year’s operating profit of $460 million and $2.461 billion for the respective
periods. The deterioration in the quarter primarily resulted from lower shipment and production
volumes, a goodwill impairment charge, unfavorable effects of foreign exchange and voluntary
employee-separation expenses. Partially offsetting these factors were lower raw-material costs,
improved price realization and lower selling, administrative and general expenses. Full-year
results were lower largely due to lower shipment and production volumes, the unfavorable effects
Deere Announces Fourth-Quarter Earnings Page 4
of foreign exchange, a goodwill impairment charge, higher raw-material costs and voluntary
employee-separation expenses. These factors were partially offset by improved price realization
and lower selling, administrative and general expenses.
Construction & Forestry. Construction and forestry sales declined 47 percent for the
quarter and 45 percent for the full year, resulting in operating profit of $2 million for the quarter
and an operating loss of $83 million for the year. Last year the division had operating profit of $89
million and $466 million for the same periods. The profit decrease for the quarter primarily was
due to significantly lower shipment and production volumes, partially offset by improved price
realization, lower raw-material costs and lower selling, administrative and general expenses. The
decline in annual operating results was largely due to lower shipment and production volumes
and lower equity in income from unconsolidated affiliates, partially offset by improved price
realization and lower selling, administrative and general expenses.
Market Conditions & Outlook
Agriculture & Turf. Worldwide sales of the agriculture and turf division are forecast to
decrease by about 4 percent for full-year 2010, including a favorable currency-translation impact
of about 2 percent.
On an industry basis, farm machinery sales in the United States and Canada are forecast
to be down about 10 percent for the year. Cash receipts and commodity prices, while below their
prior peaks, are anticipated to remain at healthy levels. However, farmers are expected to be
cautious in their purchasing decisions as a result of sluggish overall economic conditions and
near-term profitability issues in the livestock and dairy sectors. In other parts of the world, industry
farm-machinery sales in Western Europe are forecast to decline 10 to 15 percent for the year
mainly due to weakness in the livestock, dairy and grain sectors. Sales in Central Europe and the
Commonwealth of Independent States are expected to remain under pressure partly as a result
of weak general economic conditions, including low levels of available credit. In South America,
industry sales are projected to increase by 10 to 15 percent for the year. Among other positive
factors, parts of South America are benefiting from a return to more normal weather patterns after
last year’s severe drought. The Brazilian market is expected to receive support from good
incomes for soybean and sugarcane producers and the continued availability of attractive
government-supported financing. The forecast assumes that the Brazilian currency does not
strengthen further against the U.S. dollar. Industry sales of turf equipment and compact utility
tractors in the United States and Canada are expected to be flat for the year as a result of
sluggish U.S. economic conditions.
Deere Announces Fourth-Quarter Earnings Page 5
Construction & Forestry. Deere’s worldwide sales of construction and forestry
equipment are forecast to increase by about 18 percent for full-year 2010. Sales are expected to
be helped by aggressive inventory reductions in the previous year that position the company to
align production with retail demand. Despite an increase in housing starts from historically low
levels, U.S. construction-equipment markets are forecast to be down for the year resulting from a
decline in non-residential construction activity and lower used-equipment values. Global forestry
markets are expected to experience some recovery based on higher demand for pulp and paper,
driven by higher worldwide economic output, as well as the increase in U.S. housing starts.
Credit. Full-year 2010 net income for Deere's credit operations is forecast to be
approximately $240 million. The forecast increase from 2009 primarily is due to higher
commissions from crop insurance and increased revenue from wind energy projects.
John Deere Capital Corporation
The following is disclosed on behalf of the company's credit subsidiary, John Deere Capital
Corporation (JDCC), in connection with the disclosure requirements applicable to its periodic
issuance of debt securities in the public market.
JDCC's net income was $21.2 million for the fourth quarter and $149.2 million for the year,
compared with net income of $57.7 million and $282.4 million for the respective periods last year.
Results were lower for the quarter mostly due to a higher provision for credit losses, higher losses
on residual values for construction-equipment operating leases, and lower commissions from
crop insurance, partially offset by a lower effective tax rate. Net income was lower for the full year
primarily due to a higher provision for credit losses, narrower financing spreads, lower
commissions from crop insurance and higher losses from construction-equipment operating lease
residual values, partially offset by lower selling, administrative and general expenses.
Net receivables and leases financed by JDCC were $18.965 billion at October 31, 2009,
compared with $18.849 billion last year. Net receivables and leases administered, which include
receivables administered but not owned, totaled $19.093 billion at October 31, 2009, compared
with $19.012 billion a year ago.
Deere Announces Fourth-Quarter Earnings Page 6
APPENDIX
Deere & Company
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME INFORMATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Millions, except per-share amounts)
(Unaudited)
In addition to reporting financial results in accordance with U.S. generally accepted accounting
principles (GAAP), the company also discusses non-GAAP measures that exclude goodwill
impairment and voluntary employee separation items. Net income and diluted earnings per share
measures that exclude these items are not in accordance with, nor are they a substitute for, GAAP
measures. The company believes that discussion of results excluding these items provides a
useful analysis of ongoing operating trends.
The table below provides a reconciliation of the non-GAAP financial measures with the most
directly comparable GAAP financial measures for the three months ended October 31, 2009.
Three Months Ended
October 31, 2009
Net Diluted
income
(loss)
earnings
per share
Reported GAAP measure $ (222.8) $ (.53)
Goodwill impairment and voluntary
employee separation expenses 321.8 .76
Non-GAAP measure $ 99.0 $ .23
Deere Announces Fourth-Quarter Earnings Page 7
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements
under "Company Outlook and Summary," "Market Conditions & Outlook," and other forwardlooking
statements herein that relate to future events, expectations and operating periods involve
certain factors that are subject to change, and important risks and uncertainties that could cause
actual results to differ materially. Some of these risks and uncertainties could affect particular
lines of business, while others could affect all of the Company’s businesses.
