JOHN DEERE CASH MANAGEMENT S.A. ANNUAL FINANCIAL STATEMENTS

Transcription

1 JOHN DEERE CASH MANAGEMENT S.A. ANNUAL FINANCIAL STATEMENTS 31 OCTOBER 2017

2 TABLE OF CONTENTS Management report Report of the réviseur d entreprises agréé Financial Statements for the financial year ended 31 October 2017

3 12 December 2017 Management report for the financial year ended 31 October 2017 Management Report The Management of John Deere Cash Management S.A. ( JDCM or the Company ) is pleased to present the annual accounts for the year ended 31 October Activities of John Deere Cash Management S.A. The business of JDCM is to provide overnight funding and deposits as well as loans for various Deere & Company entities. As part of this intercompany service, JDCM makes payments on behalf of Deere & Company entities. Payments destined for a particular country are paid out of JDCM s bank account in that country. JDCM also facilitates a standard cash collection process to direct debit customers, as well as Units vendor payments. Financial Results JDCM had a net loss for the fiscal year ended 31 October 2017 of EUR 3,730k. This compares to net profit of EUR 9,860k for fiscal year In 2017, JDCM incurred an unfavourable exchange rate impact of EUR 5,662k as well as EUR 8,551k additional interest expense related to negative yield environment, mainly in EUR. The Company began operations in July 2004 and has been increasing its operations since then. In 2017, JDCM focused on internal process & analytics strengthening needed prior year implementation of an additional SAP module dedicated to treasury operations. In addition during last financial quarter 2017, JDCM built and held about EUR 5BN in anticipation of Deere & Company future acquisition (Wirtgen Group in Germany). The assets at the end of October 2017 totalled EUR 3,363,487k. This is principally composed of Cash and Cash equivalents of EUR 2,854,672k and of EUR 498,856k of loans, mainly to John Deere Bank S.A., John Deere Lanz, John Deere Motores S.A. de C.V., John Deere International and Svenska John Deere AB. Financial liabilities measured at amortized cost were EUR 2,471,129k at year-end, including deposits, principally from John Deere Holding S.à r.l., John Deere GmbH & Co. KG, John Deere International, John Deere Asia Ltd, and John Deere Holding France SAS. Outlook for 2018 JDCM s outlook remains favourable for The company will continue to focus on managing available cash and cash equivalents and enhancing systems integration. Post 31 October 2017, JDCM issued intercompany loans for a total of EUR k, to John Deere Lanz, to support Deere & Company acquisition plan (Wirtgen group in Germany). Additionally, Deere & Company made an additional contribution of EUR 1,681,722k accounted for as share premium. As part of the cash pooling structure, the Company received additional deposits of around EUR 466,000.

4 Risk Management The management of risks of JDCM can be classified under credit risk, liquidity risk, interest rate risk, currency risk and operational risk. Credit Risk In connection with JDCM s funding activities, JDCM only funds Deere & Company entities. Therefore, any loans that JDCM grants are intracompany loans. Each Deere unit is obliged to submit on a regular basis financial information for the purpose of credit evaluation. In the event of any substantial material adverse changes in the financial situation of a Deere unit, the Deere unit is obliged to inform JDCM of such substantial changes without undue delay. Liquidity Risk The Supervisor of European Treasury Operations reviews the liquidity position on an ongoing basis to ensure adequate liquidity for operations. During the year, the company is primarily supported through internal funding and commercial papers borrowing. If needed, any additional funding requirements are currently met by overdraft facilities at JDCM s main banking partners, JPMorgan and Citibank. European Medium Term Notes are also an option for JDCM. Interest Rate Risk The objective of the Company s interest rate risk management strategy is to minimize the variance of financial results due to changes in interest rates. This is accomplished by funding fixed rate assets with fixed rate debt of the same expected maturity, and by funding variable rate assets with variable rate debt with similar re-pricing characteristics, or when this is not possible, to enter into interest rate swap arrangements to hedge this risk. The Company does not take interest rate positions that expose net interest margins to fluctuations in interest rates. Management regularly reviews the funding position and interest rate exposure. Currency Risk JDCM both lends and borrows in various foreign currencies. JDCM enters into foreign exchange forward contracts in order to manage the net currency exposure of receivables and liabilities. The fair value gains or losses from these foreign currency derivatives are recognized directly into earnings, generally offsetting the foreign exchange gains or losses on the exposure being managed. Operational Risk The Company s strategy for the management of operational risk is to use a mix of operating policies, procedures, control steps, and reviews to ensure that risks are understood and controlled. The monitoring of operational risks is carried out by management and the internal audit function.

