01—Abstract
Summary
Summary of the 10-K filed December 17, 2010. Cited figures are marked; the original filing is the authoritative source.
Deere & Company's fiscal 2010 (year ended October 31, 2010) marked a sharp recovery from the 2009 downturn.
Net income attributable to Deere rose to $1,865 milliona, or $4.35 per diluted share, versus $873 million ($2.06) in 2009. Net sales and revenues grew 13% to $26,005 million. The Equipment Operations drove the improvement: operating profit reached $2,909 million versus $1,365 million, helped by higher shipment volumes, better price realization, favorable currency effects and lower raw material costs.
The cost of sales ratio improved to 73.8% from 78.3%. Construction and forestry sales rose 41%, and the credit segment's net income increased to $373 millionb on wider financing spreads and lower credit loss provisions. Management guided to a further strong fiscal 2011: equipment sales are projected to rise 10-12%, with net income of about $2.1 billion, though the forecast reflects transition costs for the record number of new models required by Interim Tier 4 emissions standards and higher raw material costs.
Balance sheet items to note include total assets of $43.3 billionc, long-term borrowings of $16.8 billion (mostly in Financial Services), and a Financial Services debt-to-equity ratio of 7.3 to 1. Equipment Operations debt-to-total-capital improved to 35% from 43%. Cash and marketable securities fell to $4.0 billion, partly because of share repurchases of $359 million and a $2.0 billion increase in commercial paper outstanding.
Investors should also weigh several subsequent events. The wind energy business was sold for about $900 milliond in December 2010, and the quarterly dividend was raised 17% to $0.35 per share.
Retiree health care obligations remain large, with a $4.8 billion net OPEB liability. The 2010 tax expense also rose about $130 million because of health care legislation.
02—Key points
Key Highlights
- Net income attributable to Deere & Company rose 114% to $1,865 million ($4.35 diluted EPS), up from $873 million ($2.06) in 2009, which included $381 million in pretax special charges.
- Net sales and revenues grew 13% to $26,005 million; Equipment Operations net sales rose 14% to $23,573 million, driven mainly by higher shipment volumes and a 2% price increase.
- Equipment Operations operating profit more than doubled to $2,909 million, and the cost of sales ratio improved to 73.8% from 78.3%.
- Financial Services net income increased to $373 million, reflecting improved financing spreads and a lower provision for credit losses; the 2011 credit forecast is about $360 million.
- Fiscal 2011 outlook calls for equipment sales up 10-12% and net income of about $2.1 billion, with a record number of new model introductions tied to Tier 4 emissions rules.
- Liquidity remained solid, with cash and marketable securities of $4.0 billion; $359 million was used for share repurchases and $484 million for dividends, and the company holds an A2/A credit rating.
- Post-year-end, the wind energy business was sold for about $900 million and the quarterly dividend was raised 17% to $0.35 per share.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Deere & Co kept $0.07.
- Revenue$26.00B100.0%
- Cost of revenue−$17.40B66.9%
- Gross profit$8.61B33.1%
- Operating costs−$5.20B20.0%
- Operating income$3.41B13.1%
- Interest, other & tax−$1.54B5.9%
- Net income$1.86B7.2%
Where FY2010 revenue went
$26.00B- Cost of revenue: $17.40B, 67% of revenue
- Net income: $1.86B, 7.2% of revenue
- R&D: $1.05B, 4.0% of revenue
- SG&A: $2.97B, 11% of revenue
- Other operating costs: $1.18B, 4.5% of revenue
- Interest, other & tax: $1.54B, 5.9% of revenue
Kept 7.2% as net incomeNet income $1.86B · 7.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed December 17, 2010Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $26.00B$23.11B | +12.5% |
| Cost of Revenue | $17.40B$16.26B | +7.0% |
| Gross Profit | $8.61B$6.86B | +25.5% |
| R&D Expenses | $1.05B$977.00M | +7.7% |
| SG&A Expenses | $2.97B$2.78B | +6.8% |
| Operating Income | $3.41B$1.61B | +112.1% |
| Interest Expense | $811.40M$1.04B | −22.2% |
| Net Income | $1.86B$873.50M | +113.5% |
| EPS (Basic) | $4.40$2.07 | +112.6% |
| EPS (Diluted) | $4.35$2.06 | +111.2% |
| Shares Outstanding (Basic) | 424.00M422.80M | +0.3% |
| Shares Outstanding (Diluted) | 428.60M424.40M | +1.0% |
05—Questions
Frequently Asked Questions
What drove Deere's profit recovery in fiscal 2010?
Higher shipment and production volumes were the main driver, along with improved price realization, favorable foreign currency effects and lower raw material costs. The prior year also carried goodwill impairment and voluntary separation charges, which did not recur at the same scale.
What is the outlook for fiscal 2011?
Management expects equipment sales to rise 10-12% and net income attributable to Deere to be about $2.1 billion. Agriculture and turf sales are forecast to grow 7-9% and construction and forestry sales 25-30%. Risks include transition costs for new Tier 4-compliant models, higher raw material costs and a less favorable sales mix.
What are the main risks highlighted in the filing?
Key risks include trade and government farm policy, weather and farm commodity prices, global economic conditions and access to funding, currency translation, interest rate exposure in the credit business, tougher engine emissions and climate regulation, and dependence on construction activity for the construction and forestry segment.
How strong is Deere's balance sheet and funding position?
The Equipment Operations' debt-to-total-capital ratio improved to 35% from 43%, and the company has $5.3 billion in bank credit lines, of which $3.2 billion was unused. Financial Services carries most of the $16.8 billion in long-term debt, with a 7.3-to-1 debt-to-equity ratio. Moody's rates the company A2 and S&P rates it A, both stable.
Did anything material happen after fiscal year-end?
Yes. The company closed the sale of its John Deere Renewables wind energy business for about $900 million on December 10, 2010, and the board raised the quarterly dividend to $0.35 per share from $0.30, an increase of about 17%.
06—Continue