The Company’s agricultural 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 and harvesting), soil conditions, harvest yields, prices for
commodities and livestock, crop and livestock production expenses, availability of transport for
crops, the growth of non-food uses for some crops (including ethanol and biodiesel production),
real estate values, available acreage for farming, the land ownership policies of various
governments, changes in government farm programs and policies (including those in the U.S.
and Brazil), international reaction to such programs, global trade agreements, animal diseases
and their effects on poultry and beef consumption and prices, crop pests and diseases, and the
level of farm product exports (including concerns about genetically modified organisms).
Factors affecting the outlook for the Company’s turf and utility equipment include general
economic conditions, consumer confidence, weather conditions, customer profitability, consumer
borrowing patterns, consumer purchasing preferences, housing starts, infrastructure investment,
spending by municipalities and golf courses, and consumable input costs.
General economic conditions, consumer spending patterns, real estate and housing prices, the
number of housing starts and interest rates are especially important to sales of the Company’s
construction and forestry equipment. The levels of public and non-residential construction also
impact the results of the Company’s construction and forestry segment. Prices for pulp, paper,
lumber and structural panels are important to sales of forestry equipment.
All of the Company’s businesses and its reported results are affected by general economic
conditions in the global markets in which the Company operates, especially material changes in
economic activity in these markets; customer confidence in general economic conditions; foreign
currency exchange rates, especially fluctuations in the value of the U.S. dollar (including
fluctuations in the value of the Brazilian real); interest rates; and inflation and deflation rates.
Deere Announces Fourth-Quarter Earnings Page 8
General economic conditions can affect demand for the Company’s equipment as well. Current
negative economic conditions and outlook have dampened demand for equipment.
Customer and Company operations and results could be affected by changes in weather
patterns; the political and social stability of the global markets in which the Company operates;
the effects of, or response to, terrorism; wars and other international conflicts and the threat
thereof; and the spread of major epidemics (including H1N1 and other influenzas).
With respect to the global economic downturn and expected slow recovery, changes in
governmental banking, monetary and fiscal policies to restore liquidity and increase the
availability of credit may not be effective and could have a material impact on the Company’s
customers and markets. Significant changes in market liquidity conditions could impact access to
funding and associated funding costs, which could reduce the Company’s earnings and cash
flows. Current market conditions could also negatively impact customer access to capital for
purchases of the Company’s products; borrowing and repayment practices; and the number and
size of customer loan delinquencies and defaults. The Company’s investment management
operations could be impaired by changes in the equity and bond markets, which would negatively
affect earnings.
Additional factors that could materially affect the Company’s operations and results include
changes in and the impact of governmental trade, banking, monetary and fiscal policies, including
financial regulatory reform, and governmental programs in particular jurisdictions or for the benefit
of certain industries or sectors (including protectionist policies that could disrupt international
commerce); actions by the U.S. Federal Reserve Board and other central banks; actions by the
U.S. Securities and Exchange Commission; actions by environmental, health and safety
regulatory agencies, including those related to engine emissions (in particular Interim Tier 4 and
Final Tier 4 emission requirements), noise and the risk of climate change; changes in labor
regulations; changes to accounting standards; changes in tax rates and regulations; and actions
by other regulatory bodies including changes in laws and regulations affecting the sectors in
which the Company operates.
Other factors that could materially affect results include production, design and technological
innovations and difficulties, including capacity and supply constraints and prices; the availability
and prices of strategically sourced materials, components and whole goods; delays or disruptions
in the Company’s supply chain due to weather, natural disasters or financial hardship or the loss
of liquidity by suppliers (including common suppliers with the automotive industry); start-up of new
plants and new products; the success of new product initiatives and customer acceptance of new
products; oil and energy prices and supplies; the availability and cost of freight; actions of
competitors in the various industries in which the Company competes, particularly price
discounting; dealer practices especially as to levels of new and used field inventories; labor
relations; acquisitions and divestitures of businesses, the integration of new businesses; the
implementation of organizational changes, such as combining of the agricultural and commercial
and consumer equipment segments; changes in Company declared dividends and common stock
issuances and repurchases.
Company results are also affected by changes in the level of employee retirement benefits,
changes in market values of investment assets and the level of interest rates, which impact
retirement benefit costs, and significant changes in health care costs including those which may
result from governmental action.
The current economic downturn also has adversely affected the financial industry in which John
Deere Capital Corporation and other credit subsidiaries (Credit) operate. Credit’s liquidity and
ongoing profitability depend largely on timely access to capital to meet future cash flow
requirements and fund operations and the costs associated with engaging in diversified funding
activities and to fund purchases of the Company’s products. If market disruption and volatility
continue or worsen or access to governmental liquidity programs decreases, funding could be
unavailable or insufficient. Additionally, under current market conditions customer confidence
levels may result in declines in credit applications and increases in delinquencies and default
rates, which could materially impact Credit’s write-offs and provisions for credit losses.
The Company’s outlook is based upon assumptions relating to the factors described above,
which are sometimes based upon estimates and data prepared by government agencies. Such
estimates and data are often revised. The Company, except as required by law, undertakes no
obligation to update or revise its outlook, whether as a result of new developments or otherwise.
Further information concerning the Company and its businesses, including factors that potentially
could materially affect the Company’s financial results, is included in the Company’s most recent
annual report on Form 10-K (including the factors discussed in Item 1A. Risk Factors) and other
filings with the U.S. Securities and Exchange Commission.
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