5 Deloitte. To the Shareholders of John Deere Cash Management S.A. Deloitte Audit Société à responsabilité limitée 560, rue de Neudorf L-2220 Luxembourg BP 1173 L-1011 Luxembourg Tel: Fax: REPORT OF THE REVISEUR D'ENTREPRISES AGREE Report on the Audit of the Financial Statements Opinion We have audited the financial statements of John Deere Cash Management S.A. (the "Company"), which comprise the statement of financial position as at October 31, 2017 and the statement of profit and loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. ln our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at October 31, 2017, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Basis for Opinion We conducted our audit in accordance with the EU Regulation Nº537/2014, the Law of July 23, 2016 on the audit profession (Law of July 23, 2016) and with International Standards on Auditing (ISAs) as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier (CSSF). Our responsibilities under those Regulation, Law and standards are further described in the "Responsibilities of the réviseur d'entreprises agréé for the Audit of the Financial Statements" section of our report. We are also independent of the Company in accordance with International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the financial statements, and have fulfilled our other ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Société à responsabilité limitée au capital de 3S.OOO RCS Luxembourg B Autorisation d'établissement:

6 Deloitte. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of the audit of the financial statements as whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Cash and Cash equivalents Refer to section "Summary of Accounting Policies" as well as the Notes 8 and 11 to the Financial Statements. During the year ended October 31, 2017 the Company issued notes under a Euro Medium-Term Note Programme ("EMTN") listed on the Main Securities Market of the Irish stock exchange, which is a European Union regulated market, for an amount of EUR 850 million. The Company has invested funds received from the issuance of these EMTN in Cash and Cash Equivalents. Cash represents current accounts balances of the Company denominated in various currencies placed with well-known international credit institutions. Cash equivalents represent short term investments in highly liquid money market funds with maturity of underlying investments of less than 3 months. Company's Investments in money market funds are readily convertible into cash and as such valued by the management at fair value that approximates their nominal value. The balances of Cash and Cash equivalents recorded and presented in the Financial Statements of the Company for the year ended October 31, 2017 amount to EUR 2,855 million, representing 85% of the Company's total assets. As such the existence and valuation of Cash and Cash Equivalents have been considered as a key audit matter in the context of the audit of the Company for the year ended October 31, How the Matter was addressed in the Audit Our testing procedures included the testing of Company's relevant controls over Cash and Cash Equivalents. We have also performed substantive procedures in order to address the risks of material misstatement related to the existence, rights & obligations and valuation & allocation of Cash and Cash Equivalents. These procedures included the testing of Cash and Cash equivalents year-end balances by direct confirmations or reconciliation to third party statements for verification of both existence, valuation and rights on the open Cash and Cash Equivalents' positions. We also tested the foreign exchange rates based on which the Company translated the foreign currency positions of Cash and Cash Equivalents into EUR as of year-end. Finally, we assessed the recoverability of cash and cash equivalents by analysing the creditworthiness of financial institutions used by the Company for placing of cash and investments into money market funds. We also considered the appropriateness of the related disclosures in the Financial Statements of the Company.

7 Deloitte. Other information The Board of Directors is responsible for the other information. The other information comprises the information included in the management report but does not include the financial statements and our report of the réviseur d'entreprises agréé thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. ln connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report this fact. We have nothing to report in this regard. Responsibilities of the Board of Directors and Those Charged with Governance for the Financial Statements The Board of Directors is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs as adopted by the European Union, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. ln preparing the financial statements, the Board of Directors is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Responsibilities of the réviseur d'entreprises agréé for the Audit of the Financial Statements The objectives of our audit are to obtain a reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report of the réviseur d'entreprises agréé that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the EU Regulation Nº537/2014, the Law of July 23, 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

8 Deloitte. As part of an audit in accordance with the EU Regulation Nº537/2014, the Law of July 23, 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and asses the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors. Conclude on the appropriateness of Board of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report of the réviseur d'entreprises agréé to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report of the réviseur d'entreprises agréé. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

