Deere & Company reported financial results for the first nine months of 2008 compared to 2007. Net sales increased across all business segments, especially in agricultural equipment. Operating profits also increased for most segments. The document then discusses Deere's use of Shareholder Value Added (SVA) as a metric to evaluate business performance. SVA is calculated by subtracting the cost of capital from operating profits. SVA increased for all segments compared to the previous year.

1. Deere & Company
Other Financial Information
For the Nine Months Ended July 31, Equipment Operations Agricultural Equipment
Commercial and Consumer
Equipment
Construction and Forestry
Dollars in millions 2008 2007 2008 2007 2008 2007 2008 2007
Net Sales $ 19,070 $ 16,066 $ 12,002 $ 8,934 $ 3,498 $ 3,305 $ 3,570 $ 3,827
Average Identifiable Assets
With Inventories at LIFO $ 9,692 $ 8,040 $ 5,346 $ 3,987 $ 1,878 $ 1,666 $ 2,468 $ 2,387
With Inventories at Standard Cost $ 10,863 $ 9,148 $ 6,154 $ 4,733 $ 2,056 $ 1,857 $ 2,653 $ 2,558
Operating Profit $ 2,377 $ 1,807 $ 1,748 $ 1,055 $ 253 $ 315 $ 376 $ 437
Percent of Net Sales 12.5% 11.2% 14.6% 11.8% 7.2% 9.5% 10.5% 11.4%
Operating Return on Assets
With Inventories at LIFO 24.5% 22.5% 32.7% 26.5% 13.5% 18.9% 15.2% 18.3%
With Inventories at Standard Cost 21.9% 19.8% 28.4% 22.3% 12.3% 17.0% 14.2% 17.1%
SVA Cost of Assets $ (968) $ (816) $ (554) $ (426) $ (175) $ (160) $ (239) $ (230)
SVA $ 1,409 $ 991 $ 1,194 $ 629 $ 78 $ 155 $ 137 $ 207
For the Nine Months Ended July 31, Financial Services
Dollars in millions 2008 2007
Net Income $ 267 $ 267
Average Equity $ 2,346 $ 2,535
Return on Equity 11.4% 10.5%
Operating Profit $ 388 $ 406
Change in Allowance for Doubtful Receivables $ 15 $ 9
SVA Income $ 403 $ 415
Average Equity $ 2,346 $ 2,535
Average Allowance for Doubtful Receivables $ 183 $ 165
SVA Average Equity $ 2,529 $ 2,700
Cost of Equity $ (317) $ (361)
SVA $ 86 $ 54
The Company evaluates its business results on the basis of generally accepted accounting
principles. In addition, it uses a metric referred to as Shareholder Value Added (SVA),
which management believes is an appropriate measure for the performance of its
businesses. SVA is, in effect, the pretax profit left over after subtracting the cost of
enterprise capital. The Company is aiming for a sustained creation of SVA and is using
this metric for various performance goals. Certain compensation is also determined on
the basis of performance using this measure. For purposes of determining SVA, each of
the equipment segments is assessed a pretax cost of assets, which on an annual basis is
generally 12 percent of the segment’s average identifiable operating assets during the
applicable period with inventory at standard cost. Management believes that valuing
inventories at standard cost more closely approximates the current cost of inventory and
the Company’s investment in the asset. Financial Services is assessed a pretax cost of
equity, which on an annual basis is approximately 18 percent of its average equity during
the period excluding the allowance for doubtful receivables. The cost of assets or equity,
as applicable, is deducted from the operating profit or added to the operating loss of the
equipment segments or Financial Services to determine the amount of SVA. For this
purpose, the operating profit of Financial Services is net income before income taxes and
changes to the allowance for doubtful receivables. The average equity and operating
profit of Financial Services is adjusted for the allowance for doubtful receivables in order
to more closely reflect credit losses on a write-off basis.