Net income attributable to Deere &Company was $687.6 million, or $1.75 per share, for the fourth quarter endedOct. 31, compared with $669.6 million, or $1.62 per share, for the same periodlast year.
For fiscal 2012, net income attributable to Deere & Company was $3.065billion, or $7.63 per share, compared with $2.800 billion, or $6.63 per share, in2011.
Worldwide net sales and revenues rose 14 percent, to $9.792 billion, for thefourth quarter and increased 13 percent to $36.157 billion for the full year. Net salesof the equipment operations were $9.047 billion for the quarter and $33.501 billionfor the year, compared with $7.903 billion and $29.466 billion for the same periodsin 2011.
"In the face of continuing global economic pressure, John Deere hascompleted another record year," said Samuel R. Allen, chairman and chief executiveofficer. "Our success reflects positive customer response to our lines of innovativeequipment coupled with extensive efforts to expand our global competitive position."
During the year, Deere continued with the record introduction of new products,while opening or moving ahead with new factories in China, India, and Brazil. In theU.S., the company announced capacity expansions for tractors, sprayers, andcylinders.
"John Deere's performance illustrates the continuing impact of ouroperating model, which stresses a disciplined approach to cost and assetmanagement," Allen said. "As a result, we are achieving strong financial results andgenerating high levels of cash flow. These dollars are funding growth activitiesthroughout the world and providing value directly to investors."
Summary of Operations
Net sales of the worldwide equipment operations increased 14 percent for thefourth quarter and full year compared with the same periods in 2011. Sales includedprice realization of 4 percent and an unfavorable currency-translation effect of 3percent for both periods.
Equipment net sales in the United States and Canadaincreased 26 percent for the quarter and 20 percent for the year. Outside the U.S.and Canada, net sales decreased 2 percent for the quarter and increased 5 percentfor the year, with unfavorable currency-translation effects of 7 percent and 6 percentfor these periods.
Deere's equipment operations reported operating profit of $1.051 billion for thequarter and $4.397 billion for the full year, compared with $955 million and $3.839billion for the same periods in 2011.
The improvement in the quarter was primarilydue to the impact of higher shipment volumes and price realization. These factorswere partially offset by higher production costs and increased selling, administrativeand general, and research and development expenses.
Also affecting results was agoodwill impairment charge related to the company's John Deere Water reportingunit and unfavorable effects of foreign currency exchange.
Full-year results improved primarily due to the impact of price realization andhigher shipment volumes. Partially offsetting these factors were higher productionand raw-material costs, unfavorable effects of foreign currency exchange, andincreased research and development, and selling, administrative and generalexpenses.
The increase in production costs for both periods was primarily related tonew products, engine-emission requirements and incentive compensation expenses.
Net income of the company's equipment operations was $576 million for thefourth quarter and $2.616 billion for the full year, compared with $552 million and$2.329 billion in 2011. The same operating factors mentioned above, along with ahigher effective tax rate and increased interest expense, affected both quarterly andannual results.
Financial services reported net income attributable to Deere & Company of$121.7 million for the quarter and $460.3 million for the year compared with $122.1million and $471.0 million in 2011.
Results were slightly lower for the quarterprimarily due to higher reserves for crop insurance claims, increased selling,administrative and general expenses, a higher provision for credit losses andnarrower financing spreads.
These factors were almost entirely offset by growth inthe credit portfolio. Fiscal-year 2012 results were lower primarily due to increasedselling, administrative and general expenses, higher reserves for crop insuranceclaims and narrower financing spreads, partially offset by growth in the creditportfolio and a lower provision for credit losses.
Company Outlook & Summary
Company equipment sales are projected to increase by about 5 percent for fullyear 2013 and to be up about 10 percent for the first quarter compared with thesame periods of 2012. For fiscal 2013, net income attributable to Deere & Companyis anticipated to be about $3.2 billion.