9 Deloitte. Report on Other Legal and Regulatory Requirements We have been appointed as réviseur d'entreprises agréé by the first extraordinary General Meeting of the Shareholders on July 8, 2004 and the duration of our uninterrupted engagement, including previous renewals and reappointments, is 14 years. The management report, which is the responsibility of the Board of Directors, is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. We confirm that the prohibited non-audit services referred to in the EU Regulation N 537/2014, on the audit profession were not provided and that we remain independent of the Company in conducting the audit. For Deloitte Audit, Cabinet de révision agréé Ekaterina Volotovskaya, Réviseur d'entreprises agréé Partner December 15, 2017

10 John Deere Cash Management S.A. Financial Statements for the financial year ended 31 October 2017

11 Annual financial statements for the financial year ended 31 October 2017 Page Statement of Profit and Loss and Other Comprehensive Income 2 Statement of Financial Position 3 Statement of Changes in Equity 4 Statement of Cash Flows 5 6 1

12 Statement of Profit and Loss and Other Comprehensive Income Statement of Profit and Loss and Other Comprehensive Income For the period of November October 2017 Note '000 '000 Interest Income Interest Expense 5 (8.551) (4.497) Service Fee Income Staff Expenses 6 (325) (288) General and administration expenses (499) (794) Bank fees (447) (431) Exchange differences, net (5.662) Total profit/(loss) before tax (3.255) Income Tax Expense 7 (475) (726) Profit/(Loss) for the Year (3.730) Other Comprehensive Income for the Year - - Total Comprehensive Income/(Loss) for the Year (3.730) The notes on pages 6 to 31 are an integral part of these financial statements. 2

13 Statement of Financial Position Statement of Financial Position For the financial year ended 31 October 2017 Note '000 '000 ASSETS Cash & Cash equivalents 8 2,854,672 1,498,482 Derivatives Assets 15 9, Loans and receivables 9 498, ,751 Other Assets Total Assets 3,363,487 1,980,773 LIABILITIES & EQUITY Current Liabilities Financial liabilities measured at amortized cost (including current portion of long term debt) 10 2,471,129 1,930,679 Derivatives Liabilities 4 2,591 Current Tax liability Other Liabilities Non - Current Liabilities Long term debt, net of current portion ,577 - Total Liabilities 3,319,977 1,933,532 EQUITY Issued Capital 12 2,000 2,000 Retained Earnings 14 41,311 44,944 Reserves Total Equity 43,511 47,241 Total Liabilities and Equity 3,363,487 1,980,773 The notes on pages 6 to 31 are an integral part of these financial statements. 3

14 Statement of Changes in equity Statement of Changes in Equity For the financial year ended 31 October 2017 Amounts in '000 Total Equity Issued Capital Retained Earnings Legal Reserves Balance at 31 October Comprehensive income/(loss) Increase/Decrease in Reserves (Note 13) Dividend Balance at 31 October Comprehensive income/(loss) (3.730) (3.730) Increase/Decrease in Reserves (Note 13) Dividend Balance at 31 October The notes on pages 6 to 31 are an integral part of these financial statements. 4

15 Statement of Cash Flows Statement of Cash Flows For the financial year ended 31 October 2017 '000 '000 Cash Flows from Operating Activities: Profit/Loss for the Year (3,730) 9,860 Change in Other Assets Change in Accounts Payable and Accrued Expenses (29) (227) Change in Derivatives Assets / Liabilities (12,038) 1,536 Change in Accrued Income Tax Net Cash Provided by Operating Activities (15,733) 11,289 Cash Provided by Financing Activities: Decrease (Increase) in related party receivables (17,105) 57,360 Increase (decrease) in related party payables 540, ,901 Proceeds from / Repayment of bank borrowings 848,577 - Net Cash Provided by Financing Activities 1,371, ,261 Net increase (decrease) in cash and cash equivalents 1,356, ,549 Cash and cash equivalents at the beginning of the year 1,498, ,933 Cash and cash equivalents at the end of the year 2,854,672 1,498,482 The notes on pages 6 to 31 are an integral part of these financial statements. 5

