01—Abstract
Summary
Summary of the 10-K filed December 17, 2009. Cited figures are marked; the original filing is the authoritative source.
Deere & Company's fiscal 2009 (year ended October 31, 2009) was a sharply weaker year driven by the global downturn.
Worldwide net sales and revenues fell 19% to $23.1 billiona and net income dropped 57% to $873 million, or $2.06 per diluted share, versus $2.05 billion ($4.70 per share) in 2008. Results absorbed $381 million in pretax special charges, including a $289 million non-cash goodwill impairment tied to the John Deere Landscapes unit and $91 million of voluntary employee separation expenses. Equipment Operations net sales fell 20% to $20.8 billion, with the construction and forestry segment down 45% and agriculture and turf down 14%.
Operating profit at Equipment Operations fell to $1.37 billionb from $2.93 billion, and the cost-of-sales ratio rose to 78.3% from 75.9%. The balance sheet and liquidity remained solid on a cash basis. Consolidated cash and equivalents rose to $4.65 billion, operating cash flow was $1.98 billion, and Equipment Operations debt-to-capital rose to 43% from 25%, largely reflecting a $2.5 billion retirement benefits adjustment that cut stockholders' equity to $4.8 billion from $6.5 billion.
Total long-term borrowings increased to $17.4 billionc, mainly within Financial Services. Management expects a partial recovery in 2010: company equipment sales are forecast to fall about 1%, with South America up 10 to 15% and construction and forestry sales up about 18%, while agriculture and turf is forecast down about 4%. Net income is projected at about $900 million, although postretirement benefit costs are expected to rise roughly $400 million on lower discount rates.
For investors, the key issues are the depth of the cyclical trough, the rebound in construction and forestry, the sharp increase in pension and retiree health obligations, and the rising leverage of the financing arm. Financial Services net income fell to $203 milliond from $337 million on higher credit-loss provisions and an increase in delinquencies in construction equipment and operating loans.
02—Key points
Key Highlights
- Net income fell 57% to $873 million ($2.06 per diluted share) from $2,053 million ($4.70) in 2008, including $381 million pretax in special charges (goodwill impairment of $289 million and voluntary separation expenses of $91 million).
- Net sales and revenues declined 19% to $23.1 billion; Equipment Operations net sales fell 20% to $20.8 billion, with construction and forestry down 45% and agriculture and turf down 14%.
- Equipment Operations operating profit dropped to $1.37 billion from $2.93 billion, and the cost-of-sales ratio rose to 78.3% from 75.9% due to lower volumes, currency effects, and higher raw material costs.
- Consolidated operating cash flow was $1.98 billion and cash and equivalents rose $2.44 billion to $4.65 billion, while stockholders' equity fell to $4.8 billion from $6.5 billion after a $2.5 billion retirement benefits adjustment.
- Total long-term borrowings rose to $17.4 billion from $13.9 billion, and Equipment Operations debt-to-capital increased to 43% from 25%.
- 2010 outlook: company equipment sales down about 1%, net income about $900 million, and postretirement benefit costs about $400 million higher on lower discount rates; construction and forestry sales are forecast up about 18%.
- Financial Services net income declined to $203 million from $337 million on a higher provision for credit losses and narrower financing spreads; the allowance for credit losses rose to $316 million from $226 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Deere & Co kept $0.04.
- Revenue$23.11B100.0%
- Cost of revenue−$16.26B70.3%
- Gross profit$6.86B29.7%
- Operating costs−$5.25B22.7%
- Operating income$1.61B7.0%
- Interest, other & tax−$733.5M3.2%
- Net income$873.5M3.8%
Where FY2009 revenue went
$23.11B- Cost of revenue: $16.26B, 70% of revenue
- SG&A: $2.78B, 12% of revenue
- Net income: $873.5M, 3.8% of revenue
- R&D: $977.0M, 4.2% of revenue
- Other operating costs: $1.49B, 6.5% of revenue
- Interest, other & tax: $733.5M, 3.2% of revenue
Kept 3.8% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed December 17, 2009Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $23.11B$28.44B | −18.7% |
| Cost of Revenue | $16.26B$19.57B | −17.0% |
| Gross Profit | $6.86B$8.86B | −22.6% |
| R&D Expenses | $977.00M$943.10M | +3.6% |
| SG&A Expenses | $2.78B$2.96B | −6.1% |
| Operating Income | $1.61B$3.42B | −53.0% |
| Interest Expense | $1.04B$1.14B | −8.3% |
| Net Income | $873.50M$2.05B | −57.5% |
| EPS (Basic) | $2.07$4.76 | −56.5% |
| EPS (Diluted) | $2.06$4.70 | −56.2% |
| Shares Outstanding (Basic) | 422.80M431.10M | −1.9% |
| Shares Outstanding (Diluted) | 424.40M436.30M | −2.7% |
05—Questions
Frequently Asked Questions
How much did Deere's earnings decline in fiscal 2009, and what drove the drop?
Net income fell to $873 million, or $2.06 per diluted share, from $2,053 million ($4.70) in 2008. The decline was driven mainly by a 20% fall in Equipment Operations net sales, reflecting lower shipment volumes, currency translation (-4%), and higher raw material costs. The results also included $381 million in pretax special charges, including a $289 million non-cash goodwill impairment at John Deere Landscapes and $91 million in voluntary employee separation costs, partly offset by 5% price realization.
What is the company's outlook for fiscal 2010?
Management projects company equipment sales to decline about 1% in 2010, with the first quarter down about 10%, and net income of roughly $900 million. Agriculture and turf sales are forecast down about 4%, with U.S. and Canada farm machinery industry sales down about 10%, while construction and forestry sales are forecast up about 18% as the company works off prior inventory reductions. Postretirement benefit costs are expected to increase about $400 million pretax, mainly due to lower discount rates.
Is Deere's balance sheet and liquidity position under pressure?
Liquidity appears adequate. Consolidated cash and marketable securities totaled about $4.8 billion, operating cash flow was $1.98 billion, and worldwide credit lines of $4.56 billion were mostly unused ($4.21 billion). However, leverage increased: stockholders' equity fell to $4.8 billion, largely from a $2.5 billion retirement benefits charge to other comprehensive income, and Equipment Operations debt-to-capital rose to 43% from 25%. Financial Services relies on commercial paper, term debt, and securitizations, with about $3.1 billion of securitized borrowings outstanding.
What risks are emerging in Deere's financing business?
Net income from Financial Services fell 40% to $203 million, reflecting a higher provision for credit losses, narrower financing spreads, and higher losses on construction equipment operating lease residual values. The allowance for doubtful financing receivables rose to $239 million from $170 million, and receivables 60 or more days past due increased to $67 million from $45 million. Non-accrual financing receivables rose to $284 million from $88 million, mainly in construction and forestry retail notes and operating loans.
What are the company's main long-term cost pressures?
Postretirement obligations increased sharply: the net pension and OPEB liability rose to roughly $6.0 billion from about $1.9 billion a year earlier, driven by lower discount rates (8.1% to 5.5% for pensions). Total company contributions to plans were $358 million in 2009 and are expected to be about $390 million in 2010. The company also faces rising costs from Tier 4 emissions compliance, with 2010 capital expenditures estimated at $850 million to $900 million for Equipment Operations.
06—Continue