"Deere remains well-positioned to carry out its growth plans and capitalize onpositive long-term trends, even though present global economic and fiscal concernswarrant continued caution," Allen said.
"With support from a highly committed groupof employees, dealers and suppliers, our plans for helping meet the world's growingneed for food and infrastructure are moving ahead and achieving a good deal ofsuccess.
"We are proud of the company's performance in 2012 and look forward tobuilding on these gains in 2013 and beyond. Despite fragile economic conditions inmany regions, we have great confidence in the company's prospects and in ourability to deliver value to investors and other stakeholders in the future."
Equipment Division Performance
Agriculture & Turf. Sales increased 16 percent for the quarter and 13percent for the year largely due to higher shipment volumes and price realization,partially offset by the unfavorable effects of currency translation.
Operating profit was $931 million for the quarter and $3.921 billion for theyear, compared with $868 million and $3.447 billion, respectively, in 2011. Theimprovement in both periods was primarily due to the impact of higher shipmentvolumes and price realization.
Results in the quarter were partially offset by higherproduction costs and increased selling, administrative and general, and research anddevelopment expenses. Also affecting fourth-quarter performance was a goodwillimpairment charge and unfavorable effects of foreign currency exchange.
For the fullyear, results were partially offset by higher production and raw-material costs,
unfavorable effects of foreign currency exchange, and increased research anddevelopment, and selling, administrative and general expenses.
Construction & Forestry. Construction and forestry sales increased 7percent for the quarter and 19 percent for the year mainly due to higher shipmentvolumes and price realization. Operating profit was $120 million for the quarter and$476 million for the year, compared with $87 million and $392 million, respectively,in 2011.
Results increased for both periods primarily due to the impact of pricerealization and higher shipment volumes. These factors were partially offset byincreased production costs and higher selling, administrative and general expenses.
In addition, higher raw-material costs and increased research and developmentexpenses affected the year.
Market Conditions & Outlook
Agriculture & Turf. Deere's worldwide sales of agriculture and turfequipment are forecast to increase by about 4 percent for fiscal year 2013. Relativelyhigh commodity prices and strong farm incomes are expected to continue supportinga favorable level of demand for farm machinery during the year.
Deere's sales areexpected to benefit from global expansion and lines of advanced new equipment.
Industry sales for agricultural machinery in the U.S. and Canada are forecastto be about flat for 2013 in relation to the prior year's healthy levels. Caution aroundthe U.S. livestock and dairy sectors is expected to offset continued strength indemand for large equipment such as high-horsepower tractors.
Full-year industry sales in the EU27 are forecast to be flat to down 5 percentdue to continuing deterioration in the overall economy and a poor harvest in the U.K.Sales in the Commonwealth of Independent States are expected to be modestlyhigher in 2013.
In South America, industry sales are projected to be up about 10 percent as aresult of favorable commodity prices and higher planting intentions. Industry sales inAsia are projected to be little-changed from 2012 due to softer economic conditionsin India and China.
U.S. and Canada industry sales of turf and utility equipment are expected tobe up about 5 percent for 2013, reflecting some improvement in the U.S. economy.Deere's sales are expected to increase more than the industry due to the impact ofnew products.
Construction & Forestry. Deere's worldwide sales of construction andforestry equipment are forecast to increase by about 8 percent for fiscal 2013 due inpart to modest improvement in U.S. economic conditions.
Sales in world forestrymarkets are projected to be about flat for the year as further weakness in Europeanmarkets offsets stronger demand in the U.S.
Financial Services. Fiscal-year 2013 net income attributable to Deere &Company for the financial services operations is expected to be approximately $500million. The forecast improvement is primarily due to expected growth in the creditportfolio and lower crop insurance claims.
These factors are projected to be partiallyoffset by an increase in the provision for credit losses, which is anticipated to returnto a more typical level.
John Deere Capital Corporation
The following is disclosed on behalf of the company's financial servicessubsidiary, John Deere Capital Corporation (JDCC), in connection with the disclosurerequirements applicable to its periodic issuance of debt securities in the publicmarket.