16 for the financial year ended 31 October 2017 Note Contents 1. Corporate information Summary of accounting policies Critical accounting judgements and key source of estimation uncertainty Interest income Interest Expense Staff Expense Income tax Expense Cash and cash equivalents Loans and receivables Financial Liabilities Measured at Amortized Cost Long Term Debt Issued Capital Reserves Retained earnings Financial Instruments Segment information Financing facilities Related party transactions Compensation of key management personnel Fees to Audit Firm Events after the reporting period

17 1. Corporate information John Deere Cash Management S.A. (the Company or JDCM ) was incorporated on 8 July 2004, as a Société Anonyme under the laws of the Grand-Duchy of Luxembourg. The Company is registered at 43, Avenue John F. Kennedy, L-1855 Luxembourg and its commercial register number is R.C.S. Luxembourg B The Company is a subsidiary of John Deere Luxembourg Investment S.à r.l., a company organized under the laws of Luxembourg. The Company is included into the consolidated accounts of Deere & Company (the Group ) which may be obtained from the following address: One John Deere Place, Moline, IL United States of America (Address of principal executive offices). The business of JDCM is to provide overnight funding and deposits as well as loans for various Deere & Company entities. As part of this intercompany service, JDCM makes payments on behalf of Deere & Company entities. Payments destined for a particular country are paid out of JDCM s Company account in that country. JDCM also facilitates a standard cash collection process to direct debit customers. On 20 October 2017, the company registered a branch office located at Level1, One Welches, Welches, St Thomas, Barbados, as an external company under the laws of Barbados. The purpose of this branch is to hold intercompany loans to support Deere & Company future planned acquisition. As of 31 October 2017, the branch is registered, but the branch has no significant activity to report yet. 2. Summary of accounting policies Statement of compliance The financial statements of the Company for all years presented are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Supplementary disclosure required by Luxembourg laws and rules has been included. The Company s financial year is from 1 November to 31 October. All amounts are shown in thousands of Euros unless otherwise indicated. The financial statements were authorised for issue by the directors on 12 December Basis of preparation The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for assets and services. Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique, in estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure. The financial statements are prepared on an ongoing concern basis. In preparing the financial statements, management is required to make estimates and assumptions, as permitted. The estimates and assumptions are based on past experience and other factors that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. Estimates are subject to uncertainties in particular in the assessment of risk provisions and the need for value adjustments. It is reasonably possible, on the basis of existing knowledge that outcomes within the next financial year may differ from these estimates. 7

18 An asset is recognized in the statement of financial position if it is probable that future economic benefits will be derived for the Company, and if its purchase or production costs or another value of the asset can be reliably assigned a value. A liability is recognized in the statement of financial position if it is probable that there will be a future direct outflow of resources with economic benefits as a result of a present obligation and that the amount to be paid can be reliably assigned a value. Financial assets and liabilities are recognized when the Company becomes a party to the contractual provision of the instrument. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurements in its entirety, which are described as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. Derivative financial instruments The Company may enter into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risk, including foreign exchange forward contracts. Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each statement of financial position date. The resulting gain or loss is recognized in profit or loss immediately. The Company has not designated derivatives as hedges. A derivative with a positive fair value is recognized as a financial asset; a derivative with a negative fair value is recognized as a financial liability. Employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service. Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the John Deere Group in respect of services provided by employees up to the reporting date. Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contribution. Financial assets Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss (FVTPL), held-to-maturity investments, available-for-sale (AFS) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL. 8

19 A financial asset is classified as held for trading if: it has been acquired principally for the purpose of selling it in the near term; or on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. AFS Financial assets are non-derivative that are either designated as AFS or are not classified as (a) loans or receivables, (b) held to maturity investments or (c) financial assets at fair value through profit or loss. Investments in money market funds by the Company that are traded in an active market are classified as AFS and are stated at fair value. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets, which are recognised in profit or loss. Where the investment is derecognized of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. The foreign exchange gains and losses that are recognised in profit or loss are determined based on the amortised cost of the monetary asset. Other foreign exchange gains and losses are recognised in other comprehensive income. Loans, and receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial. The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Debt and equity instruments Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument. Interest and dividends Interest and dividends are classified as expenses or as distributions of profit consistent with the statement of financial position classification of the related debt or equity instruments. Financial liabilities Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities are subsequently measured at amortized cost using the effective interest method to amortize issuance discounts and premiums as well as transactions costs. Interest expense is recognized on an effective yield basis. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition. 9

20 Derecognition of financial liabilities The Company derecognizes financial liabilities when the Company s obligations are discharged, cancelled or they expire. Foreign Currencies Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (the functional currency), which is the Euro (EUR). The EUR is the Company s reporting currency. The Company maintains a multi-currency accounting system which records all transactions in the currency or currencies of the transaction on the day on which the contract is concluded. Foreign currency transactions are recorded at the exchange rate in effect at the date of the transaction. At the statement of financial position date, foreign currency monetary items are translated at the exchange rates applicable at the statement of financial position date, forward foreign-exchange contracts are translated at the forward rate on the statement of financial position date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit and loss in the year in which they arise. Impairment of Financial assets Financial assets other than those at FVTPL are assessed for indicators of impairment at each statement of financial position date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. The Company accounts for the particular default risk arising from the lending business by forming allowances or provisions for credit losses at a counterparty-specific level or collectively based. Valuation allowances are formed for an exposure if it is probable that not all the interest payments and payments of principal can be made as agreed. Counterparty-specific allowances are evaluated based on the borrower s and guarantor s character, overall financial condition, resources and payments records and the realizable value of collateral held. The valuation allowance corresponds to the difference between the carrying amount of the exposure less the expected future cash flow. All exposures having similar credit characteristics and for which no impairment is identified on a counterparty-specific level are assessed by means of portfolio allowances. The total amount for allowances for possible loan losses is deducted from the asset items to which it belongs except for provisions for risks in off-balance-sheet items which are shown as provisions. For financial assets measured at amortized cost, if in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. Unrecoverable amounts are written down. Amounts received on written-down loans are accounted for in the profit and loss statement 10

21 Derecognition of Financial assets The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. Taxation In accordance with Article 164 bis of the Luxembourg Income Tax Law, the Company meets all the conditions for the eligibility of tax consolidation for corporate income tax and municipal business tax purposes. The Company has received the approval of the tax authorities for being integrated together with certain other entities into John Deere Luxembourg Investment S.à r.l. in order to consolidate their respective income tax with that of the John Deere Luxembourg Investment S.à r.l. (tax consolidation system), subject to the condition that the concerned companies remain linked during a period of at least five consecutive years. Expenses relating to the Municipal Business Tax (Impôt Commercial Communal) and the Corporate Income Tax (Impôt sur le Revenu des Collectivités) established on the basis of the fiscally integrated entity were born by John Deere Luxembourg Investment S.à r.l. for the different companies included in the tax consolidation scope for the first time for the year ended 31 October Consequently the Company did not account for income taxes for the years ended 31 October 2017, 31 October 2016, 31 October 2015, 31 October 2014 and 31 October The Company remains liable to the net wealth tax levied on the net asset value of the Company. Current tax accounted for in previous years The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of profit and loss and other comprehensice income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company s liability for current financial year was calculated using tax rates that had been enacted or substantively enacted by the end of reporting period. Current and deferred tax for the year As referred in the Taxation paragraph, the Company did not account for current and deferred tax for the financial years ended 31 October 2017, 31 October 2016, 31 October 2015 and 31 October The Company as lessee Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred. Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the company will be required to settle the obligation and the amount of the obligation can be measured reliably. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. 11