Net income attributable to John Deere Capital Corporation was $112.6 millionfor the fourth quarter and $382.7 million for full-year 2012, compared with $93.5million and $363.6 million for the respective periods in 2011.
The quarter'simprovement was mainly due to growth in the credit portfolio, partially offset by an
increased provision for credit losses and higher selling, administrative and generalexpenses.
Full-year 2012 results were higher primarily due to growth in the creditportfolio and a lower provision for credit losses, partially offset by higher selling,administrative and general expenses and narrower financing spreads.
Net receivables and leases financed by JDCC were $26.509 billion and $23.184billion at October 31, 2012 and 2011, respectively.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of1995: Statements under "Company Outlook & Summary," "Market Conditions &Outlook," and other forward-looking statements herein that relate to future events,expectations, trends and operating periods involve certain factors that are subject tochange, and important risks and uncertainties that could cause actual results todiffer materially.
Some of these risks and uncertainties could affect particular linesof business, while others could affect all of the company's businesses.The company's agricultural equipment business is subject to a number ofuncertainties including the many interrelated factors that affect farmers' confidence.
These factors include worldwide economic conditions, demand for agriculturalproducts, world grain stocks, weather conditions (including its effects on timelyplanting and harvesting), soil conditions (including low subsoil moisture from recentdrought conditions), harvest yields, prices for commodities and livestock, crop andlivestock production expenses, availability of transport for crops, the growth of nonfooduses for some crops (including ethanol and biodiesel production), real estatevalues, available acreage for farming, the land ownership policies of variousgovernments, changes in government farm programs and policies (including those in
Argentina, Brazil, China, the European Union, India, Russia and the U.S.),international reaction to such programs, changes in and effects of crop insuranceprograms, global trade agreements, animal diseases and their effects on poultry,beef and pork consumption and prices, crop pests and diseases, and the level offarm product exports (including concerns about genetically modified organisms).
Factors affecting the outlook for the company's turf and utility equipmentinclude general economic conditions, consumer confidence, weather conditions,customer profitability, consumer borrowing patterns, consumer purchasingpreferences, housing starts, infrastructure investment, spending by municipalitiesand golf courses, and consumable input costs.
General economic conditions, consumer spending patterns, real estate andhousing prices, the number of housing starts and interest rates are especiallyimportant to sales of the company's construction and forestry equipment.
The levelsof public and non-residential construction also impact the results of the company's
construction and forestry segment. Prices for pulp, paper, lumber and structuralpanels are important to sales of forestry equipment.
All of the company's businesses and its reported results are affected by generaleconomic conditions in the global markets in which the company operates, especiallymaterial changes in economic activity in these markets; customer confidence ingeneral economic conditions; foreign currency exchange rates and their volatility,especially fluctuations in the value of the U.S. dollar; interest rates; and inflation anddeflation rates. General economic conditions can affect demand for the company'sequipment as well.
Uncertainty about and actual government spending and taxingcould adversely affect the economy, employment, consumer and corporate spending,and company results.
Customer and company operations and results could be affected by changes inweather patterns (including the effects of drought conditions in parts of the U.S. anddryer than normal conditions in certain other markets); the political and socialstability of the global markets in which the company operates; the effects of, orresponse to, terrorism and security threats; wars and other conflicts and the threatthereof; and the spread of major epidemics.
Significant changes in market liquidity conditions and any failure to comply withfinancial covenants in credit agreements could impact access to funding and fundingcosts, which could reduce the company's earnings and cash flows.
Financial marketconditions could also negatively impact customer access to capital for purchases ofthe company's products and customer confidence and purchase decisions; borrowingand repayment practices; and the number and size of customer loan delinquencies
The sovereign debt crisis, in Europe or elsewhere, could negativelyimpact currencies, global financial markets, social and political stability, fundingsources and costs, asset and obligation values, customers, suppliers, and companyoperations and results.