22 When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Interest Income, Interest Expense, Service Fee Income and Expenses The Company incurs Interest Income, Interest Expense, Service Fee Income and Expenses at the same time of the related transaction. Cash flow statement For purposes of the statement of cash flows, the Company s cash and cash equivalents include current accounts with banks and highly liquid investments that are readily convertible into cash and which are not subject to significant change in value. Interest paid and received are classified as operating cash flows. Cash advances and loans made to related parties as well as cash receipts are considered as financing activities. The Company views cash proceeds and repayments from long-term borrowings as forming part of the financing category. Application of new and revised International Financial Reporting Standards (IFRS) In the current year, the Company applied a ngetenvpathnameumber of new and revised standards and interpretations adopted by the EU that are relevant to the Bank s operations, as well as effective and endorsed for annual reporting periods beginning on 1 November 2016 which are as follow: IAS 1 Presentation of Financial Statements Disclosure Initiative The amendments clarify that (i) material information should not be obscured by aggregating or by providing immaterial information, (ii) materiality considerations apply to the all parts of the financial statements, and (iii) even when a standard requires a specific disclosure, materiality considerations do apply. The amendments (i) introduce a clarification that the list of line items to be presented in these statements can be disaggregated and aggregated as relevant and additional guidance on subtotals in these statements and (ii) clarify that an entity's share of Other Comprehensive Income of equity-accounted associates and joint ventures should be presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss. The amendments add additional examples of possible ways of ordering the notes to clarify that understanding and comparability should be considered when determining the order of the notes and to demonstrate that the notes need not be presented in the order so far listed in paragraph 114 of IAS 1. The IASB also removed guidance and examples with regard to the identification of significant accounting policies that were perceived as being potentially unhelpful. The amendments to IAS 1 are effective for annual periods beginning or after 1 January 2016 with earlier application permitted. Application of the amendments does not need to be disclosed. Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses The Company has applied these amendments for the first time in the current year. The amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits against which it can utilise a deductible temporary difference. 12

23 Amendments to IAS 7, Disclosure initiative The Company has applied these amendments for the first time in the current year. The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. The Company s liabilities arising from financing activities consist of financial liabilities (note 11). A reconciliation between the opening and closing balances of these items is provided in note 11. Consistent with the transition provisions of the amendments, the Company has not disclosed comparative information for the prior period. Apart from the additional disclosure in note 11, the application of these amendments has had no impact on the Company s financial statements. IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets Clarification of Acceptable Methods of Depreciation and Amortization The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortization of an intangible asset. This is not applicable for the Company. IAS 16 Property, Plant and Equipment and IAS 41 Agriculture Bearer Plants The amendments to IAS 16 and IAS 41 define a bearer plant and require biological assets that meet the definition of a bearer plant to be accounted for as property, plant and equipment in accordance with IAS 16, instead of IAS 41. This is not applicable for the Company. IAS 27 Consolidated and Separate Financial Statements Equity Method in Separate Financial Statements The amendments focus on separate financial statements and allow the use of the equity method in such statements. IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosures of Interests in Other Entities and IAS 28 Investments in Associates Investment Entities: Applying the Consolidation Exception The amendments clarify the criteria for the exemption from preparing consolidated financial statements. IFRS 11 Joint Arrangements Accounting for Acquisitions of Interest in Joint Ventures and Joint Operations The amendments to IFRS 11 provide guidance on how to account for the acquisition of an interest in a joint operation in which the activities constitute a business as defined in IFRS 3 Business Combinations. This is not applicable for the Company. IFRS 14 Regulatory Deferral Accounts An entity that already presents financial statements in accordance with IFRS is not eligible to apply IFRS 14. The Standard permits an entity that is a first-time adopter of IFRS to continue to use its previous GAAP accounting policies for its rate-regulated activities. This is not applicable for the Company. Forthcoming changes in IFRS Standards issued but not yet effective for annual reporting periods beginning on 1 November 2016 are listed below. This listing of standards and interpretations issued are those that the Bank reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. JDCM intends to adopt these standards when they become effective. 13

24 Annual Improvements to IFRSs Cycle, which have not yet been issued The Annual Improvement include amendments to IFRS 1 and IAS 28 which are not yet mandatorily effective for JDCM. The package also includes amendments to IFRS 12 which is mandatorily effective for JDCM in the current year. The amendments to IAS 28 clarify that the option for a venture capital organisation and other similar entities to measure investments in associates and joint ventures at FVTPL is available separately for each associate or joint venture, and that election should be made at initial recognition of the associate or joint venture. In respect of the option for an entity that is not an investment equity IE to retain the fair value measurement applied by its associates and joint ventures that are IEs when applying the equity method, the amendments make a similar clarification that this choices is available for each IE associate or IE joint venture. The amendment apply retrospectively with earlier application permitted. Both the amendment to IFRS 1 and IAS 28 are effective for annual periods beginning on or after 1 January JDCM does not anticipate that the application of the amendments in the future will have any impact on the JDCM s. Annual Improvements to IFRSs Cycle IAS 12 Income Taxes Clarify that the requirements in the existing paragraph 52B (to recognise the income tax consequences of dividends where the transactions or events that generated distributable profits are recognised) apply to all income tax consequences of dividends by moving the paragraph away from existing paragraph 52A that only deals with situations where there are different tax rates for distributed and undistributed profits. IAS 23 Borrowing Costs Clarify that when an asset is ready for its intended use or sale, an entity treats any outstanding borrowing made specifically to obtain that asset as part of the funds that it has borrowed generally. IAS 28 Investments in Associates and Joint Ventures Clarify that an entity applies IFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The amendments are effective for annual periods beginning on or after December JDCM does not anticipate that these amendments will have a significant impact on JDCM s financial statements. IFRS 9 Financial Instruments IFRS 9 is the first standard issued as part of a wider project to replace IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. The classification and measurement of financial assets depends on two assessments: the financial asset s contractual cash flow characteristics and the entity s business model for managing the financial asset. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply. The IASB has issued the final version of IFRS 9 last 24 July 2014, which combines classification and measurement of financial assets and financial liabilities, the expected credit loss impairment model and hedge accounting. With respect to the classification and measurement, all recognized financial assets that are currently within the scope of IAS 39 will be subsequently measured at either amortized cost or fair value under IFRS 9. 14

25 The expected credit loss model addresses concerns expressed following the financial crisis that entities recorded losses too late under IAS 39. Under the impairment approach according to IFRS 9 it is no longer necessary for a credit event to have occurred before credit losses are recognized. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be updated at each reporting date to reflect changes in credit risk since initial recognition. The general hedge accounting requirements of IFRS 9 retain the three types of hedge accounting mechanism in IAS 39. However, greater flexibility has been introduced to the types of transactions eligible for hedge accounting. The effectiveness test has been overhauled and replaced with the principle of an economic relationship. Retrospective assessment of hedge effectiveness is no longer required. Far more disclosure requirements about an entity s risk management activities have been introduced. At the date of first time application, the main impacts of IFRS 9 on the Company are expected to come from the application of the new model for impairment based on an expected losses approach, that will result in an increase of write-downs on not impaired assets (especially loans and receivables with customers), as well as the application of the new transfer logic between the different Stages provided for by the new standard. In particular it is expected that a greater volatility in the financial results between different reporting periods will be generated, due to the dynamic changes between different Stages of the financial assets recognized in the financial statements (especially between Stage 1, which will include the new positions originated as well as all performing loans, and Stage 2 which will include positions in financial instruments that have suffered a significant credit risk deterioration since the initial recognition). Adjustments to the carrying value of financial instruments due to IFRS 9 transition will be accounted for through Equity as of 1 January On the contrary the Company, on the basis of the analysis performed as at 31 December 2016, doesn t expect a significant amount of financial assets to be measured at Fair Value through profit or loss as a result of the circumstance that their contractual cash flows are not deemed to be solely payment of principal and interests. Due to the entry into force of IFRS 9 a revision of prudential rules for the calculation of the capital absorption on expected credit losses is also awaited. The terms of such review are not yet known. Based on the analysis of the Company s financial assets and liabilities as at 31 October 2017, the impact of IFRS 9 would be as follow: - Classification and measurement The new IFRS 9 classifications will have no impact on the measurement of the instruments. - Impairment model The IFRS 9 impairment model impact would represent an immaterial increase/decrease of the reported credit allowances. - Hedge accounting No impact as the Company has no Hedge accounting transactions. The IFRS 9 (as revised in 2014) is effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The adoption of IFRS 9 will have an effect on the classification and measurement of JDCM financial assets and liabilities, as well as on disclosures in financial statements. IFRS 15 Revenue from contracts with customers This standard establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. It will supersede the following revenue Standards and Interpretations upon its effective date: - IAS 18 Revenue, - IAS 11 Construction Contracts, - IFRIC 13 Customer Loyalty Programmes, - IFRIC 15 Agreements for the Construction of Real Estate, - IFRS 18 Transfer of Assets from Customers, and - SIC 31 Revenue-Barter Transactions Involving Advertising Services. Lease contracts, insurance contracts, financial instruments and certain non-monetary transactions are outside the scope of the proposal. 15