State debt crises also could negatively impact customers,suppliers, demand for equipment, and company operations and results. Thecompany's investment management activities could be impaired by changes in theequity and bond markets, which would negatively affect earnings.
Additional factors that could materially affect the company's operations, accessto capital, expenses and results include changes in and the impact of governmentaltrade, banking, monetary and fiscal policies, including financial regulatory reform andits effects on the consumer finance industry, derivatives, funding costs and otherareas, and governmental programs, policies and tariffs in particular jurisdictions orfor the benefit of certain industries or sectors (including protectionist andexpropriation policies and trade and licensing restrictions that could disruptinternational commerce); actions by the U.S. Federal Reserve Board and other
central banks; actions by the U.S. Securities and Exchange Commission (SEC), theU.S. Commodity Futures Trading Commission and other financial regulators; actionsby environmental, health and safety regulatory agencies, including those related toengine emissions (in particular Interim Tier 4, Final Tier 4 and Stage IIIb non-roaddiesel emission requirements), carbon and other greenhouse gas emissions, noiseand the risk of climate change; changes in labor regulations; changes to accountingstandards; changes in tax rates, estimates, and regulations; compliance with U.S.and foreign laws when expanding to new markets; and actions by other regulatorybodies including changes in laws and regulations affecting the sectors in which thecompany operates.
Customer and company operations and results also could beaffected by changes to GPS radio frequency bands or their permitted uses.
Other factors that could materially affect results include production, design andtechnological innovations and difficulties, including capacity and supply constraintsand prices; the availability and prices of strategically sourced materials, componentsand whole goods; delays or disruptions in the company's supply chain or the loss ofliquidity by suppliers; the failure of suppliers to comply with laws, regulations andcompany policy pertaining to employment, human rights, health, safety, theenvironment and other ethical business practices; start-up of new plants and newproducts; the success of new product initiatives and customer acceptance of newproducts; changes in customer product preferences and sales mix whether as a
result of changes in equipment design to meet government regulations or for otherreasons; gaps or limitations in rural broadband coverage, capacity and speed neededto support technology solutions; oil and energy prices and supplies; the availabilityand cost of freight; actions of competitors in the various industries in which thecompany competes, particularly price discounting; dealer practices especially as tolevels of new and used field inventories; labor relations; acquisitions and divestituresof businesses, the integration of new businesses; the implementation oforganizational changes; difficulties related to the conversion and implementation ofenterprise resource planning systems that disrupt business, negatively impact supplyor distribution relationships or create higher than expected costs; security breachesand other disruptions to the company's information technology infrastructure;
changes in company declared dividends and common stock issuances andrepurchases.
Company results are also affected by changes in the level and funding ofemployee retirement benefits, changes in market values of investment assets andthe level of interest rates, which impact retirement benefit costs, and significantchanges in health care costs including those which may result from governmentalaction.
The liquidity and ongoing profitability of John Deere Capital Corporation andother credit subsidiaries depend largely on timely access to capital to meet futurecash flow requirements and fund operations and the costs associated with engagingin diversified funding activities and to fund purchases of the company's products.
Ifmarket uncertainty increases and general economic conditions worsen, funding couldbe unavailable or insufficient. Additionally, customer confidence levels may result indeclines in credit applications and increases in delinquencies and default rates, whichcould materially impact write-offs and provisions for credit losses.
The failure ofreinsurers of the company's insurance business also could materially affect results.
The company's outlook is based upon assumptions relating to the factorsdescribed above, which are sometimes based upon estimates and data prepared bygovernment 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 informationconcerning the company and its businesses, including factors that potentially couldmaterially affect the company's financial results, is included in the company's otherfilings with the SEC (including, but not limited to, the factors discussed in Item 1A.
Risk Factors of the company's most recent annual report on Form 10-K and quarterly
filings with the SEC (including, but not limited to, the factors discussed in Item 1A.